Dallas Office: More Stabilization, Asset Trades in 2011

DALLAS-Strengthening fundamentals along with stabilizing rental rates and concessions (and in some markets, growth in rental and occupancy rates) helped boost positive momentum on the office side in 2011. Added to this slowly improving scenario in the Metroplex was a boost in building transactions during the past year; though the past quarter has seen a slowdown because of global economic uncertainty.

“We saw more velocity, more transactions in 2011 than we did in 2010,” comments David Glassrock, executive vice president with Colliers International’s investment services group. Along those lines, he adds, the surprise was seeing CMBS lenders coming back, though with a changed underwriting criteria. More portfolio money coming into the market helped lead to more transactions.

According to Cushman & Wakefield of Texas Inc.’s Q3 2011 Market Beat (the most recent figures available), transactions for office space increased 11.8% year over year. Notable sales this past year included the 683,378-square-foot 8080 and 9400 N. Central Expressway complex for $60 million; the 833,937-square-foot Nortel Campus on Highway 75 in Richardson, TX for $43 million and the 300,000-square-foot 5700 and 5800 Tennyson Pkwy., in Frisco, for $60 million.

Experts tell Globest.com that the Metroplex’s office story boiled down to a couple of things. First, jobs growth. And second, reduced speculative office delivery. These fundamentals, explains John Alvarado, have helped put D/FW on many investors’ radars. “If you have a core, high-quality, well-located asset, there is definitely a big appetite for that,” says Alvarado, who is managing director with Jones Lang LaSalle.

Susan Gwin, executive director with Cushman & Wakefield of Texas Inc. agrees, pointing out that the interest in many assets was phenomenal through much of the year. However, because of uncertainties pertaining to the euro, “we’ve seen a significant slowdown in transactions at the end of the year,” Gwin remarks. “We’ve seen deals fall out; we’ve seen them lose their equity and debt. It’s been a little painful.”

This isn’t to suggest, however, that this state of events will be long-term; some are lending, others understand that money needs to be placed. “There is money out there, but it’s waiting to make sure it’s a solid buy,” she explains.

One thing the experts do point out is there could be more distress product coming to market next year. In fact, Alvarado notes, the surprise is that more foreclosed and troubled assets weren’t introduced to the market in 2011. He suggests that lenders and special servicers may have kept the office assets in house because of uncertainty as to the market’s strength and buyer demand. Gwin agrees that fewer distressed assets hit the market in 2011, pointing out that special servicers and lenders wanted to attempt to lease up assets themselves than to take the discount.

But 2012 could be different in that regard. “What we’re hearing from the special servicers and commercial banks is that everyone has run out of their ability to extend loans,” Alvarado remarks. Adds Glassrock: “A lot of lenders have been trying to work with borrowers, but are saying it’s time to take the assets back. That, and more people are filing for bankruptcy.” The result, he adds, will likely be short sales of office assets.

The experts agree, however, that any kind of velocity, or any kind of product coming to market, for that matter, will depend on what happens globally in 2012. Gwinn notes that the last quarter of 2011 came to a screeching halt in terms of sales, and unless Europe can move away from its debt crisis, 2012 will likely be flat as well, though she adds that there are merits to being in Texas with its jobs growth.

“The European debt crisis has put some fear out there, and where there’s fear, things go on hold,” she adds. “Unless we can get some of the safe back into the market on a global basis, we’ll continue to see flatness.”