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DALLAS-The caution light is on for the Dallas-Ft. Worth metroplex while Houston, a diversified base with the strongest energy ties around, is running countercyclical to the rest of the nation. But, it’s Texas and when others are down, it still looks good in the Lone Star State.

In terms of investment dollars, the two major metropolises continue to attract the attention of those looking for stable opportunities for their capital. The DFW region isn’t hustling and bustling at the same pace as before, but Houston is seeing a wave like it hasn’t seen in decades, say leading executives in both cities.

“Houston remains one of the most attractive markets in the country and prices remain stable,” says Darrell Betts, senior vice president for Grub & Ellis Co.’s Houston team. Sept. 11 only moderately affected the town, where investors can still acquire below replacement costs. “It’s one of the few,” he tells GlobeSt.com. “We haven’t overbuilt so we’re not going to see any decline.” That goes for rent as well as the transaction pace.

Clarion Partners’ recent acquisition of the 204,151-sf Norfolk Tower is “a validation of pension fund advisers’ optimism of the market,” assesses Betts. REITs are looking and so are their investment counterparts. “The rest of the country is having so many challenges. We seem to be countercyclical.” And, he predicts, the bullish run will continue through year’s end.

The Houston market has been going at this pace for more than year as investors scout the turf. In 2000, the Houston market had 7.2 million sf change hands. This year, it’s equal to, perhaps a tad below, last year, but buyers are looking and closing. “Houston,” says Betts, “could be the top market in the nation.” He doesn’t foresee that interest will wane when the rest of the nation gets up to speed because lenders are equally impressed “with the story that we have to tell.”

In the DFW region, it’s not quite the same story, Joseph Hevey, senior director of Dallas-based Holliday Fenoglio Fowler LP, tells GlobeSt.com. “We still have a disconnect between the bid and the ask.” It’s definitely not a haven for bottom-fishers since low-interest rates are sparking refinancing instead of sales. There are bargain hunters and there always will be, but fire sale prices quite frankly are just few and far between.

The key, claims Hevey and others like him, is the North Texas job growth, where 100,000 positions or thereabouts were created in each of the last five years. “We will continue to outperform the rest of the country,” says Hevey. “But the million-dollar question is are we going to maintain the job growth.” The old live-and-eat premise continues to feed the market, with multifamily and grocery-anchored retail being today’s economic stalwarts.

On the transactions side, REITs are coming back to rest in Texas after an 18-month to 24-month hiatus, he says. Why is Texas faring better than most other states? It’s because the commercial real estate community and lenders learned their lesson in the 1980s.

Hevey’s rode out three real estate downturns. “I don’t even project Dallas, TX will ever see what it saw in 1987 through 1990…with real estate values, foreclosures and real estate fundamentals getting that far out of whack,” he says. Information technology immediately raises a red flag to those who’ve been tested by fire, sparking professionals to keep supply and demand in kilter. “The lending community has been through the war and they’ve learned some lessons,” he says.

Those lessons have brought a negative watch and cautious lending to some areas of retail and most definitely hotel development in the region. “The caution signs are out for office,” he stresses. “There is an oversupply concern.” Nearly eight million sf of sublease space has most everyone spooked, but still optimistic that it will recede to the norm of about four million sf when the dust settles in midyear 2002.

The issue isn’t the availability of capital nor is it the cost of capital. It’s merely lenders exercising caution in a market that’s been through the worst of times. “But,” Hevey is quick to point out, “it’s better than lots of markets.

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