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DALLAS-With the war winding down, the economy will be winding up, but it’s not going to be high spirited for some time to come, at least that was the message before a roomful of capital attending Marcus & Millichap’s first investor symposium in Dallas in three years.

There will be an economic rebound in the second quarter, said Harvey Rosenblum, senior vice president and director of research for the Federal Reserve Bank of Dallas as he echoed his boss’ call for the balance of this year. With midyear just a month away, Rosenblum, like Alan Greenspan, isn’t about to narrow the call anymore than that.

“When you have a mild recession, a short-lived one, it leads to fairly weak recoveries in the first year,” Rosenblum told GlobeSt.com. But, he quickly added, “there are lots of forces in place that are probably underpinning economic growth.”

With real estate always dragging behind by a good six months, it’s clearly going to be 2004, perhaps even 2005, before the good times are back again, Hessam Nadji, Marcus & Millichap’s managing director of research services, said after his presentation to the crowd at the Westin Galleria in North Dallas. Dallas-Fort Worth investors again heard that distressed properties will be coming to market, but they shouldn’t plan on any fire sales. Near term and long term will push price adjustment, with no freefall forecast because, Nadji assessed, “there’s no desperation in the marketplace.”

From Rosenblum’s perspective, today’s pressure lies in keeping the economy, now moving slowly sideways, from edging any further toward deflation. “I have to be frankly brutal and honest with you,” he told the well-heeled crowd, “the economy is at a tipping point.” The coming years will be a mix of the high-growth 1990s, easy-spending 1970s, price stabilizing 1950s and yes, the deflationary times of the 1930s.

For the first time in US history, a war could work against the economy rather than energize it. The feds’ job, Rosenblum says, is to “set a floor under the rate of inflation” as a buffer zone for deflation. “But,” he continued as he took aim at major employers such as American Airlines, “there is nothing that the Federal Reserve has in its toolkit that can deal with some of the things going on right here in Dallas.”

Nadji explained that “real estate now is feeling the aftermath of the ’01, ’02 economic downturn.” In Dallas, prices are at their peak whereas it’s a somewhat more favorable picture 30 miles west in Fort Worth, where the inventory’s smaller, occupancy’s higher and economics generally are more stable. “The degree of the economic downturn in Dallas,” Nadji said, “was worse than expected and it came very rapidly.”

On the bright side, construction is slowing almost enough to suit Nadji. Multifamily developers are the ones not heeding the call to silence the bulldozers although it’s dropped from 11,000 deliveries two years ago to 7,000. “2003 will be a stabilizing year for rents,” Nadji said, “but it’s going to take two to three years in a pullback of construction to see a rebound in rents.”

Retail has checked speculative construction with user-driven projects. Vacancy is hovering at 15%, rents are flat and the buyer-seller expectations remain far apart, he concluded.

As for the office sector, it closely resembles the early 1990s. Granted, construction has stalled to a large degree except for build-to-suits, but the pullback in demand is what has caused the deja vu. “It doesn’t matter how we got there,” Nadji said of the weakest link in commercial real estate’s supply-demand chain.

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