GlobeSt.com RealShare EXCLUSIVE: Opportunity's Knocking

DALLAS-Today’s time would be well spent in regrouping and refocusing the team for tomorrow’s commercial real estate market or at least the market of a few years from now, concur industry leaders who say, without hesitation, that Dallas/Fort Worth fundamentals will let it reclaim the heavyweight title as “THE” place to do business.

The message offered a common thread for several sessions at yesterday’s RealShare Dallas, a half-day confab at the Hilton Dallas Lincoln Centre where 400 North Texas professionals shared some, but certainly not all, of their survival tips while steadfastly maintaining that the good times will return. The second annual conference was sponsored by Real Estate Media Inc., publisher of GlobeSt.com and Real Estate Forum.

“Take this wonderful opportunity to develop people in the organization,” Robert D. Duncan, chairman of Transwestern Investment Co. and Transwestern Commercial Services, told the crowd, citing projections Dallas will be a premier performer over the next decade. “The companies that can pull that off in 10 years will be leading the industry.”

John C. Goff, vice chairman and CEO for Fort Worth-based Crescent Real Estate Equities Co., credited his ability for assembling the right talent to a significant part of the REIT’s success as one of the nation’s leaders–that and “the opportunity to buy assets at pennies on the dollar.” In a one-on-one interview with Michael G. Desiato, editor-in-chief of Real Estate Media, Goff said professionals who “are smart but humbled” by losses as well as successes rank high in his hiring book.

At the end of the work day, clearly it’s the talent of the team that will make or break the deal. Six break-out sessions, two keynote speakers and RealShare’s “Inside the Real Estate Mind” signature interview–with Goff in this year’s spotlight–offered insight, advice and perspective in a broad-based look at the industry.

Goff, a contrarian at heart, reminded peers that “real estate is a cyclical business and we’ve forgotten that. I’m convinced Dallas is going to be a great place to be. Right now, it’s tough.”

Crescent is leveraging the future by transitioning into investment management. Over the past year, it’s aligned its buying power with pension fund powerhouses like JPMorgan and GE Capital, winning office property deeds by placing 20% to 40% of the equity and getting the balance from a partner. Goff said Crescent’s 2004 strategy calls for more JVs.

Chief on the shop talk list was the vast amount of capital waiting to be placed into real estate. Some $100 billion in equity is floating, but Duncan said “it’s just having a hard time going out the door.” Regardless of the metro, well-leased, stabilized properties of all product type in good locations are bringing top dollar from feisty competitive bidding.

Then, there are buyers like Wells REIT, which is bearing down, fueled by German capital, with a speed to close that’s practically impossible to beat. “The little guys are getting squeezed,” said John Jardine, managing director of Credit Suisse First Boston. “The Germans are pouring in as much capital as they can. Even the pension funds are pressed.”

Mark Gibson, executive managing director of Holliday Fenoglio Fowler LP, disagreed that smaller investors are out in the cold. They just need to keep their eyes peeled on the $10 million and under deals. At some point, the deep-pocketed buyers of today will make risk adjustments and he’s betting some of that new capital “will travel back to the stock market” or other alternatives.

Buyers like KDC, which has a $10 million acquisition poised to close next month in Illinois, are winning deeds by nurturing relationships. The upcoming transaction grew out of a longstanding relationship that was “aggressively priced with the idea that we’re going to get more buildings from them,” said Steve Van Amburgh, KDC’s CEO.

As for the 1031 Exchange market, it’s not likely to lose any ground although several professionals in a “who’s buying, who’s selling” session said they believed investors generally are overpaying just to get capital placed to satisfy requirements.

Tim Speck, regional manager in Dallas for Marcus & Millichap, said exchange buyers now account for about 90% of the brokerage house’s business. The biggest complaint and one heard daily is owners would “love to sell,” but want to know what the replacement product will be, he said. That concern, said others on the investment sales panel, is where the syndications are gaining ground as smaller investors bond for larger buys.

Few, if any, of the discussions centered on the negative as the Dallas-Fort Worth brokerage community kept its eye on the future, believing the worst is over. The majority of professionals concurred with Goff that North Texas is “somewhere at, near or bouncing at the bottom.”

“The question is how long are we going to run along the bottom,” said H. Mark Fewin, managing director of Trammell Crow Co.

With offshore moves gaining momentum, few are willing to place a bet as to when the market will make significant strides and if they did it was at least three years out. “I don’t know if the recovery is here or not, but the activity level absolutely is here,” Todd Platt, CEO of Hillwood Investments said.

It won’t be a jobless recovery, but the depth of the gains are anybody’s guess as more companies follow manufacturing’s overseas lead. By 2015, the projection is the US could lose three million jobs overseas.

Brokers, as a result, have drilled down to the basics to stay afloat as “think tanks” work out the more global issues of combating foreign competition and getting the US economy again on a growth track. “It’s not a time to let deals come to you,” Bernard Deaton, senior vice president and director of Houston-based PM Realty Group, told a roomful of brokers with leasing as their bread and butter. “It’s cold calling and getting back to the basics. Start with the building next door and make the circle wider and wider.”

And, emphasized Holt Lunsford, president of the Holt Cos., “you’ve got to train the people to ask the right questions. Information spawns creativity.”

Tenant representatives have pricing foremost on their minds; building owners are banking on retention and doing what it takes to keep names on directories. In the end, “perseverance” can sometimes be the dealmaker, said Suzanne M. Glenn, general manager for One Main Place in the Dallas CBD.

On the prediction side of the equation, cap rates inevitably will rise, rents will too and so will sales velocity. “Dallas is one of the marketplaces that has been out of balance and is today,” Duncan said. “We will underwrite it for 2006 and bank it in 2007.”

The last two years have changed perceptions about the industry. Going forward, Goff predicted “real estate will be more sophisticated. It won’t be viewed as a growth industry. It’s going to be viewed as a safe haven and it will continue to gain a lot of respect on Wall Street.