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[IMGCAP(1)]DALLAS-Unlike recessionary times of the past, Dallas/Fort Worth is a victim and not a culprit for stalled investment sales and slow leasing decisions. Sound fundamentals across the board are allowing office building owners to hold their ground at this stage of the game.

“Dallas is a victim of the outside. The fundamentals of this market remain more balanced than any other market in the country,” says John Alvarado, Jones Lang LaSalle’s managing director in Dallas. “We’re at a standstill because we’re in a moment of transition.”

Zaya Younan, chairman and CEO of Los Angeles-based Younan Properties Inc., faults the Feds for not stepping in quicker to bail out the system so markets like Dallas, where fundamentals are still good, could keep moving. “They reacted very slowly to come up with policies to reverse the trends,” Younan contends, “and to this day, they are reacting slower than they should be. That’s why the confidence factor is lower.”

Both pros have vested interest in Dallas: Alvarado as an investment sales broker and Younan as the owner of the largest class A office portfolio in the city. [IMGCAP(2)]“Dallas commercial real estate investment has halted,” Younan says, emphasizing that the region isn’t at fault. As a result, he insists it’s too early in this market to have an impact on tenant decisions. “The weakness has not been prolonged long enough to have an impact,” he explains.

Brokers are starting to whisper that more owners are offering free rent and higher tenant-improvement allowances to win or retain tenants, but they aren’t finding cuts in face rents as yet. Greg Leisch, president and CEO of Washington, DC-based Delta Associates, expects rents to hold their present levels as long as Dallas/Fort Worth stays in its vacancy equilibrium zone of 17% to 19%. In 2009, he predicts rents will continue to hold the line and dip in 2010 by 1% in Dallas and 0.50% in Fort Worth.

The sales side of the CRE equation shows a 45% drop since last year, according to Leisch. To date, $3 billion of assets have been sold in the region. It could hit $3.8 billion by year’s end, but he’s not making any promises.

Alvarado and others firmly believe the lack of paper is the primary cause of the region’s slide in sales. “Dallas is seen mostly as a bright spot, but it’s not immune,” Alvarado says. “There are a lot who do want to buy, but can’t.”

Unlike recent years, it’s not about the bid-ask spread. Not only is financing sparse and difficult to obtain, but Alvarado explains that lenders, buyers and sellers are having problems calculating prices in today’s topsy-turvy world. As a result, most are hanging on to what they’ve got. The investment rule of thumb during recessions is “don’t panic,” he says. “Unless there’s a stress situation [to sell], there’s no need to panic.”

And unlike one year ago, Alvarado says lenders are “more cooperative” in reworking loans to recapitalize owners so they can wait out the market. In other cases, owners are recapitalizing by taking on an equity partner.

[IMGCAP(3)]The spot to watch in the coming months will be REITs as they assess portfolios and adjust allocations to suit today’s times. Alvarado says imbalances will be inevitable, with some most likely finding their 7% to 10% real estate allocation outweighs other investments in portfolios. “It may cause some premature selling,” he adds. “Pension funds are entering their planning phases and may have to give orders to trim their real estate in order to rebalance their portfolios.”

As a buyer waiting to strike, Younan, an economist by degree, says everyone has had to put deals on hold as a result of the current crisis. “The government’s wait-and-see attitude has really exaggerated this problem today,” he says.

Younan quickly points out that the US, with a $14-trillion economy, provided a $750-billion bailout while the European community, with a $12-trillion economy, came up with a $2-trillion fix. “It’s a smaller economy, but they came up with a bigger and better package,” he says. “It is time for our government to be more aggressive than it has been in the past.”

Dallas/Fort Worth’s stayed afloat this time due to credit continued demand for office space, construction willpower, job growth and diversity in the business base. “The bottom is not likely to fall in this market as much as others because demand has been sustained,” Alvarado says. “Dallas’ Achilles heel has always been excessive construction. In this past cycle, we were more disciplined and that has helped with the fundamentals in Dallas.”

But, the fundamentals are victims of today’s financial crisis. “Buyers recognize fundamentals in this market are strong, but they are not able to secure the capital to make acquisitions,” Alvarado says. “The money’s just not available.”

And if history holds true, Dallas/Fort Worth historically fares better than other metros during recessionary times. “It’s often the recipient of corporate relocations during recessions. I would not be surprised if that happened now,” Alvarado says. “The caveat is if the recession deepens beyond people’s anticipation, all areas of the country will suffer.”

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