DFW Real Estate Review — December 2020
The biggest question I get from clients is “What am I seeing and hearing out there?” The goal of this monthly (let me emphasize that) newsletter is to keep an ongoing update of my answer to that question.
I am taking the national headlines we are seeing in the real estate industry and combining that with a “boots-on-the-ground” perspective of what I am seeing and hearing in DFW Real Estate. Predictions are just that — a prediction. How the real estate sector pans out is really anybody’s guess at this point, that is why I am doing real estate in review, meaning taking a look backwards, while we keep our eyes on the horizon. At the end of the day, what actually happens is what matters. Feel free to skip to the sections that matter most to you, share your feedback, or ask any direct questions that I can respond to in a later segment.
This is DFW Real Estate in Review.
Enjoy.
If you missed last month’s newsletter, check it out here.
TX/DFW ECONOMY
California started the month with a bang and announced three-weeks shutdown, which is a weird way to start a section that is setup to talk about the DFW and Texas economy, but it is important to keep contrast and context when evaluating our economy. It our last entry we discussed buyers and investors moving away from potential value in the future to certainty and value today. This is causing interest to rise in higher class product and markets. As states and sellers compete for the sea of investment dollars out there, it is difficult to make one’s case when it is widely known that at the drop of a hat you could be dealing with heartburning calls from tenants.
On the other hand, Texas has many competitive edges that only continue to be sharpened. “The number of workers receiving benefits through the pandemic unemployment assistance program, which is open to gig workers and others who don’t typically receive benefits, also fell the week ending Nov. 28.” This is assumed to be tied to the drop in COVID cases in places like El Paso, a stern warning that this could change. That foreshadowing came true in the week of December 5, with the biggest weekly increase since the week ending July 4. This jump ended 12 straight weeks of uninterrupted declines, but it is also uncertain if these numbers are due to duplicate filings and fraud (It is 2020). However, The “Dark Winter” brought a second straight week of decreased jobless claims in the weeks of December 12 and December 19. And here is the kicker,
However, as an added bonus or more powder in the keg that may be sparked, FHFA extends foreclosure and eviction moratoriums to January 31. Important to note, “The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions.”
On top of that, Oracle has decided to leave California and has decided to relocate their headquarters to none other than — Texas. Texas now surpasses California’s 49 Fortune 500 Headquarters at 54 putting it on par with New York and Texas is continuing to beat out competitors for bidding headquarters and this isn’t factoring in the vaccine that is already being deployed.
Among the other bullet points we have discussed in prior newsletters, Texas continues to prove to be a certain and safe bet.
MULTIFAMILY
Investors have given up on the idea of waiting for blood in the water, probably due to a combination early stage vaccine deployment, multifamily, again, continuing to prove to be a recession-proof asset class, and price gains in top markets (like Texas). Apartment sales pace in the last 60 days have doubled or tripled sales activity from the fall.
“[Apartment Investors] are trading billions of dollars in apartment properties — a pace of activity that’s double or even triple the volume of sales from the fall.”
This comes even with NMHC reporting a 5% drop in rent collections from November’s 80.4% to 75.4%, as of December 6th or 25% of renters falling behind. This falls short of the pandemic rent collection’s average of 81.2%. Landlords remain optimistic though and expect to gain more rental payments throughout the month. Believing that the drop comes from December 6th falling on Sunday this month and early stage vaccine deployment to give some economic relief.
Dallas-Fort Worth continues to lead the Multifamily market pack in resiliency and activity. DFW leads the country in demand, leasing activity, and rent growth. Unless a submarket contained a lot of new product, concessions ate into their rent growth figures.
The Pandemic is not only changing rent collection figures, but also multifamily properties’ amenity packages. Renters are choosing apartments that cater to a combined work from home/work from office schedule that is here to stay for the foreseeable future. Amenities include sound insulation, high-speed internet, more living space, areas to work, and private outdoor space.
INDUSTRIAL
Early in the month “Texas factory activity expanded for the sixth straight month in November, though at a markedly slower pace, according to the Dallas Fed’s Texas Manufacturing Outlook Survey.”
However, the focus continues to move towards the Warehouse space as e-commerce continues to boom. KKR closed on an $800M portfolio of 100 warehouses. What is most interesting about this move from KKR, is that the market is perceiving prices to keep pace moving into 2021.
Again it is the same sheet of music for industrial, but a different pianist this month.
OFFICE
Office is in conflict with what the market thinks about the future and what the data is saying. Groups and developers are making bets on increased demand for office space in DFW due to the increase in corporate relocations. Groups like Peloton, Uber, etc. Some buyers are focusing on suburban office assets. And it isn’t just DFW, Seattle got some good limelight finally this year, from a big office building sale. Santa Monica Mall is having some of its space converted to office space.
However this could be over optimistic attitudes as employees return to work, data scientists are saying that office rents are expected to drop. Goldman Sachs announcement to move to Florida and Hewlett Packard moving to Houston, was just one of many businesses that gave up their office leases in Manhattan. Levi’s is subleasing up to a third of its office space and is being representing across the nation as sublease space reaches 2009 levels. Pending lawsuits to large landlords of office space are praying to be an anomaly, not the norm.
While that seems like a pouring out of bad news against little good news, I will keep saying that the office space is a sacred must and will come back. However, the office is definitely in transition. Will DFW’s and TX’s increase in corporations deciding to relocate there be able to outweigh the swift transition taking place? Probably not. As mentioned in an earlier newsletter, the incorporation of WFH (Work From Home) and WIO (Work In Office) will force employers and companies to rethink how much they had been paying for the amenities and office space they were using for 5–6 days a week, that are now being used for 3–4 days a week.
RETAIL
Many retail tenants didn’t pay their rent this month, many in that bucket paid as little as 1.7% of their rental obligation. Many of the tenant types that fall in this bucket are movie theaters and restaurants, what is more interesting is that there a number of retail tenants that paid 100% of their rental obligations. The tenants in this bucket span a wide array of industries and businesses including restaurants, high-end clothing,
The important factor in retail right now (well, really all real estate sectors, but, unfortunately, retail is get the earliest taste of the whip) is are the companies adapting to the changing times or simply waiting for all this blow over. Those in the latter are the ones that seem to be struggling and are even putting up stats as high as 110,000 closings.
Of course essential businesses will be favored when underwriting retail investments moving forward, but the only thing in business that is certain is change. And we see many successful examples of businesses (even if forced) choosing not to wait for this to blow over, but aggressively accepting change. Shake Shack, Stein Mart, Apple, Costco, and even the likes of companies that have come very close to extinction — Chuck E. Cheese & JC Penny. Even large mall operators are taking unique avenues.
However, even the changes these companies are taking may be too little or too late or both.
See you next month,
Mitchell
Mitchell Presas is a real estate agent in Dallas-Fort Worth specializing in off-market acquisitions and listings of Multifamily, Industrial, and Land.
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Schedule a call with him at mitchell@bielpartners.com or (469) 256–8673.
