Dallas Fort Worth Real Estate & Property Management

Is the DFW commercial real estate market an indicator for the residential market?

Recently I visited with one of my former professors who works as the head of underwriting for a large commercial real estate broker. The conversation centered around the pathetic commercial market and the blame that is still put at the feet of lending institutions. We both shared the opinion, right or wrong that bank regulators are hesitant to force the banks to clean up their bad loans and REO's because the actual hit on their books would devastate the major lenders. The government does not want to recreate the Resolution Trust Corp from the 80's so therefore the distressed properties are not being sold at values that are appropriate to create the necessary market stimulus. Basically the lending community can't stand the losses without throwing us into another financial crisis.

The towns north of the Dallas area that were growing like wildfire prior to the downturn now have the largest percentage of residential foreclosures, unfinished housing developments, virtually empty strip centers and "multi use" developments. We wondered when these markets would come back since retail is one of the last segments to rebound because it is reliant on spending habits that are reliant on employment. What will happen to these centers and what is their true value? Ultimately without tenants the owners are defaulting and the banks are beginning to own these properties because they are not selling them at auction. Approximately 3-6% of all foreclosures are sold to 3rd parties at the foreclosure sales. The other 94%+ are going back to the banks and sitting on their books.

In November the commercial foreclosure postings added up to $482 million with $44.5 million coming from one multi-use building in McKinney. There have been over 2000 area commercial properties that have succumbed to foreclosure through October.

So will urban sprawl continue OR are people destined to begin to re-gentrify the area closer to the central business district or inside of 635? Is this area the safest real estate bet in the market? As of the 3rd quarter the median price had dropped less north of 635 than within 635. I believe that the "inside loop" homes had a larger correction to make since the median home prices in those areas are approximately $50 per square foot higher than up north. Interesting too is that every city inside the loop had a smaller foreclosure rate than more than a dozen cities north of the loop. That statistic also held true for commercial foreclosures.

Personally I believe that the commercial real estate market will ultimately have a greater impact the residential market in Northern DFW.