12/12/22 Dallas Mastermind Group Meeting Copy

Dallas December 2022 Key Take Aways!

Kimber Davison, Vice President & Managing Shareholder at Griffith Davison

Paul Hendershot, Market Economist & Director of Research with CoStar Group, shared the following from his Presentation:
• DFW (and sunbelt markets) are in expansion mode, unemployment rate near pre-crisis norms. Structural drivers remain in place: Steady job & population growth, and in-migration will continue to fuel demand for space.
• Clouds gathered for economic outlook through near term. Elevated uncertainty may weigh on performances for 2023. Even so, market is well-positioned to weather the storm.
• Office: Leasing continues to track higher, led by higher-quality spaces. Prevalence of remote and flex work is here to stay, placing existential risk looking ahead. The sublease market will likely weigh on performances looking ahead.
• Industrial: Vacancy rates remain compressed, thanks to robust demand. Massive construction pipeline, typical demand levels pose risk to rising vacancies looking ahead.
• Retail: Quick recovery and market right-sizing is boosting rent growth. Retail continues to evolve and tenants will need space to project brand and connect with consumers.
• Multifamily: Rent growth and vacancy rates are softening, coming closer to pre-crisis performances. Manageable construction pipeline will ease supply-side pressure compared to other sunbelt markets.
• When asked what other areas in the U.S. seem to be thriving, Paul stated the following: “Northwest Arkansas is literally one of the most under-the-radar areas and is it doing Amazing! If I had to dump money in the market it would be there”.

Scott Lynn with Cache Realty Capital has moved his business from “money brokerage to money management”.
• He recently learned a new term called the “Denominator Effect” which occurs when the value of one portion of portfolio decreases drastically and pulls down the overall value of the portfolio. As a result, any segments of portfolio, which did not decrease in value, now represent a large percent of the overall pie.

Jim Smith with Smith, Jackson, Boyer & Bovard shared that with the Republicans in the House he does not see a “snowballs chance in Texas in July of any change of capital gain raise or other aspects affecting real estate taxation”.
• He met with State Senator Royce West and he shared that they (the State) have a huge budget surplus. Therefore, “there is no appetite for tax increases of any kind AND they are looking for ways to give some of that money back”.
• Property tax reductions are on Mr. West’s radar and Jim also mentioned that the State doesn’t charge property taxes – counties and cities do!

Laila Assanie with Federal Reserve Bank of Dallas shared that the “migration numbers” had accelerated at the end of Fall 2020, right after the lockdown was lifted. It appears that the migration rate has “slipped back and it’s more in line of what it was prior to the Pandemic”. Also:
• Job market numbers were exceptionally strong during the 1st Quarter, but now they are moderate compared to where they were at the beginning of 2022.
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Cheryl Murphy with Nexa Mortgage is very busy with both commercial and residential real estate. With regards to residential, she is seeing “more and more parents coughing up money in order to lend money to their children to get them into their own house and out of theirs”.
• She shared that an alternative to a Reverse Mortgage is called a “2/1 Buydown Mortgage Loan”, which means loans available with interest rate reductions during the first two years. This means your interest rate will drop by 2% in the first year, 1% in the second year, and return to the full interest rate by the third year.

Sharon Friedberg with Fischer Company agreed with Paul Hendershot’s comment in his Presentation that Retail is “killing it”. She also shared:
• She is very busy because more and more inexperienced people are acting like “wildcatters and are buying buildings and/or land and they don’t have a clue what they are doing”.

Nick Lee with NAI Robert Lynn specializes in office tenant representation and most of his work is along the Tollway. Their target client is middle market mid-cap and their business has been “absolutely on fire”.
• Current companies are realizing that their existing office or “flex space” need to be revamped/remodeled in order to get employees to come back to work in the office and less and less working from home. He continued, “you need to spend the money to remodel in order to make the existing office space more desirable to employees and make them want to get back in the office”.
Suzanne Johns with Only Luxury Estates Dallas shared that on the residential side, she is seeing a 10% “tickdown” on high end homes. For example, a $2 million house is coming down $200,000 (10%) in order to sell.

Sean Miller with Red Tail Acquisitions shared that he anticipates 2023 will slow down but a lot of that depends on the status of capital markets and Red Tails owner’s “appetite”. They predominantly deal with the industrial sector, but they do manage to buy a fair amount of retail as well.

Jacob Tindall & Scott Lowe, with 5G Studio shared that on the architectural side of things, industrial and multi-family have kept them busy, strongest sectors over the past couple of years whereas the hospitality and entertainment sectors slowed way down due to Pandemic. However, they are slowly seeing those sectors come back. Jacob is “very optimistic moving forward”.
• Scott shared that they are currently seeing a “tapping of the breaks with office builds”. But on the positive side, they are seeing that the Hospitality sector is “very strong” and they are busy again with a few high end projects. Also, they are anticipating a slow down in 2023 so they are very thankful they have been so busy in 2022.