Commercial Real Estate bouncing into 2013

Bill Bowen
News Editor

If the economy is stuck in neutral, somebody better tell the developers of the nine or more
apartment projects within the shadow of downtown Fort Worth.

Or the owners of Ritchie Brothers Auction, where the sale last week of $44 million in used
construction and other heavy equipment set records on March 5-6, as did the number of registered
bidders, more than 3,900, and the number of online bidders, 2,300.

Or the people at the Tarrant Appraisal District, where an increase of $879 million in commercial
real estate values will soon be reflected in tax notices sent to the owners and operators of North
Texas’ offices, shopping centers, factories, hotels, restaurants and apartment and townhome

Of that $879.2 million in new value, $419.8 million is in multifamily developments, up 11.5 percent
in the sector that benefited from single-family foreclosures and already a perennial performer in
the Dallas-Fort Worth development market.

Much of that development is new construction. Last year in Tarrant County, developers delivered
1,841 new apartment units. This year they are expected to complete 2,350, according to figures
from MPF Research.

Besides pure demand are certain investors looking to put their money into solid assets because of
paltry returns on treasury notes. Tax exempt bonds and other tax-favored holdings are producing
low yields right now. So the already warm apartment market is offering returns from 100 to 400
basis points higher.

“What’s happened is that, in the very large big picture sense, when treasury rates are low, they
need to find a place to put money that is safe, but at the same time provides more than a 1-
percent return,” said Amish Gupta, chief operating officer for RETC, a real estate tax consultancy
with offices in Fort Worth, Dallas, Austin, San Antonio and Houston.

Gupta said that the increase in values has his office braced for rush of property owners wanting to
protest the valuations.

The economy and job growth continue to improve and the new apartment units expected to hit
Fort Worth this year and next are expected to be absorbed fairly readily, although perhaps more
slowly in 2014, depending on a host of other economic factors.

The projects, in various stages of construction, are rising along W. Seventh Street, including West
7th, Phase III and Museum Place, along with other projects in the Near Southside and along
Samuels Avenue just north of downtown.

But the market for occupants is holding fairly steady, especially in central Fort Worth, where
occupancy is near 94 percent and average rent is at $1,667 in fourth-quarter 2012, up $137
dollars from fourth quarter 2010, according to figures from the North Texas Real Estate
Information System compiled by Downtown Fort Worth Inc.

Values of retail properties are also up 5.4 percent, according to the Tarrant Appraisal District. But
that may be more from increased leasing activity rather than new construction.

“I’m seeing more (leasing) activity now than I’ve seen in several years,” said Jon McDaniel, retail
specialist at NAI Robert Lynn commercial real estate services who handles leasing for about 45
properties, mostly in Tarrant County. “I have deals working on just about every property I have.”

McDaniels said that North Richland Hills, Mansfield, Watauga, Keller and North Fort Worth have
resurged in the past year and have projects in the works, as does north Arlington. That doesn’t
include the Renaissance Center, a power-store anchored center now under construction at the
corner of East Berry Street and U.S. 287.

“Retail properties that we have that have had vacancies for some time are starting to have a lot of
activity,” McDaniel said.

All of that is good news stacked upon last year’s advances. Total North Texas construction
contracts were up 19 percent for the region in all of 2012 with contracts totaling $9.06 billion.
Statewide, Texas enjoyed a growth rate of 10 percent in total construction of $45.78 billion.