Author: Younger Partners

By Robert Grunnah

For many years, our Investments/Land Division, formerly Novus Realty Advisors, now a division of Younger Partners, has produced a report designed to assist investors in deciding the viability of acquiring undeveloped land for medium and long-term positive returns. Since our 2017 report was distributed, DFW has experienced continued active growth in virtually every commercial and residential product type. As the accompanying exhibits indicate, transaction volume held steady for both user and investment product. Much remains the same in our report this year, except we are seeing legitimate evolving trends that should be acknowledged. Absorption of developed, undeveloped (land with limited or no access to infrastructure permitting immediate use), and underutilized land activity traded at a comparable rate to 2017. The trend continues as
aggressive, new vertical development has left even fewer desirable infill sites remaining available. More peripheral sites are seeing increasing activity with employers competing for employees desiring a shorter commuting distance. This competition for employees, inflated raw
land and construction costs, a rapidly increasing cost of living, and transportation congestion are all beginning to affect our extended growth cycle. However, we remain attractive to geographical relocations when compared to our competition. With the anticipated continued job growth,
inbound population increases, relatively low interest rates, and a sound local economy, there is no reason for an immediate corrective cycle. Should any one of those benchmarks collapse or even display a solid weakness, a correction is imminent.

While we have retained historically low capitalization rates, despite sale prices at a multiple of replacement cost and static retail demand, income producing investments have maintained their active volume due largely to the need to invest 1031 trade equity and the lack of competition with alternative investments. Excessive competition to acquire cash flow assets providing even the smallest yields produces increased vulnerability to market corrections. A cyclical downturn in the national economy would have a dour negative impact and threaten positive cash flows. Inherently, land investment differs greatly from other types of real estate products generally because of its inability to produce interim cash flow and its considerably more sensitive vulnerability to recurring cycles. The criteria used to determine potential land opportunities, while becoming more sophisticated over the last two cycles, remains principally in implementing basic strategies. Perhaps the most important of these is the ability to project and fund ownership long term. Positive liquidity, the allowed ability to sell for an acceptable profit at the optimum market time, can be highly speculative. When an investor is placed in an imposed forced sale position or loses confidence in the future of the investment, returns are jeopardized and most frequently result in a significant loss. 

With expanding IT capabilities and the proliferation of social media vehicles, should an investor wish to search hard enough, she can find support for any speculative investment philosophy, positive or negative, to justify an action. This presentation qualifies as but one of many. However, certain facts remain more pertinent than most as they may apply to investments in unimproved or underutilized land assets in DFW. Again, referring to the accompanying charts, a conservative estimate of pending ten-year population growth for DFW is one million plus new residents. Climate, central location, progressive state and local government, and no personal or corporate income tax would support this projection. Possessing no true natural barriers for continued land absorption, there appears to be no single real estate oriented obstacle to limit this projection. Population growth can be fueled both organically and by external inbound relocations. With trailing twelve-month growth of 120,000 jobs, the majority of the population increase stems from such relocations. It is estimated that only eighty percent of the jobs created by recent moves into DFW have been filled. In the last six years, over thirty-five thousand acres of land have traded with an additional large number not being included when classified as long-term investment land.

Like most types of investments, real estate is cyclical. Investment success or failure can often solely depend on where the cycle is at the time the purchase is made in conjunction with the investor’s ability to determine the true state of the cycle. Buying at various points in a cycle, cost averaging, can provide some security allowing for both buying selling to generate positive results. There has yet to be a final cycle. The ability to hold long term may negatively impact the final yield, but does offer security. While the ability to use historical data to project long term value is logical, many down cycles have been created by artificial, non-real estate related influences that were difficult to anticipate. For example, in the late 1980’s, tax law changes and deregulation destroyed the market. In the late 2000’s, the subprime collapse did the same. It is reasonable to assume there will be more fragile “bubbles”. Included in our report is our Land Absorption Map which sets out various types of 2018 commercial real estate activity in specific geographic areas. Actual sales, current listings and announcements of pending projects are the basic criteria used and have been benchmarked annually to complete the current year’s map. Not difficult to understand, the progression from active to long term generally follows the current availability of infrastructure and newer, expanding city services. Land currently available for vertical construction will bring significantly higher values and greater activity over those that must physically wait for services. Over the twenty plus year’s of presenting the map, it is interesting to note that, while the circles have limited movement, the colors have many changes and generally move out from the core in concentric circles. An ever-increasing burden to investors and developers is the dramatic involvement of politically motivated, impractical restrictions imposed on reasonable growth by many local municipalities. Frequently, viable, beneficial projects are excluded from fruition by flawed, unrelated personal or political interests. Younger Partners is a member of the highly respected North Texas Land Council (NTLC), a group comprised of 50 of the most active and talented land brokers in our area. Believing that activity generates more activity, the North Texas Land Council freely shares information with its competing members, and the market in general, on a level of professionalism unusual within similar organizations and, as such, is a benefit to all clients. Much of the projected activity displayed on the Younger Land Absorption Map (YLAM) reflects the activities of the NTLC.

The market today continues to see record prices for infill, readily developable sites possessing available infrastructure, permitted anticipated uses, and demand for completed product. However, distinct indications of this aggressive approach are beginning to surface perhaps harboring at a minimum at least a cooling off period, or perhaps the “correction” we have anticipated the last few years. As it relates to land, pricing levels may have achieved their pinnacle for this long evolving cycle. For many increased cost factors, single family new home prices have increased fifty percent in five years making affordability more difficult. Less obvious are completed per square foot costs in all commercial sectors. The strong national economy, as well as local, and the continued relocations have provided record employment and income. That momentum will carry through at least the first half of 2019. Past that, projections are difficult. DFW is well positioned to absorb a moderate abated market. Land prices, however, must readjust for the return of an active market.

Again, as last year, the “pipeline” for new projects of all types has gotten understandably smaller which presents an interesting speculative projection for 2020 and beyond. Increased activity for pure, longer term investment sites has continued the extension to the outer lying, concentric circle tracts, considered “pure investment tracts”. Until 2016 such tracts remained fairly benign in sales activity and price fluctuation. These specific investments are becoming more attractive since competing investments such as oil and gas (price fluctuation and over production), a pending bear stock and bond market (the same non-occurring “pending” from last year), and the tech world which offer much higher risk vehicles. Additionally, local investors (the heretofore most active group of land speculators) are seeing increased competition from more patient national and foreign investors. Yet, historically, and perhaps ironically, a large number of the most successful, wealthiest investors have made their patient fortunes in land by simply applying these basic techniques.

Our continuing and extended analysis, as displayed on the “Younger Land Absorption Map” (revised November 2018) is principally based on extensive historical data collected utilizing over 150 years of market experience possessed by Younger associates, members of the NTLC, and reliable future projections from sources that have traditionally displayed accurate demographic information. Our attached graphs were constructed by Steve Triolet, Director of Younger Research. Depending on which source one chooses to use, the DFW market still expects to absorb an additional population expansion of twenty five to thirty percent over the next fifteen years. Success in real estate investment will be to determine where that growth will locate. History has taught us that product will be made available and priced based on pure economics. The cost to provide available product to meet demand will depend on the availability of affordable infrastructure (sewer, water, roads, proximity to employment centers, service commercial, schools, political climate, etc.). Land prices will fluctuate according to such availability, absorption, the national economy, and the popularity of any specific product. Investing in the right opportunities will generate exceptional rewards. Some estimate that it requires approximately 12,000 to 15,000 acres of raw land to accommodate one million people in a reasonably confined, socially acceptable, service provided environment. DFW enjoyed record rainfall in 2018 keeping our resources at sustainable levels. Given the droughts of previous years, with the population growth that has occurred, a dry year will present some worrisome challenges only new sources can cure. A partial answer lies in the creation of two new reservoirs in East Texas, probably ten years from service. Lack of both potable and irrigation water access will be an inevitable liability. We have been fortunate to have had an extended period of prodigious activity which can at least be partially credited to our aggressive political structure, both local and state, our sophisticated and informed developers and engineers, and our incredibly competent and equally aggressive local and regional Economic Development Corporations. Of equal depth, however, is the dynamic, well educated, hard working, and professional “under 40” group of brokers, administrators, managers, and general employment base whom have emerged during this cycle. They may well be the first group exiting a positive cycle who have learned and benefited from the experience of their predecessors. They may not need a disaster to stay relevant and solvent. In conclusion, the principals of successful, sophisticated investment must utilize basic criteria, some of which is outlined above. Access to infrastructure, most importantly water, the admirable, continued effort by our current Dallas Mayor to utilize available land in our southern corridor, absorption of the remaining few infill sites, high suburban infill land costs, and the migration of employment centers will all play significant roles in prudent investment decisions. Utilized in the investment process, the only remaining elements are sound financial strength and patience.

Congrats to YP’s Tyler Hemenway, Tanja McAleavey and Autumn Stallings for their participation in the BMW Dallas Marathon. This was Autumn’s sixth year to participate in the BMW Dallas Marathon and her first year to run the Ultra with a time of 7:26:47. Tanja and Tyler both ran in the half-marathon. Tanja finished 20^th out of 3,114 women and fifth in her age group. Tyler finished seventh overall with a time of 1:12:14.

The BMW Dallas Marathon Charity Program brings together various local charities in Dallas and national non-profit entities that partner with the BMW Dallas Marathon organization to raise funds in support of various causes. Charity Program partners play a vital role in supporting the success of the BMW Dallas Marathon and related events by providing both runners and volunteers. Among the charities supported are: Muscular Dystrophy Association Team Momentum, Big Brothers Big Sisters, Leukemia & Lymphoma Society Team In Training, Back On My Feet, The Tom Joyner Foundation, and For The Love of the Lake

BMW Dallas Marathon info.

Great example of the quality tenant service at Park Central 3 & 4 as featured on WFAA. They featured one of the great security guards on site who sets out to remember a building of names. See the news clip here.  Younger Partners handles the leasing for the property.

Security guard sets out to remember a building of names

North Texas boasts bounty of big corporate campus sites

By Bill Hethcock  – Staff Writer, Dallas Business Journal

If nothing else, the push to lure Amazon’s second headquarters shows there’s an abundance of real estate options in North Texas for the world’s biggest companies seeking to relocate or expand.

The Dallas Fort Worth region has capitalized on its low cost to do business, central location within the United States, and relative abundance of skilled workers to bring in corporate relocations on a regular basis — Toyota, FedEx, Liberty Mutual and State Farm to name a few. Texas is a right-to-work state, with no corporate or individual income tax and one of the lowest tax burdens in the country, and North Texas has plenty of potential headquarters and corporate campus sites, making the region one of the top destinations in the world for relocating or expanding companies.

North Texas now is trying to land Amazon’s second headquarters, or HQ2, and the 50,000 jobs expected to come with the $5 billion mega-project. Twenty North American metro areas are competing for the project. The Washington Post reported this morning that the e-commerce giant has held advanced discussions about establishing its second headquarters in Virginia’s Crystal City.

Dallas-Fort Worth officials have pitched more than 30 potential sites capable of accommodating the 8 million square feet of office space Amazon plans to occupy. The e-commerce giant’s campus is expected to span across 100 acres.

In the four primary DFW counties — Dallas, Denton, Collin and Tarrant — there are more than 50 separate sites currently being marketed for large corporate users, said Steve Triolet, research director at Dallas-based commercial real estate firm Younger Partners. Those sites can accommodate a minimum of 250,000 square feet of office space and in many cases, millions of square feet more.

Another analysis compiled by real estate firm JLL showed more than 600 land tracts in DFW that are over 100 acres and are intended for commercial development.

While that list captures a large share of the options, the DFW market is so expansive that it doesn’t catch everything, said Walt Bialas, JLL vice president and director of research in Dallas. For example, it does not include infill tracts such as Dallas Midtown, which is the site of the old Valley View Mall, a 100-plus acre piece of land that is prime for redevelopment, Bialas said.

“Our area has significant tracts scattered everywhere,” Bialas said. “DFW has grown over the decades (by) pushing out its perimeter.”

The abundance of sites across DFW is a plus for companies in search of a new home because it allows them to choose from a variety of quality locations and pick the site that fits their corporate values and needs, said Dan Bowman, executive director and CEO of the Allen Economic Development Corp.

“Corporations win when there are many quality sites to choose from,” Bowman said. “DFW and Collin County not only have many development sites, but they are differentiated and strategically located. These kind of choices create value for relocations.”

In Allen, for example, the focus has been on creating significant green space in developments like Watters Creek, The Strand and Monarch City, Bowman said. Walkability, trails, green space and a quality family environment set Allen apart as a corporate location, he said.

“North Texas has many available shovel-ready sites for corporate relocations, but what makes us unique is the differences among those sites,” Bowman said. “Various Collin County sites offer access to unique labor pools, different transportation corridors, school districts, etc.”

The multitude of cities in the DFW area means the competition is fierce between cities, EDCs, developers and commercial real estate brokers vying for projects. North Texas has 14 cities with a population of over 100,000, and 71 cities with 10,000 people or more.

“I think that having more options is always good when you are a buyer,” said Moody Younger, co-founder of Younger Partners. “The Dallas-Fort Worth Metroplex has more potential sites than most areas because of available land and also because we have many more proven developers than most markets.”

The Dallas Regional Chamber also believes that having plenty of options for companies to consider is one of North Texas’ strengths, said Darren Grubb, a spokesman for the organization.

“Our role at the Dallas Regional Chamber is to help companies, site consultants, brokers or developers navigate our region and understand all aspects of what we offer as a market,” he said. “That optionality of sites, and also our distinct communities, allows us to tailor project responses based on what they are trying to achieve – or present them with a possibility they had not considered.”

The number of potential sites and cities made it challenging for the regional chamber to compile DFW’s bid for Amazon’s second headquarters, said Mike Rosa, senior vice president of Economic Development for the DRC.

“You’re going to submit one bid, as requested by the company, for an area of 7.5 million people and all the powerful communities that we have,” he said. “This is not one large city with a lot of tiny burgs that surround it. We have 14 cities in this region with more than 100,000 people and their own ideas about their destiny and who they are as a city.”

The time and effort that local officials put into the HQ2 bid won’t be wasted if Amazon decides to go elsewhere, Rosa said. Information that North Texas leaders compiled on potential sites, as well as the region’s workforce, education, housing and other considerations, will be useful when luring other large companies, he said. Chasing Amazon has encouraged leaders to cooperate and to think big and boldly about economic development, he added.

Robert Grunnah, a land broker at Younger Partners, said DFW is “legendary” for its ability to attract new business, and availability of quality sites is just one piece of the puzzle.

“The area’s competing communities are responsive and hospitable with a myriad of welcoming political structures,” Grunnah said. ”Having the option of many available sites allows for a more than adequate economic analysis. There are few competing national markets that can offer our diverse business amenities and selection of financially hospitable locations.”

See article here.

DFW Business Center hosted a broker open house with great views of the project’s plethora of amenities, from a new fitness center with indoor and outdoor facilities to a tenant lounge and patio dining area, meeting space, a putting green, and more.

For more info: http://www.youngerpartners.com/properties-api/containers/DFW-Business-Center_Disc_Flyer_9.11.18.pdf

Is the office market in Uptown Dallas headed for a glut?
By Steve Brown, Real Estate Editor for the Dallas Morning News

A big new office lease in Dallas’ Uptown is good news for the booming office district just north of downtown.

Data center firm CyrusOne rented 50,000 square feet in the new Harwood No. 10 tower under construction near the entrance to the Dallas North Tollway. The tech company, the first major tenant announced for the 22-story high-rise scheduled to open this winter, is growing its headquarters by about 60 percent in a move from another Uptown building.

The lease may help calm jitters about the amount of new office space on the way for Uptown.

While the central Dallas district doesn’t have the largest share of new office development underway in North Texas, buildings there are the most expensive, with rents topping $50 per square foot.

Most of the office construction these days is in the mid-cities, Las Colinas and the Legacy/Frisco market, but three new office projects going up in Uptown are the most visible and costly. And all of them are speculative, multi-tenant buildings.

Areawide about 75 percent of office projects being built already have tenants lined up — in Uptown, about half of the new space is accounted for.

“Only Uptown is likely to see any significant softening due to new construction in the second half of 2018,” said Younger Partners’ Steve Triolet. “Keep in mind, Uptown is not a large submarket — current total inventory is 13.9 million square feet — but it has 1.2 million square feet scheduled for completion later this year.”

The new office space is coming in Trammell Crow Co.’s Park District project on Pearl Street, in the Union on Cedar Springs Road and the Harwood’s No. 10 tower.

Link to the article here.

Land sales, prices soar north of Dallas-Fort Worth as race to Red River hastens

By Bill Hethcock  – Staff Writer, Dallas Business Journal

Land sales north of Dallas-Fort Worth are sizzling, with near-term developers and long-term speculators snatching large tracts in the path of projected growth as DFW continues its Manifest Destiny march to the Red River.

Hunt Realty Investments Inc., for example, recently bought a property known as Headquarters Ranch, a more than 2,500-acre site on Frisco’s northern edge and the largest contiguous land assemblage in the city. Hunt Realty will master-develop a massive, mixed-use project alongside the Karahan Cos., led by Fehmi Karahan, who was the driving force behind much of Plano’s Legacy area.

Further north, Younger Partners’ John St. Clair brokered the sale of more than 900 acres to an undisclosed family that has owned land around Texas for generations. The investors bought a 634-acre farm in Howe, about 55 miles north of Dallas, as well as a 371-acre parcel in Sherman, about 65 miles north of Dallas.

The Dallas Business Journal talked with Robert Grunnah, the leader of Dallas-based Younger Partners’ land investments division, to get a sense of who’s selling, who’s buying, for how much, and where. This interview with with Grunnah, who has 40-plus years of experience in the DFW land business, has been edited for brevity and clarity.

What trends are you seeing in terms of land sales to the north? Our long-term history has been to focus on the different cycles that have occurred and the different product types. Land has traditionally been slower (to rebound) in most of the recovery cycles than virtually any other asset. The reason is because it’s not income-producing.

How has this recovery cycle progressed? This has been one of the longest recovery cycles we’ve ever seen. Certainly of the four cycles I’ve experienced, it’s the longest by two or three years. Land has been much slower to recover. We started focusing in the 2009-2011 era on land up north, in the area west of Sherman-Denison and south of Lake Texoma. Land was trading in the $2,000 to $3,000 per acre price range for plain, raw land. It was not very active. There weren’t many trades. Most people were focused on income-producing properties for investment as opposed to land. It stagnated there up until about three or four years ago. But over the last 12 to 18 months, we’ve seen a distinct acceleration of values.

You can see the story on the DBJ website here.