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The Good, the Bad, the Texas High-Speed Rail Line

By Duke Dennis

Brady Redwine of Texas Central Partners (TCP) recently addressed a group of Texas A&M real estate professionals about the high-speed rail line where he highlighted:

  • TCP is currently in the land acquisition phase of their project.
  • The total project cost will be between $10 and $12 Billion.
  • It will take less than 90 minutes to travel from Dallas to Houston and vice versa traveling at speeds of up to 200 miles per hour.
  • Construction is scheduled to begin in late-2017.
  • Rail line is scheduled to be fully operational by 2022.
  • Upon opening the rail line will employ 1,000 full-time workers.
  • Each train can carry 400 passengers per ride.
  • Trains will leave every 30 minutes during peak hours and every hour during off-peak hours.
  • Starting and stopping stations will be located proximate to public transportation (i.e. Dallas Area Rapid Transit (DART) and Metropolitan Transit Authority (METRO Houston))

texas high speed rail line

The positive implications of the rail-line range from new development, to increased tax revenues, increased tourism and offering an alternative mode of transportation.

There are a couple of proposed sites for the start/stop rail stations in Dallas, but the most popular, according to public support, is Union Station, just northwest of the Cedars.  If the rail-line were to go to Union Station, the demand for land to develop and re-develop would sky-rocket instantly as travelers would want to live close to their new mode of transportation.  Another positive of the potential redevelopment would be the increase in tax revenues experienced by the areas adjacent and near to the new rail station.  With new developments going up to be close to the rail line, property values and subsequently property taxes would rise.

According to the TxDOT, it is estimated that nearly 50,000 Texans travel back and forth between Houston and Dallas-Fort Worth at least twice per week.  The volumes of those traveling, coupled with changing views on airline travel are leading to support for the rail line.  Airlines are becoming more and more of a hassle for passengers.  Long security lines and the need to arrive multiple hours before the flight are prompting passengers to look for alternatives.  The rail-line will offer weekly travelers a viable alternative to both driving and flying.  Given the time to board and travel, the rail line will be quicker than that of both cars and planes.  The “alternative form” of travel also applies to the fact that the rail-line will use electricity, as opposed to gas or coal-power, as its form of energy.  Making this a faster, clean and green rail-line.

Despite the potential positives, landowners are concerned that their land could be negatively impacted due to eminent domain.  To calm these concerns, TCP is going out of their way to avoid eminent domain to access land for the rail line’s use, but rather use land contained in, or adjacent to, previously existing easements for the rail line’s path.  In addition, the technology being used for the train has been refined over the past 50-years to operate quietly, use low amounts of energy and produce low amounts of carbon dioxide, which will further reduce the impact on landowners’ properties.  For comparison, the bullet-train can hold up to 400 passengers, the same as a Boeing 777, but consumes 1/8th the energy and produces 1/12th the carbon dioxide.  These advances in the technology will mean the line will not burden those living nearby with any pollution, whether it is noise pollution or environmental pollution.

As a native Texan, Texas A&M Aggie and resident of Dallas, I am very interested to see how the rail line plays out, especially as the line will relate to future commercial real estate development opportunities.  No doubt real estate developers and investors will be brainstorming on how to best develop and invest in projects/properties in and around the future rail line.  Metropolitan Capital Advisors will be ready to advise its clients on financing strategies as development around the rail line evolves.

The author, Duke Dennis, is a Senior Analyst in the Dallas office of Metropolitan Capital Advisors.  Duke can be reached at ddennis@metcapital.com (972) 267-0600.

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UT Ranked #1 in Commercial Real Estate Yardage

-By Scott Lynn

UT REFIC

Every fall season, the University of Texas at Austin McCombs Real Estate Finance & Investment Center (REFIC) sponsors the National Real Estate Challenge where graduate student teams from the top business schools in America come to Austin to compete in front of a panel of senior commercial real estate executives. The competition showcases some of the very best future real estate talent in action, where they work as teams to present and make recommendations on a complex commercial property situation. For the attendee, the experience is equivalent to watching the best teams in a one-day, winner-takes-all college playoff tournament.

This year’s National Real Estate Challenge case study involved evaluating the feasibility of acquiring two separate assets: a suburban office building and a boutique hotel. Nineteen teams competed, and their school identities were kept secret—each team assumed a fictitious business name so no team had home field advantage. No cheating, favoritism, or unsportsmanlike conduct was allowed. Judges were all CRE professionals from a wide variety of disciplines and geographic locations. After a grueling, all-day competition and judging process, the winner was…

University of Texas at Austin McCombs School of Business

The University of Texas at Austin McCombs School of Business for the second year in a row!

Other teams who participated were:

  • 2nd Place: Kellogg School of Management at Northwestern University
  • 3rd Place: Columbia Business School
  • 4th Place: Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Honorable Mentions:

  • University of Virginia Darden School of Business
  • UCLA Anderson
  • UC Berkeley Haas School of Business
  • University of Southern California

Whether a team placed or not, the experience and the relationships created by all participants is priceless. I highly recommend attending a competition if you’re interested in seeing what our top business schools are turning out in the way of future commercial real estate talent…phenomenal!

To learn more about the McCombs Real Estate Finance and Investment Center, go to https://www.mccombs.utexas.edu/Centers/REFIC.

The author, Scott Lynn, is the founding principal of Metropolitan Capital Advisors. Scott may be contacted at (972) 267-0600, or by e-mail at slynn@metcapital.com.

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2017: Not a Forecast (Just Some Thoughts to Ponder) for the CRE Market

By Brandon Wilhite

Accurately forecasting the commercial real estate market’s performance is a nearly impossible task. There are far too many variables to assess and account for, but that doesn’t mean the effort isn’t a worthwhile endeavor. Taking a step back to examine how we got to where we are today and to consider what may lie ahead can be a useful and insightful exercise.

The current cycle of expansion’s duration, approximately 89 months and counting, has left market participants pondering when the music will finally stop (I’ll spare you the baseball analogy you are all no doubt tired of hearing). Given that expansion cycles have averaged 58 months since World War II, it’s a valid question, but not all cycles are alike. Other factors must be considered, and while duration alone cannot undermine an otherwise healthy market, this long period of expansion has given investors and lenders pause.

Judging by the current state of the market, it seems that, collectively, we have not forgotten the hard lessons learned during the last major economic downturn, often referred to as the Great Recession. Unlike typical market cycles, which often end in overbuilding that results in increasing vacancy, decreasing rents, and lower valuations, fundamentals are mostly good across the country. Factors contributing to healthy fundamentals include lenders scaling back construction lending, newly implemented federal regulations significantly increasing equity requirements, uncertainty relating to the election and investors taking time-outs to watch and observe how the market will absorb existing construction pipelines. While these factors may be “saving” the market from being overbuilt, they may also be stifling economic growth by preventing fundamentally sound projects from coming to fruition. As new construction inventory gets absorbed and lender balance sheets free up, hopefully more construction capital becomes available to fund good projects.

Additionally, a slowdown in permanent lending markets, particularly CMBS, has contributed to market uncertainty. New risk retention rules from Dodd-Frank are going into effect at a bad time in the market. Morningstar predicts that roughly 40% of the 2007 vintage 10-year CMBS loans coming due in 2017 are too highly leveraged to be refinanced, particularly suburban office and retail assets. Borrowers who are unable to refinance or de-lever may be forced to sell or give the keys back, possibly resulting in significant inventory hitting the market in 2017, thereby putting upward pressure on cap rates in those markets and creating opportunities for would-be buyers. Conversely, borrowers in markets and asset classes that have performed better since 2007, such as multi-family or assets located in supply-constrained urban markets, may be more likely to hold and refinance maturing debt, as replacing yield could prove challenging.

Morningstar Loan-to-Value Ratios_2016 and 2017 CMBS Maturities

Morningstar Loan-to-Value Ratios: 2016 and 2017 CMBS Maturities

If the so-called Trump Rally and market optimism hold, interest rates will likely continue to increase in 2017. While cap rates have shown virtually no correlation with increases in interest rates during this cycle, cap rates will likely eventually succumb to upward interest rate pressure and rise accordingly, as many investors will no longer be able to obtain suitable leverage to finance investments. Keep in mind, however, that the benchmark 10-year US Treasury is still yielding about 60 bps below 2014 highs, so there’s still breathing room for the market to adjust accordingly.

As any real estate professional will tell you, opportunities are born as a result of disruption. There will be headwinds and challenges in any market and 2017 will be no different. Those who can capitalize on the opportunities created will reap the benefits. Metropolitan Capital Advisors (MCA) is looking forward to another exciting year of helping our clients capitalize on market opportunities. The author, Brandon Wilhite, is a senior director in the Dallas office of MCA. Brandon can be reached at (972) 267-0600 or by e-mail at bwilhite@metcapital.com.

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