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DFW should weather commercial real estate downturn

The Dallas-Fort Worth commercial real estate market remains among the best in the nation, despite dour news that U.S. commercial real estate markets will bottom out in 2009 and flounder for much of 2010, a just-released industry report states.

The Dallas-Fort Worth market ranks No. 9 among the 10 top investment markets, moving up from No. 14 in last year’s Emerging Trends in Real Estate report produced annually by PricewaterhouseCoopers and the Urban Land Institute. This is the report’s 30th year.

The favorable ranking for Dallas-Fort Worth, and Houston, at No. 6, is due in part because of energy-related businesses and the jobs they create, the report says.

But, “AT&T’s move from San Antonio (to Dallas) underscores the importance of Dallas-Fort Worth Airport, which secures the (area) along the cross-country global pathway,” the report says.

The report does not paint a pretty picture for the nation’s commercial real estate markets. Ongoing drops in property values, more foreclosure and delinquencies, and the limping economy will continue to crimp property cash flows, according to the report.

Moreover, commercial property values are expected to drop 15 percent to 20 percent from a mid-2007 peak, the reports says.

“Commercial real estate faces its worst year since the wrenching 1991-92 industry depression,” the real estate experts say in the report. “Only when property financing gets restructured will pricing recorrect so we can find the floor; and this transition could wipe out companies and people.”

When the market shakes out, commercial mortgage-backed securities will revive but will be more-regulated and banks will be imposing stricter lending guidelines, the report finds.

“Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole,” said Stephen Blank, senior resident fellow for real estate finance at the Urban Land Institute.