Subtle Brake Lights Of This Cycle And What’s To Come In The Next Cycle

Cawley Partners CEO Bill Cawley did not see capital markets freezing up in 2007 and he does not want to be surprised by the end of a cycle again. Cawley is paying close attention to subtle warning signs and what he calls a gut feeling about the market.

“I think this [cycle] will slow down, but it won’t be a big belly flop,” he said.

Dreien Opportunity Partners CEO Sam Ware has bid on many deals lately that he would expect to see five or more bids on, but capital stacks are preventing that kind of activity.

“Those are the brake signs that are very subtle,” he said at Bisnow’s Platinum Corridor event on Tuesday. Ware is watching where debt goes very closely. 

“Lenders, equity and everyone along the stack with experience is being more cautious,” Cawley said. He and Ware said they do not think the cycle is over by any means, they have just seen enough cycles to keep an eye on fundamentals. 

Factor in geopolitical risk that could force the cycle to slow, and anything could happen, Granite Properties president and chief operating officer Greg Fuller said.

Tightened lending will inevitably impact the next real estate cycle. As interest rates increase, Ware thinks real estate will start shrinking. Apartment units, single-family homes, offices and storefronts will get smaller, he said.

So far, demand for land remains strong and prices keep rising. Developers see how hot the Platinum Corridor along Dallas North Tollway has become, and they are willing to pay because of the barriers to entry. 

A few years ago, a good land site in Legacy would be below $10/SF and there were a few for sale. Prices have doubled and there is a lot less land to be found on any major corridor, KDC partner William Guthrey said. 

Part of that price increase can be attributed to densification, VanTrust executive vice president Geoff Meyer said. When you can get creative and get 600K SF on a site where you thought you could only get 300K SF, that price gets easier to justify.

Ware said that since buying the JC Penney campus in January, he has already gotten offers for $100/SF for some of its adjacent land, and he paid substantially less than that.

“You’ve seen that Uptown pricing come here,” he said. The center of the universe now is the Platinum Corridor, he said.

Panelists were not concerned about overbuilding or oversupply, except in one sector.

“The one thing I think we’re overdoing is restaurants,” Cawley said.

Restaurants benefit office tenants, but the sheer number of restaurants means only some will succeed, he said. 

Over the next 20 years, developers will probably tear down some of the retail in the Platinum Corridor and turn it into office or multifamily, Meyer said.

“Probably not during my career, but in the next couple of cycles, it will happen.”

After Legacy is built out, development will go north, Cawley said. He does not see a lot of increase in land prices, though he thinks the cycle has hit its max. 

“When this cycle completes — and I think we’re near the top — labor costs will come down because people need the work,” Gaedeke Group president Glenn Lickstein said.