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An era of frenetic growth in Dallas-Fort Worth’s commercial real estate market may be coming to a close as symptoms of a potential recession begin to hamstring activity, both in the city and across a state that has long boasted of "the Texas Miracle."

For months, industry stakeholders dismissed claims that economic headwinds like rising interest rates and inflation could counteract historic momentum in the DFW market.

But things took a turn in Q3, and seemingly resilient asset classes are beginning to weaken as broader state and national indicators head downward.

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On this episode of Bisnow Reports, we sit down with Ed Cross, a longtime commercial broker, investor and developer based in San Antonio.

His developments include creating a 97-acre master-planned community in San Antonio and now working with the McCombs family — which has owned the San Antonio Spurs and the Minnesota Vikings — to turn a 1929 office building there called the Tower Life Building into hundreds of mixed-income apartments.

He spoke with Bisnow about the history of downturns in commercial real estate, converting office buildings to residential, mentoring young people in the industry and the precipice on which the entire development industry sits.

“We’ve had 40 years of declining interest rates, and so the real estate business became one of merchant building — 95% of the real estate community builds to sell the building,” he said. “Well, once interest rates turn over and cap rates turn up, that model breaks.”

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Inflation has finally slowed the rate of rent growth and nudged vacancy up closer to a healthy level, but the pace of construction continues to fall behind what is needed to ease the growing cost burden of rental housing.

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Jim Brooks' 30-year-old Los Angeles-based company, BH Properties, focuses on distressed debt and value-add opportunities. With recession worries, high inflation and rising interest rates hanging over CRE, Brooks is watching and waiting.

"It may not be 'blood in the streets,' but the patient is hemorrhaging, creating investment opportunities for those with patient capital," Brooks said. 

Brooks got his start in commercial real estate in LA in the 1980s, working for Koll Development Co. He went on to join the Morgan Stanley Real Estate Fund in the early 1990s, where he oversaw the restructuring and liquidation of a $1.4B portfolio of distressed assets, including performing and nonperforming mortgage loans. His company has regional offices in Phoenix and Dallas and owns and operates nearly 10M SF across 19 states.

Read the full story here.