ULI Spring Council Forum explores 12-month trends ST. LOUIS -- Now that the Urban Land Institute's (ULI) Spring Council Forum has just concluded here, it might be easy to come away with a rosy outlook for the nation's commercial property markets. In fact, the New Optimism has lead to the latest new buzz-phrase for the real estate industry, "Things will be fine until '99."

One of the most important pronouncements at the Forum was the release of the second edition of the ULI's new mid-year forecast document, ULI 1997 Real Estate Forecast: Mid-Year Outlook by Sector, Area and Enterprise, which speaks volumes about how the markets' supply/demand fundamentals are functioning in classic fashion during a period of unusual equilibrium in the domestic real estate industry. The result, says the forecast, is that all 56 major metropolitan areas in the United States will enjoy improved property performance across all property categories over the next 12 months.

Warning flags, however, are going up as slowdowns in profit growth could occur in the real estate lending/financing segment. The findings suggest that players in this segment will feel (and already are feeling) competitive pressures as the availability of capital from a variety of sources increases, putting pressure on spreads and profits.

The report is based on year-end data, surveys of hundreds of ULI Council members, the analyses and opinions of local market experts, and a blue-ribbon panel of reviewers who, together, comprise the leading investors, owners and advisers in the real estate industry. It presents its industry forecasts from three major perspectives, predicting and comparing the relative likely performances of 15 property types and seven categories of real estate-based businesses in addition to the 56 geographical markets.

ULI predicts that half of those markets, led by Seattle, Detroit, San Francisco, Phoenix and Colorado Springs, will see positive changes as effective rents accelerate through mid-l998. On the other hand, 30 of the markets surveyed can expect decelerating or flat rates of growth, with Charlotte, Albuquerque, Salt Lake City, Denver and Louisville slowing down the most dramatically. But here, the report predicts that supply/demand forces will produce "soft landings" and quick reversals from the slowing trends.

"We see at least 12 more months of broad-based improvement in property performance and could be looking at a trend that will last through 2000," says Joseph C. Canizaro, president of the Urban Land Institute. "Despite relatively easy access to capital, instances of overbuilding continue to be rare and sustained excesses are hard to find."

While many industry pundits have voiced concerns that the markets are at their peak in many cases, the ULI report portrays an industry at the midpoint of the cycle, with most real estate sectors near optimum levels of rent and value growth.

Why? The usual suspect -- limited new construction which is moderating rent increases. According to the report, the real estate industry itself is relatively stable and increasingly profitable for most of the players in the business.

"The key to the duration of the upswing will be the performance of the overall economy, as the real estate industry maintains a demand-driven posture, especially in commercial categories like office, industrial, and retail," says Canizaro. "The real estate industry may well enjoy another 24 to 30 months of stable growth provided the larger economy continues its expansion."

Among property types, by now it may be no surprise that the office sector will experience the most growth, led by suburban office which will see the highest growth in rent increases. What is a surprise is the report predicts that downtown office buildings will be close behind, due in part to tightening suburban markets.

Warehouse industrial drops to third place from second a year ago. The next five slots go to downtown and suburban hotel, then mid-income and high-income multifamily residential, followed by R&D industrial property. The good news is that all are expected to achieve rent increases in the moderate range of 3% to 4.9%.

Strip shopping centers and regional malls, respectively, will post the weakest performance increases among all property types, with neither sector expected to top 1% in effective rent increases.

If one market has reached its "maturity," it might be high-income multifamily, which could see a significant drop in its rate of increase.

Bottom-line industry results will accelerate for seven categories of real estate-related concerns, with profits, enterprise value and business volume expected to rise during the next 12 months, significantly outpacing the growth achieved in 1996-97.

To order the ULI 1997 Real Estate Forecast: Mid-Year Outlook by Sector, Area and Enterprise (order number U08) call 1-800-321-5011. The cost for ULI members is $24.95; the cost for nonmembers is $29.95.

Palmer takes IDRC reins, proposes new op. structure Michael Palmer doesn't believe in sitting around long. He's an action person, and in only his first month on the job as the new executive director of the International Development and Research Council (IDRC), based in Norcross, Ga., he has made some interesting proposals to change the organization's operating structure to better reflect the growing influence of globalization on the corporate real estate world and on IDRC's membership.

Palmer replaces Prentiss Knight III, IDRC's previous executive director NREI sat down with Palmer at the recent IDRC World Congress in Indianapolis to get his views and perspective on where the organization is headed and where he'd like to take it.

"I have already reorganized the organization to a global-based organization," says Palmer. "I have also redefined our mission, our shared values and our vision. We are going to immediately start working on a management by objectives program that will tie us to what the strategic plan lays out, and we will start a five-year strategic planning process immediately. I already hit the ground running."

"The organization has been pretty much oriented around the North American operation, with one group being responsible for international growth. I set up the operations section to become North America as one region, as well as all the others. So the chapters and regional management becomes an operational function globally as opposed to North America and everybody else. I've taken each function and globalized it."

Palmer has also proposed to the IDRC board of directors that a global development board be established to be charged with helping define what the global governance will look like in the future. "They are now a global advisory board, but we're going to call them a global development board and they will actually help us develop. They will be represented by two members from each of the five regions -- North America, Europe, Africa and the Middle East, Asia and South America. So we can keep the regional influence for the chapters but then share those things that are truly global."

Today's corporate real estate executives face serious questions. "What does my job look like five years from now? That is the central question that is burning on the minds of people. The function's going to always exist, the question is where will it be and what will you call it, and how do we give them the tools necessary to survive. That's what this association is all about."

Palmer's experience is quite diverse, including stints as an Air Force fighter pilot, vice president of real estate at Federal Express when it was building its $100 million hub in Memphis, president of Sunlite Inc., a global company based in Atlanta with offices in Canada, Germany and Hong Kong, and president of Maxxus Inc., a real estate investment trust he helped to turn around.

Rash of new Dallas projects worries some observers In the 1980s, Dallas developers built more office space than had been constructed in this Texas city during the previous 100 years combined.

Almost 18 million sq. ft. of office space was completed, from downtown skyscrapers to sprawling suburban campuses, during one year at the building peak in 1985.

This record office construction was testament to Dallas' long-time, unofficial motto: "Keep the dirt flying!"

Of course, few 1980s developers realized that they were building enough excess Dallas office space to last for almost a decade. Indeed, it's taken more than 10 years for Dallas' suburban office market to get back in sync.

Vacancy rates in first-class suburban buildings have fallen from almost 30% in the late-1980s to less than 10% today. And average building rents have gone up by almost 30% in the last two years.

No wonder then, that developers are pulling their construction cranes out of mothballs and dusting off their drawing boards. Commercial construction volumes in Dallas have more than doubled in the last four years.

"Hopefully, this time we will be a little more supply and demand oriented with respect to the amount of product we put up," says Reagan Dixon, managing director of Cushman & Wakefield's Dallas office.

Don't be too sure. Since the start of 1997, developers have announced plans for almost two dozen new office projects in the Dallas area; one spec deal as large as 1 million sq. ft.

After virtually no spec office construction since 1987, commercial builders are raring to go with new projects along the Dallas North Tollway, near the airport in Las Colinas and even near downtown (which still has 30%+ vacancy).

The queue of builders now includes everyone from familiars like the Trammell Crow Co., MEPC American Properties, Hines Interests and Lincoln Property, to newcomers including CarrAmerica Realty of Washington, D.C., and Carlson Cos. of Minneapolis.

Carlson's just-announced development across from the Dallas Galleria complex includes two 20-story buildings topped by domes that hearken back to the 1980s heydays.

A $110 million office, retail and apartment complex planned just up the parkway by Champion Partners and Columbus Realty Trust is the first such mixed-use development in the 1990s.

No doubt, in Dallas the boom is back. Even the most conservative market analysts concur that Dallas needs new office space, but they come back to the age-old questions of "how much" and "how quickly."

Six months ago, new office buildings announced for the suburbs averaged about three stories and contained less than 200,000 sq. ft. Construction time: 10 to 12 months. The latest rash of building announcements were for projects ranging from 300,000 sq. ft. to 500,000 sq. ft. with completion times 18 months out.

"It does concern me when I see a new announcement every day for another building," says David Gruber, president of Dallas-based MEPC American Properties. "If all of these get going, we could be back to the same old problems we had a few years ago. And everybody loses if we wind up with an oversupply again."

So far, Dallas' office market is getting "over announced," not by any stretch overbuilt. Eager developers vying for attention and prospective tenants are scrambling to erect project site signs and print leasing brochures.

Both developers and tenants complain that it's getting harder to figure out which deals are "real," and how much new space is likely to come on the market and when.

"To be safe, you have to assume everything is going to be built, even though you know it won't all be started," says Christiane Hepfer, president of International Capital Corp. International Capital recently reduced the size of an office building it's planning in Dallas' north suburbs, to ensure a quicker completion and to beat out prospective competitors.

At the end of May, there was still less than 1 million sq. ft. of spec office space actually under construction in the Dallas area. But that could easily change with preleasing and the flood of money coming into the real estate market.

"If the first of the new stuff leases up quickly, people may get a little braver," Dixon says. "And new developers that haven't been through the bad market here could get caught up in the euphoria."

Robert Duncan, chief executive of Dallas' Transwestern Properties, shares the same concerns. "As bullish as we are on Dallas, we're very cautious right now," Duncan says. "If you look at the players that could respond to the market, you could build enough buildings to create a problem."

Long-time analysts are less troubled by the surge in development activity in Dallas. They point out that the industrial and retail sectors both saw a jump in construction activity during the last few years. But developers have since cut back on starts because of the potential for oversupply.

Plus, developers and brokers are fond of pointing out that with so much of the money for office investment and development tied to public sources, the pipeline of money for new deals will shut down quicker if the results fall short.

"I think there is demand right now for most of the office buildings being talked about," says Jeanette Rice, economist with Dallas-based Amresco Inc. "There are lots of tenants who just can't find space. Yes, there is a sudden rush of activity," she says, "but that's just Texas; we are enthusiastic!"

Leanne Lachman with New York-based Schroder Real Estate Associates says it's understandable for Dallas developers to keep looking over their shoulders, given the huge price they paid for overbuilding in the 1980s.

"I do think that because of the depth of the depression we just went through, the people still in this business are nervous nellies," Lachman says. "That's okay. That's good. But I think it's too early for any serious concern about overbuilding. Dallas is one of the cities that is leading us all back to the good times."

Corrections On our April Office News page, we incorrectly identified the buyer of the Equitable Building in downtown Atlanta as being LaSalle Advisors and The Blackstone Group. LaSalle Advisors purchased the building on behalf of a Japanese institutional client, but The Blackstone Group was not involved in the transaction.

In the March issue's San Diego city review, we showed that Ann Taylor recently signed on for 65,000 sq. ft. at University Towne Centre; however, Ann Taylor has been at the center since June 1992 and has 3,411 sq. ft.

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