When the Dallas Business Journal asked Citadel Partners Fort Worth Market Principal Andy Goldston to talk about how the CRE world has changed since the first interest rate hike in March, he was among great company with about a dozen of DFW’s top CRE leaders. We pulled Andy’s response to the DBJ’s question.
DBJ: To state the obvious: In a quest to curb inflation, interest rates have surged. While no sector is safe from the ripple effect, it’s real estate that tends to experience the first wave. Since March, the Federal Reserve Bank has raised rates by 1.75% and with that has come a more cautious deal environment. Yet, as I often say: We have an asterisk due to the things that are going right in Dallas-Fort Worth and Texas, bucking trends and broader market forces that inhibit progress in other pockets of the United States. We checked in with a handful of North Texas executives back in April after the first hike, and we’re back to do it again after last week’s jump. Rather than a crystal ball, we asked for a retrospective of what’s changed in their worlds over the past several months. (Though it is tough to separate those experiences from projected activity through the end of the year.)
Andy Goldston: Since the first interest rate hike in March, the industrial capital markets have certainly been impacted. The anticipation of ongoing interest rate hikes throughout 2022 has resulted in industrial developers adjusting their underwriting to account for higher anticipated exit cap rates. As a result, price adjustments in land negotiations are being made, causing a difference in pricing expectations between purchasers and sellers. Sellers, whose land held a certain value in February, are having to face the reality that large industrial developers can’t make the same land acquisition prices work that they previously could. Developers that already have land secured are moving forward with their speculative developments, but a pause in new land acquisition is likely until the gap in pricing expectations narrows into a new pricing reality. The tenant market, particularly users under 300,000 square feet, remains active and we have not seen a slowdown. Many industrial manufacturers and distributors still maintain healthy businesses which are reflected in the low unemployment numbers that have been published. Overall, the industrial market remains healthy, but investors and developers are conservatively managing their risk-taking.
Excerpts from the Dallas Business Journal