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Is the Next Cycle of Commercial Real Estate in North Texas Finally Here? – D Magazine

Is the Next Cycle of Commercial Real Estate in North Texas Finally Here? – D Magazine

For nearly three years the question loomed large:  how much longer is this “cycle” going to last?

It reached a point where it seemed to be the number one topic at every real estate industry event. Nearly every meeting I had with lenders, investors, brokers, capital markets’ teams, or my peer developers started with that same question.

Nick Summerville, Kaizen Development

Opinions were diverse, but the dialogue that began taking shape was a categorization of deals as “this cycle” or “next cycle.” Then the answer was abruptly thrust upon all of us last Spring, ending a robust real estate cycle born circa 2010.

It was not a bubble-popping event, eroding fundamentals, overleveraged borrowers, a presidential election, war, or any of the other usual suspects.  Instead, it was a heavyweight champion of black swan events like the world had never seen.

The coronavirus brought the global economy, and society, to a virtual standstill. For most of us in the real estate industry, we saw corporate leasing activity grind to a halt, shopping centers and restaurants go dark, buyer pools of certain asset classes dry up, and lenders and investors tightened their grips on their capital.

Nearly sixteen months removed from the beginning of lockdowns in North Texas, my level of discomfort has been displaced by an overwhelming sense of excitement and optimism because I believe the “next cycle” is finally here in North Texas real estate …. and it could be bigger than the last cycle!

All the attributes that fueled North Texas’ real estate boom during the last cycle have remained intact. The added octane to North Texas real estate during this next cycle appears to be the doubling down of government overreach by many coastal states and major U.S. metropolitan areas.

Our region has always been a top competitor with respect to offering a favorable regulatory and tax environment, but now there are dozens of small intangibles and simple everyday freedoms that are becoming a driving force for people and businesses making the move to North Texas.

I was on a tour late last Fall with a west coast corporate office relocation tenant. During the tour, we chatted about the company’s success rate of attracting its west coast employee population to North Texas. One of their key team members opposed the idea of moving until he visited North Texas with his wife for an overnight trip. They moved here three weeks later. What sold them? The simple freedom of being able to go to dinner at a restaurant.

For clarity, this next cycle will not be a “win” by default simply because other states have treated their businesses and taxpayers poorly. North Texas wins on merits in so many different categories, which simplifies people’s decisions to move here.

Our arts, entertainment, sports, shopping, and restaurants are among the best in the country. The people here are warm and welcoming. Unlike our Central Texas neighbors, our infrastructure has kept up with growth and the housing market still offers far greater value and affordability compared to other major metropolitan areas.

While that all sounds like a total sales pitch for North Texas, those are literally the types of comments I consistently hear from friends and clients who have become North Texans or are preparing to do so. Sadly, we still have a few misinformed perceptions to overcome, but fortunately, those are typically upended once someone visits North Texas for the first time.

Anecdotally, we started seeing an uptick in office tours and leasing before Thanksgiving of last year. It started with the smaller tenant groups, ranging from 5,000 to 15,000 square feet, followed by medium-sized tenants around late winter, and now we are consistently seeing large (+50,000 square feet) corporate tenants in the market. About one out of four of our new tenants or tenant prospects are new to market. Nearly all of our tenants and prospective tenants are highly optimistic about their growth trajectory.

The last real estate cycle was long and prosperous. It brought many great companies, buildings, diverse citizenry, and increased tax revenues to every city in our region.

With our last cycle acting as a foundation, I truly believe the stars are aligning for this next cycle to be longer and stronger than the last. Ironically, the black swan event that led us out of the last cycle is what I predict will fuel our next cycle.

As real estate professionals and North Texans, let’s enjoy the ride, remember our Texas values, and don’t let people forget why they came here.

Nick Summerville is the managing partner and chief operating officer at Kaizen Development Partners.

This content was originally published here.

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