Welcome to the Deep Dive. We are cutting through the commercial real estate headlines to deliver the essential actionable knowledge right to you. Today we’re taking a deep dive into the mid-October 2025 CRE landscape, our mission to understand how the the very specific conditions in Dallas Fort Worth retail seem to be defying the broader national financial headwinds.

We’ve got a lot to cover. CMBS distress, huge refinancing deals right here in the Metroplex. It is an exceptionally complicated market right now. Nationally stress is definitely mounting that CMBS special servicing rate. Basically health check for big commercial mortgage pools. It just hit a 12 year high.

Wow. Mostly driven by office defaults, but then you zoom in on retail, particularly in these major growth markets like Texas, and you find these pockets of stability, maybe even opportunity. We really need to pinpoint where capital is moving because the flow into DFW retail assets is pretty undeniable.

Okay, let’s set that national baseline first. I think it really sets up the Texas story nicely. The retail market overall is proving remarkably resilient. Our sources show transaction volume hit what, $28.5 billion in the first half of 2025. That’s a 23% year over year jump, right? And crucially, the national retail vacancy rate is holding steady, near, and all time low.

It’s hovering right around 5%, and that makes high liquidity, tight supply. It translates directly into rising asset values. And, compressing yields, we’re seeing cap rates compressed pretty much across the board. Just look at the gap between grocery anchored centers and power centers. It’s narrowed from 166 basis points back in 2023, down to maybe 80 basis points today.

So the perceived risk difference between those two main retail investment types, it’s basically been cut in half. Exactly. That compression really signals that core retail investors are. They’re accepting thinner margins for that perceived stability, pushing maybe further up the risk curve than they normally would to get those quality stabilized assets.

Precisely. It’s a trade off they’re willing to make for consistency, but we do have to look at the conflicting signals about the consumer in these sources. The national market health isn’t completely uniform, take Orvis iconic brand, 169 years old. They just announced plans for a significant contraction closing 36 stores by 2026.

They’re citing rising import tariffs. The need to streamline and that contraction story, it gets reinforced by broader consumer caution. We saw globalist research noting that US shopping mall foot traffic is losing some momentum heading into the fall. It suggests many retailers are bracing for perhaps the weakest holiday sales growth since the pandemic first hit.

That points to a clear segmentation in consumer spending. Okay, so this raises a really critical point about value. If the prime institutional grade stuff is commanding top dollar and some big national retailers are pulling back, where exactly are investors finding returns? What’s fascinating here is how the lack of new supply is actually benefiting Class B and C neighborhood centers.

Since new construction is just so prohibitively expensive right now. Yeah. These older centers are seeing rental rates climb and occupancies get tighter. The value add play has shifted from fixing vacancies to really optimizing space that’s already occupied. Wait, hold on. If off price and thrift retailers are dominating the new leases in these suburban centers, as the data suggests, doesn’t that potentially lower the quality, maybe the long term value of those Class P centers?

Is that mix sustainable or is it more of a temporary fix? That’s a really good question, but the data right now suggests it is sustainable mainly because of affordability. Pressures on consumers, you know these off price concepts, they bring immediate traffic, okay? And they often require less tenant improvement money from the landlord.

So as a landlord friendly solution, in a market where consumers are pretty segmented, those at the top keep spending on luxury. And while almost everyone else is hunting for value. Those Class B centers outside the prime corridors, they’re perfectly positioned to capture that value shopper. So the national story is split luxury and value gaining mid-range contracting.

How does DFW, which has such a strong luxury focus, navigate that? Ah, see, this is where DFW really sets itself apart. Dallas isn’t just, navigating the mixed national picture. It’s acting like a magnet for huge institutional capital. It’s really cementing its reputation as a safe harbor for top tier assets.

Let’s look at two deals that just perfectly demonstrate this extraordinary institutional confidence. First, the financing side. North Park Center in Dallas. Massive place, 1.9 million square feet, luxury mall, 98.6% leased. Incredible occupancy, right? It just secured a record. $1.2 billion refinancing package.

And this was led by Giants, Wells Fargo, Morgan Stanley, Goldman Sachs, a $1.2 billion loan on one retail asset. That is a monumental data point. What’s that telling us about lender psychology right now? It tells us lenders are definitely allocating capital defensively. When these huge institutions need to place significant capital.

They are aggressively chasing fortress assets. They’re choosing irreplaceable top performing retail over say, riskier office debt or spec construction. That $1.2 billion deal. It’s clear proof that Texas core retail meets the absolute highest performance criteria for risk averse capital. And you see that institutional confidence mirrored by the tenants too.

Luxury shoe brand. Gian Vito Rossi picked North Park Center for its very first Texas boutique, an 1800 square foot spot. It shows DFW is really operating on a global scale for high-end retail expansion. The luxury segment here seems well unassailable. And moving beyond just luxury. We see immense development, confidence in essential retail too.

Really fueled by DFWs explosive population growth. Look at the long awaited Preston Center redevelopment, the 8,300 Douglas Avenue project that’s moving forward. Construction is supposed to start in March, 2026, and that project is specifically targeting Dallas’s most affluent neighborhoods, right? The plan includes, I think, 24,000 square feet of ground floor retail and dining, really focusing on localized luxury experiential tenants for park cities, Preston Hollow residents.

Exactly. And we absolutely cannot ignore the pressure from the grocery sector. It just continues to redefine neighborhood retail space across the entire metroplex. HEB is ramping up its DFW presence. Relentlessly. Relentlessly is a word. A new 130,000 plus square foot store is opening in rock wall October 29th.

Yeah. Anyone looking at traffic near that new rock wall site knows this isn’t just about grocery space. It fundamentally alters consumer patterns in those DFW submarkets. It really demonstrates that continued almost ferocious competition for. Crime, grocery anchored retail, and that DFW based capital isn’t just staying within the metroplex either.

We saw a Dallas investment group purchase a fully leased 181,000 square foot power center down in Waco. Anchored by Sprout’s Farmer’s Market. Interesting. Yeah, it shows DFW investors are actively looking for stabilized retail assets across key Texas growth corridors, even outside the core DFW area.

Okay. Now we need to connect this retail strength back to the broader picture for Texas commercial real estate because it’s not nearly as healthy across all sectors. Absolutely crucial context. While retails is robust, the state is still grappling with a rising distress wave. We saw nearly $575 million in CRE loans hosted just for October foreclosure auction statewide.

And where’s that stress hitting? Hardest? Mostly underperforming multi-family assets that were bought at peak pricing, and of course, older office stock. That’s really struggling with vacancies. So explain this. Why does distress in multifamily and office actually become something of its. Tailwind for existing well located retail centers, it really boils down to supply.

Multifamily stress means local developers are slamming the brakes on new projects and the lending community through severely restricting capital for speculative development. Got it. So this further restricts the flow of new retail supply, the kind that often gets built next to new apartments or office buildings.

So existing Class B and C retail owners, they benefit immensely from that lack of new competition. And we also see continued strength in industrial. DFW industrial activity is quite robust. Westcore, for instance, acquired a 1.1 million square foot portfolio, right? Fully leased infill warehouses across Dallas, grand Prairie, Arlington, right?

Plus demand for industrial outdoor storage. iOS basically powered land for truck parking, logistics yards. That’s attracting big investors to like Dallas based dolphin industrial. Okay, so pulling all this data together, what does it tell us about the current investment climate here in DFW? The Fed’s beige book called it Pockets of Strength, which honestly feels like an understatement for retail and industrial right now.

Investors still have to be extremely selective. Selection is absolutely everything. Capital is flowing, but it’s flowing to assets that are well leased and well located. That means core retail and core industrial. The market restructuring the pain points, those are focused squarely on older office buildings and specific vintages of multifamily.

So for you, the DFW retail investor or broker listening in. What are maybe the three most actionable tactical insights we should pull from all this mid-October data? Okay, three key things. First, let’s talk investment, focus and competition. While the institutions are chasing those huge North Park style deals, the bulk of the transaction volume and where private investors really dominate is in single asset retail trades, smaller properties, often $5 million and below.

Private capital frequently, all cash buyers, they’re dominating this space. So the insight isn’t just focus small, it’s knowing your competitor in that space. Exactly right. You need to be using local title company data tracking those all cash buyers in the sub $5 million retail deals. That’s your real competition and you have to be ready to move quickly, move cleanly.

Second, the location premium is well extreme. The strongest institutional deals that North Park refi, the new Preston Center development. They’re laser focused on prime high income DFW Submarkets. However, value can still be unlocked in those Class B neighborhood centers outside the primary corridors, precisely because they benefit from low national vacancy and that consumer hunt for value we talked about.

Okay, and finally, let’s address the financial reality, the elephant in the room, even with retail looking strong. Third point financial reality. Borrowing costs are still elevated. Even with that recent 25 basis point. Fed cut lenders, they require significant equity for secondary property loans. So the key takeaway here is segmentation.

You either prepare to pay the premium for core stability where capital’s readily flowing, or you take on the operational challenge and the higher equity requirements of that Class B space. Careful discipline, capital deployment is the absolute rule right now. Synthesis is really powerful, but we’re seeing a highly segmented market.

DFW retail is clearly thriving, driven by consumer consistency and huge institutional confidence in those core assets. But the cost of that confidence is a very steep premium. Absolutely. And the data just confirms how crucial local expertise is for navigating these complex, highly nuanced conditions.

You need that hyperlocal knowledge to know exactly which pocket of strength you’re targeting, especially when you’re tracking private capital flows. We’ve definitely seen the bid ask spread narrow across the US partly because sellers are maybe reluctantly accepting updated valuations and buyers have slightly cheaper debt now.

But price discovery, it’s still very much underway. And given the high profile of deals like North Park Center and that continued flood of development capital into df, W’s most affluent submarkets, the question I think, for every investor remains, are you prepared to pay the premium that’s required today for core stabilized.

Texas retail assets, or are you gonna shift your strategy to hunt for deals in that rapidly shrinking pool of class B value add opportunities? Something to really consider. Think about the operational intensity required for each path as you prepare your strategy for Q4. That’s a great thought to end on.

Thank you for joining us for this deep dive. We look forward to sharing more insights with you next time.