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Whitley Dunn on Commercial Real Estate Trends & the Future of Office Spaces

5 min read

Whitley Dunn is founder and president of Dunn Property Management of Fayetteville, the state’s 10th-largest commercial property management firm. He also spent 12 years at Walmart Inc. of Bentonville, where he was on a team that grew the optical specialty division from 24 stores to more than 1,600.

Dunn earned a bachelor’s degree in business administration from the University of Arkansas Sam M. Walton College of Business. He earned his real estate license in 2004 and his Certified Commercial Investment Member designation in 2006.

How has the northwest Arkansas real estate market evolved during your career? 

Just like any industry, there are always trends in the real estate business. There were dramatic swings in northwest Arkansas between 2005-10, during the early years of my real estate career. With reports of northwest Arkansas being one of the fastest-growing areas in the U.S., development in this area exploded. New, inexperienced and out-of-state developers were moving in and capitalizing on the unbridled growth. The mood in the industry was that you could almost throw a dart at the map and have a successful development. But with all of the development hype in the area, and so many new developers moving into northwest Arkansas, the market quickly became overbuilt, and many developers found themselves over-extended, almost like finding themselves without a chair when the music stopped. Banks found themselves having to create a line item on the balance sheets called OREO (other real estate owned). DPM was able to capitalize on our established relationships with area banks when the need for property management of these OREOs became a priority. From 2010-20, northwest Arkansas experienced steady, more conservative growth. The last two years have seen  the prices of houses skyrocketing in northwest Arkansas, while development has maintained a more reasonable pace.

What trends are you seeing with tenants who lease office space?

While we’ve seen new smaller businesses continue to open and require office space, many existing office tenants who fully occupied their space prior to COVID have now experienced reduced need for office space as many of their employees have not returned full time to working in the office.

Have property owner expectations changed post-COVID? 

What trends do you see there? Owners and client expectations before, during and after COVID have always been 100% occupancy in the spaces we manage. This expectation has not changed.  With the challenges COVID presented, we worked closely with our tenants to provide every government and financial resource they had available to them for assistance.  The result was that fewer than 1% of our tenants needed extensions for payment.  

What is the most difficult part of being a property manager?

As a property management company, our clients are the building owners and our customers are our tenants. We work every day to increase our clients’ net operating income (NOI). Using the cash flow approach to value properties (NOI/cap rate=property value), the NOI is the part of the equation [where] our company can have the most impact. By keeping our properties full and our operating expenses under control, we can return the best NOI to our owners. I emphasize this point to my staff all the time: “If we’re not working to increase NOI for our building owners, we aren’t working on the right things.” And the tenants are our customers; keeping them happy helps us remain at or near 100% occupancy. Having to balance the goals of the owners with the needs of the tenants is not what I’d call difficult. It’s a challenge, but with the right operational platform, proven policies and procedures in place, and the correct people working to execute these things, it just becomes routine in our world.  

We know that higher interest rates have depressed the single-family residential real estate market. How have they affected other real estate sectors? 

Interest rates are also increasing for commercial investors, so the effects are similar. As commercial investors create their pro formas for potential investments, in many cases they are having to invest more equity on the front end for a real estate investment to meet their financial goals. 

What are the hottest real estate sectors for investors?

Recent occupancy numbers in northwest Arkansas show the warehouse market is near 100% occupancy. So following the rules of supply and demand, investors would be wise to point their funds in the direction of warehouse development.

What’s been the best piece of advice you’ve received in your career, and how do you apply it?

Having had the opportunity to work with Walmart as a young executive early in my career was an experience that shaped my work ethic, even to this day. I was privileged enough to attend the Walton Institute, where one of the main principles they emphasized was “strive for excellence.” Perfection may be a lofty goal, but there is nothing wrong with working toward it. I benefited, both personally and professionally, from so many mentors during my time at Walmart. I witnessed so many examples first hand of how they strived for excellence in their daily lives. One of my favorite stories is when I attended a competition shopping visit with Sam Walton and several others to a Kmart store (Walmart’s biggest competitor at the time). He bought a few items so he could compare Walmart’s prices. In the parking lot, Sam asked the local district manager what he thought of the store. The manager proceeded to talk about all the ways we were doing better than the competition. Sam stopped him and said, “We know what we are doing well, but what are they doing better than us?” He was already running the No. 1 retailer in the world, but didn’t rest on his laurels. I was shown that we should continue to seek ways to improve even when we were performing better than everyone around us. Did we leave any money on the table? If we reached our goals, could you have done better? Always striving for excellence. I have found it very rewarding to apply this concept both in my personal life and in my current business. Sure, we always take time to celebrate our victories, but even in those victories we should never stop looking for ways to improve. 

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