LAST DAY Dallas - ALOFT and Craig Ranch

ALOFT, a trendy, eclectic hotel situated right across from the city hall and the proposed Dallas Convention Center was a cool study in hotel development and adaptive reuse. The building ALOFT took over was a historic building meaning the developers could apply for tax credits. The negative was that they were fairly restricted in some of the renovations they wanted to do such as lights and signage on the front of the building. All cement columns were left with original paint and dirt and even original "soot" stains.
Despite the economic downturn, occupancies have come up to 65%, and hotel rates are at $110 per night. One thing all good projects seem to have in common is a great location - which ALOFT definitely has as an advantage. Also ALOFT developers emphasized the importance of the OTA (online travel agent) such as Orbitz, Priceline, Expedia etc. In fact, 8 out of 10 people shop on OTA before booking their hotel. They may not book through the OTA, but they always shop online first. The building is 158,000 sq. ft. and individual rooms are 20% larger than normal sized rooms. They got 4.2 M from a grant and 5 M in historic credits. 5 M came from equity, and the rest came from a construction loan from Hillcrest Bank. ALOFT also made concerted efforts to incorporate green and received a "silver" LEED certification.

CRAIG RANCH

A mind-blowingly huge development that could be considered a city in itself. Projected to contain 30,000 people, the development has all the amenities a person could want. They project contains a medical center, schools, various sports complexes, several different types of housing, retail, as well as industrial office buildings. In addition, "lifestyle" amenities include a hike and bike trail, community parks, baseball parks, and a full service Cooper fitness Center. Neighboring cities are in favor of the development because of the ad valorem taxes it will generate for the area. Mr. David Craig, the developer, wanted to attract corporate America, who expects "quality of life." The soft amenities he put in at the beginning, whereas other developers may have added them later he felt would be an attraction to the community and also be sources of economic growth.
When Mr. Craig was first introduced to the idea of "new urbanism" he though, "never in my lifetime!" However, after touring several such communities in Canada, he was convinced of it's effectiveness .
Mr. Craig invited city planners from Europe and other countries called an "expanded Charet" to help him plan the city. One thing he is quite proud about is the grid pattern they developed, which he says will allow the project to be sustainable over time. The plan obviously has evolved over time, but the original grid has generally stayed the same. He feels the project his cross-generational and cross- national because of it's wide appeal. Access to open spaces, and flexibility of use makes for a very attractive area.
They were able to get a Ch. 380 4a and 4b, which was described as a TIF on steroids!
One of the complications of land assemblage is the utilities and sewage issues. They own the creeks and sewage for the land as well.
The city was originally not in favor of single family housing, but after running fiscal models, realized it was a good plan.
In the deal structure, Mr. Craig partnered with Cicil van Tuyl- a giant in the auto industry but a silent partner.
Mr. Craig attributes success to his staying power, being flexible with his project,and being willing to make sacrifices. He values those who have been loyal to him, and treats people fairly. "There is nothing you can't accomplish!" he says.

City of Dallas- LAST DAY!

Paul Dyers of the Parks and Recreation Department described the difficulties of getting fellow council members on board to invest in downtown parks. He decided that he really needed business folks to be involved and a master plan. Businesses in the area got involved and gave the city $400,000 for parks. They came up with the "Forward Dallas" plan has three levels of city involvement: 1- taking care of problem areas 2 - infill areas for recreational centers 3- build new things such as water parks or skate parks. Although the Parks Department assumed that the council would only want to take care of problem areas, surprisingly, the city council went for some of each, and were excited about some of the level 3 projects. It helped to break things down instead of simply presenting a huge budget that seemed out of reach.

Unfortunately, the city often has to use eminent domain rights to obtain downtown land property. They have to get "condemnation rights" in order to be successful in court against land owners. They always get appraised values, though. They put 80 M into parks such as Main St. Gardens, Bilow Gardens, and Beck Park.

The city planned for a 6 acre bridge park over Woodall Rodgers. When 16.6 M came into the state from the stimulus package, Dallas raised it's hand! Total cost for the bridge is 106 M. The new Trinity River project and park which was bought from John Simmons and will include playgrounds, lakes, kayaking, and soccer complexes. However, the levy system needs to be resolved.

Mayor Tom Leppert touched on three aspects of the city of Dallas in comparison to other cities.

1.) Better Growth Prospects in Dallas
- Dallas could do large manufacturing such as bottling plants

2.) South Dallas Opportunities
- Lancaster Corridor is a great place to join two TIF distrcits
- Studies done on Red Bird Mall
- The Trinity River project changes everything: suddenly the west will be an addition to downtown

3.) LEED
- Dallas is #1 Green specifically in wind energy, and clean water. They obtain 40% of their energy from wind
- 2000 of it's vehicles are hybrid
- it's easy to get the big guys certified, but not so much the smaller guys
- realizes "green" is becoming a fundamental issue
- 2 tranches in 2011 requiring all new buildings to be Leed Certified
- It's important to give developers and builders flexibility and options
- Debate on making regulation for making "renovations" green... yet to be tested, and costs could be high

Theresa o' Donald - Director of Sustainable Development and Construction

Economy has problems.
- North Dallas depends on residential not commercial for economic sustainability.

Dallas is a great city.
- medical District is the 2nd largest jobs market besides downtown in Dallas
- there are 110,000 daytime workers in downtown.

Future is in re-development.
- Dallas is land-locked.
- Infrastructure planning is critical
- areas the city is considering: North Park and Presby, 511 (5 point - a crime ridden area)
- change/re-develop areas by buying land and building schools and libraries

Responsible owners vs. non-responsible owners.
- A responsible owner can keep a wonderful development that is a great service to the community while an irresponsible one can be a city's worst nightmare. ie The Village vs. 5 point. Both were built during the same time about 30 years ago, but one is a thriving, safe, clean community, and the other is crime-ridden, unkempt, and deteriorating.

"Regional Fair Share"
- homeless problem: why do they all come to Dallas? Theresa wondered why other cities sent homeless to Dallas as opposed to taking their "fair share" so to speak. While Plano complained about 6 homeless people, Dallas deals with 6,000!


David Whitley over the Trinity River Project focused on the importance of design in the Trinity River project and all over Dallas. The goal is to set overarching urban design statements. They have asked Larry Beisly who designed the Olympics in Vancouver to help with design here in Dallas. When talking to residents on the west side of the Trinity River, the big theme is that people want a preservation of their communities. They need grocery stores. There needs to be a strategy for reuse of buildings and a sense of energy. Phil Ramano, and Butch Mc Gregor- land holders in the area are aiming for homegrown restaurants, and creative art production. They could make it a Municipal Management District. The city is trying to create wealth opportunities for developers.



Karl Zavitkovsky spoke about the CDRC (City of Dallas Regional Center) program in which foreign investors who are willing to invest $500,000 in the Dallas economy, can receive their green-card. The goal is that the money has to create at least 10 jobs for U.S. citizens, and will be paid back in 5-7 years. The good thing is that the investors are generally not worried about a return, and they are simply interested in the opportunity to receive a green card. Karl said that there had been a lot of interest from South Korea, China, and Mexico. Another benefit is that the foreign investors are not required to live in the States. The CDRC is a regional center that has been set up to organize and manage the foreign investments.
Karl noted that after his trips to Asia, it was very clear that there was a healthy competition between the states and Asia to keep up with the technology and and transportation of each others' countries. The North Texas council of Governments are trying to understand and implement sustainable transportation. In his view, there was not a collaborative effort between cities in North Texas. I think this could be simply because there are large distances between the cities making face to face communication much more difficult.

Nearly all the speakers made reference to a new UNT campus located in South Dallas, mentioning that it will be an important campus in the next 10-15 years and an opportunity for both land planning and to make a real "college town." Both the Mayor and Theresa mentioned that residential taxes - not commercial have driven taxes in the economy. Several of them also brought up the importance of the new "Calatraba" bridge and the Trinity River Park and how it will change the landscape of Dallas and allow for new development opportunities, as well as expansion and growth of the urban core in Dallas.

City Centre - Houston Day 6

Brandon Houston, the great, great, great, great nephew of Sam Houston, gave us the run down of the large-scale "City Centre" project in West Houston. He was the Director of Development and is heavily involved in the office development and leasing for "City Centere". "Midway" development started in Dallas, named after "Midway Rd." They started off in 1994 focused on master planned residential communities. They have always been the "General Partners" who would take all the construction risk, and draft a capital plan. This plan had to include how to raise money and pool capital from banks, insurance companies, and pension funds. They formed an LLC for every project they did, and the LP's financed the project. The LP's usually get a return in the high teens to mid-twenties. However, they always developed to own and generate their own annual income. In 2004, they developed a vision for "mixed-use" project.

City Centre was done with the realization that 2 Million people could get there in 20 minutes, and that the demographics were growing West. Basically, City Centre was a speculative buy where they bought the present mall off the market for 30 Million. They had 60 days to close. After acquiring the building, their first step was to kick off all (then) current tenants. They underwrote their project over a 10 year period. With a total of 38 acres, 28 having already been developed, their work was cut out for them. Fortunately, they planned wisely, and used what they could of what was already there. The garages, for instance, were already in ideal locations on the corners of the development. If they were to tear them down, it would have cost them 10- 15 thousand dollars each to build new.

In their financial structure, they did not apply for tax credits or government help, because they didn't want the city to own the streets. They also made a very smart move, and pre-leased 50% of the project before it was completed. At least right now, while they may not be able to pay off their equity partners, at least they are in a position to be able to pay off their debt service. They currently have 60% of retail leased, and 60% of office leased. They try to get away with low TI's and 7 yrs. average terms. Mr. Houston said that usually by the second generation of leases, you start to see returns.

Houston is in a good position because it's in the energy corridor where BP, Conoco, Exxon, Mobil, and Shell all have headquarters. Many of the tenants for their 7,ooo sq. ft. of office space is used by companies related to oil and gas, finance, or private businesses such as Regus.

How did they find the money?
- high net worth individuals
- Michigan State Teacher's fund gave them 60% of their equity
- several Million came from the Stanford Financial group
- 500 Million was the total all in cost
They put together road shows with their prospectus and their pro-forma. However, people will trust YOU more than the pro-forma, and if they trust you, they'll do subsequent deals with you.

In terms of "green" they have been "compliant", but at the time of building (in 2000) it wasn't feasible to be LEED "certified." Nevertheless, hotels and and residential didn't want to pay for any "green" issues.

What about market research? Expertise within the company told them residential drove retail. They knew the office environment was there because of the area. The only place they had to do extensive market research was on the hotel sector. They found that studies often gave a very clear picture of the past, but no clear prediction for the future. They found that hotels would also drive the restaurant business.

They don't use "Argus" but do give quarterly investor reports based on analysis, and use YARDI - a property management tool.

There are 425,000 sq. ft. of retail, 450,000 sq. ft. office, 244 rooms, and 22 condos. There are 525 units for rent @1.50 psf. Office goes for $22 psf., and retail goes for $35 psf.

One of the important lessons they learned was about being flexible. For example, one restaurant would not lease unless they had gotten more TI. City Centre could not afford more TI, so they offered to give the restaurant 20% cash in equity to buy the property. Mr. Houston said, "You have to be creative."

New Hope Housing

New Hope ia a place that literally offers "new hope" to low-income persons or persons in recovery from all over the Houston area. Joy, the executive director of the project, gave us the tour of both the Bray's Crossing Center (149 units) and Canal St. Apartments. What makes these projects stand out from other low-income projects is their emphasis on bringing stabilization to each person coming in though beauty, cleanliness, art, architecture, landscaping, and a whole host of personal improvement classes. The "life skills programs" include computer literacy and assistance with finding jobs. Other services include a computer lab, grocery shopping, a food pantry and transportation. Residents typically earn between 11-12,000 per year.



The impetus for the vision came from an Episcopal Church and eventually traded hands to a non-profit. Joy works extensively with the government to write grants and obtain ongoing funding for the project. The first projects' money came from mostly private sources, and eventually the government caught on, and began to get involved. New Hope has received the whole gamut of various aid: 41% government, 29% tax credits, 24% foundations, 4% corporations, and 1% individual donors or churches totaling 40 Million up-to-date.
At Bray's they offer residence occupancy for $400 - $460 for efficiency style apartments that offer microwaves, showers, beds, and and a desk.



When New Hope took possession of the original building, it was dilapidated and uncared for.


After a concerted effort to revitalize the building, it has become an attractive safe-haven for 50 and 30% median income housing.



The building is sustainable - they are able to punch through to make larger rooms in the future if necessary. Fortunately, there are land use restrictions for 20 yrs. into the future so no one can go in and change the use of the building in the short term. Joy described that they had received 6.1 M for low income tax credits, but that these "LITX's" require loads of documentation. They also had to make promises to TDA for LEED certification. They always conduct criminal background checks on prospective tenants, and keep a waiting list of up to 15 people. They have a national firm to verify /check documents. They roll consultants in and out during the planning and development stages, and always use a project manager with architectural or engineering background that doesn't sneak in costs! The average stay is 27 months.

At Canal Street, the open "zen-like" structure makes for a homey, transparent feel.The Architect did a good job of working with and accommodating the breeze throughout the building. A 6.1 Million development includes every item in the entire building down to the clocks, pictures, and every blade of grass!

There are 133 units, and 2 community kitchens. Residents are expected to clean up after themselves. The board for all of New Hope includes bankers, attorneys, 2 CPA's and real estate individuals. If additional money comes in above what the project needs, they keep a reserve, and pay extra to the lenders, pay for equipment, and may also take an owners draw. The Canal Street has a sizable reserve, and lease-up account. Even though it is a "non-profit" they used a "for-profit" financial structure (entity) to hold and sell the tax credits.

Houston Day 5 West ave Apt- Gables

At West Ave. Apartments, a Gables development, rent is going for 1.65 - 1.98 psf. As a new development during an unstable economy, one of their biggest challenges has been finding retail to fill their 2 stories of retail surrounding the entire project. Their retail is 41% leased. If they changed the 2nd floor from retail to residential they would lose 10 basis points.
Fortunately, their residential has been quick to lease, and the developer explained that the reason for their success was their strategic and careful investigation of the area. They purposefully only build in higher income areas (EPN locations) in order to meet their rental rate requirements. They also purposefully avoided the medical area because rents are too expensive for nurses. In the long run they feel that the "Location will take care of us."






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Location:West Ave Apartments

Core Apartments

"I've been doing this since 32- grew up doing development and warehouses. There is no substitute for hard work and common sense. There are so many land mines in both the financial and operations aspects of development. It's all about money flow, and recently the real estate craze has pushed up land prices. You have to have a Realistic budget. When I was 20, I built 16 townhouses, and I wore all the hats: sales manager, leasing agent, you name it! You have to buy and build at the right price. Learn the construction side. Shop for the best deals! I always erred on the cautions side, and we always got three prices on everything - for all our materials. Right now, everyone is stopping development, but on the upside, occupancies are going up because there is no competition. Timing is really important. Always go into a project defensively. Figure out your construction costs, and go to bank. You give personal surety. Bring in an equity partner- I brought in Archstone a REIT. As a sidenote, Leman Brothers paid 22 B to buy Archstone and that's one of the reasons they went broke. I set up a guarantee Corp.( a chart of assets) so I didn't have to use personal surety. Protect the downside... Always say, what's the most we can lose? Be conservative all the way through. Think like your personal budget. Go close to single family homes in a wealthy area. This particular area is a transitional warehouse area- clubs and restaurants were here and close to downtown. Exposure to major street helps alot. Try to fit into neighborhood- we used the warehouse loft look because that's what we had around us. We are currently 98% leased. Our tenant group includes: graduate students, 25-28 yr. olds who are engineers, or into oil and gas. We get 1.62 psf rental rates and have 326 total apts.



Our biggest challenge: railroad and brownfield, water contamination. Always talk to authorities, and be willing to work with them.
Texas is a Non income tax state.
As a developer, you also have to budget the time. With us,timing was everything, and when we bought in, interest rates were going down. Loan spread? Each property should stand on it's own. Preferred return 8% accrued. Look at your loan spread,and operating costs - are they at conservative levels? In terms of efficiency, we put in high efficient air conditioning. We did not put in special lighting. We could always replace our bulbs with compact florescent bulbs.
40% of our EGI (Expected Gross Income) goes for for Operating Expenses. Don't take the money and run! Put aside a decent reserve and put the money back into your property.
I've done 15 deals with recourse on 3 of them. Everything else is non- recourse. Never get out over your skis. My first big deal was 11 M!
Always look to a bigger company with more experience as an example. This is a cyclical business.
When you talk to the bank, talk about divorce in the beginning. Banks like good honest developers. Be fully transparent.

Houston Day 5

Stephen Stetzler director of the Green building resource center. They were certified as LEED gold. They had 5 types of carpet, a raised floor they obtained from Enron building, and 85% of the materials were reused from the Houston Library. All the display tables were on wheels. There was underfloor air-conditioning. It made sense to give rooms flexibility seeing that corporates move every 5-10 yrs. They had a solar panel which converted high voltage from DC to AC.
Commercial green building has paved the way for residential. Enviroglass is a company that makes recycled glass products.
"Wasa tile" a green tile making company charges $20 per square foot. 1 yr ago carpet was 10% recycled, 2 yrs from now it will be up to 30% recycled carpet.

Stetzler says, "It's important to get the design build community in the game. Get stuff locally! There has to be a demand for it to work though."