5/27 Dallas City Hall

Our first meeting of the day was with Paul Dyer, the city of Dallas Director of Parks and Recreation. He provided insight as to the master plan of designated parks and new acquisitions by the department. We discussed the Woodall Rogers park, which for those of you who aren’t familiar with the project, is a 6 acre park over a freeway that will connect the predominately commercial, central business district with the residential uptown area. He discussed receiving $16.7M of stimulus money for shovel ready projects. It was the sole receiver of this grant for city improvements in the state of Texas.

We met with the Dallas Mayor, Tom Leppert, who discussed the various challenges that Dallas is currently facing. He was particularly interested in discussing our sustainability and adaptive reuse topics and touched on the initiatives of the cities in both these areas. Dallas is one of the most forward thinking cities as far as sustainability goes. They strive to use adaptive reuse to meet these goals as much as possible. He also touched on the new developments that will result from bridges across the Trinity River. Dallas strives to attain LEED certification with city and public building whenever possible. They form public private partnerships with developers interested in adaptive reuse and are trying to revitalize the downtown area.

After this meeting, we met with Teresa O'Donnell. She had some interesting insights as to how surrounding municipalities differ in their approach to homelessness. She touched on where the public programs and private funding intersect. The continuum between urban cities that focus on their core, like Chicago, and cities that have rural specificity, like Detroit, were discussed in detail. Although Dallas was much more towards Detroit on this line, they are looking to achieve the vibrant inner core that Chicago has attained.

Our final meeting was with David Whitley from the new Dallas City Design Studio, and Karl Zavitkovsky, the Director of the Office in Economic Development. They jointly talked about the challenges that face the South Dallas, East Dallas, and the Oak Cliff areas. Major redevelopment projects in this area are planned and have designs laid out for the future. The design program is a new initiative with $5M of new funding. They are focusing on redeveloping this area which is the most underutilized location, as far as highest and best use goes, that is still close to downtown.

5/25 Houston Site Visits

New Hope Housing, Inc

We toured two affordable housing projects with Joy Horak and Nicole Cassier, one which was a recent redevelopment, and the other that had been operating for four years. This corporation focuses on affordable housing by utilizing tax credits, HUD financing, state and city support, as well as donations from individuals, businesses, and foundations. The two sites that we toured were Bray’s Crossing, which is a 149 unit affordable housing complex that was recently completed, and Canal Street, which is a 133 unit complex that has been operating for four years. Both of these sites are dorm style, multi-family facilities that have one room efficiencies with common area kitchens and living areas. They charge anywhere from $415 to $477 per month and focus on getting their tenants from various government foundations that service the lower income echelons of Houston citizens. Construction of both facilities was similar, but the final construction budget, which is all inclusive of everything including furniture, for the projects was very different. Bray’s crossing cost a total of $14M to construct partially because of a $1.5M acquisition cost of land. This high acquisition price is because the development was built on I-45, which is one of the busiest highways in Houston and has high property values. To assure that highest and best use will always be provided by this structure they designed it with the ability to knock out walls to combine multiple units. The Canal Street site construction cost was $6.1M and allowed for 50% and 30% of MSA funding for affordable housing. The affordable housing component focuses on providing for the recently homeless, recovering drug addicts, and those that have found themselves in a difficult financial situation. The foundation doesn’t view their occupant’s financial situation as a problem, but rather as a challenge. With help from private funding and various tax credits and public contributions, the foundation has succeeded in not ever having to evict someone for lack of ability to pay. They typically build structures that are profitable not only to gain tax credits, but to protect their integrity and ensure that they can provide continued development of similar projects. Their truly innovative approach to developing affordable housing by individually separating projects and their ability to work with the city, state, and federal government virtually assures that they will continue to provide these developmental services. After concluding our tours, these nice ladies took us to lunch. Thank you very much for your hospitality!

Prior to rehabilitation

City Centre

We met with the Director of Development, Brandon Houston, at this site and discussed the various challenges that he faced from the planning to lease-up phase. He stressed to us that the developer and manager, Midway Companies, is a very conservative organization and that is the main reason that they have been able to weather the perfect storm that has occurred over the past three years in the real estate industry. They take personal responsibility for planning, construction, marketing, management, and leasing to ensure that all of these critical aspects are done correctly. This ensure that there is never a point where a project is passed on to another entity and effectively reduces the possibility that the “blame game” can occur if something goes bad. Although they are willing to take risks, they always to their best to minimize their potential downside. This particular project was a $500M investment that 60% of the equity came from the Michigan State Teachers Pension fund and the rest was mostly private investors. It is situated on 38 acres that was bought for $30M on a option contract with the existing regional mall which was on the site. This was an absolute steal for them because they demolished the existing structure and left the parking garages, which would have cost about $42M to construct the 3500 spaces. It is a mixed use development with 425k retail SF, 450k office SF, 244 hotel rooms, 22 condos, and 525 residential rental units. All of the buildings are LEED built, but the company decided not to spend the extra expense to pay for their certification. This urban development is all class A product and was preleased to a minimum of 50% prior to construction. The neighborhood it is situated in is one of the wealthiest in Texas with a median home price of around $900k. They expect to make all of their investors return on equity hurdles upon completion of sale after a projected ten year holding period. Midways approach to conservative and realistic business practices has produced a reputation that ensure their continued growth and sustainability.

5/24 Houston Site Visits

Gables West Ave Mixed-Use Development

Situated on the corner of Kirby and Westheimer, this project was begun out of an RFP that was issued by a major land holder who does ground leases in the area. The winner, which was perhaps by the result of forced default of other offers, was Gables residential which has 26k units and a net worth which was upwards of $3B before the downturn. The developers, Josh Landry and Ben Peaceglock, gave us a tour and the low down on the project. It is currently 89% leased on the residential and 41% leased on the retail. Rental rates for the 397 residential units are around $2 per square foot per month with 2 months of rent abatements (not included in that figure). The tenant mix is diverse and is made up of young professionals, empty nesters, travelers, etc, with no one type of tenant dominating the rental pool. There are 72 floor plans, which are taken from the Gables other successful multi-family projects, have 3 different finish outs, but do not vary substantially in price. The Gables focuses on what they call EPN’s, established premium neighborhoods, and their continued success in these areas ensure their continued sustainability. This project was unique because of the two floor of retail space with 195k square feet. They purposely made their second floor a flex space that can be easily converted to office or, if they are really desperate, into apartments. They are still working on lease-up of the retail while they have been able to relax as their apartments leased very easily. They are confident that the whole structure will be occupied (minus turnover) in the near future and continue to ride their market research and unique business plan to success.

The Core

The core is located on Washington Street not far from the West Ave development and the two projects have many similarities. Washington used to be an industrial area, but is now an up and coming young urban professionals area. Great night life is within walking distance and a public bus system commonly known as the wave provides service to the area, day and night. According to Michael Morgan, a principle of the development company, the best philosophy a developer can have is to be conservative and not to speculate. Although he admitted that some of the development business is about being lucky, he said the most important thing is to avoid “stepping on a land mine.” He has been in the business since a young age and has done everything from single family houses to $100+M developments. His equity partners on this deal are a public REIT. They have 25% equity on the deal and 75% debt. He stressed that he is very comfortable with their high occupancy rate of 98.8% and expects that it will remain high because nothing is in the pipeline for the area for at least three years. The rental rates are currently below the market of $1.60 per square foot at $1.40. They also maintain the ability to go lower and still achieve their desired yield. He thinks that building too much at a time is like taking too many classes in a semester. You will fail some of them if you have to choose what to focus on! This is a great philosophy. He mentioned that most developers go broke and it is most often caused by the hype that is built over their projects. They over extend themselves and this results in their collapse. “Slow and steady wins the race!”

5/24 City of Houston Meetings

City Planning Department

Our meeting with Houston city planners, which included Richmond Coward, Brian Crimmins, and Ryan Albright, was very eye opening to say the least. For one thing, the discussion was much more about the lack of zoning rather than its presence in the area. This is because, for the most part, land and deed restrictions coupled with market demand make most use determinations within the Houston city limits, which includes most municipalities in the suburban areas. There are three ordinances know as the “big 3” that help Houston achieve its goal of “ensuring that it remains a vibrant and sustainable city.” The three ordinances guide land development, parking, and landscaping/historical preservation. Other than these ordinances, density maximums for various types of structures are the only other major policy tool that city planners utilize. The city itself focuses on preventing sprawl and charging developers appropriate impact fees for new development. Impact fees ensure that large planned communities are responsible for their own city services. This is a major help the city’s infrastructure and also makes a tremendous difference when the city chooses to annex various sections of new development. Parking is always a major issue in this city because of the lack of regulation regarding different types of uses. Parking is not always adequately provided for and requires continued work. This is compounded by the fact that the form based code that is used is really only two dimensional, while in other cities it is three dimensional. What this means is that height of structures is not regulated. This is a major challenge that extends way beyond the actual use of structures. While obvious benefits such as market determinations of highest and best are determined by the free market, many negative externalities are rampant.

Utilizing mass-transit to our next stop.

Green Building Resource Center

This center, which was started and is currently operated by architect Steven Stelzer, is a hands on approach to providing education about green practices to citizens. The center was started by donations and actually gained so much public support that they exceeded their funding requirement. Our discussion was dominated by talk of”life cycle costs,” which is roughly defined as the cost of an item in relation to its useful life and its sustainability. The center focuses on educating the public on how reducing the production pollution of green products and extending their useful life is a sustainable practice. Many of their green ideas can be found on codegreenhouston.com. We talked a lot about LEED certifications and the cost involved with the process. One major thing that Mr. Stelzer pointed out was that many LEED projects include consulting costs involved with the development in costs estimations. By his calculations, LEED certificates themselves are much cheaper than most people think. Although he later said that they paid $3000 to certify their 3100 square foot commercial interior, he said that most buildings are certified for much less per square foot than their display area. He also said that in 2009, energy and connectivity have been included much more in the new LEED rating system and changes will continue to evolve as LEED becomes better understood and more transparent. This was a great visit and I would encourage anyone that is interested in sustainability to visit this resource center in downtown Houston when they get a chance.

5/20 San Antonio Site Visits

The Friedrich Building

Patrick Shearer, the listing broker, was nice enough to show us around this historic structure that is currently occupied by a few small offices. The building was formerly the main production facility for Friedrich Refrigeration Company. The property is a combination of many structures that were built as the company expanded. In its current state, it has a total of 533,000 square feet between all of the structures and all four floors includingwthe heavy duty lifts designed for forklifts and materials. The six acre site is currently listed for 8 million. It would be an interesting adaptive reuse structure that would present many challanges that are unique to this specific project. The main issue is that many of the structures are in disrepair and would require extensive work in order for them to be granted a certificate of occupancy for any use. A developer could purchase the property and do selective demolition to provide the interior of the building with windows and effectively be able to convert the vast space into condo’s or apartments. Another less demolition intense idea would be to continue the conversion to office which is still less than 5% complete. The work was begun ten years ago and it would be possible to pick up where the last developer left off. Ideas to turn it into a mixed-use facility would result in the various challenges that other historic brownfield developments encounter. The area would be the main challenge that is typical with this type of repositioning. Multi-use zoning changes would also be required. The developer would have to work with all incentives possible to make this project feasible and perhaps the city would provide additional help through a public private partnership. In any event, this project has many unique challenges for its next owner. Their taking offers now. This could be a gold mine for someone with some spare equity and the confidences to do an extreme version of the typical value add play.

Alamo Architects

The owner of Alamo Architects, Mike McGlone, was kind enough to show us his LEED certified office, which is a completed brownfield repositioning. They were successful in achieving a LEED silver rating and estimate that they save about 30% on their operating expenses because of the buildings efficiency. The architects in this firm are very knowledgeable about LEED now, but most of them were turning over a new stone when they began this project. Needless to say, it was a learning experience for most of them. They were very successful in achieving their set goals and actually recycled 95% of all materials that would have otherwise gone to the dump during constructions. All of this was done by only adding 7% to the overall construction cost. They also only paid $6k for their actual LEED “test” which is far less than other commercial structures often pay. They estimate that most LEED projects take 3-10 years to pay back their extra construction costs through operating expense savings and that this only costs 1-8% more up front. In addition to energy efficiency systems, they have everything from rain water recycling to condensation collection to save on water costs. This infield development was said to be relatively straight forward compared to others that the company had experience with. They have occupied it for three years and continue to be satisfied with the unique structure.

Marty Wender Meeting

Mr. Wender was nice enough to have us to his office and buy our whole class lunch. He had a lot of great advice and it didn’t cease, nor cease to amaze me the entire time we were in his presence. He say’s that his job as a developer is to simply “sell dreams.” This is interesting because he focus’ on developing land and selling plots by utilizing the highest and best use. He talked about how new areas that he developed seemingly have no zoning because he creates the whole development out of nothing. He is adamant about providing quality infrastructure and has given back to his community in this way for his whole career. He is a straight shooter and says that he likes to do things right the first time rather than passing the buck to the city when the public spaces are deeded back. He has done everything from Sea World, to data centers, to single family houses. He stressed how getting in with everyone from the community organizers to politicians has been helpful to his career and ultimately his reputation. He is extremely personable and believes that this attribute has gotten him to where he currently is. One of the top developers in San Antonio with international ties to equity partners and fellow real estate moguls around the world.

San Antonio River Authority

Our tour of the new part of the San Antonio River Walk, which is operated by the San Antonio River Authority, provided insight into the new vision of the area as an amenity for residents rather than purely a tourist attraction. The 1.3 mile stretch of river that we walked is catered by a water taxi. A lock was required in the middle of this section due to the substantial rise in water height that occurs over the stretch. This area used to be inhabited by vagrants, but now the river area has been completely redone and sidewalks and landscaping cover both banks. The years of hard work that was put into this project provides the city with a section of river which is primarily focused on a public attraction and is much less commercial than the old boardwalk attraction that tourist have come to know the city for.