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Big D Big on Mixed-Use

Buoyed by population growth that continues to outpace the rest of the nation, Dallas developers seemingly are in a race to break ground on a whole new generation of projects, each including a variety of mixed uses.

“It feels a lot like 20 years ago,” says one veteran market observer in describing the current state of the Dallas retail market. In the 1980s, just before the area's last major downturn, new developments were announced nearly on a weekly basis.

Driving this boom is one simple factor — an influx of people. Dallas-Fort Worth's population grew faster than any other metro area between 2006 and 2007, adding 162,250 new residents, according to new figures from the U.S. Census Bureau. That growth pushes Dallas-Fort Worth into the fourth spot on the list of America's largest metros with a population of 6.2 million, and growth from 2007-2012 is projected at 9.65%.

The area's relatively low taxes, affordable land and abundant workforce have proven powerful draws. Dallas is home to 12 of the Fortune 500, including No. 2-ranked Exxon Mobil Corp. But oil is a bit player in this diversified economy, which is driven by finance, accounting, health care and distribution services. On the jobs front, local employers have maintained their hiring pace. The area's unemployment rate of 4.3% at the end of February was lower than the national unemployment rate of 4.8%.

According to CB Richard Ellis, the Dallas-Fort Worth retail market absorbed 6.9 million sq. ft. of space in 2007. But both occupancy and rental rates declined during the year, leading to mounting concerns about overbuilding. Some 3.3 million sq. ft. of retail space was completed in the fourth quarter, and deliveries have jumped over the past two years. For 2007, 10.6 million sq. ft. was completed compared with 8.5 million sq. ft. in 2006 and 5.8 million sq. ft. in 2005.

The local office and apartment markets are showing signs of continued health. New York-based research firm Reis projects the office vacancy rate for Dallas properties to drop from 20.6% in the first quarter of 2008 to 17.2% by 2012. Apartment vacancies have dropped from 8.3% in 2006 to 6.9% in the first quarter.

Many local observers continue to believe in the city's ability to attract more residents and continue its growth streak. “Dallas has always been an achiever city,” says Art Lomenick, head of High Street Residential, a division of Dallas-based Trammell Crow Co. “And now it's starting to mature and get more soul.”

Iconic dream or reality?

Pulling up to Icon Partners' marketing office, a single-story stucco building near the bustling Galleria area in North Dallas, you don't immediately get a sense of what's inside. Large styrofoam models showing proposed towers and retail development occupy the bulk of the large central room. “These are just a few thoughts we have to show people a vision of the future,” says Paris Rutherford, Icon's president and COO.

Rutherford's crown jewel, for the immediate future anyway, is called Midtown, an ambitious 3.7 million sq. ft. project on 20 acres of prime land fronting the state's busiest intersection of LBJ Freeway and the Dallas North Tollway, adjacent to the upscale Galleria Mall.

Midtown will feature a 725,000 sq. ft. office tower, a boutique hotel, 500 residences and 500,000 sq. ft. of retail and entertainment space. Plans also call for a 50,000 sq. ft. district devoted to a cooking school, grocery store and outdoor food vendors. And Rutherford plans to build this $1 billion gem all at once, hopefully breaking ground in early 2009.

But given the state of the credit markets, can he pull it off? While Rutherford is mum about specifics, he strongly hints at an announcement regarding financial and development partners this summer. “Our feeling is that this project is positioned so that as we move forward we will build this through the bad time and it will open at a perfect time in 2011.”

Each property component — office, retail, hotel and residential — is structured in separate deals for potential development partners. “We're pretty well wrapping up discussions on three of the four pieces,” says Rutherford.

Midtown is patterned after the successful Grove project in downtown Los Angeles, which created a new destination for residents and tourists alike with 575,000 sq. ft. of retail and entertainment space. “From the start, we realized this site needed a big urban mixed-use project that would complement the Galleria and have equal weight to it. The real driving goal was to create a place that's just fun for North Dallas.”

Another mixed-use development banking on its proximity to a major mall is Park Lane Place. This $750 million project by local firm Harvest Partners sits on a long-neglected 33-acre site directly across U.S. 75 from the venerable NorthPark Center, which was developed in 1965 by local real estate mogul and philanthropist Raymond Nasher. Recently the mall underwent a massive $225 million makeover and expansion.

Park Lane Place's first phase is set to open later this year. When completed, the project will feature 700,000 sq. ft. of retail space, 816,000 sq. ft. of office space, a 250-key hotel, 625 residential units and a 78,000 sq. ft. fitness center.

One unique feature is the project's location adjacent to a commuter station along a major rail line for the Dallas Area Rapid Transit (DART) system. In the past two years, developers have staked their claims on building more mixed-use projects next to DART stations, a practice known as transit-oriented development.

Prescott Realty Group is developing the $400 million Lake Highlands Town Center on a 70-acre parcel in Northeast Dallas near a future DART rail station projected to open by 2011.

“Dallas got out ahead of other cities on mass transit,” says High Street's Lomenick. “They were working on DART in the early '80s when I was with Staubach. That's why there are more mixed-use developments around here than in other cities.”

Zoning gets an overhaul

One attitude that has changed over the past 20 years is the city's willingness to welcome development opportunities. In fact, the city is now undertaking the first major overhaul of its zoning codes to encourage more pedestrian-friendly, mixed-use development as part of a citywide vision.

North Texas is projected to grow by about 4 million residents to 9.1 million by 2030, and many of those residents will settle in Dallas-Fort Worth. This projection was not lost on city leaders and a comprehensive land-use plan dubbed “forward Dallas” was adopted by the city in 2006. At its core, the plan provides a road map for consistent planning, zoning and design.

City officials believe the changes will help revitalize certain urban areas and create new neighborhoods, including those around DART light-rail stations, by offering more flexible zoning options that allow a variety of uses. The Dallas City Council is scheduled to vote on the zoning proposals this summer.

Ahead of the zoning changes, downtown Dallas has witnessed a residential rebirth of sorts. According to the Downtown Dallas Association, more than 3,800 people now live in the 1.3-square-mile area bordered by the downtown freeway loop (Interstate 45, U.S. 75, I-30, I-35E and Woodall Rodgers Freeway).

The North Central Texas Council of Governments suggests that number could increase to more than 10,000 by 2010. “Downtown Dallas may change more over the next 30 years than any other area of its size in the region,” the group said in a recent demographic forecast.

Also creating a catalyst for downtown growth is the long-planned redevelopment of the Trinity River flood area just to the south. The city is kicking in $28 million to help fund a $115 million bridge to link West Dallas and the close-in community of North Oak Cliff to downtown. The bridge is designed by Spanish architect Santiago Calatrava and set for a 2009 completion.

Victory for the home team

Just north of downtown, one of the city's largest mixed-use developments, Victory Park, celebrated the 10th anniversary of its formal approval by the City of Dallas in 1998. The project, under development by Fort Worth-based Hillwood and Dallas-based Hicks Holdings, will include 12 million sq. ft. on a 75-acre brownfield site spanning 33 city blocks when completely built out in the next 10 years.

Ken Reese, executive vice president of Victory Park, notes that only $1 billion of the total projected $3 billion development has been completed. That includes the 20,000-seat American Airlines Center, a 33-story W Hotel, two residential buildings and two seven-story office buildings. The second phase, which is set to open by the end of the year, includes 400 new apartment units and a 450,000 sq. ft. office tower that is almost fully leased to law firm Haynes & Boone and Ernst & Young.

“The programming of the U.S. psyche has shifted to more excitement in an urban environment,” says Reese. “People are becoming more programmed to be urban, and that's the wave that's coming. A lot of baby boomers, for example, are looking to get rid of the yard and enjoy a simpler and more energetic life.”

Dirt is also flying in Victory's eastern neighbor, an area known as Uptown. Dallas-based Granite Properties and Atlanta-based Gables Residential broke ground in April on a $200 million mixed-use project at 1717 McKinney Ave.

When completed in 2010, it will include a 19-story office building, 292-unit apartment tower and a 1,400-car parking garage.

“The uptown fundamentals are excellent,” says Greg Fuller, Granite's COO. “They're the same as when we started the project in 2004.” But with land prices marching north of $100 a foot in the area, Uptown may be seeing the last of its development boom — for now.

Other developers are starting big mixed-use projects in more traditional suburban locations including Plano, which is 15 miles due north, and Irving, five miles to the northwest.

In Plano, Ainbinder Co. has broken ground on a 500,000 sq. ft. project on 35 acres on State Highway 121 and Parkwood Boulevard near the Plano/Frisco city line. The first phase, set to open in June, includes The Container Store, and a second phase will feature 250,000 sq. ft. of retail and 100,000 sq. ft. of office space.

A boutique hotel also is planned for the site. It is the first project by Houston-based Ainbinder in Plano and its second in the Dallas-Fort Worth area.

In April, Tanger Factory Outlet Centers based in Greensboro, N.C., announced plans to build a 380,000 sq. ft. upscale outlet shopping center with 90 stores on a 50-acre site. The land is owned by the University of Dallas and lies within the 488-acre Texas Stadium Redevelopment Area, at the intersection of State Highway 114 and Loop 12.

Cleveland-based Forest City Enterprises is negotiating with the City of Irving and Southwest Premier Properties to build a $2 billion mixed-use development on the remainder of the site. Plans call for a central corporate campus, nearly 5,000 residences, 1 million sq. ft. of retail space, a 500-room hotel, a theater and a civic center. The site is adjacent to a planned DART rail line linking downtown Dallas with the Dallas-Fort Worth International Airport.

“We feel lucky in Dallas right now since we haven't felt the effects of the national slowdown,” says Jim Yoder, head of Jones Lang LaSalle's Dallas office. “I think the mixed-use developments are working and the markets where space is being added are the best markets. People want to work close to where they can live, eat and entertain. Clearly that is a trend that will continue into the future.”

Ben Johnson is a Dallas-based writer.

LARGEST EMPLOYERS:

  1. Wal-Mart Stores
    33,500 employees

  2. American Airlines
    25,655 employees

  3. Texas Health Resources
    17,299 employees

Source: Dallas Business Journal

METRO POPULATION:
6.2 million

Source: U.S. Census Bureau

UNEMPLOYMENT RATE:
4.3%

Source: Texas Workforce Commission

METRO AREA VITAL SIGNS

Office:
20.6%
vacancy, 1Q 2008
21.1% vacancy, 1Q 2007
$20.00 rent per sq. ft., 1Q 2008
$18.88 rent per sq. ft., 1Q 2007

Source: Reis

Multifamily:
6.9%
vacancy, 1Q 2008
8.2% vacancy, 1Q 2007
$794 effective rent, 1Q 2008
$764 effective rent, 1Q 2007

Source: Reis

Retail:
11.5%
vacancy, 1Q 2008
10.3% vacancy, 1Q 2007
$16.00 rent per sq. ft., 1Q 2008
$16.25 rent per sq. ft., 1Q 2007

Source: Reis

Industrial:
9.6%
vacancy 4Q 2007
10.3% vacancy, 4Q 2006
$4.43 rent per sq. ft., 4Q 2007
$4.34 rent per sq. ft., 4Q 2006

Source: Colliers International

Hotel:
60.3%
occupancy, 4Q 2007
61.6% occupancy, 4Q 2006
$91.61 average daily rate, 4Q 2007
$85.89 average daily rate, 4Q 2006

Source: Smith Travel Research

MAJOR PROJECTS

Midtown, a new 3.7 million sq. ft. mixed-use development next to the Galleria in North Dallas by Icon Partners, includes a 715,000 sq. ft. office tower designed by Skidmore, Owings & Merrill. It will have a hotel tower, 500 residential units and 525,000 sq. ft. of retail space along with a 50,000 sq. ft. food district. Groundbreaking for the single-phase development is scheduled for summer 2008 with completion by early 2011.

Developer: Icon Partners

Completion: 2011

Cost: $1 billion

17Seventeen McKinney Avenue:

17Seventeen McKinney Avenue, a two-tower office and residential development, has broken ground on a 2.2-acre site on the northern edge of downtown Dallas, off the Woodall Rogers Freeway in the bustling Uptown area. The project features a 19-story office tower with 361,000 sq. ft. of space and an adjoining 300-unit apartment tower, with over 1400 parking spaces.

Developer: Granite Properties/Gables Residential

Completion: March 2010

Cost: $200 million

TAGS: Retail
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