Downtown Dallas' residential revival, and how it compares to HoustonThe Wall Street Journal ran a page one story on Monday on Dallas' attempts to bring more residents downtown (the link should work for nonsubscribers until Dec 4th or so). They have substories about some individual families and developers, but here are the "big picture" excerpts:
Beset with one of the nation's most forlorn downtowns, Dallas is seeking salvation in a radical cure: a plan to convert most of the glass-and-steel business district into an upscale residential neighborhood.I'm going to have to disagree with that last paragraph about low condo and housing prices working in their favor. As Steve pointed out earlier in this blog, low housing prices create compelling competition for high-rise residential, and low condo prices make it harder for a developer to make a profit on a project. High condo prices stimulate development, not low ones. Witness Miami.
Lots of cities are trying to piggyback on the nation's new taste for condominiums and urban living. Atlanta, Denver, Los Angeles and others have encouraged developers to recycle old downtown buildings into chic residences while continuing to promote themselves as prime office locations. These areas mainly draw childless couples, couples with grown children, gays and wealthy, single professionals. But no city comes close to Dallas in residential zeal. Dallas, a city of 1.2 million, has given out some $160 million in grants and tax abatements with the goal of creating a residential haven for those seeking to escape the hundreds of square miles of sprawl that surround it.
The city's goal is to attract a critical mass of 10,000 downtown residences, which its consultants say will be sufficient to reel in a stable, tax-paying base of neighborhood boutiques and restaurants, ultimately launching a self-propelling economy. The plans don't call for swallowing up downtown's best office towers. But planners hope these buildings, which are still largely filled with office workers, will become islands in a sea of lofts, condominiums, apartments and shops.
Across the country, Americans are embracing urban living, particularly in places where they can live, work and shop all within a few city blocks. Many seek urban excitement in projects that promise clean streets and protection from urban crime. So-called mixed-use development is all the rage. According to real-estate research firms Property & Portfolio Research and Reed Construction Data, 21.6% of all new construction this year will be mixed use, compared with 17.5% in 2002.
One of Dallas's biggest challenges is competition. Just across a freeway from downtown, Ross Perot Jr., son of the computer entrepreneur and former presidential candidate, is building Victory, a $1 billion project of upscale condominiums, apartments and hotels. Even 40 miles up the road, developers are expanding Legacy Town Center, a successful urban project with $300,000 duplexes in the suburb of Plano. Both those rivals are also using the same strategy as Dallas -- set themselves apart by attracting unique shops selling brands and products unavailable almost anywhere else in the region.
If Dallas's gambit fails, its downtown may be consigned to long-term blight, as city residents, already saddled with debt for the current set of incentives, may be reluctant to take on more taxes to try anew. Instead, developers, retailers and homebuyers may turn even more aggressively to Dallas's outlying areas.
Today, the streets of Dallas's 1.3-square-mile downtown are largely deserted apart from homeless people toting backpacks and commuters darting between their cars and their offices. There are almost no stores, and some 20 vacant high-rises. About 160 acres of surface parking lots sit across downtown, many of them covering the ground where buildings once stood.
Signs of an apparent reawakening have buoyed downtown advocates. Cranes carrying out residential conversions dot the skyline. Hard-hatted construction crews interfere with foot and vehicle traffic on almost every street. Developers lured by grants, free rent and long tax holidays have already carved some 2,400 mostly upscale apartments, lofts and condominiums from old downtown offices and hotels, and another 2,040 or so are on the drawing board. Many of the converted buildings are almost full, and sales and rentals are brisk in many of the unfinished towers.
"It's not department stores and big office buildings so much as it is people magnets, walkability, density and diversity that will bring downtown Dallas back," says William Hudnut, an authority on municipal revitalization at the Washington-based Urban Land Institute.
Dallas faces competition from developers who have long been creating a cleaner, more convenient downtown experience throughout Dallas's suburbs. Plano's Legacy Town Center, for example, offers plums that were previously the sole preserve of big cities, such as a walking promenade, ritzy restaurants, cool boutiques and a busy nightlife. Farther north on the very fringes of the Dallas suburbs, the town of Frisco is doing the same thing, even subsidizing rent on Main Street's pizza joint to tide the owner over until a critical mass of people move in.
Against these forces, Dallas's original downtown needs to find another 5,500 or so people seeking a hard-core urban life. The city is pushing ahead, confident that it can. Recently, it agreed to its largest payout ever -- $70 million toward a more than $200 million refurbishment of nine blighted downtown structures by Cleveland-based Forest City Enterprises. The company plans to build about 840 apartments and condominiums.
Housing prices are working in Dallas's favor. While the condo boom has pushed up prices in many cities and raised concerns about a possible bust, the boom has passed Dallas by. A two-bedroom condo can go for about $260,000. Karl Zavitkovsky, director of Dallas's Office of Economic Development, says that downtown Dallas won't be much affected by a market reversal because "you haven't had anything close to a condominium bubble here."
In addition to yesterday's post, I've previously given my own thoughts about downtown office-to-residential conversions in Houston here, and Steve did a comprehensive guest post here on the dynamics playing out downtown. The bottom line is that most of the "easy" residential conversions have been done downtown, but office building owners are holding out for new commercial tenants, and the costs are making the economics uninteresting for new residential buildings. So the good news is that we have a healthier downtown than most cities, but the bad news downside is that that inhibits further residential development. Residential only happens when people basically give up on commercial growth (as they have in Dallas, where the jobs have fled to the northwestern suburban towns).
I personally think there's another factor, though, that I haven't read much about. A big part of high-rise residential living is having a balcony with a view (or, if no balcony, at least the view). That's what people pay for, and it's why higher-up units sell for a whole lot more. But this is hard to get downtown, because there are so many other tall buildings blocking the views. I think this is why you see our condo towers being built in the Museum District, River Oaks, and Uptown - all spaced far enough apart that all four sides of each building get nice views. For commercial tenants, a view is a relatively low priority - so downtown is fine - but for residential ones, I think it's near the top of the list - which is a big strike against downtown. Not sure how to overcome that, other than pursue that niche market that is willing to give up a view for street life, stadiums, and the theater district.