Arts District Development Delayed

Museum Tower developer John Sughrue has been waiting for more than a decade for the vision of the Dallas Arts District to become a reality.

But as the Oct. 12 opening of the AT&T Performing Arts Center draws near, marking the Arts District’s coming-of-age, Sughrue’s long-planned 42-story, 123-unit Museum Tower condo project faces its own frustrating reality: Frozen credit markets are preventing the developer from getting the nine-figure loan he needs to get the $200 million project off the ground.

“We’ve been on the site for 13 years now, and we’ve been waiting for the Arts District to transform into a truly great neighborhood,” said Sughrue, CEO of Dallas-based real estate development and investment firm Brook Partners Inc. “It’s done that. Now we’re waiting for the banking system to heal itself so we can launch the project.”

Other developers with projects in the Arts District find themselves in a similar position, says John Crawford, president and CEO of business group DowntownDallas.

“Certainly the completion of the Arts District is going to expedite people’s interest in doing development downtown,” Crawford said. “Most of the commercial projects are going to be predicated on the financial markets loosening up, and for office buildings, on getting tenants.”
Developer Craig Hall of Hall Financial Group is planning a $120 million mixed-use tower in the block bounded by Flora, Crockett and Leonard streets and Ross Avenue. The plans call for about 430,000 square feet of office space and 30,000 square feet of ground-floor retail space.

Hall acquired the site, which has a large parking garage on it, in 1995. The city has approved a $9 million Tax Increment Financing incentive to encourage Hall to build the tower. To get the incentive money, Hall must start construction by the end of 2012 and get a certificate of occupancy for the project by the end of 2015.

Like Sughrue, Hall is waiting for the credit markets to improve.
“I would love to do that building,” Hall said. “My guess is it will be a 2011 or 2012 start. It’s just so hard to tell with the economy. The market is very tough.”

Hall and other area developers are excited about the completion of the Wyly Theatre and the Winspear Opera House, which will be dedicated in Oct. 12 ceremonies. The openings are being celebrated as the official completion of the cultural/institutional components of the Arts District, although one key piece — the City Performance Hall — is not yet complete.

“I think (the near completion of the Arts District) is just going to be fabulous for private development,” Hall said. “It’s a nice thing for the community and we expect to be part of it as soon as it’s possible.”

Projects unfolding

One private project already completed, in early 2008, is developer Billingsley Co.’s One Arts Plaza, a $150 million, 24-story, 1.1-million-square-foot mixed-use project at Routh and Flora streets.

The company plans two more buildings, called Two Arts Plaza and Three Arts Plaza, each of which will be of similar size to the initial building, said Michelle Carrig, director of marketing for Carrollton-based Billingsley Co.

About 80% of the 61 condominium units at the top of One Arts Plaza have sold, and the 10 floors of office space in the building are fully leased, with major tenants including 7-Eleven Inc. and law firm Thompson & Knight LLP, Carrig said. The project also has five restaurants on its ground floor.

The 22-floor Two Arts Plaza will be just north of One Arts Plaza at Routh Street and Woodall Rodgers Freeway. It will include 50 condos on the top floors over office and retail space, along with an urban park in front.

Construction on Two Arts will begin as soon as Billingsley Co. lands a lead corporate tenant willing to lease 100,000 square feet or more, and construction will take about two years, Carrig said. The company will start selling condos in Two Arts as soon as the lead office tenant signs on, she said.

“We have finalized the architecture and we’re pretty much ready to go,” she said. “The thing we’re waiting for is a tenant and financing. We think that will take some time, but things will come back around.”

Plans for Three Arts Plaza, to be built on what now is a surface parking lot east of Two Arts, are more fluid. Conceptual drawings call for a 25-floor tower that’s thinner than One Arts. The building may be a hotel or more office space, Carrig said.

“The market will dictate what it is,” she said. “We’ll wait to see what Dallas beckons.”
It’s not lack of financing, but lack of demand for condos and hotel rooms that’s stalling a project planned along Flora, between Olive and Pearl, said Graham Greene, president of Metroarts Corp., the entity that owns the land. Another entity would probably do the development, although that has not yet been determined, according to Greene

Greene plans a mixed-use development with a boutique hotel, condo and retail space, although the cost and scope of the project will be determined later. He envisions 80 to 150 condo units, 80 to 125 hotel rooms and about 60,000 square feet of space for restaurants, galleries, florists and similar retailers. The project is tentatively being called 2121 Flora, which is the property’s address.

The near completion of the Arts District’s cultural institutions is a positive development, but it isn’t enough to move 2121 Flora off of indefinite hold, Greene said.

“It just wouldn’t be very intelligent to try to do this at this time,” he said.
Plans are even less clear for a surface parking lot south of Ross Avenue between Leonard and Routh streets. Dallas-based real estate investment and management firm Spire Realty Group LP has acquired approximately 8 acres there over the past 10 years, said Jon Ruff, senior vice president.

“I can’t say anything about it yet,” he said. “We’re working on plans. It will be a significant project, in keeping with its location.”

The timing of whatever Spire decides to do with the property will be driven by the market, Ruff said. The firm, which owns the 1.1-million-square-foot Bryan Tower office building in downtown Dallas, owns and manages all of its projects, he said. In addition to office buildings, Spire has been involved in condo, apartment, hotel, retail and parking projects, he said.

Development forecast

A 2006 study of the developmental impacts of the Dallas Center for the Performing Arts found that rising land values in the area suggested the market was ripe for development. The study looked at changes in market value of commercially zoned land for certain properties along Olive and Pearl streets and found that those values increased by 17% to 49% between 1999 and 2005.

A look at the values shows even more dramatic increases since then, with land values for the same properties along Olive and Pearl soaring by 67% to 143% between 2005 and 2009, according to the Dallas Central Appraisal District.

Getting the right mix of development in and around the Arts District is critical to the district’s long-term success, said Veletta Forsythe Lill, executive director of the Dallas Arts District. Lill’s job is to market the district as a whole.

“We are coming close to reaching our critical mass of cultural institutions,” Lill said. “Now we need a critical mass of residential and retail.”
Beyond projects in progress, long-term implications of the Arts District’s completion on commercial development are hard to determine, said Bernard “Bud” Weinstein, an economist with the Cox School of Business at Southern Methodist University.

“Does the Arts District spur residential development, does residential development spur the Arts District and how do those affect office and retail? Only time will tell,” Weinstein said. “The different components feed off of each other.”

More than 20 of Museum Tower’s condo units, which start at $1.4 million, are presold, showing strong demand to live there, Sughrue said. That demand makes him believe that the tower will be among the first major commercial real estate projects nationwide to find financing once the credit markets rebound, he said. After the project gets started, construction will take about 30 months, he said.

“It’s an epic project,” Sughrue said. “It’s been an adventure getting here and there’s plenty of adventure in our future, but it’s a worthy project and it’s going to be a great addition to the Arts District.”

Bill Hethcock