A few years ago, Mayor Mike Rawlings got together with some of Dallas' leading real estate agents to discuss how they could convince the business community that the city's underserved southern half was a source of untapped opportunity. Asked.
What is their answer? Funding support gives developers additional peace of mind to launch projects in markets that are considered unproven.
There, Mr. Rawlings helped raise just over $37 million for a private investment fund run by an independent group without using any taxpayer funds.
The problem now is that fund managers are having a hard time finding eligible projects to invest in.
“We started fundraising at the end of 2014, so you would expect that we would have used up the money we raised,” said Linda McMahon, founding director of the nonprofit organization Impact Dallas Capital. said. Oversees the operations of the GrowSouth Fund.
Two years later, the fund has invested in just one project: the redevelopment of Southwest Center Mall. This is already a high profile and much anticipated undertaking.
McMahon said other projects are in the works, but the mall's success will be a litmus test for Rawlings' theory. And the result could reshape parts of Dallas that have been starved of economic development for generations.
Not North Park
On a recent weekday, Lisa Long powered through the core of the once and future Red Bird Mall like the mayor of a parade.
The mall's longtime general manager pointed to Urban Connection, a men's clothing store with brightly colored button-downs and boldly printed T-shirts. She proudly pointed out that Dez Bryant shops at the center.
Mr. Long quietly noted the several children living unruly on the coin-operated merry-go-round and greeted the several men behind the gold jewelry counter.
North Park is not like that.
And no matter how sophisticated the renderings are of the Klyde Warren Park-inspired outdoor spaces planned to transform the center into the mixed-use Red Bird Mall, if all goes as planned. But Long says that will never happen.
“They make billions of dollars in sales. [and we take it for granted,] It’s like a mall in our backyard,” she said.
Still, the project had the makings of a good investment for North Dallas businessman Peter Brodsky, who scooped up the limp property in 2015 for an undisclosed sum.
Brodsky said customers are what separate his efforts from the rapidly gentrifying area just across the bridge from downtown.
“Cedars, Bishop Arts, Trinity Groves, it's all about attracting people from North Dallas to South Dallas,” he said. “Redbird is about serving the people who live there.”
Right now, residents across the county, not just south Dallas, are hungry for retail and entertainment, and contrary to popular belief, they can afford it, Brodsky said.
Long said many of the current tenants could easily transition to the mall.
“Champions” [Sports], Kids Foot Locker, Foot Locker and Footaction are among the most productive facilities in the United States remaining in redevelopment,” she said. “There are a lot of people who say, “Oh, it's like a big bazaar, just a phone call,'' and they come…there's something they have to come here and get. ”
Citizen-minded investors
The problem is that Mr. Brodsky is not a faceless capitalist at all—despite his claims that his interest in Red Bird is purely economic.
He has a notable history of civic engagement, including serving as chairman of the Dallas Animal Commission, which was tasked with solving the city's intractable stray dog problem.
“South Dallas has been a place of need for so long that people have forgotten that it's home to hundreds of thousands of people,” he says. “The civics thing here is, I'm not going to do anything negative for the community.”
Brodsky also said that while he expects the project to generate a reasonable return, he needs financial support to move forward with the project.
The mall is part of a creatively delineated tax increment financing district that also includes Valley View Mall, about 20 miles north. The district encourages redevelopment by funneling additional tax revenue toward infrastructure improvements within the district.
The Growth South Fund's investment in the mall, essentially a loan, is about $4.4 million and will help close the financing gap, McMahon said.
This raises the following questions: Will other developers go the extra mile to find projects worth developing in south Dallas?
unique challenges
McMahon, president and CEO of the Real Estate Council, said the GrowSouth Fund was created specifically to address the unique development challenges of the vast area south of Dallas.
According to the city, South Dallas is 185 square miles and is home to 45 percent of the city's population. But only about 15 percent of the city's jobs and property values are here.
That means land is much cheaper south of Dallas. On the other hand, developers have to pay more money upfront and therefore have to take on higher risks. Banks will not lend on the same terms as in more developed areas of Dallas.
“Banks have to rely on valuations, and that's due to federal regulation,” she says.
And existing developments in south Dallas are scattered across that vast tract of land, making it difficult for lenders to find comparable shopping centers or apartments.
“Neither the rent nor the value of the property has been proven,” Mr McMahon said.
So if a developer wants to build a shopping center in Uptown or Frisco, a bank might finance 70 to 80 percent of the project cost. In south Dallas, it's 50 to 60 percent.
And that will become increasingly difficult as construction costs rise as builders face severe labor shortages and lumber prices soar.
Ted Wilson, a principal at Dallas-based Residential Strategies and a member of the Grow South Housing Steering Committee, said more money in the bank will be needed to secure vacant land after the recession. He said it would only become.
“For smaller builders, it’s a much more difficult environment,” he said.
This is where the GrowSouth Fund comes into play. At Rawlings' urging, McMahon looked into ways to close the funding gap. Eventually, she enlisted the help of consultants from Los Angeles-based Strategic Development Solutions to create a so-called mezzanine bond fund (financial term for a second lender).
Impact Dallas Capital has hired Dallas-based company Civitas to manage the fund according to strict regulations. Civitas announced that it has committed more than $700 million to “alternative investments” in real estate projects on behalf of institutional investors, family offices and high-net-worth individuals.
The GrowSouth Fund is different because, unlike typical investment funds, its success is measured on more than just financial returns. This fund is subject to so-called second income.
make money by doing good things
Rawlings' effort is not the first to address the deeply entrenched racial and wealth disparities between Dallas' northern and southern halves.
Economic development often comes at a price, advocates say. For example, rising real estate values around the glitzy Trinity Groves development triggered a crisis that left dozens of West Dallas families on the brink of homelessness.
“The people who are afraid of gentrification are the same people who want retail stores and grocery stores and the same amenities in north Dallas,” Rawlings said recently. “We can't stop the growth… we just have to stop it in a way that doesn't displace the people who have lived there for years.”
That's why the GrowSouth Fund has a second “income.” Impact Dallas Capital insists that developers be sensitive to those issues when looking for projects to invest in.
“You're working on an area that hasn't been invested in for decades,” McMahon said. “You can’t tear down a property and say, ‘It’s over.’”
But ironically, given the vastness of south Dallas, the GrowSouth fund's geographic scope will narrow an already relatively small pipeline, said Deborah La Franchi, CEO of Strategic Development Strategies. Stated.
The firm helped create LA's Genesis Real Estate Fund in 2000. This fund had a similar structure and goals to his GrowSouth. But even though it had broader coverage than the Dallas fund, it was still too small.
“After that period, we never went back to a city-only model,” she said.
Poor project pipelines and the time they take become a problem. Because that means your money is sitting around longer.
“Investors are paying fees whether their money goes out or not,” she says. “That puts you in a situation where you don’t make any money.”
Still, La Franchi said that when it comes to raising money and finding projects for the first time (Impact Dallas Capital plans to launch more funds in the future), problems are natural.
Jack Matthews has no confidence.
“If you only have one deal, that's kind of a slow start,” said the developer of the Southside-on-Lamar and Cedars projects. He is also one of the real estate giants that Mr. Rawlings turned to for advice.
“It's very difficult to have the dual benefit of doing good in the community and also wanting to make money,” he says.
He said while there are trades that bring in big profits in South Dallas, putting more money on the line is also part of the game. This makes it even more difficult for young developers to break into the market.
“Stay true to our mission”
Meanwhile, McMahon said investments in the fund are underway. He said he hopes to close at least two deals in the coming months.
Brian Carter, the current president of Impact Dallas Capital and a longtime pastor in south Dallas, said he's not concerned that investing the money took longer than expected.
For Carter, the fund is “a small piece of the puzzle.” Community leaders are also working to repair south Dallas' crumbling infrastructure and lagging educational outcomes and attract major employers.
“It's a matter of the right timing,” he said. “We must remain true to our mission.”
