Filling the Elusive Middle of the Capital Stack

In our post-real estate recession economy, secured debt at the bottom of the capital stack is easy to find — depending on the asset class, 55%-70% of cost, great interest rates.  Top end equity can also normally be found, although at a high preferred return (high teen’s / low 20’s), typically requiring giving up a significant part of the back-end profits, which results in taking money out of the developer’s pocket.  Building the middle of the capital stack is the most important slice for the owner/developer – sizing up this part of the financing at cheaper rates results in more retained profit potential.

Filling this part of the capital stack requires patience, persistence and ingenuity, with multiple possible sources that can be layered:

EB-5 Foreign Visa Capital: For every 10 direct, indirect or induced jobs created in a high unemployment or targeted employment area (TEA) the project can receive $500,000 in investment. Job counts is determined by a qualified EB-5 economist and more jobs are deemed created than would be envisioned.  Additionally, TEA’s can be expansive (Dallas’ official TEA – which is not exclusive – runs from South Dallas to West Dallas to Uptown).  EB-5 capital is normally mezzanine debt, does not take a back end interest, has an interest rate ranging from 6%-12% and is repayable out of sale or refinancing proceeds in 5-7 years.

Federal or State Tax Credits: Depending on the location and type of project, the project could be assisted by low income housing tax credits, new markets tax credits or state or federal historic tax credits. All of these sources of financing provide either equity or a forgiven loan.  Each of these credit programs have their own sets of complexities, and may or may not be available up front, such that the developer may need to source bridge loans for these future credit equity streams.

Tax Increment Financing: Many cities have TIF districts where grants are available for “public improvements” for projects that create tax value, jobs or affordable housing.  Many of the TIF Districts have pledged out their future tax increment to projects already in the queue, which means the funds may not be available for a number of years, requiring creativity to find sources of financing (such as HUD Section 108 loans) to “advance the TIF” forward to the start of construction or redevelopment.

City Ground Leases or Infrastructure Improvements: Depending on the location of the project and the benefit of the project to the city, low cost ground leases, city developed parking garages (part of which may be leased to the developer) and city subsidies to infrastructure may be available to reduce project costs.

Charitable Grants or Low Cost Loans: If components of the project have social value, local or national charitable organizations or foundations may be possible sources of low cost financing or grants.

Get Creative: If the project has some inherent value to certain constituencies in the area, a “license” may be granted to those constituencies to use the project.  An example would be a hotel room right of first refusal to sports boosters wanting access to hotel rooms during home game weekends, or arts’ patrons subsidizing affordable artist lofts for artists in residence. If a project has “public benefit” the city may have a source of funds that is not encumbered, that could be used as collateral for a tax-exempt or taxable bond issuance, the proceeds of which could in turn be used to finance the public facility.

Making these parts of the capital stack work in harmony can be tricky — but the end result may be a project that becomes feasible by reducing the overall blended cost of capital — or better yet, a project that returns a higher end profit to the developer.

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Dallas Could Learn a Thing or Two (from Indianapolis??)

Someone rescue me! I’m becoming as wonky (nerdy) as some of my urbanist friends.

After an early morning Labor Day DART trip from Downtown Carrollton to the Akard station, my bike in tow, I rode through Downtown Dallas, up through State Thomas/Uptown, Cedar Springs, and paralleled the DART track back north to Carrollton. The worst bike riding experience wasn’t the suburbs or even the industrial area between Denton Drive and Harry Hines … even with no traffic, riding through downtown Dallas is a miserable experience. No bike lanes, not even nice landscaped medians or wide sidewalks or even street trees. Other than about 5 blocks of Main Street (the Main Street “District” is a misnomer / cute marketing ploy), downtown Dallas screams “this is not a place for pedestrians or bikes.”

Say it ain’t so, Joe – or at least it doesn’t have to be so. Many of the downtown streets south of Ross are oversized for their current usage. They were designed for when most of the office workers were on Main, Elm and Commerce – when I started my career in the early 80’s, this was the urban center of Dallas. The throngs of office workers have long ago abandoned LTV Tower, First National Bank, Republic Bank Tower, One Main Place, Renaissance Tower, etc. (for those of you old enough to remember those names). The economic center of “downtown” Dallas is now north of Ross, and maybe north of Woodall Rodgers – and it is interesting to note that very few of the streets where the new office buildings are located in Uptown are near the scope of Elm Street and Commerce Street – and almost all of those streets are two way. The old core is now being repopulated at an increasing rate with tech incubators, rental residential units and restaurant/entertainment uses. And with DART centered on Pacific, there is less of a need to quickly move massive amounts of cars in and out the old urban core. 

I hear the cries of the office brokers – we need more parking, we need more parking, parking, parking – like the howling zombies, or maybe a bit of Monty Python – “bring out your dead, bring out your dead …. But I’m not dead yet, I’m feeling better.”

We can fight the transition in the old core, but it is coming, it is already here. D Magazine recently highlighted the rebirth – in a new way – of the old urban core.

And yet our streets still reflect “car culture.”  I’m not against the car, in fact I drive most days in from Coppell to downtown Dallas. I just want to see cars put in their proper place. We give more space and money and priority to cars than we do to place or people. If we told our spouses that our cars were more important that our kids or our houses, I wonder how that would play at home? But that is exactly what we are doing by continuing to grant supremacy to the automobile over the sense of place in downtown Dallas. We are basically peeing in our own pond, and then wondering why we don’t like the smell.

Which of your favorite cities in North America have this misguided sense of priorities of automobiles over people/place? Not San Francisco or New York or Portland or Vancouver or even Washington DC. 

Or even … Indianapolis, which connected their downtown via a bike/pedestrian path that found a creative way to balance cars, bikes and people. Pictures are worth a gazillion words.

2008-06SkyscraperCityMeetup015    Cultural-Trail_2012-06-04_BLRoss

IMG_3985    Indianapolis-Cultural-Trail

Downtown Dallas has the perfect street to convert to its own “culture walk” – Harwood Street connects Klyde Warren Park, the Dallas Arts District, Ross Avenue, Aston Park, Main Street Gardens, the newly revitalized Farmers Market and Old City Park just south of I-30. No other street in Dallas connects this many cultural/recreational areas. The street was cut off from Uptown when the Deck Park was installed.  Now comes the urbanist wonky part – according to the Council of Governments traffic count website, Harwood now only carries 1,700 cars per day at the Deck Park, 7,700 cars per day just south of Ross, 8,400 cars per day between Elm and Main Streets and 6,400 cars per day near the Farmers Market. Other than some short one or two block streets, Harwood Street is the most over-capacity, underutilized street in Downtown.

Let’s connect our great spaces downtown by reimagining Harwood as a great street, investing a bit in the horizontal pedestrian experience and see what effect it has on Downtown Dallas. We only have to look to Main Street to see the difference a good, balanced “complete” street (not a road) has on its surroundings.

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DFW Area Urbanism #CNU23

DFW has some great urban projects — from Dallas & Fort Worth to McKinney, Grapevine, Carrollton, Southlake, Plano, Garland, North Richland Hills, Fort Worth Southside, Burleson, Denton ….. the list is endless.  Links to some of these urbanism projects:

Legacy Town Center – Plano

Sundance Square – Fort Worth

Downtown Plano

West Village – Dallas

CityLine – Richardson & More on this Project

Hometown – North Richland Hills

Dowtown McKinney

Denton Main Street & More on Downtown Denton

Downtown Carrollton & More Pictures

Roanoke – This Place Matters

Bishop Arts District – Dallas

Deep Ellum – Dallas & More on Deep Ellum

Soutlake Town Square

Victory Park – Dallas

Uptown – Dallas & State Thomas Neighborhood (and More on State Thomas)

Addison Circle

Austin Ranch – Carrollton

Las Colinas Urban Center – Irving

Historic Downtown Grapevine

West 7th – Fort Worth

Near Southside – Fort Worth

West End – Dallas

Dallas Arts District

Cityplace – Dallas

Downtown Garland


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More Audacious Plans for Downtown Dallas

Mayor Rawlings has a 10 point Grow South initiative, that includes a private investment fund for Southern Dallas. What if we went further, and helped out Downtown and the Southern sector, forcing the business community to think south of I-30, and opened up vital development land and (dare I say it) parking in Downtown, with a bold, visible, long term move to literally rebrand City Hall.

HOW? What if the City of Dallas committed to moving City Hall to the Cedars as part of a larger mixed-use “town center” project, giving South Dallas a true cultural/civic center.  With due apologies to those who love “brutalist” architecture, we would then take down the existing City Hall (maybe the Pentagon could use it for target practice) and eliminate the giant building and plaza that sucks the life out of the surrounding area, and allow that land – and the massive amount of below grade parking – to be put out to developers under a request for proposal for a Downtown mixed-use project. This would leverage private investment going into “SoYo” (South of Young) – the Farmer’s Market, Butler Building, Masonic Temple, Encore Park, etc.  I’d bet that taking down City Hall alone increases property values in the area.

Seems like everyone wins – and the new City Hall just requires money, which for big important projects Dallas always finds somewhere.

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The Inter-Connectedness of All Things in Dallas – Race, Place, Urbanism, Highways & Affordable Housing

Our quality of life, both individually and collectively, is intricately the result of where we live. We understand this individually when we spend time stuck in traffic, or are forced to drive for daily chores – grocery store, bank, drug store, cleaners, etc., all of which are isolated with the car being the only viable mode of transport. We know this when choosing where we live also means a top quality school or a safe neighborhood for our children.

But this isn’t just about me or you – where we live affects/infects the collective “we” of society at the city/regional level in ways that are insidious and evidence as societal issues over expanses of not only distance, but time, as evidenced by the following discussions in Dallas:

 –          Home rule schools & Charter Schools and the quality of DISD

-          Grow South Initiative

-          I-345 Tear-Down debate and the claim that South Dallas residents need to get to their jobs in North Dallas

-          HUD’s claim that the City has used federal funds for affordable housing in South Dallas and only market rate housing/economic development in Downtown

-          Inclusive Communities Projects’ lawsuits against the State of Texas and Dallas suburbs for congregating affordable housing in South Dallas and not permitting affordable housing in the suburbs

All of these issues center on race and place, income and opportunity, and affect us individually and collectively.

In a simplistic overview, we have created a spatial divide, a segregation if you will, between housing and jobs, between opportunity and disinvestment, and between races, that are at the historical heart of each of these issues. Driven by market and social pressures of the 1950’s-1970’s – the double whammy of integration/court ordered busing creating white flight to the suburbs, occurring at the same time as new highways facilitated rapid movement from the suburbs to the jobs in the City (and subsequent flight of jobs to the suburbs, following white collar employees) – combined to start the process of separating jobs to the north and affordable housing to the south. This trend was exacerbated and reinforced by zoning codes prohibiting or drastically limiting apartments, the primary form of affordable housing, in many of the suburbs, and by local not-in-my-backyard efforts and state political/administrative decisions accepting those attitudes that made certain that placing affordable housing in the northern suburbs was difficult at best, and impossible in many areas.

Lack of jobs and new development in the southern section leads to more disinvestment, a lower tax base and poorer quality schools.  The great north-south divide creates a dysfunctional City Council that has trouble finding common ground on what is best for the City, as the “City” is really two cities, as we often refer to them – North Dallas and South Dallas. Starting earlier, but reaching critical speed in the 1960’s with public housing, and continuing in the late 80’s through the early 2000’s, were benign if not malignant actions – using federal funding (public housing money, low income housing tax credits and Community Development Block grants, to name a few) to congregate affordable housing south of the Trinity. Put the service sector housing in one part of the City, and move the jobs to the other side, and you get a north-south divide, a north-south debate, and traffic infrastructure (highways) to bridge the gap.

Which leads to corrective measures:

-          “Grow South”, a special concerted effort to facilitate growth that in more balanced communities would be organic change.

-          I-345 Tear-Down being labeled as impractical because we need to continue to have the infrastructure to support the great divide, jobs to the north and service sector housing to the south.

-          Home Rule School initiative, desperately searching for ways to improve DISD.

We can continue to reinforce the status quo, or we can step back and consider if there are better alternatives.

 First, like alcoholism/drug addiction, we must admit we have a problem – we are addicted to problem avoidance on at least two fronts: (1) the legacy of historic racism in Dallas (if it makes anyone feel more comfortable, we can call it “economic egalitarianism” – which is for the most part the later stages of the cancer of racism), and (2) the universal belief that the automobile is the only real viable mode of transportation for all persons of all income levels. And like all addictions, we need an “intervention” – we need a major step, an iconic breakthrough moment, a massive symbol that we have identified our problems and are willing to take drastic steps to overcome the status quo ante and are embracing a bold new future.

Take the Calatrava Bridge for example.  At first appearing to be just another expensive icon for the Dallas skyline, the elaborate structure literally bridges Downtown and Uptown (now themselves linked by the Klyde Warren Deck Park) to West Dallas – a historically lower income mixed Hispanic and Black community. The result is that over the last couple of years Trinity Groves is springing up, with a multi-restaurant incubator, other restaurants and recently announced residential apartment units. Without the Calatrava Bridge, and the highly symbolic bold move to re-connect to West Dallas, the economic revitalization of West Dallas would not be underway.

The proposed I-345 Tear Down is another bold proposal, this time to reconnect Downtown and Deep Ellum / East Dallas. Both the Deck Park connection of Uptown to Downtown and the Calatrava Bridge connection of Downtown to West Dallas are “at grade” – they serve as connecting points and not barriers. Elevated I-345 acts as a blockade between Downtown and Deep Ellum, and reconfiguring that portion of 75/45/Central Expressway as an at-grade parkway would tear down the wall that keeps the east end of Downtown from thriving and makes the remaking of Deep Ellum so difficult.  Maybe more importantly, it would signify a shift in thinking in Dallas – to an understanding that highways and cars will not drive (pun intend) our City into the future. 

And maybe we’ll also begin to understand that those very highways are what separates us not only by distance, but by race and income.  We could actually sit down and have a dialogue about “social equity”, inclusive zoning and mixed-income/mixed-use places, so that people can live closer to work, and Blacks and Hispanics and Whites can live, work, play and go to school together. We could actually start with mixed-income residential development at our DART train stations. Setting a 20% affordability standard at all transit-oriented development would be another bold symbolic statement and, coincidentally, density at transit is less likely to be politically unpopular and access to transit is particularly critical to lower income workers.

50 years after the Civil Rights Act, can we bold enough to come together and say “We have a Dream” for Dallas? 

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The Latent Potential of #DowntownDallas

Amazing difference what narrower two way streets, better sidewalks, parallel parked cars, can make.  Elm & Commerce treat streets as “roads” (platforms to move cars) — whereas Main Street is a “street” — a place you want to be, not just a means to a destination.

ImageMain Street

ImageCommerce Street

ImageElm Street

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Developer – Meet the Urbanist – One of the Goals of CNU23 in DFW

Ever marvel at the contradictions in your life, and why they appear so dissonant? I spent last week at Urban Land Institute’s Spring meeting in Vancouver, one of the gleaming cities in North America, ranking among the top 2 or 3 most desirable cities in the world in many surveys, to learn from some of the top real estate professionals on the planet. I love ULI for the depth of understanding of capital markets, demand drivers and development techniques and the sheer breadth of experience of its members. And yet I sometimes find the hyper-focus on the “corporate” side of real estate, which at its core is really a service business to end consumers, to be a bit sterile, devoid of passion. Not unlike law firms that can can become so inner-focused on their practice areas that they lose site of how their clients’ businesses function and how legal service needs to orient around those needs, corporate real estate development can turn inward and become an end in and of itself – the monetization of real estate and the bifurcation of developers and capital focused on specific product types are (necessary) symptoms of a modern economy. Capital markets and the development community understand simplicity and bifurcated uses – “we finance/develop X (fill in product type).” X has a cap rate that the junior analysis can plug into his Excel spreadsheet and can be mass produced by architects, engineers and contractors and easily financed on Wall Street.

In early June I head off to Buffalo to the Congress for New Urbanism. Vancouver vs. Buffalo and ULI vs. CNU – a study in contrasts and unfortunately full of dissonance.

To over-simplify, CNU is founded on a manifesto, not an economic agenda. The “Charter” espouses the desirability of walkable, mixed use development, which in many ways is the antithesis of corporate real estate with its specialization and mostly segregation of uses. CNU talks about ethereal concepts (except to the initiated) like “transect”, “form-based code” and “tactical urbanism.” On the opposite end of the spectrum from ULI, oftentimes the “urbanists” at CNU are not very practical/pragmatic – the dialogue is more along the lines of a 5,000 level college philosophy class, the rhetoric is inspiring and sounds life changing until you re-enter the real world outside the ivory towers and are slapped in the face with the cold reality of “now how do we go about changing the world without engaging with the world”, a feeling not unknown to many post-modern Evangelical Christian suburban churches who want to share their faith but have real difficulties engaging with the world outside the church walls. Interestingly many urbanists also talk about being “post-moderism” (yet another ethereal concept).

One of the real short-comings of the Occupy Movement was that it “protesteth too much” – it liked to hear to its own voice harping in the town square – but never quite figured out how to engage with the establishment. And short of a revolution not much change happens if you can’t engage the establishment. On the flip side, listening to people tangential to your core beliefs who have often heretical ideas can change a society.

One of our aims at CNU North Texas in hosting CNU23 in DFW April 27-May 2, 2015 will be to bridge this divide between the urbanism movement and the the corporate real estate community, to create an environment of listening and learning from each other, to ferret out what the end users of real estate really desire and to find pragmatic ways to develop sustainable desirable real estate products that fit the changing needs of our booming population and that can actually be built and financed. In short, bring together NAIOP, TREC, ULI, CNU, etc. – and all of our constituent trades/disciplines, from town planner to urban planner, from engineer to architect, from small infill lot developer to large office and warehouse builders, students and professors, debt and equity providers – and learn from each other and talk and plot and plan how we reimagine real estate in DFW.

I’m not sure whether all of this brings more or less dissonance, but as they say – “variety is the spice of life.” I guaranty it will be a fascinating week.

If you want to learn more about CNU23, or be involved in planning the Congress, email me at

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