Dallas sees a corner turned on bond-fueled downtown revival
A bond-fueled revival in Dallas is hitting its stride with the restoration of a landmark hotel, a former bank tower, an abandoned main library and the building that once served as city hall.
Using bonds and tax-increment financing over the past two decades, the city leveraged incentives and bond proceeds to redevelop or remove 42 vacant buildings, converting office towers to condos and clearing space for 100 acres of parks.
By the end of 2020, the city expects that the last of those vacant buildings, the First National Bank tower on Elm Street, will be put to use as residential, hotel and office space.
More than $4 billion of development is in progress as of this month, with about $11 billion invested in the city’s core over the past 20 years, according to the city.
AT&T has committed $100 million to redevelop its downtown headquarters, though many other companies have moved to new office towers on the periphery or to suburban office parks. Still true to downtown are prominent public finance firms Hilltop Securities, McCall Parkhurst & Horton, Estrada Hinojosa & Co., S&P Global Ratings and Moody’s Investors Service. Major banks JPMorgan Chase, Comerica and Bank of America also share the neighborhood with the Federal Reserve Bank of Dallas.
The Deep Ellum section on the eastern edge of downtown won a prized tenant on Aug. 20 when Uber Technologies announced it had chosen Dallas over Phoenix for new office space to house up to 3,000 employees. The headcount at the Dallas base would be second only to Uber’s San Francisco headquarters. Moody’s called the move positive for Dallas’ A1 credit rating.
“Uber’s announcement represents a pivot from the northern suburbs to the city itself, which still represents the largest employment base in the metroplex,” Moody’s analyst Denise Rappmund wrote. “Dallas has been investing redevelopment dollars in its central business district and adjacent areas, including Deep Ellum, for several years. Those investments, including in transportation, reportedly were important considerations in the high-tech company’s decision.”
The city, Dallas County and Texas offered Uber $36 million of combined incentives, according to Moody’s.
Dallas’s $9.3 million contribution includes $745,000 in the form of a 50% tax abatement on business personal property for five years. The remaining $8.6 million will be paid over several years, as long as Uber complies with the agreement.
“The incentives represents a small 0.7% of the city’s fiscal 2018 general fund revenues,” Rappmund said. “Given that the abatements and payments will occur over five to 10 years, the annual impact on the budget is small. The additional taxes to be gained include both sales taxes from employees and new residents, as well as non-abated property taxes from Uber.”
To make downtown viable, city officials recognized that they needed to make the former business center work as residential space with amenities such as shopping and entertainment with a de-emphasis on automobile traffic.
“We have to make downtown Dallas more walkable, more livable and more navigable and that’s the commitment I’ll make to you today,” newly inaugurated Mayor Eric Johnson vowed at his first “State of Downtown” address Thursday.
Johnson’s remarks came the week that Dallas City Council unanimously approved a $3.8 billion budget that takes effect Oct. 1. For downtown Dallas residents, safety is a key issue in a city that is suffering an exodus of retiring police officers and a struggle to recruit new ones.
“I believe the budget we passed will help keep Dallas safe and will continue to provide services that are vital to our Dallas’ equitable growth,” Johnson said.
On the east side of downtown, major milestones over the past year include the restoration and opening of the once derelict Statler Hilton hotel as a mix of hotel rooms and apartments, repurposing the former main library across the street into the new home of the Dallas Morning News, and the conversion of the city’s deteriorating Municipal Building into a law school for the University of North Texas. Those buildings border the Main Street Garden Park that replaced a block of shabby retail structures.
On the west side of the park sits the former Mercantile National Bank, a 31-story art deco landmark converted to apartments and condos by developer Forest City Enterprises in 2009 with $60.5 million of city financial assistance. On the north side of the park is the former Titche-Goettinger department store that has served several universities as classroom space since 1994. The landmark Municipal Building, where alleged presidential assassin Lee Harvey Oswald was jailed and murdered by Jack Ruby in 1963, anchors the east side of the park, with the mid-century modern Statler on the south side. The development is two blocks north of Dallas’ modern city hall and new main library.
The Statler redevelopment, which included the abandoned Central Library, is part of the Downtown Connection Tax Increment Financing District, one of six downtown area TIFs recognized by the city, Dallas County and Dallas Independent School District.
The six districts represent about $5.5 billion of property and a $516 million investment in tax-increment financing, according to the city. Citywide, Dallas has 18 TIFs.
The developer Commerce Statler Development is affiliated with Centurion American Development. Through a 2014 agreement with the city, the Statler project was eligible for an economic development grant of $46.5 million to reimburse a portion of the $175 million project costs.
Built in 1956 as a flagship for the Statler Hilton chain, the hotel had been closed since 2001. The National Trust for Historic Preservation included the Statler Hilton on its 2008 list of most endangered places, citing its importance in American mid-century design.
In a report Thursday, Moody’s Investors Service said the restoration project “has passed a significant hurdle with completion of construction and full compliance by all parties with the amended agreement between the developer and the city.”
Moody’s rates an upcoming issue of $38.9 million of taxable revenue bonds for the project Baa3 with a stable outlook, the same rating for the original $25 million 2016 issue the deal will refund by this deal. The original deal, issued as tax-exempt debt, was later ruled taxable by the Internal Revenue Service The upcoming bonds, issued by the Public Finance Authority of Wisconsin, will include reimbursement for the developer.
“The stable outlook reflects the expectation that the Dallas economy will continue to expand over the next few years, further bolstering an already mature tax increment district supporting the Economic Development TIF Grant,” Rappmund wrote.
To issue bonds for redevelopment, the city created the Downtown Dallas Development Authority in August 2005. The first issue of $50.8 million for the Mercantile block and developer Forest City came in 2006 with a Aa3 rating from Moody’s.
Last year S&P raised its ratings on the authority’s $79 million of tax increment contract revenue bonds to A-plus from A with a stable outlook.
"The upgrade reflects continued positive growth and strength within the reinvestment zone and tax increments collected within," said S&P Global Ratings credit analyst Andy Hobb. “The upgrade also reflects improved debt service coverage by pledged revenues as well as a declining volatility ratio."
Adding momentum for downtown development is Dallas County Community College District’s search for a new campus for El Centro College. Funding for the campus was approved in a record $1.1 billion bond election last May. Housed since 1966 at the former Sanger-Harris department store and an adjacent building, El Centro’s enrollment has outgrown the facilities.