When work on the 1401 Elm St. building renovation slowed down for whatever reason four months ago, developer Drever Capital Management said money for the mammoth project was not an issue. Added Noah Drever, son of Drever Capital owner Maxwell B. Drever: “We expect to get the deal fully funded … in the next month or 45 days.”
Tuesday, when Drever Capital was granted a one-year extension of its $50 million “TIF” grant agreement with downtown’s tax increment finance district at a TIF board meeting, the San Francisco-based developer disclosed exactly how it plans to finance work on the 52-story building, which it acquired out of bankruptcy in April of 2016 for $65 million.
Drever Capital listed the total project cost at just over $379 million—much higher than the $240 million figure reported repeatedly in the local press—and promised the board that its financing would be fully committed by August 31. Drever also disclosed that it plans to monetize, or sell off, its $50 million TIF grant to Dallas-based Preston Hollow Capital for $30 million, and to raise $55 million via an innovative financing program called PACE. (Short for Property Assessed Clean Energy, PACE is a funding mechanism by which owners of commercial and industrial properties can access low-cost, long-term loans for water conservation and energy-efficiency improvements in their buildings.) In addition, Drever listed as a capital source $78.5 million in historic tax credits at closing via “US Bank, AIG, and/or Stonehenge,” and added that it had invested “over $134,872,602” in the project so far.
Under a TIF monetization, a developer gets some money up-front for the TIF grant from a third-party lender, which then reaps the full benefits of the TIF grant over time. Contacted about Drever’s plan for the TIF grant, Ramiro Albarran of Preston Hollow said, “We have a policy of not commenting on transactions before they close.” Jeanne Culver, a Drever spokeswoman, said in an email, “The City’s exposure to the project is unchanged whether 1401 Elm decides to monetize the TIF or not. There is no change whatsoever in either the City’s or Drever’s obligations if they monetize the TIF.” And Karl Zavitkovsky, then-director of the city of Dallas’ economic development office, told D CEO last week that the city is “indifferent” to such monetizations. (Zavitkovsky has since retired from the post.)
If successful, meantime, the PACE loan would be “probably the largest PACE financing in the country,” Zavitkovsky added.
At Tuesday’s TIF meeting at City Hall, Drever Capital representative Jerry Tonn said the one-year extension for the project’s completion—from December 2018 to December 2019—is needed because the developer had signed Thompson Hotels to 1401 Elm, which is the old First National Bank building. “The design and programming associated with bringing in the hotel took some extra time,” he told the board, explaining that more time is also necessary for “the capital stack.”
Dallas City Council member Philip Kingston, whose District 14 includes 1401 Elm, said the TIF extension “could be justified. There’s not really any risk [to the city] to doing an extension. The biggest risk would be if the project goes dormant and is not developed.”
Even so, one veteran local real estate observer expressed surprise that the 1401 Elm development had yet to nail down its financing in full. “I wish them well, because that’s obviously an important project for the city,” this observer said. “On the other hand, my general sense is that they’re very stretched … They are desperately trying to find money, because they’ve got to get real money to get the deal done. I would have thought they’d have had the money together when they took it out of bankruptcy.”
Asked to comment on a number of topics—including whether it is indeed scrambling “desperately” for funds—the developer emailed this response from Frank Marro, president of Drever Capital Management: “We are looking forward to delivering a premium project to Downtown Dallas in Q4 2019. The TIF Board unanimously extended the TIF funding so that we can continue with our plans for a 218-room Thompson Hotel and 324 Class-A apartments, 32 of which will be offered as affordable housing.
“We have undergone a major sustainable redesign from the originally approved plans that were presented from the prior owner that have caused delays in construction,” Marro continued. “The City’s support is much appreciated and we look forward to the project’s debut, providing hundreds of new jobs and welcoming more than 400 new residents to downtown.”