When Woodall Rodgers Freeway was built in a recessed fashion in Dallas in the 1960s, it created a great divide between the urban core of Dallas and what’s now known as Uptown. The rift widened with the development of the Dallas Arts District on the eastern end of downtown. For decades, civic and real estate leaderstalked about the need to bridge the gap. But there wasn’t a feasible way for the city of Dallas or the private sector to fund such a large undertaking on their own.
In the end, the complicated and bold project required a variety of entities to come together. The $110 million development of Klyde Warren Park—a 5-acre green space built atop the freeway that opened in 2012—was funded through a public-private partnership, with money coming from the city, state highway funds, federal stimulus capital, and individual donors. Each party was essential to making it happen.
“Klyde Warren Park has made downtown Dallas an asset and provided a lot of green space,” says Linda McMahon, president and CEO of The Real Estate Council, which was an early and significant investor.
Public-private partnerships have played a significant role in the development and growth of Dallas, as evidenced by projects such as Klyde Warren Park, the Omni Dallas Convention Center Hotel, Parkland Hospital, Forest City West Village, and the Sammons Center for the Arts.
“Without public-private partnerships between the city of Dallas and a number of investors, developers and stakeholders, we wouldn’t be where we are today in the downtown Dallas area with the revitalization that has been so successful,” says John Crawford, president and CEO of Downtown Dallas Inc. “Our success is through public- private partnerships.”
Broadly speaking, a public-private partnership is a legal contract between a public sector entity and a private company, with the partners sharing both the risks and rewards of a given project. These partnerships can take on many forms, with a range of deal structures and types of assets.
Crawford says more than 50 public-private partnerships of various sizes and shapes have been executed in North Texas over the last five or 10 years. “They probably amounted to $2 billion to $3 billion of new development,” he says.
Leading the Way
The economic development community of North Texas has embraced public-private partnerships—known in the industry as P3s—as a way to accelerate the pace at which new developments come to market, while at the same time helping everybody involved achieve their goals, according to Scott Polikov, principal and founder of Gateway Planning Group Inc., which has offices in both Dallas and Fort Worth.
“Dallas-Fort Worth is really leading the Sunbelt with these kinds of innovative approaches,” he says. The concept of public-private partnerships is not new, but the structure of such agreements has evolved over time. In the 1980s, according to McMahon, significantly more public money was available, through both the state of Texas and the federal Department of Housing. “That federal and state funding is pretty much gone,” she says.
Today, leading public entities like the city of Dallas have come up with creative ways to raise capital for infrastructure projects, McMahon says. One example is tax increment financing districts, or TIFs, which help finance public improvements in designated areas, with the city re-investing added tax revenue from a new development back into the geographic area where the project is based.
Another increasingly popular avenue for making public-private partnerships happen is through what’s known as the U.S. EB-5 Immigrant Investor Program. This program allows qualified foreign investors to get permanent residency in the United States in exchange for investing a minimum of $500,000 into an American business that creates new jobs.
One company that’s helping to make those types of deals happen is Civitas Capital Group, a Dallas-based family of companies that provides a range of wealth management and investment services. Civitas’ duties include managing theCity of Dallas Regional Center, a public-private partnership that the city of Dallas owns.
Through the Regional Center, Civitas helps find EB-5-related opportunities that help investors both obtain permanent residency in the U.S., preserve their invested capital, and earn a fair return. Deals the center has been involved with include a $64 million senior loan to an affiliate of Forest City in 2012 for a 20-story high-rise tower with 387 luxury apartments, along with a $15 million senior secured term loan to Encore Enterprises to finance a call center and related real estate investments.
Daniel Healy, CEO of Civitas Capital, credits the city of Dallas and its economic development team for the success of the Regional Center in the EB-5 arena. “They were well ahead of the curve in using EB-5 as a development tool,” Healy says.
Design District Reinvention
Public-private partnerships have also been key in improving the Dallas DesignDistrict. A roughly 186-acre area in the Stemmons industrial corridor west of Interstate 35E just north of downtown, the district was zoned in the 1940s for light industrial, warehouses, and light manufacturing. By 2005, many of the streets and utility lines needed improvements, and a number of industrial and warehouse structures had suffered from deterioration and neglect. A Design District Tax Increment Financing District was created to support improvements.
Today, the area is a bustling, pedestrian-friendly, mixed-use neighborhood. Leading the transformation was Michael Ablon, principal of PegasusAblon. He and partner Lionstone Investments purchased 40 acres in the district from Crow Holdings in 2007. In seven years, Ablon and his team increased the value of the neighborhood by nearly $500 million. Redevelopment spurred the growth of more than 200 businesses, in an area that had been in decline.
More than 1,300 new multifamily units were added and 500,000 square feet of commercial space was revitalized with new restaurant, retail, art, and design tenants. It all generated hundreds of new jobs and increased the value of the Design District TIF area by 88.4 percent over the base year. What’s more, Ablon’s success sparked real estate investment in all directions surrounding the district and created a model for other developers.
“Public-private partnerships play a very positive role in the densification and maturing of a city,” Ablon says. “Dallas is currently in the maturing phase, and as the city requires more infrastructure or more building, public-private partnerships are really relevant.”
Improving the City Through P3s
The structures of public-private partnerships can vary as widely as the projects they support. Essentially, they’re agreements between public entities, such as a city, and one or more private party, such as a developer, to build or improve anything from a toll road to a new business park.
Here are a few examples of public-private partnerships in which the city of Dallas has engaged:
• Business Retention. To help compel The Richards Group to stay in Dallas, the advertising firm was given a 10-year tax abatement valued at $1.8 million. The company built a new 15-story headquarters along North Central Expressway, and kept 650 jobs in Dallas, with an estimated 10-year net fiscal impact of $4.3 million.
• Business Recruitment. DealerTrack was given a $210,000 economic development grant in 2012 when it opened a software development and transaction processing center at Galleria North. The project created 250 jobs and a $2.5 million investment.
• Industrial Park. Dallas supported the creation of Mountain Creek Business Park in 1998 with $7 million in bond funds for infrastructure improvements. The bustling development is now home to major operations of American Leather, Costco, Nestlé, and other tenants. The estimated 10-year net fiscal impact: $6.1 million.
• Retail Center. A $2 million economic development grant from a 2006 bond program helped support Glen Oaks Crossings in SouthernDallas County. The project includes a 182,000-square-foot Walmart Supercenter and 45,000 square feet of additional retail space. The projected 10-year fiscal impact: $3.1 million.
• Urban Redevelopment. In April 2014, the city placed one of its biggest bets yet, approving a $46.5 million infusion of public funds into the $175 million redevelopment of the Statler Hilton hotel in downtown Dallas, along with an adjacent former library. About $43.5 million in TIF funds will be a grant to reimburse the developer, Mehrdad Moayedi of Centurion American, with another $3 million going to street and utility improvements. Moayedi is transforming the Statler, which closed in 2001, into 229 apartment units, a 164-room hotel, and about 30,000 square feet of retail space.
Sharing the Risks and Rewards
The city of Dallas actively partners with qualified companies that are looking to expandor relocate within its borders. The goal is to provide a competitive incentive offer that matches each project’s needs. With this goal in mind, the city has created several public partnership opportunities.
• City of Dallas Regional Center. The CDRC assists individuals and their families through the EB-5 immigration process via investment into businesses and development projects located within city limits.
• Economic Development Grants. Companies considering a relocation, expansion, or new commercial development may be eligible for a grant in lieu of tax abatement or to defray project costs such as land purchase, building costs, public infrastructure costs, development fees, right of way abandonment fees, loan guarantees, training costs, relocation costs, etc.
• Foreign Trade Zone. Dallas’ two Foreign Trade Zones allow duty-free importing of foreign-made components that are assembled, manufactured, processed, or packaged.
• Freeport Tax Exemptions. Ad valorem tax exemptions for goods that are detained in Texas for up to 175 days.
• Historic Tax Incentives. An abatement of city real property taxes for a period up to 10years if a building has been designated as a Dallas landmark and a restoration is planned.
• Job Training. Workforce development in Dallas is coordinated and implemented by the Dallas County Community College District and Workforce Solutions Greater Dallas. Opportunities range from basic skills to employer access to qualifi ed employees, as well as workplace education, child care, and educational initiatives.
• Municipal Managed Districts. MMDs are special districts that are self-governed but approved by the host municipality. Through their fundraising powers they can provide infrastructure and other services within the district.
• New Market Tax Credits. This federal program provides tax credits for new development in traditionally underserved areas.
• Public Improvement Districts. These special districts privately fund public improvements or special supplemental services over and above those provided by the city.
• Tax Abatements. Through this program, the city provides tax abatement on the value added to real property or new business personal property.
• Tax Increment Financing. These special districts are funded with increased tax revenues resulting from new private development.
This story originally appeared in the Spring 2015 edition of the Dallas-Fort Worth Real Estate Review, quarterly magazines produced in collaboration between D Magazine Partners, the Dallas Regional Chamber, and The Real Estate Council. Click here to see the current issue and archived content.