Business

Will GrowSouth Be Enough to Incite Economic Growth in Southern Dallas?

In the wake of Dallas Mayor Mike Rawlings’ GrowSouth initiative, there’s no doubt businesspeople are looking harder at opportunities in the city’s southern sector.

On a cold Saturday morning in January, Southwest Center Mall looked much like it has over the past decade. The shopping center’s vast parking lots were mostly empty, as were many of the storefronts inside. Within a few months, even Macy’s, an anchor tenant, would be closing. Like many of the shopping malls that sprouted up across America in the 1970s and 1980s, Southwest Center Mall, which opened under the name Red Bird Mall in 1975 at the intersection of Interstate 20 and U.S. 67, once was a symbol of a promising economic future. But on that morning this past January, there was something eerie about the mall’s emptiness, like a scene out of a 1980s horror film.

In one of the center’s echoing atriums, however, there was a glimmer of hope. A few hundred chairs were arranged in neat rows before a white podium where Peter Brodsky, a North Dallas private equity investor, was addressing a crowd of residents, community leaders, business owners, volunteers, city employees, police officers, and the media. Brodsky, who’d purchased the mall in the fall of 2015 for a reported $13 million, was laying out plans for its unlikely renaissance. The mall was about to be the recipient of tens of millions of dollars of investment, he said. As part of the redevelopment, some of the mall’s retail space would be reclaimed as offices for new businesses, including the nonprofit Red Bird Entrepreneur Center. In addition, he said, upscale apartments and a luxury hotel would soon rise up from those empty parking lots. And the mall, Brodsky told the crowd, would take back the name it had when “Red Bird Mall” represented the promise of North Dallas-style development finally coming to South Dallas.

Behind Brodsky sat Mike Rawlings, the mayor of Dallas. Since taking office in 2011, Rawlings has made it his mission to kick-start development in the long-neglected southern half of the city. Comprising roughly half of Dallas’ land mass and yet just 15 percent of its tax base, southern Dallas is huge (in fact, you could fit all of Atlanta in it). However, a systematic lack of investment, a legacy of segregation and racist economic development and housing polices, generations of political disenfranchisement, and the decision made long ago to direct Dallas’ booming regional success northwards, all have victimized the south and left it far behind the rest of the city.

Southwest Center Mall, then called Red Bird Mall, opened in southern Dallas in 1975 but eventually languished. Now a private equity investor has bought it and unveiled plans (shown in rendering) to redevelop the property.

So, in 2012, Rawlings launched his GrowSouth initiative, aiming to reverse this trend. The future of southern Dallas rests not in the kinds of public assistance programs and charitable work that had long defined North Dallas’ engagement with the south, the mayor believed, but rather with a wholesale effort to recruit business and investment south of the Trinity River. “It’s not a charity case,” Rawlings has said of the area. “It is an investment opportunity.”

Brodsky seemed to be proving the mayor right. If his re-branded Red Bird Mall succeeds, it will represent the largest investment in southern Dallas in a generation. No doubt, it all looked like a political coup for Rawlings. Had the Dallas mayor finally cracked the code to transforming southern Dallas?

Defining The Initiative

After winning re-election in 2015, Rawlings found $180,000 in the municipal budget to renovate his office on the sixth floor of Dallas City Hall. Today, the once-cramped office area that the mayor used to share with two other council members has been transformed. A cluster of cubicles surround a spacious, well-appointed space that boasts views through floor-to-ceiling windows northwards toward downtown. It less resembles a public servant’s office than the suite of a corporate chieftan, which Rawlings had been before becoming mayor.

“They would see parts of southern Dallas they didn’t know existed. They started realizing it is really beautiful down there.”

Mike Rawlings, Dallas Mayor

When I.M. Pei’s fortress-like Dallas City Hall opened in 1978, its northward orientation was symbolic of a city whose ambition was fixed squarely on watching its economic prospects sprawl toward the Red River. Indeed, many of the men who held Rawlings’ position over the past century had been invested in industries—real estate, banking, chain restaurants—that profited from the city’s nudging of its economic prospects toward the empty farmland of Plano, Frisco, and Allen.

Rawlings, however, also wanted to see the city fill in its southern land mass. Toward that and other ends he’s taken a different approach to the mayor’s office, using its bully pulpit to raise private equity and create nonprofit groups to advance his broader agenda. Nowhere has the strategy served him better than with the GrowSouth effort.

When the plan was unveiled five years ago, it was a little hard for some to understand exactly what it entailed. On one level, it sounded a lot like a marketing initiative, a way to highlight and draw attention to economic successes that already were starting to matriculate south of the Trinity River. When a new adaptive reuse project was announced in North Oak Cliff, or when a new development broke ground near Interstate 30’s Pinnacle Park, the mayor’s office would slap a GrowSouth logo on it and call it a win.

Shortly after launching the initiative, Rawlings  realized that before he could attract any new investors to the southern part of the city, he first had to help the Dallas business community find it. “For the lion’s share of people, they hadn’t even been to North Oak Cliff,” Rawlings says. “They would go to the OU-Texas game [at the Cotton Bowl in Fair Park] every year, but they didn’t go [to other areas in] southern Dallas.”

There was a pejorative attitude among many of Rawlings’ business friends—an assumption that any effort to improve southern Dallas was a kind of charity project. “Oh, he is doing God’s work, isn’t that nice,” Rawlings says, mimicking the reaction. “You get that pat on the back sort of thing. No. It is about helping people, but it’s not a charity case. It is an investment opportunity. Imagine if we’d grown south as fast as we’d grown north?”

Beginning in 2012, the mayor started to organize bus trips, bringing real estate brokers and investors to southern Dallas and showing off the areas that Rawlings believed had the greatest development potential. For most, it was their first glimpse of an area of Dallas that had its own record of successes and challenges. They discovered historical neighborhoods, up-and-coming communities, stable middle-class districts, large industrial zones, untouched open areas, and neighborhoods whose residents had been investing in their own communities for decades, out of view of the North Dallas business community.

“A lot of it was education. They didn’t have a clue,” Rawlings recalls. “They would see parts of southern Dallas they didn’t know existed. And they started getting it. They started realizing it is really beautiful down there, and there are really a lot of opportunities.”

At first, GrowSouth was all about marketing—building awareness of the successes on the ground and selling southern Dallas as a business opportunity. A layer below that, however, a different vision was taking shape. For the last five years, GrowSouth has been the impetus behind the creation of numerous new nonprofit organizations, each with specific goals and outreach in the southern Dallas community. One employs recent college graduates to create community gardens. Another hires community organizers to work directly with neighborhoods and create more awareness of job programs and community improvement opportunities. The mayor’s initiative also created a private equity fund designed to provide mezzanine funding—a hybrid of debt and equity financing—for large-scale real estate investment in southern Dallas.

“It is the biggest public-private partnership that we have going on continuously,” says Vana Hammond, the mayor’s chief of community relations who oversees GrowSouth.

Challenges in Financing

Perhaps the greatest misconception about southern Dallas is the name itself. Though it’s often referred to as a single area, the southern portion of Dallas is comprised of a multiplicity of distinct areas, districts, and neighborhoods, each with their own histories, local leadership, advantages, and difficulties.

By 2015, in its attempts to wrap its arms around this huge and complex geographic area, GrowSouth had evolved into a sprawling mish-mash of programs and initiatives. Rawlings decided to focus his efforts on driving single-family housing development, cracking down on negligent landlords, and targeting three specific neighborhoods: Red Bird, which is bordered by Interstate 35 and South Cockrell Hill Road; the “Education Corridor,” which sits between Paul Quinn College and the new University of North Texas Dallas campus; and the Parkdale/Urbandale neighborhoods in far southeast Dallas. Rawlings created an advisory council comprised of individuals from the southern sector who could help offer feedback and direct the program to address specific areas of need. Some of the feedback included the need for cultivating more community leaders who knew how to work through City Hall, or finding ways to offer more arts programming and opportunities in southern Dallas’ neighborhoods.

But there were also larger, macro-economic challenges facing many parts of the south that partially explained its historic lack of investment. In 2014, the mayor called a meeting of real estate investors and asked them what could be done to increase investment south of downtown. What he learned is that even where there was a desire to invest in the south, the financing challenges were considerable. For one, there was a huge lack of “comparables” with which banks could determine the market rate and potential return of projects. The loan-to-value ratios that banks would accept to finance projects in the southern sector also were significantly more onerous—40 percent equity, rather than the 20 percent that’s typical north of the river.

An “aerial” rendering shows the entire Red Bird Mall redevelopment project, which will include space for offices, apartments, and a hotel.
An “aerial” rendering shows the entire Red Bird Mall redevelopment project, which will include space for offices, apartments, and a hotel.

The solution, Rawlings decided, was to create a special new fund. The mayor asked everyone at the meeting to chip in $10,000, and Linda McMahon, president of The Real Estate Council, led the initiative. Their creation was called Impact Dallas Capital, a now-$40 million private equity investment fund designed to offer mezzanine funding for projects in southern Dallas. The idea was not to subsidize development, the city’s typical strategy for attracting investment to economically distressed areas, but instead to create a financial tool that could attract market-rate investment. To qualify for funding, projects Impact Dallas Capital invests in must have two “bottom lines.” The first is a return on the equity investment; the second is a proven and demonstrable community impact.

McMahon, who has managed similar funds in other cities, says this kind of vehicle closes a gap that might have inhibited potential investment of a certain scale from coming into southern Dallas. However, while the creation of the fund makes large-scale real estate projects in southern Dallas possible, it doesn’t make them easy. The projects Impact Dallas Capital is looking at often have as many as five layers of financing, including tax increment funding, private investment, bank funding, and the mezzanine piece.

“These types of developments are always hard,” McMahon says. “They take a lot more time. And there are a lot more moving parts, particularly when working within communities with established neighborhoods. If you are building in Frisco, you don’t have to get the community on board. And you have to really spend a lot of time on the financial engineering side. [In southern Dallas], the market is so vast and it’s such a big [area] from a geographic perspective, you have to spend a lot of time understanding the market.”

The mayor brought together a consortium of big-name local homebuilders and challenged them to hit a goal of 1,500 new home starts within two years. Building activity is outpacing that goal.

McMahon says the goal of the fund, which is being managed by Civitas Capital Group, a Dallas-based asset management and financial services company, is to focus on projects costing more than $10 million, with a target range of $15 million to $20 million. Although the fund has not invested in any projects to date, McMahon hopes it will close on its first one soon.

More immediate success has been realized in the single-family housing sector. As part of GrowSouth’s single-family housing initiative, the mayor brought together a consortium of big-name local homebuilders—companies like David Weekley, DR Horton, Camden Homes—and challenged them to hit a goal of 1,500 new home starts within two years. Ted Wilson, principal with Residential Strategies, says building activity is outpacing that goal.

That said, Wilson admits there are many factors fueling the homebuilding boom in the southern sector that have nothing to do with GrowSouth. The region’s population is growing, the homebuilding industry has rebounded from the financial downturn, and new logistics facilities along the Interstate 45 corridor are spurring job growth in southern Dallas. But there are tangible aspects of the building boom that Wilson believes can be directly connected to GrowSouth. When builders told Rawlings the city’s permitting system was byzantine and out-of-date, for example, Rawlings pushed assistant city manager Ryan Evans to revamp the process. And the mayor’s simple insistence has helped homebuilders look for alternative investment models, such as creating rent-to-own financing that specifically targets a working-class Hispanic customer base, Wilson says.

While builders have always looked at southern Dallas, GrowSouth is an added incentive, Wilson says: “It creates information and an understanding, and also an appreciation that the mayor has been making the process work smoothly with regards to working with the city of Dallas.”

Tensions and Progress

The mayor uses a simple metric with which to measure the success of GrowSouth: the tax base. And, using that measure alone, GrowSouth already might be considered a success. Since 2012, the tax base in the southern part of Dallas—defined by the mayor’s office as anything south of the Trinity River, as well as downtown south of Main Street—has increased by $1.5 billion, rising from $10.4 billion in 2011 to $11.9 billion in 2015. (In contrast, the “northern” tax base, excluding the Dallas CBD, rose during the same period from $56.2 million to $71 million.)

But, to what extent can the $1.5 billion increase be attributed directly to the mayor’s southern initiative? As with the residential housing sector, there are many factors driving growth south of the Trinity that existed before GrowSouth came along. When asked what has done the most to build awareness of the potential investment opportunities in southern Dallas, the mayor is quick to cite development in the Cedars neighborhood, just south of downtown, and the Trinity Groves development in West Dallas. But developer Jack Matthews began investing in the Cedars in the 1990s, carefully stewarding a large-scale revitalization that has taken almost a generation to realize. And the real catalyst for West Dallas development was completion of the Margaret Hunt Hill Bridge in 2012.

Other poster children for successful southern growth show similar trends of slow, incremental effort. Hammond, the mayor’s community relations chief, credits GrowSouth’s investment in security and advocacy for street improvements for partly helping move along reinvestment in Oak Cliff’s Jefferson Boulevard. But those investments are being led by longtime Oak Cliff developers like Jim Lake, whose father began buying properties in Bishop Arts back in the 1980s. Belmont Hotel developer Monte Anderson, who’s active in Oak Cliff and throughout southern Dallas, argues that the real way to foster change is incremental investment focusing on small, targeted projects that lift up communities one block at a time.

The former Dillard’s space at the new Red Bird Mall will be converted into an office building, this rendering shows.
The former Dillard’s space at the new Red Bird Mall will be converted into an office building, this rendering shows.

Rather than revitalizing communities, critics argue, the GrowSouth approach of courting large-scale investors and inviting them south of the river could potentially destabilize neighborhoods and push out long-term residents. It’s a criticism leveled at Jefferson Boulevard—a major commercial corridor in Oak Cliff’s thriving Hispanic community since the late 1970s—as well as West Dallas, where the mayor’s effort to force low-income landlords to comply with stricter code requirements nearly resulted in the wholescale eviction of hundreds of residents.

Rawlings, however, believes such criticism inevitably arises whenever new investment arrives in historically underdeveloped areas. He says it’s why GrowSouth’s multiple nonprofits include organizations that run programs intended to strengthen existing neighborhoods, as well as to attract investment. “We have to work through this whole issue [of whether] the residents really want grocery stores down there,” Rawlings says. “Because that means development and that whole issue of gentrification. Do we want to keep it the same as it is? That is healthy tension that every organization goes through.”

More importantly, the mayor argues, is the fact that, for the first time in decades, there are businesspeople such as Brodsky who are willing to travel south of the river and invest millions of dollars in projects like Southwest Center Mall. Their willingness to put their capital at risk is a sign of their faith in southern Dallas’ future, the mayor contends—not to mention the area’s potential for generating an investment return. “You have one person stick their foot in and then another person and then another person,” Rawlings says. “And then it starts to create momentum. I’m not sure if we’re over the tipping point. We still have work to do in southern Dallas to get us to that point. But now it is very legitimate.”

Comments

  • Jus’ Sayin’

    Growth and development is good but don’t clone North Dallas in the South.
    It should keep its trees, greenery and down-home, neighborly feel (like Anna, for example, or Melissa).