Canadian Condomania

It was a warm day in the spring of 1979. A gleaming Cadillac limousine pulled to the curb at a Dallas office complex and an impeccably dressed, well-coiffed man stepped out of the back seal. He was an imposing figure, almost military in his bearing. He strode purposefully into the office building to an appointment in the boardroom. He took command of the meeting with a cockiness that was attractive to some, obnoxious to others, but no one in the room ignored him. He was not there to shoot the breeze or quibble over a few bucks. He was there to make a deal.

It was a common scene in Dallas, except in this case, the wheeler-dealer was no run-of-the-mill entrepreneur. He was G. Gipp Du-Pree, vice president of operations for Daon Southwest, the Dallas arm of the massive Daon Development Corporation of Vancouver, Canada. He was there to make a typical deal: We want the land. You name the price. Here’s the money. Thank you very much. Daon had the cash – some $1.2 billion in assets in four Canadian provinces and six American states. And Dallas was its present target: Gipp DuPree, a California import, knew a boom town when he saw one. Dallas had a stable economy, a thriving residential market, a constant influx of the young and upwardly mobile. It was ripe for a condominium explosion, and Gipp DuPree intended to make it happen.

Daon didn’t take long to make its presence felt in the local condo marketplace. In the dynamic, high-rolling style of its vice president, symbolized by flashy full-page ads and billboards, the company bought up large tracts of real estate and at the same time loudly introduced itself to the city. “D-a-o-n,” the ads read. “In the real estate business, another way to spell success. The word is spreading. So remember our name. We’re the people that people are talking about.’

The company’s initial thrust was in the area of condo-conversion, the sweeping real estate trend in which existing apartment complexes are purchased, emptied of renters, renovated as condominiums, and resold as individual units. Between the summers of 78 and 79, Daon bought 1200 units and brought 800 of them to market. The largest condo converter prior to Daon’s arrival, International Housing Systems, marketed 1800 units over a five-year period. Daon’s condo properties, with names like River Oaks, Abbott Terrace, Wil-liamsburg, and Antilles, suddenly dominated the real estate classifieds.

And the company wasn’t limiting itself to the condominium market. There were bigger plums to be picked. The parent Canadian company had earned much of its fortune with large-scale developments: skyscrapers, shopping centers, and industrial projects, from California to Calgary; it wanted to do the same in Dallas. DuPree and company scoured the city and finally found the perfect tract: six prime acres adjacent to the Fairmont Hotel downtown. They began talking about a new Fairmont tower, as well as alternative uses for their prized new property.

At the same time, they followed the rest of the Dallas real estate world into A ddison and came out holding their biggest trophy, 167 acres at Beltline and Inwood in the heart of the new North Dallas, a property they named The Quorum. The land was bought in three parts, from different owners. The biggest chunk, Quorum South, was purchased for $11 million cash. Within six weeks, Daon sold off the entire tract to various developers and individual businesses. Its profit: $4 million. Six months later, Daon sold the 31-acre Quorum West to Dunn International of California. Profit: $2.5 million.

Gipp DuPree had established an instant empire. The big land deals were coming off like clockwork, there were some big new proj-ects in the works, and the condo business was sailing. The buckle of the Sunbelt was proving to be every bit as bright as Daon had hoped it would be. And Gipp DuPree, for one, wasn’t the type to keep his success under wraps; he enjoyed it in style. He was chauf-fered from meeting to meeting in a rented limousine. When visiting Daon executives arrived in town, they were greeted with their own limos. The first-class transport didn’t end at five – the limos were always ready to whisk them to the Cowboy western disco, the favorite night spot of the Daon entourage. On occasion, DuPree was known to charter a jet to hurry him off to a meeting in New York or California. He was flamboyant down to the smallest detail: Once a week, he would call in a staffer to polish his leather briefcase. Daon, and Gipp DuPree, had arrived.

In the midst of these high times, a story appeared in the May 1979 issue of Canadian Business magazine, in which Jack Poole, president and CEO of Daon in Vancouver, was quoted as saying, ” This business is easy if you can be a buyer when everybody else is a seller, and a seller when everybody else wants to buy. We were in a reverse position in condominiums in Vancouver, and we told ourselves we’d never let it happen again.”

But it did. In Dallas. As the last Daon Southwest condominiums held their grand openings in July 1979, interest rates began to soar. Lenders were charging up to25 points at closing and some institutions suspended mortgage loans until September, when the usury ceiling was lifted. The housing market slo wed to a crawland, to make matters worse, the local condominium market had overdosed. There were over 2000 units for sale in Dallas and Fort Worth. Daon’s fortunes sank as quickly as they had soared: The company was stuck with several million dollars’ worth of empty condominiums, very few people who wanted them, and little financing for those who did.

In the ensuing months, Daon Southwest struggled. It was overinvested in condominiums and couldn ’I find a way out. Early in December, Gipp DuPree left the company. Early in February 1980, a stockholders meeting was held in Vancouver. Word leaked out. A week later, on Valentine’s Day, the headline appeared in the Dallas News: “Daon plans condo phase-out in Texas. “Citing a “prohibitive usury ceiling, the high cost of money, and rapidly escalating prices of housing in the Metroplex,” Daon announced that it was phasing out its once-golden condominium empire. With 700 condos still unsold, a company spokesman explained that “the condominium business is such that it’s not feasible at this time. “Daon was getting out.

While it is true that Daon was victimized, as its executives claim, by the economics of a fickle industry, it is equally accurate to say that Daon fell prey to its own overindulgent style. A chief officer of one of Daon’s competitors, who followed its rise and fall closely, ascribes it to “simply a matter of too much, too soon.” While other companies in the con-do business had perhaps three or four properties in various stages of conversion and marketing, Daon began its first four almost simultaneously, and later cranked up four others at the same time. While Daon had 700 condominium units in its inventory when it shut down, International Housing Systems, its biggest competitor, had only 110. When the market went bad, it was just too much to handle.

Under DuPree, the company was hopelessly top-heavy. While DuPree was a master at swinging the big deals, the company he’d structured beneath him had difficulty managing its mushrooming acquisitions. Any developer dealing in condo conversions, the renovation of 10- to 15-year-old apartment complexes, is going to run into construction problems; even with the most careful inspections there will be unpleasant surprises. Daon encountered dry-rot problems in the floors of one complex, hot- water problems in another, electrical rewiring problems in another, all of which took an inordinate amount of time to remedy. Not only were large expenses incurred, but more important, sales suffered. Daon executives today admit that if it weren’t for delays caused by renovation difficulties, they would have been able to sell more units before the interest rates went up.

Similar difficulties have caused credibility problems with purchasers of Daon’s units. In the face of rising interest rates, some buyers went ahead and closed on their property before Daon had fulfilled its renovation promises. Further delays strained relationships and prompted threats of lawsuits.

Another move may have sealed Daon’s fate. In early 1979, DuPree and friends decided to move into Fort Worth. While there was essentially no condo market in Fort Worth in 1979, Daon was convinced it could push the idea there, even though there are plenty of apartments and modest houses, commuting is less of a problem than in Dallas, and there’s a smaller influx of newcomers. Daon’s Woodhaven and Governor’s Palace opened anyway – with a resounding thud.

Before entering Dallas, Daon scouted the market through Sherilee Corporation, a brokerage firm established through family ties to California specifically to serve Daon. Gipp DuPree worked closely with Sherilee’s key man, Bill Harris; in those glory days, the two drove matching blue Cadillacs. Virtually everything Daon bought in Dallas was brokered by Harris with Sherilee. It’s not uncommon for a developer to work with a favored broker that way, but Sherilee’s commissions were uncommon. On multi-million dollar deals, brokers generally expect commissions of three percent or less, but Daon’s records show that on transactions ranging from $1.4 to $6 million, Sherilee’s commissions were generally proposed in the range of 4.8 percent to 6 percent. Too much, too often. (DuPree, interestingly enough, shares a real estate office with Harris today.)

Meanwhile, Daon’s condo competitors have, for the most part, managed to weather the economic storm that helped sink Daon. Using various financing techniques – interest rebates, rollover mortgages, and joint venture arrangements with lending institutions – combined with tightly checked renovation and management procedures, the condominium business in general is surviving, though not thriving.

But Daon Southwest isn’t dead, not yet.Its condo business is as good as gone; unconverted properties are being offered for saleand some properties may be reverted, ironically enough, to rental. A new executiveteam has been given the reins. Dan Downs,general manager of residential development, assures that all promises to condobuyers will be fulfilled and that Daon willclean its slate. What’s more, Daon still hassignificant land holdings in the city – including the Fairmont property and QuorumNorth – and Joe Stucker, new vice president of land development, says that Daonwill most certainly stay in Dallas, in realestate, in a big way. Only the condos crumbled, claim Stucker and Downs. But bothknow that the bloom is off the rose. They arereminded every day. As Dan Downs arrivesat the sprawling Daon offices in One DallasCentre, he passes the huge oaken Daon symbol guarding the doorway, passes throughthe elegant reception area, and walks towardhis corner office, down long corridors ofdark offices and empty desks.