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With Dallas commercial real estate at an all-time high, developer Jeff Swope and others are betting on the future. But should they be looking at the past?
By Catherine Newton |

On a sunny February afternoon. Jeff Swope sweeps down Dallas Parkway, then pulls his fresh-from-the-car-wash Suburban onto the graveled lot of a construction site, maneuvering the black behemoth until he’s got the best view: four sky-high, spindly steel construction cranes on a 70-acrespread,a$l 10 million project known as Addison Circle.

“This will be the only urban living environment in Dallas other than the Uptown area.” says Swope, managing partner of Champion Partners Limited. The project includes apartments, retail space, and park areas in addition to what we’ve come here to see: the rising skeleton of a 10-story, multi-tenant office tower being developed by Swope’s 20-person, 7-year-old company. The target date for completion is Nov. 1, but as of yet, no leases have been signed.

The tower already has fierce competition. Next to Champion’s site, MEPC American Properties is building a third tower for their Colonnade office park, a complex that, when finished in September, will encompass almost 1 million square feet of office space. Colonnade III, a 16-story building, is also being built on “spec,” with no pre-signed tenants. In fact, along the next several miles of the Tollway, new office buildings are sprouting up like plastic constructions in a fast-paced Monopoly game. Swope’s Addison tower represents just a fraction of the 3.3 million square feet of office space-almost as much as two Renaissance Towers-in 22 separate projects that in February lined the Tollway.

Amazingly, in a market that just a few years ago was nonexistent. 43 percent of this multi-tenant office space has been pre-leased. And that’s just the beginning. In Uptown, Preston Center. Richardson, LBJ Freeway, and Central Expressway, at least 8 million square feet of new, multi-tenant office space is being developed, 40 percent of which is already leased.

A year ago, this kind of new construction couldn’t have happened. “A year ago.” Swope says, “I couldn’t get a 10-story building in Dallas financed.” The only new office space built in this city since the bust of the ’80s has been corporate build-to-suit projects.

But suddenly, the commercial real estate market is booming. In fact, industry experts say that this is the best commercial market Dallas has ever seen. Spec building-last seen in the go-go’80s- is back, and right at the heart of it is Jeff Swope. As a partner then with Centre Development Company, he won big-then lost big when Centre split in 1990 and its 400-plus employees went their separate ways.

Last year, Champion Partners, which Swope founded in 1991 and now manages, developed or placed under contract 1.3 million square feet in local commercial space, with a value of $74.1 million. This year, Champion plans to develop at least 2 million square feet of commercial space in the Dallas-Fort Worth area, 60 percent of which will be done on spec. Right now, things are going Swope’s way in Dallas.

But what about tomorrow? Experts caution that the commercial real estate cycle has a rhythm of its own, and overbuilding is inevitable. What goes up will come down. Swope says he knows the cycles are quick, but he’s not worried: “Life is a risk and you plan accordingly.”


“HOW DO YOU BECOME A DEVELOPER?” REPEATS JEFF Swope. He laughs and grins. “Von put out a shingle and say ’I is. I is.’ Then you buy a fancy suit and a fancy car and start putting people together.”

On this particular Saturday, Swope isn’t wearing a fancy suit or one of the Hermès ties that he says are pan of his usual uniform. Instead, he’s in pressed jeans, a country-club-casual Ryder Cup jacket, and some of his favorite cowboy boots.

Swope is giving a tour of the Dallas-Fort Worth area, showing me the many places he’s left his footprints and, in the process, providing a larger perspective on what’s happened in the last 15 years in the Dallas commercial real estate market-and where that market is heading.

From the parking lot of North Dallas’ Lincoln Centre, where Champion Partners has its offices, we head west, taking Highway 114 toward Fort Worth’s Alliance development. Like a kid on a Disney World ride, Swope gestures and points, providing a nonstop animated monologue centered on the sites we see.

We pull into an industrial park at Alliance and slowly drive by stretches of vast, white warehouses owned by corporate giants- Zenith, Kraft, Mitsubishi, Texas Instruments, and Nestle. The enormous Nestle warehouse was developed by Champion, and looking at his project, Swope begins to describe his company’s philosophy.

The Nestle deal, he says, epitomized Champion’s total project management approach to development. Champion handled the disposition of Nestle’s 30 existing distribution facilities around the country, then managed the structuring, negotiation, and closing of three separate leveraged sale-leaseback transactions for seven new regional facilities. The total financing consideration added up to $243 million.

Champion was started under the ownership of Ray Hunt in April 1991, and this was the company’s first big deal, one that provided an immediate stability to its future. {Hunt split with Champion in April 1994). In retrospect, says Swope, the Nestle deal was crucial to the company’s success.

“We couldn’t have started Champion at a worse time,” Swope says. The Dallas market was still trying to crawl out from the mid-’80s debacle. Real estate capital was virtually nonexistent and construction was limited to build-to-suits. ’The real estate cycle,” said industry analyst Anthony Downs of the Brookings Institute in The Dallas Morning News in September 1991, was “the worst is has been since the 1930s.”

While other real estate companies were breaking up or diversifying, still struggling from the ’80s bust. Champion was a fledgling, hoping to grow despite the obvious problems in the market. “Everybody else was doing property management and leasing,” Swope says, “then here came Nestle walking in our door.”

Of course, it wasn’t that simple. Nestle chose Champion for a particular reason.

That goes back to 1987. when Swope was a partner at Centre Development Company, constructing a S9 million industrial complex for Carnation in Garland. After the deal was done, however, the concrete floor of the space began to crack.

“We could have said it’s not our problem,” says Swope. “But we didn’t. It cost a lot to fix it, but we had made a good profit on the deal. I said, ’We’ve got to fix this.’ Well, a couple guys [from Carnation) who were now with Nestle remembered that.”

It was, says Swope, a good lesson in integrity.

Swope’s story of Champion Partner’s early days gets us all the way to the tiny town of Hazlet. Looking out one side of the Suburban, we see goats grazing in pastures, On the other are tremendous structures-the American Airlines jet service center, the Federal Express building. Swope leans forward, staring in awe at the buildings he’s seen many times before-most recently, just last week. “Just to give you an idea of how big that space is,” he marvels, “the letters on that American sign are 27 feet tall.”

I ask him about how he got into this business in the first place, how he came to start “putting people together.”

“Well,” he says, “we didn’t have much money when 1 was growing up in East Dallas. So I worked.”

He went to the University of Texas in Austin, where he tended bar at night. Summers were spent in the construction business. In 1973, 23-year-old Swope began working as a leasing agent at Trammell Crow Co. Many of his peers were five years older. “Most were fighter pilots, right out of ’Nam,” he recalls, explaining that Trammell Crow at that time liked to give potential employees detailed personality tests. “He was looking for people who were tough and didn’t crack under stress.” Swope stayed at Crow for seven years, becoming the youngest partner in the history of the Crow Company.

But it wasn’t enough. “I was thinking ahead a little bit, and I saw the need for a national build-to-suit group. In 1980, Crow didn’t see the opportunity.

“I wanted to do more. So I left.”


IT WAS THE BEST OF TIMES FOR REAL ESTATE, A NATIONAL LOVE affair. In the early 1980s, developers would secure options to buy land, then find the financing they needed. And they could almost always find the money. Loans-from freshly deregulated savings and loans-often were issued for 100 percent of a project’s cost. In the 1980s, as much office space was built across the United States as was standing in 1979.

In Dallas, growth carried the weight of a manifest destiny. By the end of 1983, over half of the city’s 82.3 million square feet of multi-tenant inventory had been built in the previous five years. Spec buildings were the flagship of the boom times.

Jeff Swope spent the heydays of the ’80s as one of eight partners at Centre Development, a company started by Jack McJunkin Sr. in 1975. Centre was a major player in the commercial real estate market and Swope saw his opportunities.

“One of the reasons 1 left Crow was to start this development,” Swope says as we drive down a long, thick stretch of road that used to be a runway but now forms the dramatic entrance to the CentrePort complex, just south of the Dallas-Fort Worth area. American Airlines” corporate offices are here, as are office and industrial spaces for more than 55 corporations, including Mattel. Johnson & Johnson, and Keebler.

CentrePort prompts Swope to talk about the crash of the ’80s. “Things were getting tough in ’87,” he says. “Between 95 and 98 percent of the owners of property in the ’80s really became busted. There was a tremendous loss of wealth in the state. It was a real depression.

“But we worked through it,” he adds firmly, drawing his mouth into a straight line that indicates that this discussion of past failures is over. “We had value. We had things left.”

CenlrePort’s activities-the American Airlines site and Matsushita Electric’s 1987 expansion facility-along with other corporate and industrial projects, such as the Carnation complex in Garland, were the deals that kept Centre alive as the bottom fell out of the Dallas office market in the mid-’80s.

Overall office space occupancy dropped from 1982’s high of almost 90 percent to 1987’s abysmal 67 percent. The space absorption rate of 5.8 million square feet in 1982 plummeted to 2.2 million in 1987. The market was severely overbuilt.

As the ’80s rattled out, Centre Development, which was ranked the 47th-largest commercial developer in the nation in 1987, began to feel the slide. While Centre still had some projects with equity, appraisals showed that the values associated with a lot of other projects were lower than the debts associated with those projects. By late 1990. the eight partners knew they had to dissolve the partnership and cut their losses. “We basically said. ’Let’s just wrap all this up with all these obligations,” Swope says.

The partners went their separate ways, some getting out of the development business altogether. Swope says the Centre Development partners were unusually lucky victims of the bust. “The Centre guys were the luckiest guys in Texas,” he says. “We still had a lot of things of value.”

Those “things of value” included many properties that Centre had purchased with a 1987 $210 million financial commitment from former partner Aldrich, Eastman & Waltch, a Boston-based investor. In early 1991, Centre’s partners began deeding back those buildings, including a shopping center on Skillman Road, two Farmers Branch industrial buildings, an Addison office building, and Swope’s CentrePort complex, one of the big opportunities Swope had seen when he joined Centre Development in 1980. That big dream was over for Swope. At least for a while.


FAR FROM THE PLAINS OF DALLAS, WHERE DEVELOPERS FEEL their fortunes rise and fall, lies the think tank known as the Brookings Institute. In this Washington, D.C.-based center for thought, economist Anthony Downs studies the real estate cycle and has developed a model of its activity, which, he says, immodestly, has proven “amazingly accurate.”

The main idea is fairly simple. The market has three phases: development boom, overbuilding, and gradual absorption. The development boom phase begins when the economy is in a state of overall expansion. Space demands increase. Rents go up and developers start building new space.

But just when that new space comes into the market, the overall economy goes into a recession. Space demand slows. New building stops. Rents fall, values fall, and values collapse.

Then, the economy goes into another expansion and space demand slowly rises again. But before new space is built, the existing space must be absorbed. Rents rise slowly and very little new construction starts until the absorption phase ends.

According to this model, says Downs, the long, slow absorption phase that began with the collapse of the market in the ’80s is over. For developers in the United States, for men like Swope, “the best time is now,” Downs says, “because both demands for space and financing terms are optimal.”

Market data shows Dallas, and the nation, firmly in the development boom phase. Jerry Fults, president of Fulls Oncore Corporate Real Estate Services, which through its Fults Research division has collected more than 15 years of Dallas-Fort Worth market trends and absorption history, agrees: “You can almost say. without fear of retribution, that today every city in the United States is in some phase of real estate boom.”

Fults’ 1998 Market Report, which gives year-end figures for 1997, notes that the nation is now in its third-longest period of economic expansion: Inflation rates are low, unemployment is low, and interest rates are low. Local data shows the demand for new space: Fults’ analysis shows available office space in Dallas is almost nonexistent in Piano and Richardson and along LBJ Freeway and the Tollway, While the overall existing multi-tenant space in Dallas is tallied at 85 percent occupied, Fults explains that the figure is misleading. Virtually all of the unoccupied existing space in the Central Business District-about 30 percent of the total-is “obsolete,” Fults says. A more realistic estimate of overall occupied space, he says, is “90 to 91 percent.”

And, as new space becomes available, Fults says, it is being easily absorbed. “The fact that 40 percent of the new space under construction is already leased shows how strong the market is. And more will be pre-leased before the buildings open.”

At the end of January, Fults’ company found 4.8 million square feet of unleased space planned for the 1998 calendar year but predicted an absorption rate that would at least maintain its 1996 figure of 4 million square feet. “Barely enough space is being planned to live up to the typical absorption rate,” Fulls says.

But how long will the good times last? Overbuilding, Downs says, is inevitable. Developers don’t stop building commercial property until the market forces them to.

Fults smiles wanly as he considers the future. “Development is a perilous business.” he says. “Right now it is a stable market-probably the best in the history of Dallas.” But 12 months from now it may be a very different market. “When the market turns again, and it will, you will hear the sounds,” Fults says.


JEET SWOPE IS DETERMINED NOT TO BE IN DALLAS WHEN everyone else hears the sounds. “Chances are.” Swope says, “we won’t be building a new office building in Dallas, Texas, next year at this time.”

We’re in Las Colinas at Swope’s Sierra office park, land Swope had been watching since 1983. During the early years at Champion, Swope rode out the fiat Dallas office market by working on industrial warehouses (such as the Nestle project) and corporate build-to-suits. He began looking at projects in other cities, having learned through Centre Development’s crisis that tying your business fortunes to the real estate cycle of one city or even state involves more risk than riding the separate, but interconnected, cycles of cities across the country.

In 1993, he sensed the office market coming back in Dallas and he started building here. In 1996. he bought this site. “It’s all timing,” he says. “All of a sudden, it’s lime.’’’

Swope’s Las Colinas buildings are what are known as “big footprints”-horizontal, campus-style structures. The first building, 170,000 square feel, was still under construction when all of it was leased by GTE, last October. It cost. Swope says, $25 million to build, and is already worth between S28 and $30 million. A four-story. 220.000-squ are -foot spec building rises next to it. due for completion in November of this year.

“We’re also in for financing on a three-story down here.” Swope adds. He says he was the first major developer to return to Las Colinas, but he knows others will follow.

“It will be like Pac-man here.” he says, gesturing at the overgrown wilderness outside the car. “Two years ago nothing was here. In three years it will be all built out.”

Today, in Dallas, he says, every commercial property is in play. Bui will it be overbuilt? Will it be the ’80s all over again?

The eternal optimist, Swope notes that things are different today than before. Loans generally are given for only 70 to 75 percent of the cost of a project, not the full 100 percent, so developers must put their own equity into their projects. The available information is also better, which means that the market can be tracked more precisely. “And hopefully.” he adds, “the jobs will keep going. The national economy will keep going.”

For Swope, it’s a matter of riding the waves, he says, and negotiating the quick phases of the market. He watches land across the country with the same vigilance that he tracked Las Colinas. In 1995. Champion acquired 50 acres of industrial land just outside of Memphis, on which the company built a 268.000-square-foot speculative warehouse facility that is now occupied by Ingram Micro. Swope is also in Atlanta. His first speculative warehouse facility has been entirely leased to Bugle Boy Industries. “Have deal, will travel,” Swope says. “Two years from today, we’ll be somewhere else.” But where? He can’t say. “I can’t develop a business plan that’s more than 90 to 120 days out.”


SATURDAY AFTERNOON IS DRIFTING INTO EVENING. AS THE SUN sinks slowly across the western sky, Jeff Swope remains in motion, defying inertia, wheeling back and forth, slowly, in one of the conference chairs in his Lincoln Centre office. I stand at the custom-built stand-up desk where Swope docs his most serious thinking. The desktop is neat, organized, with two phones and a laptop computer to the side. The view ahead is of the Dallas skyline and in the distance to the right-slightly obscured by a telescope given to a Swope by a client (“Use this to continue to be a true visionary,” says the inscription)-are the Farmers Branch buildings once owned by Centre Development in partnership with Prudential. “We ended up selling them at the bottom of the market.” Swope had said as we drove by them earlier. “They could have been profitable. It was bad timing.”

Throughout the tour, Swope repeats frequently and emphatically that he doesn’t “think back a lot” because he spends so much time thinking about the future. But it’s clear that the ghosts of the past are with him, firmly determining the direction in which he will lead his company with aggressiveness-and restraint. On the wall to the left of his desk is a giant, white marker board, blank except for a list and a quote. The list shows Champion’s eight equity partners and three debt lenders. “1 think about them every day,” says Swope. “I have to.”

The quote is from Warren Buffett: “It’s only when the tide goes out that you learn who’s been swimming naked.”

“We ask ourselves that all the time-’Are we swimming naked yet?’” says Swope.

“I get so many compliments,” he continues, “but we can get shot down just as easy-it’s a risky business.”

In our 147-mile, four-hour tour. Swope has given me just one clear mandate for his uncertain future: Champion Partners will slay focused and will stay small.

“We are not confused by what we are,” Swope says. “We don’t do property management. It’s not how many chips you have, it’s how you play the game.”

Perhaps it’s a lesson learned in controlling the excesses of the ’80s and valuing relationships instead. “I love change, but I want consistency,” Swope told me earlier this afternoon. “My partners and I will never be the big guys, Helping people brings me a lot more satisfaction than putting a check in my back pocket.”

Or maybe it’s more a fear of losing control-again. Of seeing the fall coming but not being able to move quickly enough because you’re too big. Swope’s ride through the quick cycles in cities across the country demands that he’s able to. as he says. “turn on a dime.” The scary pan, he confesses, is that the “peaks and valleys tend to gel greater and greater” all the time,

Staying in for the long ride, it seems, depends on making an endless series of quick runs, it’s a marathon, not a sprint.” says Swope. Then he laughs. “Bui my friends tell me, ’Swope, you’re always running around like it’s a sprint.’ It’s a sprint.”