On a sprawling site between the Virgin of Guadalupe Cathedral and the St. Paul United Methodist Church downtown, $338 million worth of innovative architecture and streetscapes are taking shape. The Dallas Center for the Performing Arts will feature a 12-level theater stacked like a cube, a horseshoe opera house skinned with cherry-red glass, open-air stages, elaborate gardens, and a maze of reflecting pools. The project opens next year, the most significant complex of its kind since New York’s Lincoln Center.
So far, the eight-year fundraising effort has convinced 114 families and individuals to give $1 million or more, the most successful capital campaign in the history of the performing arts. It’s worth noting that 80 percent of the donors had never supported a local cultural institution before. Center president and CEO Bill Lively gives credit to the depth of entrepreneurial talent in Dallas, and a recent Merrill Lynch wealth report backs him up. The Dallas-Fort Worth area has 69,710 million-dollar households and is projected to add another 43,638 in the next five years—the fastest-growing millionaire population in the United States. The report defines a million-dollar household as having at least that much money in liquid assets, excluding the value of the home.
Not every household in town, obviously, is doing nearly as well as the 2.9 percent in the seven-digit club. In his book The Age of Turbulence, former Federal Reserve Board chairman Alan Greenspan devotes an entire chapter to income inequality and the “disturbingly sour” view that most Americans have of the economy. That was a year before oil prices and subprime debt torpedoed the stock market and sent foreclosures soaring. Median income in Dallas is roughly $42,000 a year, and one-fifth of local families with children under 18 live in poverty.
With the U.S. economy wobbling like a frat boy at midnight, the typical reaction to this bumper crop of new millionaires is an emotional one. People on budgets—and our number is growing—are quick to resent the news. The trend seems to support complaints about piggy executive pay packages and the death throes of the American middle class. And, let’s face it, a little envy snakes in. But local analysts are considerably more upbeat. They say the recent wave of success stories has helped make Dallas the strongest metro economy in the United States—and a much safer job market for the average worker. Whichever side of the argument you favor, local wealth and income issues are likely to become more prominent in the years ahead—and they are key to keeping Dallas a relatively calm port in the national economic storm.
America’s recent upper-end wealth concentration is the result of an amazingly long bull market, regressive taxes, and real gains in gross domestic product. The drivers in Dallas have included booms in energy, finance, transportation, international trade, and strong defense spending. Among the beneficiaries: Fortune 500 executives with large holdings of a single stock, entrepreneurs backed by the country’s fourth-largest concentration of private equity firms, and anybody milking the oil price spike. Mark Casey, regional director for Merrill Lynch’s private banking and investment group, describes his clients as hard-driven, type-A personalities who have worked all their lives, seven days a week. When they finally do cash in their options or sell a business, they can walk away from these “liquidity events” with $50 million or more. Scott Mueller, a vice president at Goldman Sachs private wealth management group, cites oil and gas as a major boon for his clients, especially thanks to the Barnett Shale natural gas field. In 2007 alone, the Barnett Shale added more than $8.2 billion to the North Texas economy.
“It’s affected anybody who happened to have land over by Fort Worth,” Mueller says. “Activity has been ramping up for the last five years, and Chesapeake Energy set the price two years ago when it agreed to pay DFW a bonus of $181 million for drilling rights out at the airport. Since then, we’ve seen big, big deals involving some Dallas folks.”
One early investor in developing the Barnett Shale field did particularly well. Trevor Rees-Jones, a 57-year-old SMU law school grad, sold his company two years ago for $2.6 billion and joined 16 other Dallasites on the Forbes list of the world’s richest people. Two months ago, 44-year-old hedge fund manager Lee Ainslee III became the newest local name on the list. The Merrill Lynch report estimates that 1,821 local households are worth more than $10 million, and 235 are worth more than $25 million. When a liquidity event puts a citizen into one of these brackets, he or she is usually determined to make sure that the cash remains safe for many generations.
Lately, that means putting it into some other currency, or into global funds that target stable opportunities in markets like China, India, Hong Kong, New Zealand, and Canada. “Lots of clients are looking for ways to reduce their exposure to the U.S. dollar,” says Phil Swatzell, managing director of private banking at Credit Suisse. He calls this a dramatic but logical about-face from the days when the wealthy in Dallas would only invest their money in Texas companies, oil, and real estate. Six floors below him in the Crescent Court, an expanded team of client advisors under Leslie Greco-Pool at Deutsche Bank Alex Brown invests the wealth of executives from several local Fortune 500 companies. “Our access to foreign markets is why these clients come to our firm,” she says.
Once the bulk of their money has been reasonably bullet-proofed, high-net-worth individuals are free to spend a portion of the rest on “investments of passion.” These can include luxury automobiles, art, estate jewelry, and, in extreme cases, sports teams. The appetite for luxury goods is certainly heartier today than it was half a century ago when H.L. Hunt said he felt like a sucker paying $3 for a hotel breakfast. “Business is good,” says Carl Janin, general manager at Lamborghini Dallas. A 12-cylinder mercury blue Murcielago LP640 coupe may have the worst fuel-efficiency rating in the world, but the price of gas does not typically factor into the purchasing decision on a $400,000 car. The Dallas showroom is the second-busiest Lamborghini dealership in the United States, and there’s an eight-month waiting list for the exotic LP640.
“We’ve lost the opportunity to recruit new companies and families in the past because the cultural landscape was deficient. No longer will that be true.”
With the entire Design District feeding off luxury town home and condo developments such as Azure and One Arts Plaza, the fine art market has also been strong. “The city is not hurting right now for residents who appreciate art and want to surround themselves with beautiful things,” says Karen Fedri, director of the Gerald Peters Gallery. She spends a lot of time educating newly affluent collectors. Now that real estate investments are riskier, these buyers are focused on the potential of museum-quality art. “People are turning to art as a place to shelter their money,” Fedri says. “Some will still see a particular painting and say, ‘I want to wake up and look at that every single day,’ and not care so much about the history of the piece. Others come in and say they understand that they’re supposed to like what they’re looking at, but they want us to help them find something that will at least hold its value over time.” Western artists are always popular, and the gallery featured a rare John Mix Stanley painting of fur trappers at a recent exhibit, priced at $1.8 million. For modern tastes, a small Georgia O’Keeffe painting of a sunflower is just over half a million.
What possible comfort is there in economic news like this for North Texans at the other end of the income spectrum, people who are very worried about the cost of gas and bread and milk? Terry L. Clower, associate director of the Center for Economic Development and Research at the University of North Texas, says that when sales at Stanley Korshak go up, for example, the money stream does work its way into a variety of different pockets. But he downplays the general benefit of luxury spending and consumption. “If a well-to-do person becomes more well-to-do, maybe they buy a better car,” Clower says. “That’s a good thing, because the car salesman gets a commission and the dealership gets the revenue. But it has a relatively small impact on the local economy. The real reason it’s good to see this group growing is because they are indicative of well-performing firms. And there are probably a lot of other folks at these firms who are also doing well. It’s not millionaires, per se, who are driving the economy; it’s their companies. Because these people do create jobs.”
A quarter of the million-dollar households in the Merrill Lynch study belong to independent business owners. According to Clower, the most valuable players in the local wealth equation are not the veterans who leave the game and funnel their money overseas. The real stars are the women and men who postpone their liquidity events and keep on minding their stores, agencies, and companies. The large stream of operational cash that these entrepreneurs constantly reinvest in the community helps explain why Dallas added 81,900 jobs last year—tops in employment growth nationwide. Paul Spiegelman, CEO of the Beryl Companies, exemplifies the hidden core strength these very active entrepreneurs provide to local commerce. He and his brothers moved Beryl from Los Angeles to Hurst in 1995. With 330 employees in a recently expanded facility, Spiegelman likes to describe the operation as small. His relentless “small is better” strategy has turned the company into the country’s dominant health care customer-service firm, and his promotion of worker-friendly culture has had a big influence in the entire industry. The approach mesmerizes competitors and investment bankers who have repeatedly tried to talk the 50-year-old into selling. But like most entrepreneurs, Spiegelman’s professional passion is fine-tuning the enterprise he founded in 1985. As part of that evolutionary process, he recently filled a slate of new senior-level positions. “One of the reasons we came here was because we saw the Dallas market as a great talent pool,” he says. “And that still holds true. Everybody we added is local and all the candidates were impressive.”
Mike Rosa, vice president of economic development at the Greater Dallas Chamber of Commerce, sees the intertwined growth of jobs and millionaire households as the result of serendipitous geography and many generations of patient planning. The Census Bureau recently released population estimates showing that North Texas added more than 162,000 residents between the summers of 2006 and 2007—the largest gain of any U.S. metropolitan area. Experts credit our strong economy and affordable housing. “We’re in a good spot and have taken advantage of that spot,” Rosa says. “The reason we seem to be floating to the top in these rankings is a long, steady focus on economic diversity. We keep attracting corporate groups and manufacturing and logistics operations, and they in turn keep hiring people with sophisticated skills. Those high-salary jobs eventually add people to the high-net-worth group.” The uplift effect is not limited to executive positions. With a gross metropolitan product of about $316 billion, Dallas-Fort Worth is currently the sixth-largest economy in the United States, and the area is projected to add more jobs through 2011 than any other U.S. metro area. Unemployment in the Dallas area in February stood at 4.3 percent. Dr. Clower at North Texas feels that even during a national recession, the unemployment rate for the North Texas population should not exceed 6 percent. “We are going to remain very resilient,” he says.
The new Performing Arts Center should help. When the development goes live next year, it is expected to attract 800,000 visitors during the first 12 months of operation. An economic engine in its own right, the center will also solve an image problem that has repeatedly cost the city major corporate relocations. “We’ve lost the opportunity to recruit new companies and families in the past because the cultural landscape was deficient,” CEO Bill Lively says. “No longer will that be true.” Again, regional economic expert Ray Perryman gives some credit to the expanding top tier of the economy. “A lot more people are now in a position to supply the funding and support for the arts and museums and things like that,” Perryman says. “One of the reasons that Dallas is having such a renaissance downtown and culturally is greater interest in the community by this group. You have to have a base of people like that in order to end up with the quality of life that you want everyone to have.”
Immediately after Trevor Rees-Jones made his fortune in the Barnett Shale, he and his wife Jan put $400 million into The Rees-Jones Foundation to target deprived individuals. Last year, $29 million in grants were approved for kids in foster care, abused children, Sudanese refugees, cancer patients, mentally ill adults, and many others. The foundation also kicked in $1 million to jump-start the development of the new Homeless Assistance Center in downtown Dallas. Merrill’s Casey has seen first-hand the impact of new wealth on the neediest members of the community. He says this humanitarian trend has gotten stronger in the last few years as more baby boomers create legacy investments to give back through a broadening range of activities. The new school of donors is applying its business instincts and talents to these philanthropic efforts, demanding detailed feedback that proves its gifts will directly affect each cause. The hands-on involvement seems to be making social capital more fruitful. According to Charity Navigator’s 2007 Metro Market report, large charities in Dallas have dramatically improved their efficiency, spending more on fundraising and less on administrative fees. Last year, the rate of revenue growth almost doubled, vaulting Dallas to a close second place behind San Diego. Sandra Miniutti, a spokesperson for Charity Navigator, explains that one reason Dallas donors have been giving more is because there is more confidence in the local economy and its ability to keep them prosperous.
A veteran fundraiser, requesting anonymity, felt obliged to observe that much of the new wealth population in the suburbs hasn’t pitched in yet. “People who moved here and are new here make their money here,” he says, “but they don’t identify as much with the important institutions.” Calling the detachment of wealthy newcomers a challenge for the future growth of the city, he hopes they will buy into the strong local tradition of supporting civic institutions. They could take lessons from Dallas businessman T. Boone Pickens Jr., who has given more than $600 million to philanthropic causes in his career.
The gap between rich and poor, Alan Greenspan warns, is an issue full of political peril. While UNT’s Clower points out that local wealth inequality is not as marked as the gap in New York, million-dollar households in the Dallas-Fort Worth area are projected to grow six times faster than the general population. On the bright side, this means that 25,000 successful entrepreneurs could be generating jobs here in five years’ time. If their activity continues to buoy employment in a sour national economy, everyone should turn out to cheer the parade on Millionaire’s Day. But that well-deserved tribute won’t fix the nagging problem at the other end of the spectrum. To find roughly 70,000 millionaire households, Merrill Lynch combed 32 counties in North Texas. In Dallas County alone, more than 387,000 residents—many of them working—are officially poor and getting poorer every day as the cost of living rises. It would not be easy to create a program that squarely addresses the modern job skill deficiencies in this large sector of the population. Why shouldn’t the most successful city in America make that investment in its future?
Craig Hanley is a contributing editor to D Magazine. Write to [email protected].