Sunday, February 25, 2024 Feb 25, 2024
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Why Are Dallas Developers So Dumb?

They made their money in the suburbs, where building codes are simple and loans are easy. It has left them woefully unprepared for an urban future.
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Photography by Justin Terveen

A well-known entrepreneur in town had assembled a large parcel of land just minutes from downtown at a very inexpensive average rate over several years. Development is not his expertise, but with the recession ending, he thought it was time to figure out how to make the best use of the land. He sent out requests for proposals to some of the leading real estate companies in the world, including several in Dallas. 

The proposals flowed in from Chicago and Los Angeles and New York. But not one proposal came from Dallas. Frustrated, he picked up the phone to call a friend at the top of one of the Dallas companies. Why did no Dallas firm want to take advantage of this opportunity? Simple, replied his friend. Your land is in West Dallas. Who ever heard of developing something in West Dallas?

Out-of-state companies often seize opportunities in Dallas that locals ignore (in my friend’s case, a small local company heard about the opportunity, begged for it, and ended up getting it). Local developers often are blind to what lies right in front of their eyes. 

I think I know why. So much relatively cheap land has been available to the north and west of the city for so long—and so many fortunes have been made exploiting it—that Dallas developers are spoiled. 

The game is about to change. Especially in the real estate business, demographicsਊre destiny.

It’s not really their fault. If everybody in Dallas wanted to buy this magazine no matter what the quality of the content, over time the quality of the content would slip. That is what has happened to most suburban real estate development. The low expectation of the market has produced inferior, by-the-book product. Any mediocrity can produce inferior product. In Dallas and other Sunbelt cities, they can still get moderately rich doing it. 

But when the market suddenly shifts, as it is shifting now, mediocrity becomes a problem. Cities demand intelligence and knowledge and skill in a developer that wants to make money. That’s when more experienced out-of-town companies rush in where locals still fear to tread. 

Make no mistake: the market is beginning a huge shift. The millennial generation (born roughly between 1980 and 2000) is the nation’s largest living generation, at 75.3 million. It is also radically different from the three generations that preceded it. In a survey published by Goldman Sachs last month, only 15 percent of millennials say they will definitely buy a car. Thirty percent do not intend to buy a car; another 24 percent say they will buy one if they really need to. According to a 2014 Nielsen report, 62 percent of young people now say they prefer to live in mixed-use communities like the ones found in urban centers. 

What are suburban developers to do? The first thing they do is scramble to get ahead of the curve. But they are still hampered by old prejudices and old modes of thinking. (West Dallas, anyone?) When they finally decide to stick their necks out and grab a good piece of urban real estate, they apply suburban thinking and make a mess of it. For a glaring example, see the cheap strip shopping center on McKinney Avenue across from the Crescent (which happens to be the highest-priced real estate in Texas). Or the suburban garden apartments that JPI built across from Victory. Having never lived in an actual city, and apparently unbothered by their lack of knowledge of how cities work, suburban developers insist on building suburban structures in an urban environment. What would be laughed at in Chicago or Portland gets built in Dallas.

The usual response from developers is to blame their lenders. They have a point. Bankers and other lenders are even less educated about how to make money in an urban environment than their borrowers. Their metrics and rules were developed in the suburban gold rush, and any deviation throws them off balance. The cookie cutter cannot make a pie, even if the pie can be sold for more than a cookie. 

The game is about to change. Especially in the real estate business, demographics are destiny. The future of Dallas and of this region lies in the urban core—or maybe in multiple urban cores as our suburbs mature into full-fledged cities of their own. As the market shifts to accommodate the population shift, most Dallas developers and lenders will be forced to adapt or die. There’s a simple test to find out who the survivors will be. Mention the name “Jane Jacobs.” The one who responds with a blank stare is the one whose future is finished. 

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