When it comes to financing, urban development projects can be quite a challenge. I was reminded of this at a recent DFW Reimagined breakfast event, where panelists Jack Matthews of Matthews Southwest, Doug Chestnut of StreetLight Residential, Joel Behrims of Trammell Crow, Scott Jackson of the Prescott Group, and John Crawford of Downtown Dallas Inc. all expressed that while institutional debt equity is flocking to “safe” DFW submarkets such as Preston Center and Uptown, investors remain wary of deploying in the central business district. Even when traditional debt and equity does invest in downtown projects, there often remains a funding gap that makes the project difficult to get off the ground. Although the perception that development projects in downtown are risky is slow evolving, alternative financing structures to fund this gap remain critical to catalyzing development in the urban core.
One of the most innovative developers in Dallas that has undertaken very complex projects through the pursuit of alternative financing structures may come as a surprise. It’s the nonprofit CitySquare, led by Larry James. The lifeblood of any nonprofit is donations, and as a mature organization, CitySquare is no different. The donors to CitySquare help the organization fulfill its mission by giving to capital campaigns that are used to pay for its projects. But donations alone are often not enough to catalyze change in the urban landscape—that is where the City of Dallas and other alternative investors step in.
Over the past five years, CitySquare has undertaken innovative projects that combine office, residential, and retail components into socially conscious real estate developments, made possible not only through traditional philanthropic capital campaigns but also alternative financing structures. There are two projects that you may have heard of, but may not realize how they were ultimately financed:
- CityWalk@Akard—Located at 511 N. Akard, CityWalk is a mixed-use development in the heart of downtown that provides nonprofit office space, permanent supportive housing, affordable housing, and first floor retail. In order to complete the renovation of the building, the Central Dallas CDC, an affiliate of CitySquare, employed new markets tax credits, federal historic tax credits, low-income housing tax credits, as well as City of Dallas funding and private philanthropy to complete the project. Today, CityWalk provides affordable housing to 212 residents, office space to three nonprofits, and permanent supportive housing for formerly homeless residents, as well as any other tenant desiring access services.
- Opportunity Center—Located at 1610 S. Malcolm X, the Opportunity Center will house a food preparation space and pantry, workforce and literacy training center, non-profit offices, and retail space that will serve low-income residents in east and south Dallas/Fair Park. In addition to philanthropic donations, the completion of the interior of the project has been financed through the use of a new markets tax credit allocation provided by the Dallas Development Fund. The project is anticipated to open in the first quarter of 2014.
CitySquare’s mission is not motivated by the pursuit of for-profit rents, but what makes the group’s developments unique in the nonprofit world is that their properties generate rent and cash flow like a for-profit development. The organization has taken the lessons learned from these two projects and intends to further expand its mission through future developments that will continue to use creative financing mechanisms to support its mission.
Just as important, CitySquare’s experience demonstrates to for-profit developers that, although financing urban development can be difficult, tools such as tax credits, EB-5 financing, bonds, HUD loans, tax increment financing, tax abatement, and others can take a difficult space and turn it into a transformative one.
Phill Geheb is a real estate and development attorney at Munsch Hardt Kopf & Harr P.C., specializing in public-private partnerships and mixed-use urban development. Contact him at firstname.lastname@example.org