By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
If reports that Dallas is booming again are true, the real test might be a stalled downtown housing scheme. After falling months behind schedule, a city-backed plan offering federal loan and tax incentives to transform office buildings into hip apartment dwellings finally has begun to show promise.
In December last year, the city ran advertisements in The Wall Street Journal and The Dallas Morning News announcing: "Dallas is looking for a few good developers to join our success." The ads were supposed to draw interest for a city-proposed plan to help subsidize, through $25 million in federal Housing and Urban Development loans, the rehabilitation of historic buildings in and near downtown into mixed-income residential units.
By February, according to the initial plan, developers were expected to submit their projects for city council approval. And by April, city council should have been choosing among the proposals and awarding the HUD grants.
But now--nearly seven months from that April target date--the city council has yet to authorize any of the eight projects that developers submitted last winter.
"It has been a slow, painful process," says one frustrated lawyer engaged in the negotiations, who asked not to be identified.
"There are a hundred reasons for the delays," says Cherryl Peterman, the acting director of the city's Economic Development Department, who now is the senior staff person on the project.
For many reasons, the picture for the new downtown housing is bleak. The original city officials who pushed for the downtown housing concept, including former director of Economic Development Dennis Martinez, have all moved on.
Still, the optimists about downtown housing--and they exist in surprising numbers, particularly among those who have a financial stake in currently unmarketable, office dinosaurs--have reason for hope.
In mid-December, the council is scheduled to give its first formal approval to one of the downtown housing projects, a proposal to transform the empty part of the old Joske's department store (the Titche-Goettinger building) into 130 units of housing and 15,000 square feet of retail space. Now, part of the old Joske's department store houses downtown classrooms for local state universities and community colleges.
Dallas architect Graham Greene and developer Jack MacJunkin, who led a group of investors who bought the Joske's building for $250,000 last year, want to spend $10 million to transform the remaining portion into retail space and apartments. The city staff has pledged to the Joske's proposal roughly $3.5 million in a federally subsidized HUD loan.
The HUD loan is available through a federal program known as Section 108 funding, which allows for low-interest loans to be directed through municipalities to private developers who are embarking on projects that, according to the federal rules, "principally benefit low and moderate income persons, aid in the prevention of slums, or meet other community development needs that have a particular urgency."
It is that clause, to "principally benefit low and moderate income persons," which has slowed down the city's approval of the Joske's project.
Tentatively, the city staff had accepted a proposal by Joske's developers to set aside only 20 percent of their proposed residential units as "affordable" housing. By the city's own definition, that meant the apartments had to be rented to individuals who earned 80 percent or less of the median income of Dallas and paid no more than 30 percent of their income for rent and utilities.
But as the negotiations dragged on over the months, the federal HUD authorities, who also must sign off on each project before the loans are granted, questioned whether the 20 percent for affordable housing was enough to qualify for the loan. HUD's own rules call for 51 percent. "There were some misunderstandings with the original proposals," concedes Peterman.
Ultimately, the city asked for--and finally received last week--a waiver of that HUD rule. Under the terms of the waiver agreement, the city will ask the developers to provide a percentage of affordable housing in their project that equals the percentage of financial assistance they are receiving from HUD. In Joske's case, that waiver agreement means that a $4 million HUD loan on the $10 million project requires that 40 percent of the apartment units be earmarked as affordable.
Now that MacJunkin and Greene have designated nearly half of their units for affordable housing, the two expect their project to sail through. Indeed, MacJunkin intends to get the apartments occupied within eight months.
Another downtown housing developer, Clifford Booth, also hopes to be seeing some reward for his patience. Booth, president of Southwest Properties, submitted a proposal to the city to get HUD subsidies to transform the Santa Fe II, an empty office building across from the federal courthouse on Jackson Street, into an apartment building with retailers on the lower level.
Booth plans to spend $18 million--including $2.65 million in HUD loans--to renovate the 20-story building, installing 268 apartment units, 40 percent of those earmarked as "affordable" housing.
Until recently, his project has been held up on another federal subsidy program, this one administered by the Texas Department of Community Affairs. Booth recently learned from the state agency that his project will receive $4.5 million worth of federal tax credits, granted to the project because it provides low- and moderate-income housing. Booth can sell the federal tax credits to raise roughly $2.5 to $3 million in equity for the project.