Q&A: Why Southern Land Company leaned on internal equity to capitalize on this 'diamond' of a North Texas city
See full Dallas Business Journal article by Spencer Brewer here.
While Downtown Fort Worth's urban core has increasingly drawn interest from developers, scarcity of land remains a roadblock for future development.
Southern Land Company’s Deco 969 project, the first luxury residential tower to grace the city’s skies in 30 years, recently had its topping out ceremony. The company has begun looking for a site to develop another luxury residential tower within the urban core of Fort Worth.
That process has proven difficult in the past and remains so today.
Southern Land Company targeted the Central Library building for a potential development, but Dart Interests secured the site. Dart Interest intends to construct a high rise development potentially featuring two towers, but the company remains early in the planning process and specifics remain fluid.
Planning is far from concrete but the property’s location lends itself to a combination of office and multifamily development. The existing zoning allows for both types of development.
Other sites for potential development remain scarce within the walkable urban core of Downtown Fort Worth. It took Southern Land Company around 12 years to secure the site that would become Deco 969.
“It was ‘05 when we started looking for sites down there, and it just took forever to find one,” said Tim Downey, CEO of Southern Land Company. “A lot of it was owned by the Bass family, a lot of the parking lots were owned by XTO, and there really wasn’t much else.”
XTO Energy eventually decided to sell some of its parking lots, but hotel developers snapped up a significant number of the properties.
Today, the situation remains largely the same, Downey said. Fort Worth has seen relatively less residential tower development compared to cities of a similar size, like Nashville.
That’s not to say that there isn’t new residential development heading into the downtown area. At the start of the year, there were over 3,200 multifamily units in the development pipeline for Downtown Fort Worth, along with 1,500 hotel rooms.
These residential units are likely fairly stretched out, Downey said, and not within the walkable core of the city.
Deco 969 will fully deliver around this time next year, and consumer demand has outpaced Southern Land Company’s predictions. The list of people registered as interested in leasing rose to 570 after the topping out ceremony.
Southern Land Company has projects across the nation, but has never seen this level of demand for a development before.
“In Nashville, I bet there are at least 30 luxury high-rise apartment buildings, like what we’re doing in Fort Worth,” Downey said. “It’s the same population and generally the same incomes and number of jobs. I think what we’re seeing is people in Fort Worth want something luxurious too.”
Southern Land Company used internal equity for the Deco 969 project, and Bank OZK provided the debt.
Downey spoke with the Dallas Business Journal about difficulties in securing land for this type of development and the appetite for luxury towers in Fort Worth.
You’ve said you’re looking for land for another potential residential tower, assuming Deco 969 fills up. What’s behind that?
We actually think more residential in that urban core is really good if it comes on sequentially. It’d be nice to have a couple 1,000 units worth of people living in that Sundance Square/Convention Center area. That would be that many more people on the street at night and much more activity.
What’s specifically so appealing about Fort Worth for this type of project?
It’s almost like a barbell. At one end of Main Street, you go into Sundance Square. On the other end of Main Street, you’ll have A&M and the Convention Center and hotels, and it’s all a great, walkable environment in between them. It’s really amazing how awesome it could be and to not have 10 other guys building high rises at the same time.
You mentioned the amount of interest Deco 969 has gotten. What do you think is driving that?
It’s never happened in our company’s history. That shows how many people would love to live in that downtown urban core.
We should talk about what defines the downtown urban core. I know sometimes downtown gets stretched out a bit. What we’re in is the core of downtown, or the Sundance area. What’s driving all the interest is that there hasn’t been anything in that area in so long.
Why did you decide to go with internal equity for the Deco 969 project?
Before we decided to use our own internal equity, we went to the market to see if there were people out there that wanted to equitize the deal or go in with us. We had almost no takers, because they were all going, ‘Well, nobody’s ever built a high-rise in Fort Worth before. We don’t know whether we can underwrite that.’
Same with the bankers. We ended up doing this all with our own internal equity as well as very low-levered.
This is a great, beautiful, walkable downtown, and the people in Fort Worth are every bit as sophisticated and well off as Dallas people. Why can’t they have a nice high-rise apartment building? They were going, ‘Well nobody’s ever done it before, so we can’t take the risk.’ I guess once we prove it out others will probably try to follow, but there just isn’t much land to do it in.
What was the process like working with the city for the Deco 969 project?
The City of Fort Worth has been a dream to deal with. We develop, as you know, all across the country, and they’ve just been so supportive and easy to work with. It’s been an absolute pleasure.
Because of that, the job has really gone up right on schedule and without any real problems. They are a great partner.
(Fort Worth) really is a diamond that people haven’t discovered yet, because not only do you have a lack of supply and the dynamic downtown, you also have a really supportive government. While Andy Taft and Downtown Fort Worth Inc. aren’t government, they’re also as good as they come.
Location Mentioned: Deco 969