Mercantile Place is a rental apartment community in downtown Dallas consisting of four separate and diverse buildings with a total of 704 apartments. Two of the apartment buildings were converted from office buildings, one of which was historic; the third is a renovated historic apartment building previously converted from office space; and the fourth is a new 15-story apartment building.
Though the buildings are located on three separate blocks, they share amenities and parking, and the four buildings have been positioned and marketed together as one residential community. The project also includes four restaurants at street level.
Mercantile Place involved the use of tax increment financing (TIF) and is part of a public/private effort to renovate older structures and bring more housing to downtown Dallas.
The Site and the Idea
The idea behind the project originated with the city. When redevelopment of the site was being considered in the early 2000s, many real estate investors had expressed interest in investing in downtown Dallas but were reluctant to do so unless they were convinced that the city would invest in revitalizing the downtown.
In response, the city sought to stimulate redevelopment via the creation of several TIF districts. But headwinds remained. Many developers looked at the costs of redevelopment versus the value created and found a large gap.
To jump-start redevelopment, the city reached out to Cleveland, Ohio–based Forest City Enterprises—with the Mercantile Place conversion and redevelopment idea in mind—in part because of the company’s reputation for successful public/private redevelopment efforts in other cities. Forest City had no office in Dallas at the time, however.
“A prominent broker in the city knew about the city’s interest in redeveloping the property, and he called David Levey, an executive vice president with Forest City at the time, and [invited him to visit the property],” says James Truitt, senior vice president, development, Forest City Texas Inc. “David came down to Dallas from Cleveland, met with Mayor [Laura] Miller, who wanted to see downtown developed, and that is how it started. It took about a year to put [the deal] together.”
Forest City initially tried to obtain historic tax credits on the former Mercantile National Bank building, but the National Park Service (NPS) would not allow this for the structure because several of the buildings in the complex were to be demolished. When the NPS said no, Forest City withdrew from negotiations with the city and said it could not do the deal. The city then stepped in to provide an enhanced TIF offering to fill the financing gap.
“The city understood the importance of [what needed to be done] here,” says Brian Ratner, president of Forest City Texas. “They very much wanted what we were trying to do.” As part of the deal, the city also committed to developing the adjacent block as the new Main Street Garden Park.
The city was committed to working with Forest City, and a fairly clear understanding existed between the two about the final deal before Forest City put the properties under contract. No other groups were vying for the properties.
Construction on Mercantile Place began in 2006. The converted Mercantile building opened in 2008, the new Element and the refurbished Wilson building opened in 2009, and the converted Continental opened in 2013.
Observations and Lessons Learned
Structuring a public/private partnership with the city and the U.S. Department of Housing and Urban Development (HUD) was essential to make the project work. But it was also essential for each partner to be committed to the effort, to act in good faith, and to communicate openly and honestly during the development process.
“Make sure you have a willing partner,” Ratner says of engaging in a public/private partnership. “These downtown projects generally are more complex—they take longer, they are a little more difficult, there is more financial layering—so you better make sure you have a willing partner, which we did in the city of Dallas and HUD.”
This is equally true from the public sector perspective. “If you have a good partner, you can work your deal, and you will ultimately see your way through a variety of situations,” says Karl Zavitkovsky, director of the City of Dallas Office of Economic Development.
Development of Mercantile Place required considerable public investment, attracting criticism from some observers, but the success of the project has paid considerable dividends for the city and has been transformative for downtown Dallas. By bringing the buildings back to life with new uses, the city and the developer stimulated the revitalization of other nearby downtown areas.
“Most of the old large office buildings have been completely redone, and the TIF district was instrumental in assisting with that,” Zavitkovsky says. He believes that downtown Dallas turned the corner around 2011–2012, when investors started acquiring buildings without asking for city help.
Downtown revitalization projects should not be viewed as isolated development efforts. “Be a part of the community,” says Ratner. “These are not one-off projects. You are part of something; get involved. [We were] involved with the Downtown Dallas Partnership and other things in the city. We will succeed if downtown Dallas succeeds. If downtown Dallas falls backward, we will get hurt.”
When a project involving preservation or adaptive use is being pursued, it is imperative that the investor have considerable equity in the project and adequate contingency in the budget because unforeseen problems always pop up when an older buildings or a renovation is involved. “You have to pay an entry tax when you renovate buildings,” notes Truitt, because the parties involved don’t know what unexpected circumstances may arise. “We did not have enough contingency. It ended up costing a little bit more than we thought it would.”
The right timing is often essential to the success of a development. Other developers had tried to redevelop the Mercantile site but failed to move forward. Forest City succeeded in part because it came into the process at the right time, with the right city council, the right mayor, the right city vision, the right financing, and at the mostly right point in the development cycle. In addition, sequencing of the construction work should be carefully timed as well. Plan first, then build. Notes Truitt, “Don’t start a project until you have full plans. We started a bit early, and this created some problems.”
