Tuesday, May 06, 2008

Land prices in downtown Dallas vary widely

More than two years ago, the owners of the historic Masonic Temple and two adjoining buildings on the southeast side of downtown put their properties up for sale.
With an asking price of close to $3.5 million, or less than $40 per square foot, the deal includes almost 2.5 acres of land and the buildings that sit on it.
So far there have been lots of tire kickers but no takers.
That's not the case a few blocks down Young Street, where the city of Dallas is preparing to pay $42 million – or about $110 per square foot – for a vacant 8.5-acre tract. The surface parking lots are adjacent to the Dallas Convention Center and would be used for a new hotel.
The City Council could approve the purchase this month.
This disparity of pricing from one end of Young Street to the other is indicative of the downtown Dallas market.
From block to block, land costs can vary dramatically. And as with any real estate, the price ultimately depends on what someone is willing to pay.
Like any neighborhood, downtown has extremes.
"Look at the Arts District and then go down near Interstate 30 and look at the soup kitchen lines," said veteran Dallas real estate broker Mike Turner. "It's just not the same."
Recent sales on the north side of downtown near Woodall Rodgers and in the West End have been $100 per square foot or higher.
On the south side, near the convention center or Farmers Market, land is trading for $45 per square foot and less, real estate brokers say.
"Arguably the land between Ross Avenue and Woodall Rodgers should be worth more than down by the Convention Center," said real estate broker Newt Walker.
City officials say they used uptown prices in part to value the convention hotel land.
But often the price of real estate downtown is based on what the buyer wants to do with the property.
"If the city were not there saying they are going to do a Convention Center hotel, the highest and best use of that property is still a parking lot," Mr. Walker said.
Based on that use alone, he estimates that the property would sell for no more than $60 per square foot.
Valuing real estate in the central business district – an area where few properties change hands – can be a challenge.
Not public
In Texas, property sales prices are not public information. Buyers and sellers jealously guard values in hopes of holding down tax liabilities. And private appraisals can vary for the same parcel.
Last year, the Dallas Central Appraisal District estimated for tax purposes that the convention hotel tract was worth $7.5 million. The appraisal district just increased its valuation to $36.5 million.
The city has based its purchase price on independent appraisals.
At a recent City Council meeting, an executive with Dallas real estate investment firm Crow Holdings presented two other appraisals – one for $29 million, another for $33 million. The Crow family owns the Hilton Anatole hotel and opposes public funding for the convention hotel.
"If the city is overpaying, at the end of the day that's the price if they want it," Mr. Walker said.
Downtown property owners and real estate brokers aren't likely to complain if the city overpays. So much the better for values, the thinking goes.
Recent sales
Most of the recent land sales downtown "have been in the better markets," said Dallas real estate appraiser Chuck Dannis. "In the core areas, prices are running close to $100 per square foot."
Mr. Dannis says the price the city has offered for the convention hotel site on Young Street doesn't reflect recent sales prices on the south side of downtown.
But he says the large size and planned use are factors that could drive up the price.
"That would be one of the biggest land sales we've seen downtown in a long time," Mr. Dannis said.
Cincinnati-based Chavez Properties Dallas III LP, which hopes to sell the site to the city, paid less than $25 per square foot in the early 1990s. The land has been used for parking lots.
Timing is key
"Everybody thinks that in real estate it's location, location, location," Mr. Dannis said. "But timing is just as important."
Downtown land prices are still nowhere near what they were two decades ago.
During the 1980s real estate boom, property downtown topped more than $350 per square foot as developers competed for prime spots.
A few years later, during the depths of the real estate crash, land in the heart of the central business district traded for less than $30 per square foot.
A 4.5-acre building site on the north edge of downtown at Woodall Rodgers and Field Street sold for about $175 per square foot in 1985. It traded for close to $25 per square foot in the early 1990s.
Just last year, a developer bought the land for about $100 per square foot – still well below the peak.
"It will be a long time before we see prices like we had in the 1980s," predicted real estate broker David Glasscock, who's been trying to sell a prime site on Ross Avenue for close to $125 a square foot.
Even on downtown's busy north side, some recent trades on the periphery have been less than $100 per square foot, Mr. Glasscock said.
"Generally the farther south you get, the cheaper the land is because of accessibility," he said.
In the south
Recent sales on the south side of the convention center have ranged from about $25 to $45 per square foot. And across Interstate 30 in the Cedars neighborhood, it's even lower.
"I don't know of anything over here that has sold for much more than $20 per square foot," said developer and landowner Jack Matthews.
The farther north you go in downtown, the higher the prices.
Developer John Sughrue – part of the team that's working on the Museum Tower condominium high-rise – estimates that land in Arts District would sell for near $150 per square foot. "If you could buy it," he said.
Some tracts on Ross Avenue near North Central Expressway recently sold for between $85 and $100 per square foot.
Property prices are higher in Uptown than downtown.
A block on McKinney Avenue near Fairmount Street sold in 2005 for almost $150 per square foot. It's now back on the market.
More recently, another block on McKinney near Akard Street traded for about $110 per square foot.
Brokers and landowners say that land prices downtown probably have peaked for this cycle, because of the credit crunch that's making it hard to finance commercial properties.
"We're looking at deals right now where we can't get financing," Mr. Turner said.

By STEVE BROWN / The Dallas Morning News