Downtown Dallas’ 1401 Elm was once touted as the tallest building west of the Mississippi River, with 52 stories and 1.5 million square feet of office space.
This Central Business District skyscraper, formerly the First National Bank, has stood depressingly vacant since 2010. Plywood boards and “keep out” signs mar the once-impressive edifice.
Plans were underway for an encompassing $240-million redevelopment until this week, when the New York-based developer leading the deal announced it was pulling out. Because of that, 1401 Elm is now slated for a foreclosure auction to meet the demands of lenders, who shelled out $53.5 million in loans to start redevelopment efforts.
To add a layer of drama for the landmark deal, another real estate investor based in Chicago is suing the current owners of 1401 Elm, claiming it was kept from buying the property through fraud.
This all started when New York-based Olympic Property Partners joined forces with Dallas-based BDRC Partners last year to buy 1401 Elm, which was built in 1965. Together, they planned a $240 million mixed-use redevelopment project, creating sophisticated commercial space and apartments. The city of Dallas thought this was important enough to allocate $50 million in economic incentives to further progress. Everything was hunky dory.
(To put the size of this deal in perspective, the next largest redevelopment project in downtown is the historic Statler Hilton Hotel, ringing in at $175 million).
The two companies got busy shortly after the sale, doing environmental abatement work and other necessary demolitions inside the huge tower.
But Olympic Property Partners got cold feet and say they’re no longer interested in the deal. That leaves BDRC desperately seeking sources for new funding to keep the entire deal from going down the drain.
“Obviously we are having some issues with our lender,” Bryan Dorsey, who heads BDRC Partners, told the Dallas Morning News‘ Steve Brown. “However we expect to resolve amicably in a short period of time.”
Those “issues” have landed 1401 Elm in foreclosure and a forced auction next month, as early lenders aren’t messing around when it comes to their $53.5 million in loans.
For many downtown allies, this whole situation is distressing.
“I’m disappointed this has occurred,” John Crawford, President and CEO of Downtown Dallas Inc., an advocacy group for Downtown Dallas, told Brown. “They missed a payment and are trying to work it out…And they are looking at other forms of financing. Rather than try and work it out, the lender moved forward with the foreclosure.”
Crawford also told Brown the 1401 Elm project is critical for downtown.
“It is an entire city block and a huge part of rebuilding of downtown Dallas,” he said. “That project represents an enormous opportunity for downtown. They have talked to a number of retailers, and the interest level is high.”
Ashley Stanley, a real estate broker and owner of Ashley’s Apartments, an apartment locator service specializing in downtown and nearby areas, has a slightly different perspective. She sees this as more of a hiccup than a catastrophe.
“There are ten [downtown] projects and around 3,200 units coming here over next three years—we’re in such a big growth phase right now that it’s not going to hurt us overall,” Stanley said. “The potential for that location is key because it is in the heart of downtown, but in commercial real estate, deals fall through seven times before they come through. It will come back around.”
As for the fraud charge against the owners of 1401 Elm, Elm Uptown Acquisition and its managing member Scott Morgan are requesting a Dallas court force the owners “to comply with terms of a purchase contract it signed for the building in August,” according to Brown’s reporting. Elm Uptown Acquisition accuses the owners’ representatives of “secret discussions” with a lender it was dealing with “tortiously interfering in plaintiff’s purchase of the property.”
So what’s the bottom line? Next month’s foreclosure auction will answer the question of funding for 1401 Elm and if/when the project is moving forward and in what fashion. Stanley is probably at least partially right: it seems unlikely the entire project would be scrapped, and it might “come back around” in a slightly different incarnation. What are your thoughts on this deal and what it means for downtown Dallas?