Preston Center Area Plan Proves It’s Worth(less) in Under a Year

When a document, supposedly crafted for long-term use, proves to be a barrier to the same long-term goals it was created to guide, it’s safe to call it a failure.  If that failure occurs within a year of its adoption by the city, I suppose we can just call that Dallas.

Yes folks, the Preston Center area plan I’d figured for a dust bunny playground has leapt off the shelf in time for Halloween. Like all good frights, I think the authors are just as surprised and perhaps a little scared.

Why scared?  The first test of the plan is within the Pink Wall’s Zone 4 as part of the PD-15 meetings, where the plan’s complete lack of fact-based recommendations is being exposed.  You see, for all its waste of time and money, the plan never applies economic realities to its findings.  It simply scattered around some Monopoly houses and hotels in the name of increased density and redevelopment.

In Preston Center west, that’s OK. The density already allowed in that area (Zone 1 in the plan) is enough to make most any new development economically viable.  But over in the Pink Wall, the Preston Place fire earlier this year is exposing big problems with the plan.

First, let’s be clear.  The Preston Center area plan was written by the business interests in Preston Center west who, along with former Dallas Mayor Laura Miller, largely discarded consultant Kimley-Horn’s $350,000 in consulting work and wrote their own ticket last summer.  As such, the plan they delivered in December 2016 gave short shrift to the other zones in the plan.  This was sorta OK because all but one of the other zones contain single-family homes. And in Dallas, the only density increases to single-family areas revolve around the size of the McMansion.  Because of this, the burden of increasing density in our growing city rests everywhere else.  Like the Pink Wall.

Let’s see what the Preston Center Plan made of that.

At first glance it appears the same type of higher low-rise was simply slapped onto the existing building’s footprint.  Upon closer inspection, you see that’s mostly right.

Zooming into the PD-15 area and more detail is evident.  First, I’m sure the owners at Royal Orleans, to the left of the Athena, are miffed the plan’s “preferred scenario” leaves them out entirely. Second, the buildings in back, adjacent to the single-family homes are actually taller than the ones along Northwest Highway.

For many reasons, this is the exact opposite of what should happen.  First, density is better nearer the towers and Northwest Highway. The flow of the neighborhood is better served by density placed closer to major roads to minimize interior traffic.  Second, the residential proximity slope that dictates the relationship of height to lower structures wouldn’t allow buildings of that height on the north side of Bandera. And the kicker … increasing two-story buildings to three and four stories isn’t economically viable.

Preston Place awaits a new life

Economically Viable

Economic viability means that the desired structures placed on the land make economic sense:

  • Must be profitable for property sellers
  • Land price plus construction costs must make redevelopment possible to the standard desired by the neighborhood
  • (Bonus) Should add value to surrounding properties and neighborhood (something cheap and/or ugly properties don’t)

Adding one or even two stories to a multi-family building isn’t enticing to a builder or seller, especially in an area of high land costs. Think about it.  Preston Place was a three-story building with 60 units on roughly two acres. Under the above graphic, the Preston Center plan allots them a single floor. Given what I’ve seen elsewhere, I’m going to estimate 18.5 units per floor, per acre.  At three stories that turns 60 units into 110, at four it’s 148.  Perhaps this sounds OK?

Let’s not forget parking.  Preston Place had a single-floor garage level for its 60 units. In either the 110 or 148 unit scenario, including the increased parking requirements of today, that would equate to at least two levels of parking, possibly more. If height is limited, parking will have to go underground to a second floor that would cost upwards of $3,000,000.

According to industry estimating service RSMeans, in 2012 the average cost per square foot to construct a 4-7 story apartment building was pegged at $147 in Dallas.  That was a doldrum year for construction and costs have increased since then.  Including the Harvey effect, let’s call it $200 per foot today.  Keep in mind, this is “average” – not junk, not great.

The average size of apartments being built today is around 900 square feet or $180,000 per unit (900 x $200).  At 110 units that equates to $19.8 million just for the units ($26.4m for 147 units). Add in the garage costs and we’re essentially at $23 or $29.5 million in construction for an “average” apartment building on the Preston Place lot … oh, but that doesn’t include the lot itself.  Contractors have told me that they factor land costs at about 15 percent of their total budget.  Because I’ve missed things and may be low in construction and other costs, let’s factor in a generous 25 percent of construction costs would be eaten by the land. That places land values at $5.7 to $6.6 million or about $2.9 to $3.3 million per acre given the 110 and 147 unit counts.  That means in a best, best case scenario, Preston Place owners would receive $95,000 to $110,250 per unit for their land. (Note: For every million I’m off in land adds $16,700 to each Preston Place unit’s payout.)

Note: The estimates above are for a 4-7 story structure.  Preston Place is different.  It’s the best location for a third (and final) high-rise. The right to build a steel and concrete structure would add millions to the value of the land.  Let’s call it $8+ million for the land at 110 units. That payout still brings in a below-market value of $133,333 to each burned-out unit owner. Only added density can fix that.

Would you sell an average-sized (1,400 square feet) Pink Wall condo in a two-story building worth perhaps $170 per square foot for ~$100,000? Of course not.  Yes, complexes have differing numbers of units per acre that make payouts different. But the only complex where these numbers even approach working is the super-low density Diplomat at 15 units per acre.  Build a three or four story building and they’d receive between $193,000 and $220,000 for each 1,600 square foot unit ($120-137 per square foot). The lowest cost per square foot Pink Wall condo currently for sale is listed for $155 per square foot.  So not even replacement value.

And there’s a little guesswork here, but not much.  Currently there’s a unit at the Diplomat listed for $325,000 or $204 per square foot. That price factors in all or nearly all of the expected buyout from A.G. Spanos who want to build seven stories on the lot. That price equates to essentially $4.7 million per acre or $1.4 to $1.8 million for the four or three floors beyond the initial four. Sure, Spanos could be offering much, much more, but I doubt it. Human nature says no seller is leaving much money on the table for a new owner (who’d be taking the risk if the buyout falls through). Even Spanos isn’t taking that risk and snapping up the unit.

At $4.7 million for the acre and assuming $200 per square foot in construction costs for 120 units averaging 900 square feet, we get construction costs of $21.6 million. Add in $1.5 million for one level of underground parking and we’re at $23 million and $4.7 million for the land … pretty close to my 25 percent apportion for the land to construction ratio. But remember, $200 assumes “average” construction, Spanos is targeting above-average (they want to maximize their investment).  If they spend more and we add in the soft costs I couldn’t calculate, land value is <20 percent of project costs (exactly as industry predicts).

The extra density puts more money in sellers’ pockets but also demands a better structure to recoup those costs. The neighborhood doesn’t benefit from ugly, rickety buildings even if they are new.

You also may be thinking Preston Place was burned, your condo is in great condition. It doesn’t matter, the math is the same because the developer only wants, and is only paying for, the land.  No developer is going to add more floors to an existing structure.  In fact, Preston Place is a little ahead of the game because the site it largely cleared.

The Preston Center Area Plan

Official tipple of the Preston Center area plan

So, if redevelopment is meant to uplift a neighborhood, the Preston Center plan does the opposite.  Redevelopment under its guidelines means Pink Wall owners selling under market value. Why would someone do that?  Because the mounting costs of years of that deferred maintenance is more than the loss … and there’s a lot of deferred maintenance lurking behind the Pink Wall.

These types of calculations were never done by the task force.  Even without the deed restrictions, for owners on the northern edge of Bandera, you’re toast.  Because of the residential proximity slope, those buildings are limited to three stories. With so little upside for a developer, land values will never be more than the unit value on the open market.  For it to work, the selling price of an individual redeveloped unit would likely be over $900,000, and that’s not happening anytime soon in Pink Wall turf.

My advice to them is to make sure you’re insured up the wazoo because a post-fire land sale won’t net you much. But seriously, renovate your properties and live gloriously in a pocket neighborhood that seems pretty safe from redevelopment.

In fact, the work being done in PD-15 represents one of the few opportunities to bring limited development to the area that lifts all boats.  Being adjacent to a good project will raise values and bring in the new blood necessary to begin tackling lingering deferred maintenance, because most of the Pink Wall is going to be there a good, long while.

Regardless of how you slice it, if the goal is to return the Pink Wall to a more upmarket and desirable place to live, the Preston Center area plan is the last place to seek guidance.

 

Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement.  If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016 and 2017, the National Association of Real Estate Editors has recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards.  Have a story to tell or a marriage proposal to make?  Shoot me an email sharewithjon@candysdirt.com

9 Comment

  • I disagree with your calculations and predictions. There are properties behind The
    Pink Wall that do not have “deferred matinence”
    I will figjt to keep xoning more like the work that was done in the book you discredited. This is not your neighborhood or home. You should not make assumptions that are not believed by the tesudents of PD 15.

    • mm

      I never said ALL Pink Wall properties were behind in their maintenance, but more than a few are. I never said the zoning is wrong. I said that the Preston Road plan’s assumptions for redevelopment do not make economic sense.

  • Candy, as usual, you write mean and meaningless accounts of what is really going on.
    I live Behind The Pink Wall . This atea does not
    need your biased opinions. This is where we live and want to be very careful not to destroy our neighborhood by excessive zoning that would only put money in developers pockets. You should be ashamed of yourself and your staff

    • mm

      Both Candy and I own Pink Wall property. This article does not recommend upzoning or changing anything. It actually states that it’s not economically viable to do. The Pink Wall isn’t going anywhere, what it needs now are renovators and preservationists to polish it up.

  • Finally someone who knows something frames a public policy debate in terms of economic realities backed up with really detailed financial projections. For whatever reason, the Toll Brothers matter never reached this level of neighborhood analysis and neither does the Preston Center Plan. Anyone involved in the Pink Wall debate with good intentions should welcome this level of analysis and respond in kind with numbers of their own if they disagree. Otherwise, opponents of development slump into the usual morass of ignorance and arrogance spun to fit an emotional pre-determined point of view.

    • mm

      This piece wasn’t to spur development. It was a reality check that under current Preston Plan recommendations as well as zoning, proximity slope and deed restrictions, Pink Wall redevelopment isn’t economically viable.
      .
      The course forward is to spiff up what they have and market the hell out of the fact the area will NOT redevelop into giant stucco boxes. There’s goodness in that.
      .
      Toll Brothers didn’t need that detail. They always had the height which was the central protestation. Limiting height was always a non-starter.

      • I just think that the kind of financial analysis that you provide above should be the starting point for evaluation of any zoning situation involving old construction condos. Believe that opposition types and developers both oppose it, the former because it complicates their message and the latter because it compromises their ability to arbitrage the zoning at the expense of sellers in cases like 100% effective upzones from existing MF-2. The Preston Center situation seems like a perfect laboratory for you to use to continue to educate policy makers on how to approach an old construction condo situation rationally and get something done.

        • mm

          I don’t disagree, but I suspect someone else will have to take that message to city hall. I’m not the flavor of the month with some around the horseshoe these days. LOL