Making over 'the Merc'
The redevelopment of the Mercantile Bank complex on main street is set to give another major boost to downtown Dallas' revival
Christine Perez
Staff Writer
http://www.bizjournals.com/dallas/s.../31/focus1.html
Dallas commercial real estate broker Jack Gosnell isn't one to take no for an answer.
For nearly a year, he hounded executives at Cleveland-based Forest City Enterprises, trying to get them to take on a massive renovation of the Mercantile Bank complex on Main Street. The four-building, 1 million-square-foot project, located in the heart of downtown Dallas across from Neiman Marcus' flagship store, had sat vacant for more than 20 years.
"It was a huge blight and was stymieing downtown improvement efforts," Gosnell said. "You'd drive past Neiman Marcus and all of a sudden find yourself in Beirut."
This month, Gosnell's efforts will begin to pay off, as Forest City closes on the Mercantile property and begins work on a $250 million redevelopment that ultimately will transform three city blocks.
Over the years, Gosnell, a United Commercial Realty broker who specializes in the Uptown and downtown submarkets, had watched in frustration as three separate efforts to redevelop "the Merc" became derailed. The missing element, Gosnell decided, was a developer that specialized in complicated, urban endeavors. In early 2003, with the Urban Land Institute's help, Gosnell zeroed in on Forest City.
His first call to David Levey, the company's executive vice president, lasted about 15 seconds.
"When he found out I was calling from Dallas, it was the end of the conversation," Gosnell said. " 'You don't have any barriers to entry, you don't have entitlement issues and every other guy in the telephone book is a real estate developer,' he told me. 'We're not coming to Dallas.' "
Undaunted, Gosnell continued to pepper Levey with phone calls, e-mails and newspaper articles about downtown developments.
After about a year of being pestered, Levey found himself in Texas for a business conference. He gave Gosnell a call.
"Don't flatter yourself; I'm here for other reasons," he said. "But I'm going to give you 24 hours to convince me we should do this project."
Gosnell picked up Levey in his car and gave him a quick windshield tour of the Mercantile complex and the central business district before driving him to a meeting with Dallas Mayor Laura Miller.
"How do you like our fair city?" Miller asked, as Levey walked into her office.
"Fair city?" he said. "It's a disaster. It's like a Fellini movie -- there's no people in it."
Miller laughed.
"I like you," she said. "You tell me the truth."
Launched by the Ratowczer (later changed to Ratner) family in 1921, Forest City (NYSE: FCE) now has about $7.4 billion in assets. The developer is laser-focused on urban areas in high-growth markets like New York, Chicago, Boston, Denver, California and Washington, D.C.
Complex project
"If there's one thing Forest City knows, it's that central cores of cities are very important," Levey said. "Dallas is really a Top 10 or 12 city as far as population and size. It deserves to have a vibrant downtown."
On the surface, Dallas didn't fit Forest City's criteria, but the Mercantile complex was exactly what the company looks for.
"It's just what we do -- a big complex project that has entitlement issues and extremely difficult barriers to entry due to the historic nature of the structures," Levey said. "We also sensed a change in the political winds, a great willingness at the executive level to use the tools of government to help spur urban development.
"On top of that, Dallas is a great place to do business," Levey said. "Put all those things into the hopper, and the project made sense."
What began with just the Mercantile soon grew to include other nearby structures -- the 250,000-square-foot Continental Building and the four-building Atmos Energy complex -- totaling about 2 million square feet of obsolete office space. Forest City wanted to have more of an impact on the downtown market, and knew expanding the project would help justify the significant economic development support it was seeking from the city of Dallas.
In August 2005, nearly two years after Levey made his first trek to Dallas, and after several starts and stops, the city council unanimously approved $70 million in incentives to help support Forest City's $250 million redevelopment project.
Fresh ideas
The 33-story clock tower within the Mercantile complex will be preserved and redeveloped into 225 apartments. The three remaining buildings will be torn down, replaced by retail space, a parking garage and a new 12-story, 150-unit apartment building. The Continental building will be transformed into 240 condo units. All three projects are scheduled for completion in about two years.
Forest City will then turn its attention to the Atmos Energy complex, which will be redeveloped into 222 condo or apartment units, depending on market demand.
The company is working with San Francisco-based Ideo to develop a design strategy for the residential units.
"Ideo is a marketing think tank that is very clever and has young, fresh ideas," Levey said. "We're not doing traditional apartments. They're going to be very different -- something Dallas has never seen before."
Levey said Forest City will be ready to detail the plans in early 2006.
The renovation of the Mercantile complex will have a profound impact on the downtown office-leasing market, said James Quick with NAI/Stoneleigh Huff Brous McDowell.
"For years it has been the city's biggest problem because it's right across from Neiman Marcus and Bank One Center, the second-most-expensive office building in Dallas," he said. "Having the Mercantile sit vacant next to two of our best downtown assets has been a real tragedy."
Forest City's success will help lure new office tenants -- and other developers -- to the urban core, Quick said.
"Businesses will come downtown based on the new labor pool that's being established," he said. "It really is a landmark project that will push activity through the Main Street barrier."
Suburban Dallas stands to benefit as well. Once Forest City decides to enter a market, it wholeheartedly embraces it. Besides the downtown initiatives, the developer is planning at least two major new retail projects in outlying areas.
"Dallas is giving Forest City a tremendous amount of money to make the downtown projects happen, but it's a two-way street," Gosnell said. "Dallas will get a huge return on its investment -- not just ad valorem real estate taxes, but real cash flow participation in the process. It's the best kind of public-private partnership.
"There also will be a huge ripple effect in the northeast section of downtown," he said. "Land and property values will increase. Other developers will want to come in and saddle up next to the Merc and be part of the project. It also will provide a vital link to the Farmer's Market from Main Street."
Gosnell, who just launched a new division for UCR called UCR Urban, is overseeing leasing of the retail components of Forest City's downtown projects. He also is heading up marketing of the retail space in One Arts Plaza, the new tower Billingsley Co. is developing that will house the headquarters of 7-Eleven Inc.
"It's terrific to see all of this activity downtown," he said. "For so many years, we've just stood by and wrung our hands about the problems we faced in the CBD. Now, things are finally happening."
cperez@bizjournals.com