Real Estate Revolution

How Dallas designers and developers are leading the industry through a tsunami of change.



CHRISTINE PEREZ: Let’s start by getting a little background info and learning a little more about what each of you do.

MIKE ABLON: I’m founding partner of PegasusAblon. We are a Dallas-based company that focuses on where culture meets the city fabric, and we do that specifically within real estate.

ROBERT SHAW: I’m managing partner of Columbus Realty Partners, which focuses primarily on multifamily developments. I’ve been doing it for more than 30 years, since 1987. 

SCOTT POLIKOV: I’m with Gateway Planning. We’re Dallas and Fort Worth based, work all over the country, urban design and development consulting firm. Walkable neighborhoods are what we work on. Downtown redevelopment and new development primarily for legacy owners that are looking for long-term value creation rather than merchant building returns in two to three years. 

HEATH MAY: I’m with HKS LINE, our Laboratory for INtensive Exploration. We are a design studio and a research and development team. I’m a very generalist architect who works on a wide variety of projects, from sports stadiums to small residential apartments. 

JEFF EITING: I’m an office tenant rep at CBRE, where I specialize in technology and media clients. I help startup companies all the way up to established companies and everything in between, both in Dallas and nationally. 

JEFF BLACKARD: I’m the founder and CEO of Blackard Global, and I build villages. I’ve done resorts and masterplanned communities and office parks, but for the last 12 years of my life, I’ve focused on building villages. 

 

North Texas is known for its “business-as-mutual” attitude, doing things like building a park on the top of a divisive highway and forming public-private partnerships. What are some other real-estate-related innovations that originated here? And in your career, what’s the most innovative thing you’ve done or seen? 

SHAW: One is the creation of what’s called the garage wrap, which is a four- and five-story apartment complex wrapped around an elevated garage. I believe that happened in Dallas here first and it’s been perfected  here. Most of the multifamily projects being built in the country today use that. At the time it was being created, building codes didn’t really allow for it. City of Dallas staff and others were very responsive to it. It allowed us and others to create a product that literally has—you couldn’t have had the urban expansion of housing like we’ve had if it all had to be in concrete. And the fact that you could do it in a form that met your customer’s needs, and do it with wood, it has been profound. 

POLIKOV: We work around the country, and I can tell you that Columbus Realty gets direct credit for that innovation. 

SHAW: So I wasn’t seeking that credit here. I was just highlighting that fact that a lot of consultants and city people that had to be involved in that process. 

ABLON: When I think of innovation, I think of a partner of Robert’s, Roger Staubach, and the way he pioneered tenant representation as service sector. It was a major innovative factor for the industry on a national basis. It was fun for me early in my career to see it develop, and a lot of kudos to Mr. Staubach for doing that. Second was the invention of the Internet, which led to the prevalence of a just-in-time product coming on and its direct correlation to the industrial sector. Dallas was very much at the front end of the warehouse becoming a logistics facility. The way those buildings were built to innovate in real time to keep up with the changing world of distribution and logistics was really remarkable.

EITING: For me, it’s Trammell Crow. He started his business here, started the partner model of real estate, and then you look at the Dallas landscape and across the country how many leaders started at Trammell Crow and built companies with that partner model. It was before my time, but everybody in our company—CBRE merged with Trammell Crow Co.— definitely tries to carry that flag forward. 

POLIKOV: Tax Increment Financing is a tool that many states now use around the country. Texas has been a leader in using that to facilitate public-private partnerships. One example is a project we worked on, taking a very valuable hard corner at U.S. 75 and State Highway 190, creating a design that would be enduring through multiple cycles, driving long-term value. It allowed us to sell the property at a very strong fair market value price to KDC. And that TIF was also sold to KDC. What’s interesting about that is that the TIF reimbursements were used to write-down the effective long-term lease to State Farm. State Farm was happy to pay a few dollars over per-square-foot for a highly amenitized environment, but not the total cost. So Richardson effectively participated as a partner in that ability to attract State Farm. I think a lot of people misunderstand that properly used, tax increment financing actually is a core partnership tool. 

ABLON: Well, it is very instrumental in the Design District. They set up a TIF there and it helped take a 60-year-old city fabric into a new fabric. For redevelopment, is an incredibly helpful instrument.

POLIKOV: If the cities and counties don’t participate through these long-term reimbursements for the right projects, then there is pressure on the developers to really dumb-down the projects so they can work financially. 

 

Any other innovations? 

POLIKOV: I’d like to mention one more, which involves collaboration. TxDOT deserves a lot of credit for leading the Dallas CityMAP project. We were on a team with HNBT for the design and development analysis for the corridors that surround Interstate 345 and what to do with them. Patrick Kennedy and D Magazine first raised the issue, but the collaboration between the city, the county, the development community, DART and TxDOT—it’s unparalleled in the country. I think TxDOT completely changed the dialogue by taking the lead, and of course Commissioner Victor Vandergriff deserves a lot of credit, too. I think North Texas will be put on the map in terms of absolutely influencing the rest of the country in that regard. They took a risk, and it worked.

 

The world as we know it is changing, with a tsunami of new technologies and trends changing the way people work and live. What’s the most significant example of this that you have noticed?

ABLON: Dallas was clearly a post-World War II suburban city from the infrastructure and mentally. And the leading industry of Dallas for the last 50 years has clearly been in-migration. It’s not technology. It’s not manufacturing. It’s in-migration. As much as the internet connected people, it has disconnected them. In return, there has been a desire to get back to a little more connectivity. It’s interesting to watch any suburban city’s high growth turn into itself and start to urbanize. From what Robert was doing years ago on McKinney Avenue to the notion of the Design District and the notion of Preston Center. Walkability has become necessary—a check box on a matrix to get a project done. The duality of continued suburbanization and urbanization is a pretty neat combination. 

SHAW: Office tenants are looking for walkability because they want to employ the millennials who want to be in walkable, mixed-use environments. That’s what drove CityLine in Richardson, and that’s what’s driving Toyota, JP Morgan, Liberty Mutual, and others in Legacy West. It’s all the same. It’s urbanism suburban markets. Addison Circle was a great example of that. Legacy Town Center was a great example of that. But what we have now today is the corporate support. That has been a significant driver. Another big thing is going on, demographically, is what we call this “extended adolescence,” of the “odyssey years,” which is a deferment of marriage. People in their late 20s are living in apartments longer and they want nicer apartments, too. They aren’t as price-sensitive as they might have been at one time. We’re also seeing baby boomers return to apartments. … That’s propelling all the high-rise (multifamily) development—a belief that the market will be there.

ABLON: If the 28-year-old is an extended adolescent, what do you call the 65- or 60-year-old? A return to adolescence?

SHAW: Yes. A return to adolescence. 

MAY: We are talking about the tsunami of technology and the trends; I think it’s interesting to dig into why those trends are happening. What is the technology enabling? What’s underlying how these people are changing the way they live, based on the changing world? I’ve been reading lately a book by Alvin Toffler—you guys have all probably read it—called Future Shock. He says sometimes it’s not the change that’s problematic, but it’s the rate of change. And what we are seeing now—it’s a drastic swing. He says if you divide human history into 800 generations, more has changed in No. 800 than in the previous 799. When you think about that, it’s fascinating, because we’re now on 801, and it’s probably going to continue to change at that rate. When you unpack why are people looking for these new products. Well, they have different values. For many of the millennials we hire, it’s not just the bottom line they are looking for. They want meaningful work and they want a meaningful life. And work is part of that, but it’s not all of that. That’s going to drive new desires. 

ABLON: With the word millennial, we tend to inadvertently assume they are all the same. We’ve actually looked at a different context and called it Generation C or Generation Connected. The influence in driving change isn’t only in that new group. They are just the vanguard. The millennial is nothing but a vanguard. The first defector of a larger group that also includes 40-, 50-, and 60-year-olds. It’s not an age-based demographic, it’s a lifestyle-based overlay. For both multifamily and office, it’s a different context, but it isn’t just the millennial. All of us are going there as fast as we can. The young subset is just less obligated. They don’t have houses. They don’t have children. They are not as obligated to make the change faster. They have more freedom. They also probably have more baggage to unpack. Following Robert’s lead, and we’ve innovated it in our own way, we developed (apartments in the Design District). One of the shockers for us was the average age (of the renters) was well into the 40s. It told us that we weren’t really serving the millennial. We were serving a generation that is now connected.

POLIKOV: The word vanguard is interesting. We worked on a transit project in the Salt Lake City region. A very fast-growing tech company out of California was looking to relocate there, and one of the brokers was talking about the site selection group that came in. Seven of the 12 people were women; everybody was under 35, and they said, fundamentally, only show us sites that have direct access to transit and walking distance to urban housing. Think about that. It’s a complete flip from just five years ago (when cost was the big driver in decisions). The same is true in housing. It’s not an income issue, it’s a cultural preference. We’re now delivering housing for extended families, for example, that has multiple entryways, construction types where you can actually reconfigure the units easily, if the developer finds that the mix has changed. These are innovations that architectural firms like HKS can really jump on. To me, that’s an unmet need where innovation can really be advanced. 

 

We’re all talking about how these are all new trends. But, Jeff, your belief is that this development style is actually very old. Can you talk about what you learned in Croatia, and the philosophy you call NeoRetroism?

BLACKARD: Sure. I did a development called Adriatica in McKinney. It was modeled after an old fishing village in Croatia, but it’s really about the philosophy behind how we approach real estate. I’ve come to believe that how we develop in America is completely wrong. We use zoning to segregate our society. I came to these conclusions after studying Old World villages that have survived for centuries in Europe. So I visited with some of the great planners in the world today and I asked them, “What are we trying to be?” We had the subdivisions of the 1940s and ’50s and ’60s, then the master-planned communities and the gazebos, and then we got to new urbanism. I realized that what we are really trying to create is a village. But we are driven by Wall Street, which dictates certain things. What Wall Street hasn’t figured out is that a village has less risk. So that’s my passion. I’ve only done one little $200 million experiment, but I’m working on another village in Corpus Christi. My whole belief is this: I think the philosophy should drive the design. It’s not something I invented; this development approach has been around for a long time. We’ve got to fix it here, and we have to stop our disease from spreading to other countries. 

 

Your approach goes beyond new urbanism to include mixed income levels and mixed uses all sharing the same space, not segregated within a development. It goes back to flexibility and connectivity, which is what’s driving everything we’re talking about. So how could the North Texas real estate industry be more innovative? And what unique ingredients does DFW have to unleash the innovation tsunami? Conversely, what’s standing in the way?

POLIKOV: I think Jeff already said it. We have to break the hold on real estate finance. As long as we have the single uses and cash flows that are driven by real estate, it’s basically just a commodity that represents a cash flow as opposed to underwriting to a more complex set of diverse factors that will reduce risk—which in single cash flow underwriting actually is viewed as the opposite. With village environments, you have more diverse-use cash flows mixed together. I think we can innovate financially instead of our simplistic underwriting, which our big institutional investors require. And I think Dallas-Fort Worth can actually stand up and say, “Nope. We could actually return present-value greater returns than what your model suggests.” As things currently stand, stratification is forced just going by the underwriting. Smaller, newer developers want to do it, but unless they have a special angel or a private equity source that gets it, a lot of times they can’t get financing. 

SHAW: The institutional market wants the cash flows associated with walkable, urban mixed-use. But you are right. They are very complicated, and the sponsor matters. These are big deals—a $200 million project on four city blocks that has 130,000 square feet of retail, 130,000 square feet of office, 700 apartments—they are just not going to do that with anybody, because it’s just too big. 

POLIKOV: The small ones tend not to get financed if they have a lot of moving parts. 

SHAW: Yeah, I get you. But I’m telling you, the core funds, the pension core funds are now looking for that product because they have confidence in this financial performance over a long period of time. Our partner in Legacy West, which is a 400 million project, is a core fund. They don’t ever want to sell it. They want to own that forever.

POLIKOV: I think that’s the exception. 

SHAW: But, there is an appetite for that type of real estate project. Now, to respond to your question about what opportunities we have to unleash innovation. First, there’s a lot of real estate talent here in Dallas. There are a lot of very smart, very good people in real estate and city government, believe it or not, who get it. From Fort Worth to Dallas to Plano to McKinney, they get it. And then you have got a lot of policymakers who are searching for the truth, you know, and helping build their cities for the future. We are very fortunate that we don’t have a lot of the barriers that other cities have; some communities like to assign this “bad intent” on a developer when they are trying to do the built environment. So when you bring all that together, DFW is responding and delivering a lot of things that speak to what Jeff’s talking about, but also perform financially. That gives me a lot of optimism, and whether it’s technology-led or customer-driven or whatever, we are going to respond, because of the ethos of this place. 

ABLON: There’s a difference between place-making and building a retail center. A lot of the reference here has been place-making, whether it’s a village or whether it’s some kind of urban fabric, and there is a place for both. Our company tends to migrate to something that is place-making because it has an identity, it has an ethos, it has a vibe. When you talk about great cities you don’t talk about the city, you talk about moments within the city, the sequence of great moments—Chelsea, Soho. In Dallas, a young city that’s now maturing, you talk about the Cedars, you talk about Uptown, and now Legacy West and its urban moments. There is a defined difference between having the capacity to build an apartment complex or a strip center or office building and place-making. That’s a different talent. It’s much more multidimensional and requires a number of skills. Over the next 15 years, it’s going to be really fun to watch and participate in the place-making in Dallas-Fort Worth. 

MAY: You know, that’s so true. A city or anywhere that is fully inhabited is about a sequence of moments. From a design standpoint, where we can improve at the very fundamental core of what we do is kind of synthesized. I think we can do better in working with developers and working with policymakers to help to investigate and experiment with standards. That’s one thing that’s holding us back. I think we could have a series of these talks to better understand the trending asks of the market. Understanding what people expect now is not going to be what people are going to expect in 10 years, right? They have different expectation and they may not want the typical floor-to-ceiling glass in an office building. They may value that their building is more sustainable from an energy standpoint, and that’s just one example.

BLACKARD: There is too much pressure on the architects and planners today. Developers go to them and say, “I own 10 acres or 50 acres. I would like to do apartments.” And then you design it. What the developer should say is, “I want this, this, this, and this.” And I don’t see that. Robert should get a gold star for his work at Addison Circle. I mean, that was the first village-building, really, in Dallas. I can remember the structured parking with apartments and retail on the first floor. Other developers need to be more educated about their projects and what they are trying to accomplish and give designers the freedom to stretch that far. 

POLIKOV: I have a little bit different view. As a planner and designer, I think the planners and designers don’t take enough responsibility in terms of working with the developer. Robert and I were just talking. He’s struggling under some of our design codes that are now more than 10 years old. We have learned over time, but I think it’s the planner’s and designer’s responsibility to actually engage the developer and stand in the shoes of the developer and ask themselves: Is it financeable? Is it constructible? For me, the test is over a 20- or 30-year life cycle. Will that neighborhood, that village, that strip center, whatever it is, will it reinvent itself? In other words, when it ages, will an investor come in and buy it and rehab it, or is it going to be depreciated in an amortization schedule because it’s designed to check a box, and the first in makes the money, hopefully, and then nobody cares after that. I think that’s the planner and designer’s responsibility as much as it’s the developer’s responsibility.

BLACKARD: I’m not pointing at anyone when I say developers. Let me be clear. 

POLIKOV: One other thing. Earlier there was the mention of “businesses as mutual.” There is a different culture in Dallas-Fort Worth, and you alluded to it, Mike. Great neighborhood development requires integration, cooperation, private-private, public-private. I don’t know of any other place in the country as regional ethos that does it better than DFW. The reason that’s super important is a lot of the Sunbelt regions are focused on reinventing the core, and then they hope the suburbs are just going to be OK. Here, we are working on villages and neighborhood centers—some reinvented that are old and some are new—in the suburbs. So people in this region don’t have to go into the core of Dallas or Fort Worth to get that urban experience. Culturally, that is something. Regionalism is really the analog to businesses as mutual. Of course DFW International Airport probably broke the mold. The pain that Dallas and Fort Worth and Grapevine and other cities went through to get DFW Airport done was the game changer that actually changed for the regional culture, because it required everybody to work together in a way that others don’t. 

BLACKARD: We are very lucky. Dallas is a breeding ground for some of the best developers and architects in the world. If you can make it here, you can make it anywhere. 

SHAW: But don’t leave city staff and policymakers out of that. There are a lot of good people with good intent, seekers of the truth who are trying to do well by their communities. 

POLIKOV: A lot of them are risk-takers, and that’s hard when you are on the public side. 

SHAW: Dallas-Fort Worth is kind of self-selected for collaborative, good people trying to help create a great environment. We are the beneficiary of that. Jeff mentioned Addison Circle. Addison Circle would not have happened if there had not been mayor’s approval there. I get some of the credit, but obviously the city of Addison deserves a lot of the credit because they were there in the partnership with me. The same for the city of Dallas and Uptown. They don’t get credit for it, but the policymakers, the media, and others were very supportive and nurturing that creation of Uptown. I was just the kind of arms and legs and helped the city. I tell cities this all the time. I’m just the arms and legs helping you fulfill your vision for your city, whether it’s downtown McKinney or the city of Plano.

 

Let’s focus on the built environment itself. What trends are shaping the future of architecture and design, both in commercial and residential space?

POLIKOV: I would like to hear Jeff talk about how the preferences are changing from the tenant perspective in terms of office space. The office market is really something that is obviously very different today than it was even five or six or seven, eight years ago. Where for example when I go to work, none of us are in our formal offices. We always go to the conference room and sit together. I have millennial partners. I never want to go into my office, but the building is designed around a building that’s 15 or 20 years old. 

EITING: From the office tenant perspective it’s all about community and community-building. It’s about shared space. A lot of people nationally are talking about this co-working trend and what co-working really means. Is it in Dallas or is it going to come here? As you look forward, you see owners and others investing in co-working. They have a floor and a building that they own and the create a come-and-go type space. Mobility is everything. People are doing business in cars or doing business from their homes. It’s really the ability to do things on their own time, in their own environment, wherever they are. At CBRE we call it “Office 360.” We have a check-in time arrangement where—I’m out of the office 50 percent to 60 percent of the time. And I’m not out playing golf. Companies are really looking at their footprint and saying, “Look. If we have vacancy for this period of time, how do we manage that? How can we compress our footprint? And if we’re taking away space, how can we still provide amenities to our staff?” Outdoor also is big; I’ve never had discussions about outdoor space more than I am right now. This has already happened in other parts of the country. But because of our climate, I think that a lot of people put that up as a barrier. Now, it’s coming here because so many folks from other areas are relocating here. People from the coasts want that in their work environments and (landlords) are starting to build it. 

MAY: That’s an interesting point … considering urban downtown environments as an amenity. The city becomes the amenity space. You don’t have to provide a cafeteria in your building, because people can walk down the street and have three different food and beverage venues. That’s something Dallas is starting to catch on to. We’re responding to in a way that is encouraging to me. But the co-working thing, that’s so interesting. There have been detractors, but then you look at somewhere like (co-working company) WeWork—and I think their recent evaluation was $16 billion earlier this spring. Co-working could be a trend. We’ll see where it goes, but they are obviously responding to something. In terms of other things influencing the work environment, we are working with a behavioral human scientist on staff and a design anthropologist, and we are starting to really start to dig in and understand what types of spaces people want to work in. We’re then using technology to layer on top of that. So you can do things like when you check into your hotel, within your office, even finding a space that has the right temperature or has the right lighting conditions. There are people creating applications on your phone. One of the West Coast architects had one called Goldilocks where you can say, “I want the room that has a lighting of this level, a temperature of this level and holds five people,” and it will tell you, “Go to these three different rooms that are open right now.” It’s a smarter way to use space. We’re using less of it and being a lot more efficient with it. 

EITING: I like your analogy about the city being the amenity. I’m a little biased, but I’m ready for Dallas to stop saying, “live, work, play.” It’s a buzz word that people from outside of Dallas are hearing and are saying, “What do you mean by that?” I think it’s just it’s your place, wherever you are. Because of the nature of our community, because of our sprawl, I think it’s a buzz word that’s caught on here. But if you look at what’s going on in the urban core of Dallas, it’s everything. If you project out what our city is going to be—there are going to be very few barriers to the urban core. Uptown is going to bleed into the Design District, which is going to bleed into Trinity Groves. The Cedars and South Dallas and Deep Ellum are all be to be the urban core.

ABLON: On all of our product that we build, no matter the asset class, we formally talk about the third room. The third room is that outside room. And that outside space is an integral part of the actual design concept of the actual building we built. That can be a relationship to the trail, like the Katy Trail. Up north, we built a pocket park and operated around it. And Preston Center, it’s the street. The street is a room. So we very much focused on that third room. We’ve formalized that as an integral piece of not just how you face it but what we actually build and don’t put in a building. … I’ve enjoyed watching McKinney and Olive. In jest I call the building 2.0. It’s the first building of a new typology that’s more externally focused on the street than it is internally as a building. And if you look at a conventional office building, you say, “Where is my front door and where is my lobby?” And that’s your sequence. You have arrival and you have reception and you have an elevator. McKinney & Olive is quite different. It’s very focused on the street. 

EITING: It’s also causing their neighbor, the Ritz, to reorient itself to complement the street. 

ABLON: The part that’s fascinating about that is you have a building affecting a city fabric the same way Rockefeller Center and its urban room affected the traffic around it. It’s 2.0 for Dallas. It’s going to be really fun to watch, as opposed to having a space and building and buildings around it. The new format starts to change the way all the spaces are constructed. That’s really great for a city fabric. 

POLIKOV: That’s why it’s fun to be in this business right now. Jeff was talking about what’s old is new. The street is everything. I think that’s the biggest opportunity in Dallas-Fort Worth. We have so much city fabric to work with. When we were doing the plan in downtown McKinney, we asked them why they had three lanes of traffic going in each direction going through the square. When we reinvented that square and went to two lanes each way and slowed the traffic down, Rick of Rick’s Chophouse said within six months, his business went from one-third walking and two-thirds reservations to two-thirds walk-in traffic and one-third reservations. Our test for the planning and design of the urban fabric is: Is somebody willing, when the temperature allows, to sit outside at a cafe environment? Is the speed of the traffic going by or is the street design such that they are willing to spend $50 bucks a person on a meal sitting outside in front of the building? I call it the hang-out factor. And if they are not willing to hang out in front of that building, then that street is improperly designed. I think retrofitting streets is really a big opportunity for Dallas. Look at Main Street in downtown. Look at Commerce Street in downtown. 

BLACKARD: All our answers are overseas. Everything we talk about in architecture and the streets … all the answers are right there. We got it wrong for such a long time. Now, we are trying to fix it. 

POLIKOV: I think what we have to do is do what Robert said. We have to support the public side. We have to give the city managers, the engineers, the finance directors, the planning directors and then ultimately the planning commission and city councils cover to say, “If we are not getting any public spaces correct, then how do you expect that the private development will be successful?” A lot of times that means that you slow down traffic and it will take people a few more seconds to get through an intersection. What a lot of cities forget is that when you blow out an intersection, you are just making it easier for somebody to drive through your city and go spend their money elsewhere. 

BLACKARD: That’s like when Wick Allison talking about tearing down Interstate 345—that’s genius. It’s as genius as Klyde Warren Park. At first, I didn’t understand it. But as you talk about things, the more people understand. This city needs to do more of that. 

ABLON: I challenge one thing you said a little bit. You said all the answers are overseas. We have so many new pieces that affect how we live and what we do. We still have the human condition. That hasn’t changed. We still have two legs. We still function, you know, in a human interactive way. In a world that’s changing that much, some of the answers aren’t there yet. I think you are seeing some of it being written here. When you go travel over there, you can see a 2,000-year-old city that has morphed over time, typically to engage the ethos and fabric of its culture. Dallas is a 100-year-old city in a sense, that has doubled in size five times in that 100 years. It’s still establishing itself. I don’t think all the answers are (overseas). I think some of them are going to be here, because some of the answers aren’t written yet. 

BLACKARD: But as far as how we evolve as a people group, the answers are there. 

ABLON: It’s inseparable.  

SHAW: Look at what technology is doing in the retail industry today. Clearly we don’t know where it’s all going to end.

ABLON: Right. 

SHAW: It’s profound how many things are being delivered to our homes now. Forget about going anywhere. The first go-to place is Amazon Prime. So, what does that mean for retail when so much of what we buy, we get off the internet? 

POLIKOV: I think Jeff’s right in one sense. I’m on the national board of the Congress for New Urbanism, and we convinced them to have their annual congress here last year. People were blown away when they got here. They had no idea we were doing some of the best urbanism in the country. From a design and development standpoint, I think we are definitely the bellwether in the country. Where I think we can learn from say Europe is the notion of mixed housing. That is the key to me. It’s the front line. It speaks directly to the challenges we have in this country on race. We are not encouraging people to live with others of different incomes and different ethnicities. People self-select, but we have zoning standards that require stratification and separation of housing types. Whether it’s the Design District or Addison Circle or Adriatica—you all have been the leaders—but for the most part, developers run into the zoning rules at the cities that actually require them to not mix housing. 

SHAW: Yes. 

POLIKOV: In both size and housing type, what happens is in zoning is a big challenge. A lot of cities have zoning that require you to do a concept plan and make up elevations and make up tenant mixes and all of that, and it’s B.S. What they should do is require a concept plan to come in when you are doing site planning. I think there is a fear among the cities that they are going to get the wrong and bad thing. And actually what they are doing is they are encouraging the wrong and bad thing. I think people want to live with people who are different from them, and they want to live in places where every house around them doesn’t the same. They want to see more diversity in housing, but that’s not the majority of what’s being built. 

SHAW: One of the places where you can find that diversity, and I know you may be shocked by this, is the Park Cities, which most think of as being very generic.

POLIKOV: It’s not at all. 

SHAW: It has every form of housing you can think of. It has apartments, it has townhomes. 

POLIKOV: Small lots. 

SHAW: It has carriage homes, small lots, big lots. 

POLIKOV: Duplexes. 

SHAW: Right. And that diversity is in arguably one of the most valuable ZIP codes in North Texas. 

POLIKOV: No question. A lot of well-educated, employed, single moms move their children into those rental units in Highland Park so their kids can go to good schools. 

SHAW: They are losing some of that diversity today because so much is being torn down and replaced. But the original builders of that neighborhood and the city planners and others allowed for a lot more diversity than what you are seeing today. 

POLIKOV: I don’t think we are sensitive enough to single mother and the diversity of the single-mother base as a consumer. They are a very large market.

BLACKARD: Most developers look at a piece of property and say, “What is the zoning?” I think the question should be, “What is right for this piece of property?” Forget the zoning—just forget it. Design what is right for that piece of property, then go to the city and tell them, “This is right, based on history, based on integration, based on all these things,” and let them reject you. It took me two years in McKinney, but in the end, I was able to do pretty much anything I wanted at Adriatica.

POLIKOV: Write the zoning afterwards, to fit the conditions. 

BLACKARD: That’s correct. You can put design guidelines at the top so the city will always be able to make sure things are designed based on the intent of what it is, a village. But I just hear developer after developer ask about the zoning and use that as the guide. Forget what you can do. Just design what’s right for that area. 

 

Switching gears a bit, Hillwood brought an expert from the Center of Brain Health to help design its new headquarters, to look at how people work and productivity. And in some cases, social anthropologists and environmental scientists are also weighing in on space decisions, as you touched on, Heath. At some point, policymakers may also get involved. How have you seen strategies like these play out in North Texas? 

MAY: I think interdisciplinary teams are most effective. I look for the edges in anything I do. That’s where the interesting overlaps occur and that’s where we can truly learn something new. When we relocated HKS’ office (to downtown Dallas), we didn’t have the benefit of having a design anthropologist on our team. But we did some post-evaluation of the space and we are using it to learn what we did wrong and what we did right. Mostly what we did was wrong. We are taking that information and we experimenting as we’re moving and finishing up another floor. We are making changes based on that information, and that’s kind of closing a feedback loop. It’s really important to measure, so we can understand. I also worked with Sandy Chapman at the Center for Brain Health. And she would visit our office and sit at my desk. It’s a standing desk but I’m in a very large open space, and she told me I wasn’t getting anything done, because I couldn’t concentrate. That flies in the face of the idea about these open office environments. She gave me some literature and educated me a bit on how the creative mind works and the need to have the collaboration but then to retreat and process that information. Those are things that we are just learning about and they are a bit contradictory to the way we have been designing office space. But I think that input from the anthropologist, the behavioral human scientists, and then just polling people at the end of the day—that’s what’s really beneficial and allows us to take the next step. We have to be open-minded. I can’t approach a project thinking I know how to lay out an office. If I do that, I’m going to leave a lot of potential on the table. But if I come in and ask questions, we might discover something new or do something better. 

 

What were some of the things you think you did wrong and are changing with the new space? 

MAY: One thing we discovered is that, even though we tried to get our ratio of what we call “me space” and “we space” correct, we were severely lacking in our “we space.” So places that people could have impromptu meetings of three to four to five people was lacking. And then conversely, when people are in an open environment, the auditory, or the pollution of the noise, really affects some people more than others. Even being able to have a private phone conversation becomes an issue. We’re all wearing headsets, but still people want to able to get into a private, closed-off room to have some conversations. We also have what’s called desking. We were trying to balance what we needed to work in an office environment but also allow the proper daylight into the space. We had to keep the partitions low to be able to have views of the outside and to let the light in. But we found the partitions were about four inches too low, that most people sitting down could still see right over the edge. And that’s just enough to get people off of their rhythm. So sometimes it’s the little things that you learn. In the new space, we are raising the partitions, and we’ll see if that helps. 

ABLON: To your point, it’s fascinating right now because there are two radical influences that are very powerful and very profound going head to head. You have the WeWork, the open collaborative drive; you have synergy and random collision and creativity. And you hear that and you see it and everybody is trying to get to it. It’s also more human in a certain sense. And then you have the science of it all saying, that approach actually doesn’t work the way you think it does. It’s actually counterproductive. You have to have the safety zone where you can have your focus time. And those two approaches are colliding in the office design sector. And there isn’t an answer yet.

MAY: And now you have all this data. WeWork is starting to collect this information, taking post-occupancy evaluation to a new level. They are collecting all kinds of data. They allow people to track their personal devices to see where they congregate in a space and they are adjusting to that. So as they keep moving forward, their prototype keeps changing and it keeps evolving. It’s really interesting and it is fun to be part of the experience. 

EITING: Most of WeWork’s competitors and even WeWork itself is redoing their model or building out to be a more office-intensive environment. So there are four-person offices, six-person offices, even a bunch of single-person offices. But really when people say co-working it’s really an office-intensive environment, just with a spin on the community piece, a highly curated community component, which is the sticky stuff that gets people that want to be there when you compare it to what’s going on with the traditional executive suites. It’s Regis 2.0 basically. It’s glass interior offices with an expansive community space. 

 

Let’s talk next about investments. There are more sources of capital today and lower barriers to entry. What impact has innovation had on buying and lending, and what challenges still exist? 

SHAW: Well, the institutional interest in multifamily in the last five or 10 years has been pretty profound and had a big impact on the nature of the product and the durability and locational aspects of it. They are investing with a long-term view. And that has been very good for multifamily and probably the biggest thing in the sector, transitioning away from the mom-and-pop, the 1031 tax buyer, the individual to the core fund out of San Francisco. Institutional investors bring a much different view than the guy who is just squeezing every nickel to try to make it work today and two years from now and then he’s moving on after that. 

ABLON: In my mind, there are three major trends driving changes in real estate finance, and they are all coming from radically different places. First, there’s crowd-funding, a technology-driven model for the smaller constituent. Then, in a Wall Street model, real estate has become its own sector. Therefore, more money will have to be allocated to it because all these funds have a requirement of diversified investment. That’s the second one. But the third one is also really interesting. It’s the flight for safety of capital from sovereign funds and overseas investors, whether that’s for currency inflation, whether it’s from negative interest rate environments, whether it’s from the concern of sovereignty and wealth being taken away. It’s all migrating here or to Canada. In Canada, it buys a passport and in America it comes here for safety. It typically will come to a higher valued Class A product of whatever type that is. Each of these things are driving pricing in real estate; it’s not just market dynamics or supply and demand. These external influences on the market are very powerful.

POLIKOV: One of the innovations that’s happening but has not really caught on is what Monte Anderson is doing. He’s a very successful South Dallas developer; we worked in Duncanville with him on the Main Street project. He has brought in 20 different businesses down there (as tenants). Virtually none of them had credit-worthiness. But what he has done as a developer is figure out a way to create owner-occupiers, to get the small businesses into that village fabric. You can only scale that so far, but I think one of the things we need to see is cities taking the responsibility to work with the owner and developer to figure out a way to underwrite the non-credit worthy tenants that are small and have demonstrated success but they don’t currently meet underwriting standards, either under federal banking regulations or from a fund perspective. That’s where Monte is breaking new ground, and I think we should take a hard look at that model. Owner-occupier businesses are sort of the touchstone of Jeff’s point about villages. They tend to take better care of their small building than somebody who’s just a transitory tenant. 

BLACKARD: Dallas is becoming more known internationally, too. The Chinese are now focusing on us more, where five years ago, it was L.A. or New York. 

 

People are demanding to have more of a say in how public spaces are developed. We’re seeing it in DFW with everything from the DART expansion and Fair Park to the Trinity River project and infrastructure with CityMAP. What does it mean for the future of urban planning and design? 

SHAW: Have you ever heard that saying about sausage-making and democracy, where we all like the benefits of it but you don’t want to watch the process? It’s kind of ugly and it can be messy. But at the end of the day, we are probably better off for having gone through that process.

POLIKOV: The role of the private sector is critical. Right now everybody wants a deck park. But if you look at the financing and operations of Klyde Warren, it’s barely breaking even. And it’s probably in the strongest demographic location. I think we have to be careful to not just throw spaces down and expect them to function well without really understanding what’s around them, what could happen around them, what change could occur. The details matter and the location matters. A wider bridge that creates a connection across may be just as effective because there is something on either side that’s already a great place. They just need to be connected and cross-cultivated.

SHAW: That’s a great point. 

POLIKOV: And sometimes I think smaller spaces are more effective than large spaces, whether they are private spaces in buildings or public spaces. You can go to Adriatica, you go to Addison Circle, you go to the Design District, three of the projects you guys have developed, most of your successful spaces are the smallest spaces. 

 

How are tenants and residents harnessing the power of new technology to aid in space decisions, and how are brokers and landlords using it to do their work and market space? 

EITING: From a tenant perfective it’s back to mobility. Tenants want the information faster. They are making decisions in real time. So I think it’s incumbent upon owners and people who market to tenants to come to the table having all the data. One of the things we track in my business is cycle times. We’ve found that transactions are moving much faster, and I think we are going to see transaction times continue to compress. I would also be remiss if I didn’t talk about what’s going on in the West End. We’ve mentioned what’s new is old, some of the oldest buildings in our community are in the West End. Some are 110 or 115 years old. And if you look at some of the public-private partnerships that are happening—they’ve been going on for three or four years and are just now coming to fruition. The Dallas Innovation Alliance is working with public and private partnerships to try to build what they call a living lab, to have the connected home, connected car, connected office, and internet of things really be down there. If you look at the key stakeholders now—Granite Properties, Spear Street, Crescent and more to come—you have very capable owners that really understand real estate. Combine that with what’s going on from a technology perspective, I think you’re going start to see some cool things happening down there. 

ABLON: You talked about office space. I’ll talk about multifamily for a second. Ten years ago, somebody would tout bedroom size and ceiling fans and flooring. Now, it’s thought of the same way you think of going on a cruise. You don’t talk about your room. You talk about the overall experience. You are buying a ticket and the room came with it. 

SHAW: It’s true. 

ABLON: When people are looking at housing and where they are going to live, they are looking at the whole fabric, where it sits in the city, is it on a jogging path, what’s the overall package and the room kind of comes with it. Developers at the forefront are designing for the experience as much as the room. And I think that creates great places. And it’s all found on the internet. It’s not the apartment finder, it’s the finger finder. It’s really fantastic. The internet is doing great things and it’s driving us to an experienced lifestyle. The end result is better product. And I think you see the same thing on retail. People say the Internet is ruining the real estate industry in retail. No, it’s not. It’s making it better. Quality places and quality developments are thriving right now because people want to be there. People still want to shop in person because that’s part of the experience. They shop on the internet but they buy where it feels good because they already got the commodified pricing done.

SHAW: Yes, I agree. On the whole technology connection, nobody has a home telephone anymore. Everyone has cell phones. They are also rapidly getting rid of cable. That’s kind of important to us because we get some of that revenue stream. But that’s going away. People can control their thermostats or their door locks with their cell phone. We haven’t gotten to the appliances but they don’t use them for anything other than to store beer anyway. They never turn on their ovens. So if we built an apartment with how people really live, there would be no oven, no range, just a little refrigerator. 

 

And a microwave. 

EITING: Are they leasing their apartments remotely? 

ABLON: Sixty percent get online between 10 o’clock at night and 3 o’clock in the morning. 

SHAW: Yeah, a big part of that is part of that online.

POLIKOV: Outside of Dallas, in Plano, Flower Mound, Argyle, McKinney, there still seems to be a very strong anti-apartment fervor. Some of it is just a painful reminder of an old model. Some of it is racism. I’m just going to call it out. Some of them are just concerned that apartments don’t reinvent themselves after a life cycle. From a technology standpoint, I do believe that stick-built apartment technology needs to improve. That’s how we present it, as part of a bigger neighborhood with connectivity and amenities. And that’s how we are getting multifamily approved. However, the big question that a lot of these city councils are asking is, what is going to happen to them in 20 years. And with 30,000 all the way up to 70,000 new units coming online, I’m afraid that a lot of what is being constructed, if it does not retain the quality and to be rehabbed properly, then even if it’s in the best context I think we are going to create our own worse problem long-term. We have to figure out how to deal with rehab on stick-built apartments and keep them high quality. 

SHAW: The multifamily project today versus what was being built 30 years ago—there is no comparison. 

POLIKOV: I agree with that. 

SHAW: They are a completely different model. Multifamily was once used to inventory land. Post World War II, developers took what they learned building military barracks and built a lot of very cheap housing very quickly to meet a burgeoning demand. Now, when it’s become a part of urban settings, you can’t be tearing them down every 30 years. But I will argue that in fact the multifamily today, stick built is so much better, and there is no reason it couldn’t be rehabbed multiple times. It could be here in 100 years, 200 years.

POLIKOV: I think we have got to get that word out. There is the perception that any multifamily constructed today is going to either be blight or it’s going to have to be torn down in 20 to 30 years. I think there is a deficit of knowledge (among cities). 

SHAW: It’s not inherent in the physical nature. It might be inherent in the customer demand. All these millennials might decide they need to own a single family home, which could cause it. But it’s not inherent in the physical nature. 

 

What do we do about development in southern Dallas? What innovative solutions can be employed to take advantage of the greatest landmass we have, with the greatest opportunity?

BLACKARD: Quit going down there and building 400 apartment units with HUD financing in one location. Build little villages down there, so communities can protect themselves and be self-sustaining. Put in a little bit of housing, a little bit of multifamily, a little bit of retail. I would love to go down to Bonfon and do a little village and to show that it will work there. It’s a passion of mine to go to South Dallas and show how a little village could have a profound impact. 

POLIKOV: Everybody on the public side, the finance side, and the infrastructure side needs to figure out how to make it easy for small developers and small developments. They’re always looking for the large developer and the large developments. That is a challenge, especially because of the baked-in misconception about what’s happening in the southern sector. For a lot of small developers, there are actually high barriers of entry for them. If we make it easier, they’re going to literally, block by block, building by building, make a difference. It has already started to happen. When you reinforce what’s already working down there—for example, talking with Monte Anderson about how he has been able to pull it off.

ABLON: Those are very positive small moves. And through the confetti they start to fill it in. The bigger move, the halo effect where you drop it and have waves that come off it—would have an investment of content creation, a university that creates intellectual capital, a manufacturing piece—you do that and you create content, you create talent, you create product, and therefore you create income. And if you can create income, then everything else will follow. 

POLIKOV: That model has really shown through in West Philadelphia. 

ABLON: It is a historically proven model. Go back to cities. All cities age, but they don’t age in the same way. And even within cities, pieces of every city age differently. But frequently you will see something come in that’s a driver. 

BLACKARD: We created the problem in southern Dallas. Because we continually zoned and pushed groups until we got them on the other side. We’re guilty of it, but we don’t even realize that we did it.

 

How is virtual reality helping developers or communities see the future of their development? 

MAY: There’s a lot of interest in virtual reality right now. For me, augmented reality holds a lot more potential. With virtual reality, I’m seeing what’s not there. With augmented reality, I can see a layer of what might be over what’s already here. Having some physical things allow you to experience the space a little better. But just from a philosophical standpoint, I think you can start to see the potential better. We’re using (VR) occasionally, but I don’t think we’ve tapped the potential on how to really use it yet. Healthcare environments are starting to use that more, because how a practitioner moves about a space is very important to the safety of someone. Some of the providers are even further beyond the designers with how they are using that right now. Microsoft HoloLens, that augmented reality type of technology, is going to start to change things. Recently we have been able to start to use that to start to design in that augmented virtual space.

ABLON: HKS used augmented realty on a building that we are doing; you guys are at the front end of the curve. You are creating it as you are going, and I don’t mean just augmented reality. In creating how you are going to put what together and what you are going to use it for, you are actually using it from a customer base, not a design base yet. We have used augmented reality, but on the marketing side. 

 

What are you most excited about in the future with regard to innovation in real estate? 

BLACKARD: I’m excited about proving my theory over and over again across the country. And getting developers to understand what I’m really saying. Everyone has a preconceived notion of what they think a village is; I want them to understand that it serves the needs of a people group and what that really is and how we design and build things.

EITING: I’m excited to be in Dallas. If you look at the entrepreneurial spirit that has always been here, and you look at what’s going on from a technology perspective, we’re just sort of at the very tip of the internet of things and our industry, real estate, is one of the last industries to be transformed. If you look 10 or 15 years out, things are going to be dramatically different. I’m excited to be a part of it.

MAY: The challenges are always what excite me the most. And I think something that is very challenging to me but also is a tremendous opportunity is thinking about complexity and complication. We are understanding more and more about what people want and what they need. But the challenge is to design buildings that are more simple. It sounds contradictory, but I think to facilitate the complex systems, the communities, the cities that we live in, a simple building has the flexibility we need. Because we don’t know what’s going to happen in the future. There’s conjecture about what might happen five or 10 years down the road. We have to provide buildings that are flexible enough to allow the systems to grow. As demand for cars continues to drop, could the office tower where half the floors are for parking, could those start to infill with housing? Things like that can transform cities, and I think are where our mindset needs to be from a building standpoint. 

POLIKOV: I’m excited that the value proposition in real estate design, development, and finance has shifted from looking at the product to looking at the happiness of the person in the neighborhood that they are living in or locating their business in. It’s what Mike said about the cruise. It’s also exciting that the real estate community is now looking more outside the building for the value proposition than inside the building, and I think that will create more multigenerational stability. 

SHAW: So I’m going to attribute this quote to Trammell Crow. I’m sure it was him. Later in his life, someone asked him the same type of question, and he said, “Well, America isn’t built yet.” At the time, it was profound to me and it still resonates with me. Today, America’s not built yet, and I can continue to have a part in building it. So that’s what has me excited. 

 

ABLON: I would have a very similar feeling of gratitude. There are moments of windows in the larger span of history when Gutenberg has the printing press and James Watt perfects the steam engine where entire worlds change very radically in short windows of time. We are living in one of those periods—all of us. And I am absolutely grateful that I am living in a time of radical change—and not just the change itself but the speed of that change is radical. It’s fun to begin to see where the demographics and the culture and the technology overlap on a city fabric and work in that, especially a very open-minded and entrepreneurial city. I’m just grateful to be here right now.