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Valencia Capital preps for $800M project with hotel demolition, infrastructure work

The master developer of the MidtownPark project east of North Central Expressway is laying the groundwork for an $800 million venture that will include thousands of residences, a hotel, up to 930,000 square feet of office space and 90,000 square feet of retail centered around Presbyterian Hospital of Dallas.

Dallas-based real estate investment firm Valencia Capital Management, the master developer, released specifics about the 83-acre mixed-use project for the first time this week. The site is east of North Central Expressway between Walnut Hill and Royal lanes, just north of Presbyterian Hospital.

Previously known as Urban Village at Walnut Hill, the project is one of the biggest redevelopments in the city.

Valencia started infrastructure work in May, and that should be completed by the end of 2009, said Tim Kaiser, a Valencia principal. The infrastructure improvements will total $30 million and include new water, sewer and drainage systems, streets, 4 acres of park construction and hike-and-bike trails.

The project, fully built out, will cost $700 million to $800 million, Kaiser estimated.

Zoning on the site allows up to 3,800 residential units, 930,000 square feet of office space and 90,000 square feet of retail. Much of the office space will be medical office buildings, Kaiser said.

Initial projections call for 35% to 40% of the residential units to be for sale, with the balance being rental condos and townhomes, Kaiser said. The development will include neighborhood retail such as coffee shops and dry cleaners, but won’t include big-box retail, he said. The project eventually will have high-rise condominiums, a senior living component and an
extended-stay hotel, he said.

“Our vision for this area is a lot of different types of uses,” he said. “We’ll have a mix of residential, from townhomes all the way to highrise condos. We’d like to see hospitality, we’d like to see senior housing, and we’d like to see quite a bit of medical and medical-related uses.”

Selling off parcels

As the master planner, Valencia is trying to sell pieces of the property to other developers and builders that agree to carry out
Valencia’s overall vision.

The area has many advantages, including its position near Presbyterian Hospital, on a Dallas Area Rapid Transit rail line and inside the Interstate 635 loop, Kaiser said. The trend of people moving back into the urban core continues to escalate, which will play into MidtownPark’s success, he said.

The project received $10.3 million in city bond money for paving, streetscape and drainage and the balance is being funded
by institutional investors and debt that’s already secured, Kaiser said.

The credit crunch has frozen construction financing for many builders and vertical developers, who oversee construction of buildings as opposed to developers like Valencia who handle preliminary planning, zoning, infrastructure and initial site work, Kaiser said. Valencia will proceed with site preparations, including the implosion of a hotel on Nov. 9, while the capital markets thaw enough for other developers to get involved, he said. Valencia has already demolished more than 2,000 aging apartments to make way for the redevelopment.

“We’re very well capitalized to be able to put in the infrastructure now, and in our mind, this is the time to be doing that,” he said. “We feel like the economy will come back around, lenders will be back in the market and our timing will be just right.”

Although Valencia’s primary goal is to sell sites to developers and control the project at the masterplan level, Valencia also is considering kicking off vertical construction by partnering with another developer on a medical office building, an apartment complex or a senior housing project, Kaiser said.

Valencia is in “deep negotiations” with several large, well-respected developers, including some whose access to financing has dried up because of the credit crunch, Kaiser said. He declined to name the developers.

Vertical construction will begin in late 2009, and the project will be completed over the next seven to 10 years, Kaiser said.

The MidtownPark site is a good one for medical office space, said David Rutson, principal of Dallas-based Globe Medical Realty Advisors, a tenant representation firm for the medical office industry.

“A lot of the demand is generated by physicians that are looking to have their own operations and possibly move from the hospital to a campus environment,” he said.

New medical office space inside the Interstate 635 loop in Dallas leases for at least $25 per square foot, and space in the MidtownPark area will probably command about $30 a square foot, said Rutson, who specializes in brokering medical office space.

Lenders will want to see significant preleasing before providing financing for medical office buildings, Rutson said.

Physicians often view medical office buildings as attractive investments, so providing doctor-tenants with equity stakes is a way to make the projects happen, Rutson added.

Kaiser said he’s had discussions with doctor groups but does not have any signed leases yet.

U.S. demographics favor medical-related real estate investments, said CJ Follini, managing principal of Noyack Medical Partners, a New York-based health care real estate investment firm. Aging baby boomers, which represent 26% of the U.S. population, will need increasing support from doctors and other caregivers, so hospitals, research facilities and the other U.S. health care facilities are expanding despite the recession, Follini said.

That healthy demand for new space makes real estate near hospitals and similar facilities likely to deliver attractive returns, Follini said.

Bill Hethcock
Staff writer

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