R ROUNDTABLE
JEFFORY BLACKARD
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
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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’re 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’s 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
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