Reunion Arena: What the Mayor is really up to

There's no real reason for Reunion Arena to be on the political horizon right now — it has been languishing for years, thanks to the city's agreement giving the people running American Airlines Center first dibs on most events in Dallas. But there it is on today's council economic development committee, which appears prepared to close the arena, demolish it (to the tune of $5 million) and then find an immediate buyer for the then-vacant land.

The rush to judgment made no sense to me, as I've written before — after all, the arena apparently bleeds about $1 million a year, which is chump change downtown, and you never know when casino gambling may be approved in Austin. So again, what's up with this rush to get the arena closed and torn down?

Well, today in the DMN, buried near the end of the story, I see what's going on: Apparently, if the city closes Reunion, it can declare the facility "surplus property", which triggers yet another city agreement — this one with Woodbine Development, a subsidiary of Hunt Corp., which if I'm not mistaken owns the downtown Hyatt next door to Reunion — allowing Woodbine 60 days to purchase the Reunion property, creating a monstrous amount of land right next door to the convention center (which wraps around I-30 to nearly connect with the Hyatt) and within walking distance of the new taxpayer-subsidized convention center hotel. Talk about an economic bonanza for Woodbine, all thanks to the city of Dallas and its benevolent taxpayers.

No price was established in this agreement between Woodbine and the city, so it apparently sets up another case of a private real estate company, well steeped in market knowledge, negotiating with city bureaucrats — I wonder who will come out on the short end of that stick?

Typically, here's the way a master-planned real estate development like this one works — a la Victory Park, for example: A developer invests a huge chunk of money in a centerpiece development (such as the AAC building), using that investment as a catalyst to encourage other developers to bid up the pricing on the remaining parcels of available land, carefully positioned around the centerpiece development. And that remaining available land increases in value, hopefully exponentially, as a result of the intelligent development of the centerpiece, creating more demand for development on the limited amount of land still available in the project. This way, the original developer has "primed the pump", so to speak, using the original investment to drive remaining property values up. It has worked beautifully for the Perot and Hicks companies at Victory: The AAC development brought crowds to the area, which then began to see residential development, a hotel, office and a bunch of restaurant/retail opened up — all on land owned by the original AAC developers. The city gave those guys $100 million to prime the pump, and they did — all on their land. We helped them make a small fortune on that deal.

Now let's look at the Reunion deal and how it ties in with that other rush-to-judgment project, the convention center hotel: Here, just down the street, a major developer and downtown landowner is prepared to spend more than $500 million on a centerpiece project that is single-handedly going to revitalize both the convention center and that part of downtown. And lo and behold, this major landowner — by priming the pump in that part of downtown — is all set to benefit from the increased demand for land/facilities created by the construction of the new taxpayer-subsidized convention center hotel. People like Perot and Hicks, who know their real estate, would sit back and wait for the demand to come to them; once the convention center hotel has been built, we'll have so much activity going on around the convention center that development will be everywhere — or so we've been told by our real estate experts, Mayor Tom Leppert and most of the city council. So if this was their project, Perot and Hicks would sit on their remaining land and wait for the highest bidder.

But when the city is the major developer pumping all of the money into that part of town, looks what Leppert wants to do: "You can throw good money after bad," he told the News. "But there is a significant benefit to clearing the site. It will increase interest in the property." In other words, let's get rid of this property now — before we've invested $500 million down the street and before it gets a chance to appreciate exponentially because of that investment — and let's sell it to Woodbine, good friends of mine who already has a first-right of refusal to buy the property today, at what will undoubtedly be a below-future-market price.

Make sense? It does if your goal is to privatize all of the city's available landholdings in the area of downtown where you plan to invest an enormous amount of money. Rather than let the city earn the profits from our investment, let's let Woodbine have all of the appreciation, presumably after we tear down the arena for them, too.

This is Real Estate 101, a class the mayor and much of the council must not have taken in college. But you can bet Woodbine's executives did. We can't even blame them for fleecing us this time; we're walking into this deal with our eyes open and our wallet extended.

Comments

[Robert]

Situated on about 30 acres of land, if Woodbine exercises their option agreement, the Reunion Arena property should add about $130 million in rateables to the Dallas tax roll, assuming the district assesses it at the $100/SF value we know the convention center hotel site is worth.

[Angela Hunt]

This is right on target. Upon closer examination of this issue, it looks to me like the city has shot itself in the foot, not once, but twice, with two contracts that are in direct opposition to its best interests: Certainly with the "non-compete" agreement with American Airlines Center, but also with the 1975 Master Agreement between the City of Dallas and Hunt.

It had seemed to me that rushing to sell this property was a bad idea in a market unfavorable to sellers (unless you're selling hotel land to the city). Why not hold on to the property and wait for it to appreciate? Particularly when the city is planning to build two projects that would arguably improve the value of the Reunion Arena property: the convention center hotel and the Trinity River Park.

Now I'm reviewing the Master Agreement with Hunt, and it appears to me that no matter what, Hunt has first crack at buying this property at a set price (there is some arcane arithmetic spelled out in the contract). So I don't see how the city can possibly recoup its investment, let alone see a profit by holding onto the property.

I'm going to be asking these questions in the Economic Development meeting today, but it looks to me like the city is damned either way: If the city tries to use the Arena for events, the AAC agreement essentially prohibits profitable ones. If the city tries to sell the Arena property, the Hunt Master Agreement could force a sale at an unprofitable price.

Is no one reading these damned contracts before the city signs them???

[Robert]

It is my understanding that the Appraisal District is methodically increasing the land value assessments of all downtown properties to reflect the $100 psf benchmark of the Chavez sale.

So the city runs the risk of being out manuvered by the very capable folks at Woodbine (who are flush with cash since Hunt Oil is being sold for a whopping $3+ billion)into a sale which reflects a low value. Woodbine will use that sale to force valuation by the Dallas Appraisal District to a less than market value assessment. The less than market sale will be translated to assessments of other downtown properties, diluting the rateables.

[Angela Hunt]

It looks to me in the Master Agreement that the price to sell to Hunt is not based on market value, but on the city's original purchase price plus interest paid, along with some multiplier. I'm going to have this clarified in the Econ meeting. If I am correct, then it doesn't matter when we sell to Hunt because they will get a hell of a deal, and it's not based on the property's actual value (which will arguably appreciate).

[Desert Rat]

C'mon, Angela, this is the way that the City of Dallas has always done business & always will (go read about the fleecing that the City took when Annette Strauss sold the City out when Starplex was built). This city's slogan should be whatever is good for business (especially real estate) is good for the City of Dallas. It's not going to change unless, & until, the people demand that it stop. That day is coming quickly because our infrastructure is crumbling.

[mark cahill]

By the way... Victory Park is NOT successful and nobody has made any money. In a recent panic Perot canceled Victory Tower and the Mandarin Oriental. Retailers are closing. Ghost Bar was the talk of the town regarding Victory Park, now - it's Ghost Town.

The odd part of all of this is it's very shortsighted. Victory Park had the chance to become a "place" in Dallas. Now, it's stuck as The nice hotel next to the arena... Yeah, it was supposed to be a really cool place, but it didn't work.

It's a shame, because VP could have been a good connector for Uptown, Downtown and the West End. It could have been a safe place to go for entertainment and shopping, hopefully spreading into downtown.

[Observist]

Wait a sec - am I missing something here? The city just paid above-market price for a piece of land on one side of the convention center, when they already owned a piece of land on the other side of the convention center? And now they're going to sell it to Hunt for a below-market price? And I'm paying $500/month in taxes to subsidize this idiocy?

[russell hull]

If what mark says is is true, I might revolt. Without knowing where Dallas is building the new hotel, how far is this from the arena? If we were really going to close it down (based on June 30, it is known), Then why not use that land?

[Rick Wamre]

Russell, Reunion Arena is located next to Reunion Tower. Moving east, you'll find a parking lot, the Dallas Morning News complex, and then the land/vacant structure that comprise the convention center hotel land. Between the two pieces (Reunion Arena and the land chosen for the hotel), the land is the better choice if the city has any hope of ever linking the convention center activity to the rest of downtown. My point in the original post was that the Reunion Arena land is close enough to the convention center complex that it will definitely benefit in terms of increasing value from the city's $500 million expenditure on the hotel.

[Rick Wamre]

Also an update: The council's economic development committee voted unanimously today to permanently close the arena. However, the property won't be immediately declared "surplus", keeping Woodbine's option to purchase from kicking in. The DMN reported that council members were briefed on exactly how much Woodbine would pay for the property (apparently, some type of valuation calculation was agreed to years ago as part of another deal), but that valuation formula hasn't been made public. Yet. As for why the formula hasn't been made public, or why it would need to remain private, I don't know that answer, either. Yet.