'Neglected' Neighborhood Revitalized in Dallas

When Jack Matthews first started buying land south of the convention center here, people thought he was crazy and that his investors, mostly wealthy individuals, were either very brave or very stupid. The plan was to buy up the old Sears catalog distribution center, convert it into apartments, shops and offices, and bring a "neglected" neighborhood back to life.

Today, the renovated Sears building, known as South Side on Lamar, is 55% occupied and is expected to be fully occupied and generating positive cash flow by year end. Office space at the structure is 80% leased, a separate office building is about to get underway and a hotel is planned.

When Matthews Southwest acquired the site, it paid $2.1 million for 17 acres, or about $123,000 per acre. Now the firm owns 30 acres, and anybody who wants to join the party will have to ante up about $400,000 per acre.

It's not that the South Side was a bad neighborhood, says Matthews, a transplanted Canadian who has also developed a golf course (with homes to follow) on the ritzy north side of town. It's just that it was neglected. There were few people (if any) living there and half the commercial space was vacant.

But Matthews saw potential where others did not, prompted at least partly by the city government's strong desire to lure developers to the neighborhood with tax abatements.

Matthews also took advantage of the area's federal Enterprise Zone status and the availability of tax credits for renovating the historic Sears structure.

In one bold stroke, he eliminated what could have been the biggest obstacle to success: the perception that crime was a problem in the area. There was very little crime, he said, but to combat the perception of danger, he offered the city free land on which to build a new police headquarters building. The facility is underway and in two years, 1,400 police department employees will be working in the neighborhood 24 hours a day.

While other developers are rehabbing buildings in downtown Dallas, Matthews' project is about a mile further south than anyone else's. It's also in a class by itself in terms of size and challenge. While he paid only $2.1 million to buy the structure and site, it cost about $5.5 million to clean it up, including removal of lead paint and asbestos.

The 1.1 million-square-foot structure opened in 1913. Sears, which served 11 states from the complex, closed its operation in 1993, and the neighborhood has been very quiet since. The project was financed by a $64 million mortgage from Reilly Mortgage Co. The loan was insured by the Federal Housing Administration.

Overall site development costs already exceed $100 million, and eventually $200 million to $300 million more may be invested, Matthews says. "I take it one step at a time." The first step has been the 85-year-old, nine-story loft building, expected to be finished in May. Its ground floor has been converted to commercial space, and all but 17,000 of its 130,000 square feet have been leased.

An open-ended entertainment/retail promenade, with brownstone-style facade, is being reconstructed from a former train docking area inside the building. A row of artists' lofts will front the promenade. "An artist will be able to work, display and sell" his work on the promenade. Each artist will get his/her own display space.

As for the lofts, they range from 1,000 to 4,000 square feet and average 1,700.

"The tenants that are coming into South Side are not your 9-to-5 workers - they're pretty free-thinking people," Matthews says. The lofts feature fluted columns, natural ceilings, sliding room divider panels, over-sized bathrooms and exposed brick walls. Common features include a rooftop jogging track and swimming pool, a fitness center, a movie theater, a business center and a two-story garage behind the building. About 60% of the lofts have downtown views, and 80% have original maple flooring. The indoor concourse has street lights, landscaping and an outdoor atmosphere reminiscent of a sunny urban street.

Rents average $1,450

Rents at South Side average about $1,450 a month, or 86 cents a square foot. Matthews says that compares very favorably with the going rate of $1.20 a square foot. "Our whole thinking behind it is to fill up the building and not be a price setter. Right from the beginning, that was the strategy." South Side on Lamar is just a block from a municipal railroad station, which provides access to downtown. But it's easy to walk downtown as well.

Nearby, a 100,000-square-foot office building is being leased, and more buildings are to come. Buildings on the site have room for some 220,000 feet of future office/commercial space, and Matthews expects 800,000 square feet of offices eventually.

At the north end of the development, near the Dallas convention center, Gilley's is planning a 112,000-square-foot entertainment center, to open in April. Gilley's, started by Mickey Gilley, was a well-known Houston "honky-tonk," as Matthews puts it, that burned down several years ago. More entertainment attractions and restaurants are needed to round out the area, Matthews says. One new restaurant, South Side Grill, already is planned.

The area is intended to be "really an extension of downtown, but it's going to be much livelier," Matthews says. He says lofts are leasing up much faster than he had projected, even though many other lofts developments have been done in Dallas in the last several years.

Matthews says the entire development likely will take seven to 10 years to complete. New buildings will be limited to six stories and designed to blend in with the architecture of the older buildings. "Things have gone faster than I'd expected; usually, things take a lot longer than I expect," he says. "Hopefully, I'm never done." n Cutline for photo to go with this story: Team Effort. Converting a historic Sears warehouse into South Side on Lamar involved (from left) Craig Cowden, architect, Cowden & Associates; Ed Verde of Focus Asset Management, property manager and leasing company for the residential portion of the development; Jack Matthews, president of Matthews Southwest, the developer; Kevin Gould of Reilly Mortgage, the lender; and Stephanie Baker, president of Focus Asset.

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