The Dallas Metroplex enjoys a central location, business-friendly government policies and other favorable attributes that have attracted business expansions and investment. Crow Holdings’ Michael Levy and CBRE’s Chelby Sanders join Spencer Levy to offer insights on the catalysts for the area’s enviable growth.
Don’t Fence Me In: The Reasons for Dallas’ Rapid Growth
March 1, 2022 33 Minute Listen
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Spencer Levy
I'm Spencer Levy, and this is The Weekly Take. In just over the past decade, more than 170 companies relocated to the place we're talking about on this show – a city that lassoed 21 corporate headquarters in 2021 alone. On this episode, we're deep in the heart of Texas real estate for a conversation about a model of modern economic and urban development: Dallas
Michael Levy
I describe Dallas or the DFW Metroplex as a megalopolis.
Spencer Levy
That's Michael Levy – no relation, by the way, even though that is my father's name – but this Michael is the chief executive officer of Crow Holdings, a privately-owned, Dallas based real estate investment and development company. He's a transplanted investment banker from New York who made the move to Dallas in 2016 to lead a firm that currently has a portfolio of more than $24 billion of assets under management.
Chelby Sanders
What we hear over and over again is Dallas is just a great place to do business in general,
Spencer Levy
And that's Chelby Sanders, a CBRE executive vice president in our Dallas office and a native of the Lone Star State. Chelby is a leader in our Transaction Advisory Services Group specializing in office occupancy needs and workplace strategy for tenants in the Dallas area and from across the country. We'll cover all the so-called Dallas Metroplex has to offer in terms of business and lifestyle. We’ll learn about its web of neighborhoods – or nodes, as our guests call them – as well as the adjoining cities that have made this such a popular destination. We'll talk about everything from the infrastructure to incentives that are drawing folks into the state, and I'll get an important lesson in the proper way to talk about some of the finest local food, too. Don't mess with Texas. Coming up, Dallas and its evolving Metroplex. That's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take. And we're here to talk about Dallas as a real estate market. So Chelby, let's talk about the DFW Metroplex. What makes the Dallas Fort Worth area attractive to your tenants?
Chelby Sanders
What we hear over and over again is Dallas is just a great place to do business in general. So the business climate. But beyond the business climate, there are some fundamentals that really make Dallas a great place. The central location – we have DFW airport that gives the access to East and West Coast. Also have just a favorable tax climate here and tax base – no state income tax, no personal income tax. And we also have a strong labor market, in addition to just a strong education system. And on average, we have around fifty thousand students locally in the region that are being educated – and throughout Texas and the adjacent states around 300,000. And predominantly those are all coming here to do business and to work well.
Spencer Levy
And when you say here, dig into what here is. So, Michael, Dallas, like all the other great cities of America, and probably the world is a constantly evolving place. It's not just CBD. It's a lot of other places. Talk to us just a little bit more about what here is and what's attractive today.
Michael Levy
I describe Dallas or the DFW Metroplex as a megalopolis. There's a lot of land in every direction, and that's allowed the city writ large to grow up in a series of nodes. It's not one central location. It's about eight million people give or take in the Metroplex, and they're not all coming to downtown, uptown Dallas. These other small cities have developed over time, starting with Fort Worth. But whether it's Arlington or Richardson or Frisco or Plano or Dallas proper or one of a half a dozen other nodes, the Metroplex of Dallas is continuing to grow and that allows people to have quality of life. The traffic that's here is pretty limited in the scheme of things. You know, you have cities like New York or cities like Chicago, or even cities like Atlanta, where everybody's coming to one central place and then roads the quality of life. In Dallas, the quality of life is maintained because of all these additional nodes, and I think that bodes well for its continued growth over the coming decades.
Chelby Sanders
I agree. And what I would say to add to your comment, Michael, we were relocating a large financial institution that was in the Bay Area. And when we were starting on their project, they asked us to look at the housing prices in their markets because they felt like that their employees would have an opportunity to sell in that market and reinvest here and have the ability to build wealth in their homes, like many of them had the opportunity to do previously in California. And so the quality of life and just the cost of living is just a tremendous value.
Spencer Levy
Michael, one of the things that makes Dallas great is its ease of doing business, its ease of building. Is that a positive or negative?
Michael Levy
Well, as I said earlier, there's a lot of land in every direction, but the same reality is there are some markets that matter. One of the things I was going to say is all of this growth is driving up the cost of living here because not all land is equal. And people want to live relatively close to where they work. On the one hand, you would say that the availability of supply in each direction would limit the opportunity. Nonetheless, to submarkets matter, and they matter a lot. And so there are terrific opportunities from a development perspective throughout the Metroplex. And then the conversation goes very detailed because the submarkets become very important to that discussion. And those submarkets matter whether you're talking about industrial or you're talking about multifamily or you’re talking about office. The city of Dallas, if you really look at it, there are two main highways that run north south. One is the Dallas North Tollway at one Route 75. And really, the heart of Dallas is inside of the V formed by those two highways. Outside of the bay versus inside of the V makes a big difference in terms of the relative submarkets, for the most part. And that creates opportunity
Spencer Levy
Since you brought up multifamily, because there's so much cheap housing or relatively inexpensive single-family homes in the area. Does that make it more challenging to build multifamily in the Dallas Metroplex, or is there still a great opportunity?
Michael Levy
Again, it comes down to people want to live close to where they work. The real force at work in Dallas is demand. Just the sheer volume, the nominal growth of people in this marketplace and that sheer volume of demand. If we were in a market where we didn't have quite that demand, those concerns that you're highlighting would be more prevalent. But the reality is people are coming here in droves. You can look at all the data, all the statistics. And they want to live in certain school districts where they're going to raise their kids, or they want to live in certain submarkets. And so there's plenty of multifamily opportunity in the city because the sheer volume of growth that's taking place.
Spencer Levy
So Chelby, let's be a little bit more specific. What are some of the attractives of some neighborhoods versus others?
Chelby Sander
That's a great question, and I would say it depends. We look at the DFW market as a whole when someone is coming in so that we can identify the best location for them based upon their goals and objectives. Many times what we're finding companies coming in and they want to have a campus type of an experience. And if it's a campus that they want, then we look in the suburbs. Contrast that to someone that may want an urban location, then we really go in and we look into urban locations. And to what Michael said, it really comes down to location, location, location. And being very specific and thoughtful about what can be achieved in each site. And doing all your due diligence and understanding around the adjacencies and how each of those sites are going to contribute to the goals of the company.
Spencer Levy
Well, Michael, Chelby suggested that it's either a campus or it's urban. But in fact, your campus, the Parkland campus is both. It’s urban and it's a campus And it’s expanding. Tell us about the Parkland campus and your plans for expansion.
Michael Levy
Sure, so we are located in an area called Oaklawn, which is a couple of miles north of downtown Dallas, right near the urban core, but a little apart from this area called uptown. And 15 years ago, this part of town wasn't such a great part of town, and there was a hospital that was built here in 1913 called Parkland, the original Parkland hospital. It was a beautiful building and it was in derelict condition. And so fundamentally, we took this beautiful building and developed a half-a-million-square-foot, 11-building campus, low slung three to seven storey buildings and developed a tenancy that was principal investors and so family offices and foundations and private equity firms and asset management firms. And we created a network in this beautiful office campus that's part office, campus, part museum. What we're seeing now, and Chelby commented on it before, the mass influx of corporate relocations, which has accelerated demonstrably during the COVID period, is bringing primarily from California to some extent from Illinois, to a lesser extent from New York, but bringing a range of principal investors into this community. And in response to that we're unable to provide space for a tenancy that mirrors the folks that are here on campus today. And so we're in the process now of expanding the campus and we’ll break ground in the coming months on a quarter million square-foot expansion of the campus in the same format and the same tenancy and the same live work play amenities that we provide today.
Chelby Sanders
You know, Spencer, here's what I'll say when I said urban versus suburban – exactly what Michael's saying we are seeing in the uptown area and around Field Street and around the West End. In those larger sites, whether they're 35, 40 acres or something like that, they give the ability for a mid-rise office that you would have in a suburban market not generally in the core, but it gives them the ability to create more of a campus type feel. They no longer are really wanting a million square foot tower. They want something that there can be a sense of community, and within that community it's more than just office. It's the green space. It’s the hospitality component. It's having, in many cases, the residential. All of it combined is really what companies are looking for today.
Michael Levy
Also, it really depends on the company and its workforce. If you go north of uptown Dallas areas like Frisco and Plain on Richardson, I wasn't here at the time Chelby was but 15, 20, 25 years ago, these were farms and grasslands, and there weren't buildings there. And today these are huge, multimillion square foot markets. And so if you have a workforce that wants to be able to live within 20 minutes of its office, be able to buy quality homes for, let's say, you know, four hundred, five hundred thousand dollars. Your office rents, you're looking for office rents more in the $30 square foot range, give or take. Those markets are fabulous for families with new schools and new communities and new infrastructure. If that's not your workforce and you want to be closer to downtown-uptown Dallas, you're talking about housing costs in an area of the park cities. That's probably $2 to $5 million in Preston Hollow. That's similar in Lakewood, and you're going to have higher rents and to be closer to the urban node. And so it really depends upon your workforce and it depends upon what you're looking for in terms of the lifestyle. And so not all of Dallas is the same. But it is growing north. There is no doubt that we spend a lot of time talking about downtown Dallas and the resurrection of downtown Dallas. But the vast bulk of growth in this marketplace is north.
Chelby Sanders
Something else I'll say about the Metroplex is because we do have the nodes, you have options. So there's multiple types of product, depending on what you're looking for. You can have expansive land around your campus with lots of trees if that's what you want. Or you can have more of an urban. That's really the benefit. The other thing I would say is I'm from East Texas, not from Dallas proper. I've been here around 25 years. And what I observed in coming to Dallas with really not having much of a network is just the fundamental fiber of the community. It's just that everyone here truly wants you to succeed. That's what I've experienced. And in the business community, people reach out without any expectation or without any agenda and truly want to help you and say, How can I help you? Who do you need to know? Can I open some doors for you? And that's what I believe really sets this city apart. I've talked to other people that have relocated here, and they comment on how nice people really are and that people generally don't want to help without some sort of an agenda in many other cities around the U.S.
Michael Levy
It's really important, you know, Chelby started us off with a variety of factors that are attractive, including a business friendly culture. But you need to understand the culture of Dallas. Dallas was effectively formed in the 1870s, early 1870s, by two railroads crossing. There was less than three thousand people here in 1870. So it's exploded in growth over that period of time by inviting people in. It was billed as the city of Commerce, based upon two railroads crossing. And that ethos and that spirit still exists today. And that's what's attractive to the city more than anything else.
Spencer Levy
So, Michael, let's go back to that New York guy in Dallas today. What is the single biggest surprise you had moving from New York to Dallas?
Michael Levy
The daily grind is so easy here. I mean, you are – if you choose to be, you're in 20 minutes of anything that you want. This megalopolis, the way this city is, is designed and all of these different nodes really enhances your quality of life. I lived in a beautiful place on Long Island. I commuted into Manhattan every day. It took me an hour and a half each way, all end to go door to door. Today, I'm within 20 minutes of anything that I want. And most everybody I know is within 20 minutes of their entire lives, and that makes a huge difference if 80 percent of your life is in the daily grind. The daily grind in Dallas is fabulous. And that was the biggest surprise.
Chelby Sanders
Can I say one other thing that is true to that? As a working mom – so I have two daughters that are both now in college. And what that allowed me to do because of the ability to move around quickly was the ability to quietly exit at an appointment and discreetly go and take care of something that I needed to with my daughter and I could be back at the office and never missed a beat. You wouldn't be able to do that in New York City. You just wouldn't be able to. And so I think that it put me in a place to succeed so that I didn't have to compromise and I could have a career and I could also have a family.
Spencer Levy
That's awesome, Chelby. So let's now expand the circle just a little bit. We're going to first expand it not that far down the road to Fort Worth, where my in-laws still live, and then we're going to expand to some other cities in Texas. So once you go to north of Dallas, I mean, you could have a 20-30 minute commute to downtown. Fort Worth is only 35 minutes, 40 minutes to downtown Dallas. So why not Fort Worth or why Fort Worth? Michael, you have a point of view.
Michael Levy
Well, I think 30 minutes in traffic can be 50 minutes. 50 minutes is a long time down here. There's also very different cultures in Fort Worth and Dallas. These cities have grown up a little differently from one another. Fort Worth were the old stockyards. Dallas was formed by the railroads. And so there's a historical culture here. But the city's growing north, like most American cities, they grow north for the most part. But again, 50 minutes is there's really very little reason that one should have to commute 50 minutes living and working in Dallas, Texas.
Chelby Sanders
We have actually relocated a company and put them in Fort Worth. But there were reasons and anchors in Fort Worth in Tarrant County that they went there. If a company comes here and there isn't an anchor or anything drawing them west, they really want to be in the heart, I'll call it, of the activity. And we've got several hearts, I would say, beating hearts with the nodes. And if you look at West Plano and Legacy, Frisco, that's now, you know, a submarket together. And J.C. Penney started all that when they sold off their land and allowed the Legacy West to develop it. And that was on the heels of what EDS did when Ross Perot allowed the shops that legacy to be developed. And that really created a place where companies could come together. We saw Toyota relocate their headquarters there. We have Liberty Mutual. What I say is there's a catalyst that happens. And then once the catalyst happens, then there's momentum. And there's just been so much momentum in that far north Dallas market. And it used to be called – along the North Tollway – it was called the Platinum Corridor years ago, and everything was developing along the Platinum Corridor. And now that name is still true. It just continues to go north and everything continues just to develop around the tollway. And I believe it's because of the transportation and just the proximity and access it provides.
Spencer Levy
When you take a look at the pie chart of the different industries within Dallas, there's no one that really dominates. I think the old TV show used to say, Oh, it's an oil town. It's really not an oil town. There are so many other businesses there. But when you look at the other cities in Texas, you do see a different type of identity, sometimes around tech in Austin – and maybe it is oil and gas in Houston. So Michael, if you were to define Dallas’s identity by industry, could you do it?
Michael Levy
I wouldn't. It's a business and commerce oriented city, sure. Are there deposits of oil and gas or are there deposits of real estate? Sure. But there's an incredible health care medical infrastructure in this city. And there's a huge tech corridor in this city. And there's a tremendous educational infrastructure in the city. And there are insurance companies and finance companies, and folks like Goldman Sachs have just announced a big relocation of thousands of people here. So it's a highly diversified economy, which, as you said, is somewhat different than in Austin or Houston.
Chelby Sanders
And if you go back – I like to study and ask, why is something the way that it is today? And I went back in just doing some research over history, and there was a deliberateness of which the past leaders of this city really were thoughtful about recruiting and growing certain areas of the market to develop industries. And it was that thoughtfulness that leads us to the diversification that we have today, which we're grateful for because we're not as vulnerable.
Michael Levy
I wouldn't understate the importance of this incredible airport, this DFW airport, which is equal to the size of Manhattan island, sitting just north of both Dallas and Fort Worth out there. That has made getting in and out of this place and getting around the country and getting around the world extremely easy. That airport – anybody who's been there – getting to your plane, you can literally pull up 40 minutes before your plane is ready to take off and you can park your car and get through security and get to your plane. It's become a major hub for industrial logistics throughout the United States, coupled with the fact that Dallas is in the center of the country more close to center than it is towards the south, providing highway infrastructure throughout the country. But that airport is a huge boon to the growth and success of the city. And the city's founders back in the 1950s and 60s, who got together and developed this out had great foresight.
Spencer Levy
Let's touch on this infrastructure question. Not to be negative, but there was a high profile incident a year ago when you had an ice storm in Texas and it knocked everything out or almost everything out. So my question is, is infrastructure going to be holding Texas generally, and Dallas specifically, back? Or you think there may be some changes that are in the works? Chelby do have a point of view?
Chelby Sanders
Obviously, it revealed a weakness that we had. And what generally happens is when you know there's a weakness, you realize there's a problem to be solved. There have been significant changes within ERCOT's board, and they know that with the growth of this city and regions having that, we have to have the infrastructure to continue to support the growth. And there's a lot going on within the energy sector encouraging investments to help support our infrastructure in power.
Spencer Levy
Well, speaking of infrastructure and power, they all come together in a sub asset class called data centers, where Dallas actually was one of the founding areas for data centers. I remember one of the first deals I ever did was on a building called InfoMart, which is right there on the highway. When you pass, it looks like the Crystal Palace in London. But data centers require a lot of power and they are considered a form of infrastructure by some. So, Michael, let's talk about infrastructure generally and then specifically in the context of data centers, potentially, in Dallas. What's your point of view?
Michael Levy
Well, the infrastructure question, the value of the grid last year was both expensive and embarrassing, but I think it's largely a footnote in the overall picture of Texas's infrastructure investments to date and leading into the future. It's not a perfect infrastructure. Take the highway from Dallas down to Houston, and anybody will see it's in a constant state of repair or disrepair. But the scale of growth in these cities and the roads being built to accommodate them and the infrastructure is really unparalleled across the country. And I think the state and the politicians here are very focused on continuing to invest in the infrastructure going forward. And you also look at other areas such as we're a leader not only in hydrocarbons and oil and gas, but in renewables such as wind and solar. And so I think the state is very well poised to continue to develop out its infrastructure. Data centers in particular, as you perhaps know this, the InfoMart – Crow built the InfoMart back in the day. It was used as a trademark, etc. It happened to be sitting over some of the most robust land in the country with respect to power and connectivity. And it's today one of the largest data centers in the United States. And so data centers and as we move towards the Internet of Things, as we move towards autonomous vehicles clearly, the need and the computing needs that we're going to have is continue to grow. And perhaps one day satellites will displace terrestrial data centers. But I think for the rest of my professional career, that asset class will continue to grow. And real estate investors will want exposure to that sector as much as they want exposure across many specialty areas of real estate, whether it's cell towers or life science or self-storage or single family rental. These specialty real estate sectors are here to stay. They represent about half the public REIT market. If you add them all up, they're about equal in size to one of the four food groups within real estate. And I think they're part of the fabric of the investable landscape going forward.
Spencer Levy
I want to stick on the investment case for a moment. Michael, let's just talk about risk adjusted returns for just a moment and looking at retail, where does it sit in your mind? Is now the time? And the next question will be about office itself – when does that come back? So retail and office.
Michael Levy
Not all retail is created equal. Our company is very tilted towards industrial and multifamily. It represents the vast majority of our investing and development activity for quite some time now, and we've benefited from the secular trends underneath these sectors that I think a lot of people could see coming, and we benefited from that. Equally, the internet and other forces have taken a toll on retail. And so you have to scratch your head a little bit and say within that is the baby being thrown out with the bathwater? And are there opportunities within retail that others are overlooking because it's called retail? And so we made a decision five or six years ago to focus on these non-grocery anchored, very small food and service retail properties. And when I say very small, you know, $15 million properties give or take. They've got a Starbucks drive through on one end at Jersey Mike's on the other, a cupcake store, a Verizon wireless and a hairdresser. And there's tens of thousands of them across the United States. The one thing that's true about them is their internet resistance. They're not selling goods, they're selling food and service. And at least for the time being, the drones are not bringing your coffee to you from Starbucks. You need to go somewhere to get your haircut. And the apps you have on your phone is driving traffic to the Jersey Mike's and the Chipotles in these little centers. And so we started investing in these quite some time ago, and we raised dedicated funds to invest in these. And then they were doing great and we were buying them and driving double digit rental growth in the lease rollovers, acquiring them from small developers-owners. And we were able to bring institutional leasing to them. Then COVID happened. And while we developed a strategy to be internet resistant, we weren't quite sure about COVID. But we've now been through COVID and cash flows are above pre-COVID levels and out of eighteen hundred tenants, we had something like 15 of them go dark, give or take. And the strategies worked for us. So we see that as a very bright spot within a relatively dark landscape of retail investing.
Spencer Levy
And I guess different industries will be attracted to different pockets. I mean. Maybe stereotypical, but Austin, obviously, is a big tech hub, even though Dallas has got a Big Tech component and Houston is still a big oil and gas town, even though Dallas has a piece of oil and gas as well. I'm going to ask a futuristic question. We are both sitting at Javier’s in Dallas. My favorite Tex-Mex restaurant in the world, by the way. And we're talking about the last five years, what just happened in Dallas. So five years from now, we're sitting at Javier’s having a wonderful meal, what are we saying about what's changed in Dallas over the next five years? Michael?
Michael Levy
Well, first of all, I think the folks at Javier’s would be very upset that you called it Tex-Mex.
Chelby Sanders
I was thinking the same thing.
Spencer Levy
Oh God. I'm from New York. What do you call it, Michael?
Michael Levy
Well, it's Mexico City Mexican. It's not Tex-Mex. It's Mexico City Mexican
Spencer Levy
Oh, man. I just committed a party foul and I’m a food guy.
Michael Levy
I think that's the biggest faux pas of the podcast, Spencer. The biggest change: It's very difficult for me to see that this train that's taking place and this influx of people to this state and this influx of corporations to the city is going to be derailed. I think you're going to see continued growth north of here. I think you're going to see a continuation of this train. I was speaking to the folks who run the Dallas Chamber of Commerce recently, and they talked to me about the number of serious discussions they were in pre-COVID from corporations all around the country moving here to the number of conversations are having today, and it's up nearly 5x in terms of the serious discussions that they're having. And so I think you're going to continue to see this growth of the city more north than anywhere else – north and a little west because of that wonderful airport in the city of Fort Worth. But I don't think you'll see a demonstrable shift in the culture of the city and the pro-business, friendly nature of the city and the people moving here and appreciating that incredible daily grind that this city has to offer. The one thing I think you will see and you're seeing it now, is the cost of living in these central nodes is going up and this tremendous cost of living advantage that some of these central nodes like Dallas proper has enjoyed – that is beginning to diminish. And what that will do is drive people further up into these nodes north and west of here.
Spencer Levy
Before I go to you, Chelby, to get your point of view, I first want to apologize to the owners of Javier's and hope you will still let me there because I love your restaurant. Chelby, five years from now, we're sitting at Javier's. Looking back, what do we see?
Chelby Sanders
That's after I've eaten my steak Cantinflas because that's my favorite dish on the menu. Well, we're going to continue to see growth in various industries. And just last week, I was reading an article about – it’s related to the medical community and Michael, you commented on how strong our medical community is here with UT Southwestern and with the medical school – and what's happening is there is a life science and biotech that is now a real emerging growth area. And I think it's exciting because we don't have that much of that industry today and there's a large campus in Legacy that's vacant. That's over a million square feet. And I learned a few weeks ago that the owner investor is converting that and going to focus on life sciences. So I think it's interesting that we're beginning to see investors recognizing that and beginning to put some of the pieces in place in order to take advantage of that when it happens. And that's what's exciting. And if I think about Dallas, the one thought that came to mind when you said in five years and looking back, there's a lot of pioneers here. And people that like to, you know, they take risk, a calculated risk, but they're looking and trying to get ahead. And that's really what has helped make this city the place that it is today. And I know that we will look back and we will say, Gosh, do you remember where you were in March of 2020? And if you just look at how far we've come in this period of time and look at all the growth, despite the headwinds and the obstacles that we had, we're better today than we were.
Spencer Levy
So on behalf of The Weekly Take, I am thrilled to have had two of our friends, clients, colleagues Michael Levy, the CEO of Crow Holdings, joining us from his office in the Parkland complex in Dallas. Michael, thank you very much.
Michael Levy
Thanks for having me, Spencer. It's a pleasure. Chelby, it was nice to see you.
Spencer Levy
And Chelby, you were awesome. And our colleague, Executive Vice President Chelby Sanders from CBRE. Chelby, thank you so much.
Chelby Sanders
Spencer, thank you. It's been an honor. And Michael, great to spend some time with you again.
Spencer Levy
For more on Dallas and our show, please visit our website, CBRE.com/TheWeeklyTake. You can share the program as well as subscribe rate and review us wherever you listen. We'll be back next week with an episode devoted to International Women's Day featuring the CEO of CREW, the largest commercial real estate organization in the world. We'll have an in-depth discussion of women in the business and the impact of the pandemic. Thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.
Spencer Levy
I'm Spencer Levy, and this is The Weekly Take. In just over the past decade, more than 170 companies relocated to the place we're talking about on this show – a city that lassoed 21 corporate headquarters in 2021 alone. On this episode, we're deep in the heart of Texas real estate for a conversation about a model of modern economic and urban development: Dallas
Michael Levy
I describe Dallas or the DFW Metroplex as a megalopolis.
Spencer Levy
That's Michael Levy – no relation, by the way, even though that is my father's name – but this Michael is the chief executive officer of Crow Holdings, a privately-owned, Dallas based real estate investment and development company. He's a transplanted investment banker from New York who made the move to Dallas in 2016 to lead a firm that currently has a portfolio of more than $24 billion of assets under management.
Chelby Sanders
What we hear over and over again is Dallas is just a great place to do business in general,
Spencer Levy
And that's Chelby Sanders, a CBRE executive vice president in our Dallas office and a native of the Lone Star State. Chelby is a leader in our Transaction Advisory Services Group specializing in office occupancy needs and workplace strategy for tenants in the Dallas area and from across the country. We'll cover all the so-called Dallas Metroplex has to offer in terms of business and lifestyle. We’ll learn about its web of neighborhoods – or nodes, as our guests call them – as well as the adjoining cities that have made this such a popular destination. We'll talk about everything from the infrastructure to incentives that are drawing folks into the state, and I'll get an important lesson in the proper way to talk about some of the finest local food, too. Don't mess with Texas. Coming up, Dallas and its evolving Metroplex. That's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take. And we're here to talk about Dallas as a real estate market. So Chelby, let's talk about the DFW Metroplex. What makes the Dallas Fort Worth area attractive to your tenants?
Chelby Sanders
What we hear over and over again is Dallas is just a great place to do business in general. So the business climate. But beyond the business climate, there are some fundamentals that really make Dallas a great place. The central location – we have DFW airport that gives the access to East and West Coast. Also have just a favorable tax climate here and tax base – no state income tax, no personal income tax. And we also have a strong labor market, in addition to just a strong education system. And on average, we have around fifty thousand students locally in the region that are being educated – and throughout Texas and the adjacent states around 300,000. And predominantly those are all coming here to do business and to work well.
Spencer Levy
And when you say here, dig into what here is. So, Michael, Dallas, like all the other great cities of America, and probably the world is a constantly evolving place. It's not just CBD. It's a lot of other places. Talk to us just a little bit more about what here is and what's attractive today.
Michael Levy
I describe Dallas or the DFW Metroplex as a megalopolis. There's a lot of land in every direction, and that's allowed the city writ large to grow up in a series of nodes. It's not one central location. It's about eight million people give or take in the Metroplex, and they're not all coming to downtown, uptown Dallas. These other small cities have developed over time, starting with Fort Worth. But whether it's Arlington or Richardson or Frisco or Plano or Dallas proper or one of a half a dozen other nodes, the Metroplex of Dallas is continuing to grow and that allows people to have quality of life. The traffic that's here is pretty limited in the scheme of things. You know, you have cities like New York or cities like Chicago, or even cities like Atlanta, where everybody's coming to one central place and then roads the quality of life. In Dallas, the quality of life is maintained because of all these additional nodes, and I think that bodes well for its continued growth over the coming decades.
Chelby Sanders
I agree. And what I would say to add to your comment, Michael, we were relocating a large financial institution that was in the Bay Area. And when we were starting on their project, they asked us to look at the housing prices in their markets because they felt like that their employees would have an opportunity to sell in that market and reinvest here and have the ability to build wealth in their homes, like many of them had the opportunity to do previously in California. And so the quality of life and just the cost of living is just a tremendous value.
Spencer Levy
Michael, one of the things that makes Dallas great is its ease of doing business, its ease of building. Is that a positive or negative?
Michael Levy
Well, as I said earlier, there's a lot of land in every direction, but the same reality is there are some markets that matter. One of the things I was going to say is all of this growth is driving up the cost of living here because not all land is equal. And people want to live relatively close to where they work. On the one hand, you would say that the availability of supply in each direction would limit the opportunity. Nonetheless, to submarkets matter, and they matter a lot. And so there are terrific opportunities from a development perspective throughout the Metroplex. And then the conversation goes very detailed because the submarkets become very important to that discussion. And those submarkets matter whether you're talking about industrial or you're talking about multifamily or you’re talking about office. The city of Dallas, if you really look at it, there are two main highways that run north south. One is the Dallas North Tollway at one Route 75. And really, the heart of Dallas is inside of the V formed by those two highways. Outside of the bay versus inside of the V makes a big difference in terms of the relative submarkets, for the most part. And that creates opportunity
Spencer Levy
Since you brought up multifamily, because there's so much cheap housing or relatively inexpensive single-family homes in the area. Does that make it more challenging to build multifamily in the Dallas Metroplex, or is there still a great opportunity?
Michael Levy
Again, it comes down to people want to live close to where they work. The real force at work in Dallas is demand. Just the sheer volume, the nominal growth of people in this marketplace and that sheer volume of demand. If we were in a market where we didn't have quite that demand, those concerns that you're highlighting would be more prevalent. But the reality is people are coming here in droves. You can look at all the data, all the statistics. And they want to live in certain school districts where they're going to raise their kids, or they want to live in certain submarkets. And so there's plenty of multifamily opportunity in the city because the sheer volume of growth that's taking place.
Spencer Levy
So Chelby, let's be a little bit more specific. What are some of the attractives of some neighborhoods versus others?
Chelby Sander
That's a great question, and I would say it depends. We look at the DFW market as a whole when someone is coming in so that we can identify the best location for them based upon their goals and objectives. Many times what we're finding companies coming in and they want to have a campus type of an experience. And if it's a campus that they want, then we look in the suburbs. Contrast that to someone that may want an urban location, then we really go in and we look into urban locations. And to what Michael said, it really comes down to location, location, location. And being very specific and thoughtful about what can be achieved in each site. And doing all your due diligence and understanding around the adjacencies and how each of those sites are going to contribute to the goals of the company.
Spencer Levy
Well, Michael, Chelby suggested that it's either a campus or it's urban. But in fact, your campus, the Parkland campus is both. It’s urban and it's a campus And it’s expanding. Tell us about the Parkland campus and your plans for expansion.
Michael Levy
Sure, so we are located in an area called Oaklawn, which is a couple of miles north of downtown Dallas, right near the urban core, but a little apart from this area called uptown. And 15 years ago, this part of town wasn't such a great part of town, and there was a hospital that was built here in 1913 called Parkland, the original Parkland hospital. It was a beautiful building and it was in derelict condition. And so fundamentally, we took this beautiful building and developed a half-a-million-square-foot, 11-building campus, low slung three to seven storey buildings and developed a tenancy that was principal investors and so family offices and foundations and private equity firms and asset management firms. And we created a network in this beautiful office campus that's part office, campus, part museum. What we're seeing now, and Chelby commented on it before, the mass influx of corporate relocations, which has accelerated demonstrably during the COVID period, is bringing primarily from California to some extent from Illinois, to a lesser extent from New York, but bringing a range of principal investors into this community. And in response to that we're unable to provide space for a tenancy that mirrors the folks that are here on campus today. And so we're in the process now of expanding the campus and we’ll break ground in the coming months on a quarter million square-foot expansion of the campus in the same format and the same tenancy and the same live work play amenities that we provide today.
Chelby Sanders
You know, Spencer, here's what I'll say when I said urban versus suburban – exactly what Michael's saying we are seeing in the uptown area and around Field Street and around the West End. In those larger sites, whether they're 35, 40 acres or something like that, they give the ability for a mid-rise office that you would have in a suburban market not generally in the core, but it gives them the ability to create more of a campus type feel. They no longer are really wanting a million square foot tower. They want something that there can be a sense of community, and within that community it's more than just office. It's the green space. It’s the hospitality component. It's having, in many cases, the residential. All of it combined is really what companies are looking for today.
Michael Levy
Also, it really depends on the company and its workforce. If you go north of uptown Dallas areas like Frisco and Plain on Richardson, I wasn't here at the time Chelby was but 15, 20, 25 years ago, these were farms and grasslands, and there weren't buildings there. And today these are huge, multimillion square foot markets. And so if you have a workforce that wants to be able to live within 20 minutes of its office, be able to buy quality homes for, let's say, you know, four hundred, five hundred thousand dollars. Your office rents, you're looking for office rents more in the $30 square foot range, give or take. Those markets are fabulous for families with new schools and new communities and new infrastructure. If that's not your workforce and you want to be closer to downtown-uptown Dallas, you're talking about housing costs in an area of the park cities. That's probably $2 to $5 million in Preston Hollow. That's similar in Lakewood, and you're going to have higher rents and to be closer to the urban node. And so it really depends upon your workforce and it depends upon what you're looking for in terms of the lifestyle. And so not all of Dallas is the same. But it is growing north. There is no doubt that we spend a lot of time talking about downtown Dallas and the resurrection of downtown Dallas. But the vast bulk of growth in this marketplace is north.
Chelby Sanders
Something else I'll say about the Metroplex is because we do have the nodes, you have options. So there's multiple types of product, depending on what you're looking for. You can have expansive land around your campus with lots of trees if that's what you want. Or you can have more of an urban. That's really the benefit. The other thing I would say is I'm from East Texas, not from Dallas proper. I've been here around 25 years. And what I observed in coming to Dallas with really not having much of a network is just the fundamental fiber of the community. It's just that everyone here truly wants you to succeed. That's what I've experienced. And in the business community, people reach out without any expectation or without any agenda and truly want to help you and say, How can I help you? Who do you need to know? Can I open some doors for you? And that's what I believe really sets this city apart. I've talked to other people that have relocated here, and they comment on how nice people really are and that people generally don't want to help without some sort of an agenda in many other cities around the U.S.
Michael Levy
It's really important, you know, Chelby started us off with a variety of factors that are attractive, including a business friendly culture. But you need to understand the culture of Dallas. Dallas was effectively formed in the 1870s, early 1870s, by two railroads crossing. There was less than three thousand people here in 1870. So it's exploded in growth over that period of time by inviting people in. It was billed as the city of Commerce, based upon two railroads crossing. And that ethos and that spirit still exists today. And that's what's attractive to the city more than anything else.
Spencer Levy
So, Michael, let's go back to that New York guy in Dallas today. What is the single biggest surprise you had moving from New York to Dallas?
Michael Levy
The daily grind is so easy here. I mean, you are – if you choose to be, you're in 20 minutes of anything that you want. This megalopolis, the way this city is, is designed and all of these different nodes really enhances your quality of life. I lived in a beautiful place on Long Island. I commuted into Manhattan every day. It took me an hour and a half each way, all end to go door to door. Today, I'm within 20 minutes of anything that I want. And most everybody I know is within 20 minutes of their entire lives, and that makes a huge difference if 80 percent of your life is in the daily grind. The daily grind in Dallas is fabulous. And that was the biggest surprise.
Chelby Sanders
Can I say one other thing that is true to that? As a working mom – so I have two daughters that are both now in college. And what that allowed me to do because of the ability to move around quickly was the ability to quietly exit at an appointment and discreetly go and take care of something that I needed to with my daughter and I could be back at the office and never missed a beat. You wouldn't be able to do that in New York City. You just wouldn't be able to. And so I think that it put me in a place to succeed so that I didn't have to compromise and I could have a career and I could also have a family.
Spencer Levy
That's awesome, Chelby. So let's now expand the circle just a little bit. We're going to first expand it not that far down the road to Fort Worth, where my in-laws still live, and then we're going to expand to some other cities in Texas. So once you go to north of Dallas, I mean, you could have a 20-30 minute commute to downtown. Fort Worth is only 35 minutes, 40 minutes to downtown Dallas. So why not Fort Worth or why Fort Worth? Michael, you have a point of view.
Michael Levy
Well, I think 30 minutes in traffic can be 50 minutes. 50 minutes is a long time down here. There's also very different cultures in Fort Worth and Dallas. These cities have grown up a little differently from one another. Fort Worth were the old stockyards. Dallas was formed by the railroads. And so there's a historical culture here. But the city's growing north, like most American cities, they grow north for the most part. But again, 50 minutes is there's really very little reason that one should have to commute 50 minutes living and working in Dallas, Texas.
Chelby Sanders
We have actually relocated a company and put them in Fort Worth. But there were reasons and anchors in Fort Worth in Tarrant County that they went there. If a company comes here and there isn't an anchor or anything drawing them west, they really want to be in the heart, I'll call it, of the activity. And we've got several hearts, I would say, beating hearts with the nodes. And if you look at West Plano and Legacy, Frisco, that's now, you know, a submarket together. And J.C. Penney started all that when they sold off their land and allowed the Legacy West to develop it. And that was on the heels of what EDS did when Ross Perot allowed the shops that legacy to be developed. And that really created a place where companies could come together. We saw Toyota relocate their headquarters there. We have Liberty Mutual. What I say is there's a catalyst that happens. And then once the catalyst happens, then there's momentum. And there's just been so much momentum in that far north Dallas market. And it used to be called – along the North Tollway – it was called the Platinum Corridor years ago, and everything was developing along the Platinum Corridor. And now that name is still true. It just continues to go north and everything continues just to develop around the tollway. And I believe it's because of the transportation and just the proximity and access it provides.
Spencer Levy
When you take a look at the pie chart of the different industries within Dallas, there's no one that really dominates. I think the old TV show used to say, Oh, it's an oil town. It's really not an oil town. There are so many other businesses there. But when you look at the other cities in Texas, you do see a different type of identity, sometimes around tech in Austin – and maybe it is oil and gas in Houston. So Michael, if you were to define Dallas’s identity by industry, could you do it?
Michael Levy
I wouldn't. It's a business and commerce oriented city, sure. Are there deposits of oil and gas or are there deposits of real estate? Sure. But there's an incredible health care medical infrastructure in this city. And there's a huge tech corridor in this city. And there's a tremendous educational infrastructure in the city. And there are insurance companies and finance companies, and folks like Goldman Sachs have just announced a big relocation of thousands of people here. So it's a highly diversified economy, which, as you said, is somewhat different than in Austin or Houston.
Chelby Sanders
And if you go back – I like to study and ask, why is something the way that it is today? And I went back in just doing some research over history, and there was a deliberateness of which the past leaders of this city really were thoughtful about recruiting and growing certain areas of the market to develop industries. And it was that thoughtfulness that leads us to the diversification that we have today, which we're grateful for because we're not as vulnerable.
Michael Levy
I wouldn't understate the importance of this incredible airport, this DFW airport, which is equal to the size of Manhattan island, sitting just north of both Dallas and Fort Worth out there. That has made getting in and out of this place and getting around the country and getting around the world extremely easy. That airport – anybody who's been there – getting to your plane, you can literally pull up 40 minutes before your plane is ready to take off and you can park your car and get through security and get to your plane. It's become a major hub for industrial logistics throughout the United States, coupled with the fact that Dallas is in the center of the country more close to center than it is towards the south, providing highway infrastructure throughout the country. But that airport is a huge boon to the growth and success of the city. And the city's founders back in the 1950s and 60s, who got together and developed this out had great foresight.
Spencer Levy
Let's touch on this infrastructure question. Not to be negative, but there was a high profile incident a year ago when you had an ice storm in Texas and it knocked everything out or almost everything out. So my question is, is infrastructure going to be holding Texas generally, and Dallas specifically, back? Or you think there may be some changes that are in the works? Chelby do have a point of view?
Chelby Sanders
Obviously, it revealed a weakness that we had. And what generally happens is when you know there's a weakness, you realize there's a problem to be solved. There have been significant changes within ERCOT's board, and they know that with the growth of this city and regions having that, we have to have the infrastructure to continue to support the growth. And there's a lot going on within the energy sector encouraging investments to help support our infrastructure in power.
Spencer Levy
Well, speaking of infrastructure and power, they all come together in a sub asset class called data centers, where Dallas actually was one of the founding areas for data centers. I remember one of the first deals I ever did was on a building called InfoMart, which is right there on the highway. When you pass, it looks like the Crystal Palace in London. But data centers require a lot of power and they are considered a form of infrastructure by some. So, Michael, let's talk about infrastructure generally and then specifically in the context of data centers, potentially, in Dallas. What's your point of view?
Michael Levy
Well, the infrastructure question, the value of the grid last year was both expensive and embarrassing, but I think it's largely a footnote in the overall picture of Texas's infrastructure investments to date and leading into the future. It's not a perfect infrastructure. Take the highway from Dallas down to Houston, and anybody will see it's in a constant state of repair or disrepair. But the scale of growth in these cities and the roads being built to accommodate them and the infrastructure is really unparalleled across the country. And I think the state and the politicians here are very focused on continuing to invest in the infrastructure going forward. And you also look at other areas such as we're a leader not only in hydrocarbons and oil and gas, but in renewables such as wind and solar. And so I think the state is very well poised to continue to develop out its infrastructure. Data centers in particular, as you perhaps know this, the InfoMart – Crow built the InfoMart back in the day. It was used as a trademark, etc. It happened to be sitting over some of the most robust land in the country with respect to power and connectivity. And it's today one of the largest data centers in the United States. And so data centers and as we move towards the Internet of Things, as we move towards autonomous vehicles clearly, the need and the computing needs that we're going to have is continue to grow. And perhaps one day satellites will displace terrestrial data centers. But I think for the rest of my professional career, that asset class will continue to grow. And real estate investors will want exposure to that sector as much as they want exposure across many specialty areas of real estate, whether it's cell towers or life science or self-storage or single family rental. These specialty real estate sectors are here to stay. They represent about half the public REIT market. If you add them all up, they're about equal in size to one of the four food groups within real estate. And I think they're part of the fabric of the investable landscape going forward.
Spencer Levy
I want to stick on the investment case for a moment. Michael, let's just talk about risk adjusted returns for just a moment and looking at retail, where does it sit in your mind? Is now the time? And the next question will be about office itself – when does that come back? So retail and office.
Michael Levy
Not all retail is created equal. Our company is very tilted towards industrial and multifamily. It represents the vast majority of our investing and development activity for quite some time now, and we've benefited from the secular trends underneath these sectors that I think a lot of people could see coming, and we benefited from that. Equally, the internet and other forces have taken a toll on retail. And so you have to scratch your head a little bit and say within that is the baby being thrown out with the bathwater? And are there opportunities within retail that others are overlooking because it's called retail? And so we made a decision five or six years ago to focus on these non-grocery anchored, very small food and service retail properties. And when I say very small, you know, $15 million properties give or take. They've got a Starbucks drive through on one end at Jersey Mike's on the other, a cupcake store, a Verizon wireless and a hairdresser. And there's tens of thousands of them across the United States. The one thing that's true about them is their internet resistance. They're not selling goods, they're selling food and service. And at least for the time being, the drones are not bringing your coffee to you from Starbucks. You need to go somewhere to get your haircut. And the apps you have on your phone is driving traffic to the Jersey Mike's and the Chipotles in these little centers. And so we started investing in these quite some time ago, and we raised dedicated funds to invest in these. And then they were doing great and we were buying them and driving double digit rental growth in the lease rollovers, acquiring them from small developers-owners. And we were able to bring institutional leasing to them. Then COVID happened. And while we developed a strategy to be internet resistant, we weren't quite sure about COVID. But we've now been through COVID and cash flows are above pre-COVID levels and out of eighteen hundred tenants, we had something like 15 of them go dark, give or take. And the strategies worked for us. So we see that as a very bright spot within a relatively dark landscape of retail investing.
Spencer Levy
And I guess different industries will be attracted to different pockets. I mean. Maybe stereotypical, but Austin, obviously, is a big tech hub, even though Dallas has got a Big Tech component and Houston is still a big oil and gas town, even though Dallas has a piece of oil and gas as well. I'm going to ask a futuristic question. We are both sitting at Javier’s in Dallas. My favorite Tex-Mex restaurant in the world, by the way. And we're talking about the last five years, what just happened in Dallas. So five years from now, we're sitting at Javier’s having a wonderful meal, what are we saying about what's changed in Dallas over the next five years? Michael?
Michael Levy
Well, first of all, I think the folks at Javier’s would be very upset that you called it Tex-Mex.
Chelby Sanders
I was thinking the same thing.
Spencer Levy
Oh God. I'm from New York. What do you call it, Michael?
Michael Levy
Well, it's Mexico City Mexican. It's not Tex-Mex. It's Mexico City Mexican
Spencer Levy
Oh, man. I just committed a party foul and I’m a food guy.
Michael Levy
I think that's the biggest faux pas of the podcast, Spencer. The biggest change: It's very difficult for me to see that this train that's taking place and this influx of people to this state and this influx of corporations to the city is going to be derailed. I think you're going to see continued growth north of here. I think you're going to see a continuation of this train. I was speaking to the folks who run the Dallas Chamber of Commerce recently, and they talked to me about the number of serious discussions they were in pre-COVID from corporations all around the country moving here to the number of conversations are having today, and it's up nearly 5x in terms of the serious discussions that they're having. And so I think you're going to continue to see this growth of the city more north than anywhere else – north and a little west because of that wonderful airport in the city of Fort Worth. But I don't think you'll see a demonstrable shift in the culture of the city and the pro-business, friendly nature of the city and the people moving here and appreciating that incredible daily grind that this city has to offer. The one thing I think you will see and you're seeing it now, is the cost of living in these central nodes is going up and this tremendous cost of living advantage that some of these central nodes like Dallas proper has enjoyed – that is beginning to diminish. And what that will do is drive people further up into these nodes north and west of here.
Spencer Levy
Before I go to you, Chelby, to get your point of view, I first want to apologize to the owners of Javier's and hope you will still let me there because I love your restaurant. Chelby, five years from now, we're sitting at Javier's. Looking back, what do we see?
Chelby Sanders
That's after I've eaten my steak Cantinflas because that's my favorite dish on the menu. Well, we're going to continue to see growth in various industries. And just last week, I was reading an article about – it’s related to the medical community and Michael, you commented on how strong our medical community is here with UT Southwestern and with the medical school – and what's happening is there is a life science and biotech that is now a real emerging growth area. And I think it's exciting because we don't have that much of that industry today and there's a large campus in Legacy that's vacant. That's over a million square feet. And I learned a few weeks ago that the owner investor is converting that and going to focus on life sciences. So I think it's interesting that we're beginning to see investors recognizing that and beginning to put some of the pieces in place in order to take advantage of that when it happens. And that's what's exciting. And if I think about Dallas, the one thought that came to mind when you said in five years and looking back, there's a lot of pioneers here. And people that like to, you know, they take risk, a calculated risk, but they're looking and trying to get ahead. And that's really what has helped make this city the place that it is today. And I know that we will look back and we will say, Gosh, do you remember where you were in March of 2020? And if you just look at how far we've come in this period of time and look at all the growth, despite the headwinds and the obstacles that we had, we're better today than we were.
Spencer Levy
So on behalf of The Weekly Take, I am thrilled to have had two of our friends, clients, colleagues Michael Levy, the CEO of Crow Holdings, joining us from his office in the Parkland complex in Dallas. Michael, thank you very much.
Michael Levy
Thanks for having me, Spencer. It's a pleasure. Chelby, it was nice to see you.
Spencer Levy
And Chelby, you were awesome. And our colleague, Executive Vice President Chelby Sanders from CBRE. Chelby, thank you so much.
Chelby Sanders
Spencer, thank you. It's been an honor. And Michael, great to spend some time with you again.
Spencer Levy
For more on Dallas and our show, please visit our website, CBRE.com/TheWeeklyTake. You can share the program as well as subscribe rate and review us wherever you listen. We'll be back next week with an episode devoted to International Women's Day featuring the CEO of CREW, the largest commercial real estate organization in the world. We'll have an in-depth discussion of women in the business and the impact of the pandemic. Thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.
Guests
Michael Levy
CEO, Crow Holdings
Michael Levy is the CEO of Crow Holdings, a Dallas-based investment and development firm, where he is responsible for leading and overseeing the company’s overall business activities. Mr. Levy has a longstanding career in real estate finance and investments, including time as the Chief Operating Officer of Morgan Stanley. Crow Holdings has more than $24 billion in assets under management across the U.S.
Host
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Spencer Levy
Global Client Strategist & Senior Economic Advisor, CBRE
Spencer Levy is Global Client Strategist and Senior Economic Advisor for CBRE, the largest commercial real estate services firm in the world. In this role, he focuses on client engagement and public-facing activities, including thought leadership work performed in conjunction with CBRE Research. He also serves as Co-Chair of the Real Estate Roundtable’s Research Committee.