The Next Little Thing Neighborhood-sized retail may be the silver lining in a struggling economy

The Advocate Magazine
by Jeff Siegel

The question facing Mark Robertson, the principal of PRG Realty, was not whether to redevelop the northwest corner of Hillcrest and Northwest Highway . The question was why it hadn’t been done years before.

“What was most compelling is that this was the finest never-developed site in North Texas,” says Robertson, whose company built the three-story office and retail Hillcrest Crossing on land that had been home to a couple of restaurants. “This is a neighborhood that is receptive and mindful to this kind of upscale development.”

Which is about the sort of thing you’d expect a developer to say about our neighborhood. But what’s different this time — and what may be even more different in the future — is the kind of development and its scale.

What will almost certainly change over the next decade is the way retail development is done in Preston Hollow. Projects will become smaller, more neighborhood-focused, and more dense, part of a trend called “New Urbanism”. In addition, the recession and several trends in retailing, including a drop in mall traffic, will affect what happens here.

“You have to be mindful of what’s going on around you,” Robertson says. “This is a sophisticated neighborhood with an affluent demographic. The appeal has to be timeless.”

New Urbanism
Preston Hollow’s demographic advantages dovetail with the new development trend of New Urbanism. It’s a philosophy that emphasizes retail and residential development focusing on density in cities instead of sprawl in suburbs, and its projects are designed so people don’t need cars to use them.

Robert Bagwell, who developed West Village in Uptown, calls these projects “pedestrian villages”; urban planners call them “traditional neighborhood developments,” because they mimic the best features of older development from 40 and 50 years ago.

New Urbanism, says Tre Jordan, a research associate with the American Planning Association, requires older neighborhoods that are close to the city center, where the street system was laid out before cars were commonplace, and the buildings are best suited for re-developing up instead of out.

Sound familiar?

“There isn’t much future in [suburban-style] lifestyle centers,” says Ken Hughes, a longtime Dallas developer. “The baby boomers and the Gen Ys want something else, so development is going to be different, without a doubt.”

What they want instead, and what our neighborhood is situated to give them, is what Hughes calls an activity center.

Think of it Preston Royal for the 21st century — small but dense developments, a dozen acres instead of a hundred, and an environment that is walkable, without massive parking lots and the stores that need them (like the Walmart center on the other side of LBJ). The retail mix leans heavily toward casual restaurants and services like banks and dry cleaners, things people need to get through the day.

And since there is less empty land here, we’re going to see more redevelopment than development, says Chris Buehler, who represents Preston Hollow on the city plan commission. That’s tearing down older buildings to put up new ones, like Hillcrest Crossing. Through trial and error, the city has learned how to do this more effectively.

Back to the city
New Urbanism coincides with the trend that has seen high-demographic consumers moving back to in-town neighborhoods like ours because they’re tired of long commutes and suburban sprawl. Their need for gated communities has been replaced by the appeal of a corner restaurant, which is a 10-minute walk — and not a 30-minute drive — away.

This helps explain the city’s emphasis on what’s called “form-based zoning”, which reflects many of the tenets of New Urbanism. The City Council must still reach a compromise on the specifics, but few disagree with the principle behind it: That Dallas retail and residential development needs to be more like Manhattan and less like the intersection of the Tollway and Highway 121.

This, in fact, can be seen in a host of projects — most of which residents never would have dreamed of a decade ago:

• The Glen of Preston Hollow, a $300 million so-called urban village off Walnut Hill and Central Expressway. This 42-acre site will have multi-family housing, retail, offices, a hotel and a retirement community. Developers like retirement residences, in fact, because they give current residents a chance to stay in the neighborhood.

• University Crossing, owned by SMU near the Mockingbird DART station. Though not in our neighborhood, it’s an example of what developers are considering in urban, already developed areas. Plans call for a mixed-use development with dining, retail, and apartments.

• The Hillcrest Crossing development. Its tenants include Paradise Bakery, Luxury Day Spa, and Toni & Guy salon.

• Park Lane Place, on the other side of Central from NorthPark. It seems huge, but at 33.5 acres, it’s just the size of five city blocks and fits neatly into the New Urbanism guidelines with its density and mix of shopping, offices and residential. By comparison, the proposed Lake Highlands Town Center a couple of miles to the west is some 80 acres, and NorthPark is more than 100 acres.

Overcoming the economy
Yet, as wonderful as this all sounds, there are obstacles. The biggest is the recession.

Generally, says Thompson & Knight attorney Misty Willcox, if a developer hasn’t started construction yet, don’t expect to see construction any time soon.

Developers borrow money in two stages — for land and for construction. They may still be able to get land loans, though requirements have increased, but “it has to be a special, special project to get the interest of lenders and tenants,” Bagwell says. The one exception to this is apartment construction, which generates enough cash to meet the new lender requirements.

Says Robertson: “The suburbs are clearly taking a hit, because of the uncertainty of the moment. And if you’re starting new in this part of town, there is definitely a pause. There has been a lot of reconsideration and rehashing of portfolios by lenders and equity groups.”

In addition, the smaller, mom-and-pop retailers who should benefit from New Urbanism may not have the financial wherewithal to withstand the recession. These operations are traditionally undercapitalized and survive on cash flow. If the cash dries up, they won’t have money in the bank to pay their bills and might be forced out of business.

Which leads to a bigger, and potentially more divisive, issue. There aren’t a lot of mom-and-pop retailers left, especially in Dallas . Over the last 15 to 20 years, one goal for national retailers was aggressively eliminating small local and regional competition, says SMU professor Ed Fox, a leading authority on U.S. retailing.

Walmart came in, and the corner drug store left. Home Depot arrived, and the hardware store closed. That’s one reason why the definition of neighborhood retail has changed so much, from bookstores and drug stores to dry cleaners and restaurants.

This presents developers with a dilemma. If they build a center that’s too small for Target or a 75,000-square-foot grocery store, where are they going to find tenants? There are also potential challenges from technology, which has made the video store, long a staple of neighborhood retail, increasingly obsolete. It may do the same for something like Radio Shack. And then what will fill those spaces?

Finally, many people in neighborhoods like ours would rather see a local coffee shop than a Starbucks, which further complicates the developer’s job. This is one reason why academics and urban planners are more excited about the New Urbanism than most developers.

“The retailers are still going to be looking north, where they’re going to see growth rates,” Fox says. “I’m not trying to be negative, but you aren’t going to see a lot of new retail inside LBJ because the retailers don’t yet see any reason to be there. They might, but that’s a long time away.”

Hence the need for developers who are going to pay close attention to what neighborhoods like ours need and want. Hughes, in particular, has advocated this approach for years, and he’s disappointed that more developers don’t use it.

“The way of the world since World War II has been size,” he says. “That’s exactly the way it has always been, and the minute the economy comes back, then centers will move back up in size.”

Still, Robertson is more optimistic.

“I think what’s going on here now is the maturation of the market west of the Mississippi ,” he says.

“In the northeast, in world class cities, this has been going on for a long time. You see the need in a particular neighborhood demographic as we had, on an underutilized property, and you turn it into something better.”