News Article | 1/21/2010

Why Victory Park Was a Bust


It’s hard to think of ross perot jr. as just one of the guys.


Not when he’s standing beside a pair of icons—his father, the two-time presidential candidate, and computer magnate Michael Dell—and they’re celebrating the sale of Perot Systems to Dell for $3.9 billion.


And not when a family hedge fund, named after Park Central Drive in Dallas, loses $2.5 billion in assets, and the meltdown still doesn’t knock the Perots from the list of the world’s wealthiest people.


But when it comes to Victory Park, the development just north of downtown Dallas that’s anchored by the American Airlines Center, Perot Jr. is cast as simply one more victim of the global economy.


Another big-dreaming, big-talking real estate developer who got puffed-up with easy money, only to be popped by the recession.

At least that’s the unofficial story line from supporters, a generous explanation for Perot losing $275 million in equity and letting his investment partners take over the buildings at Victory.


Perot hasn’t talked publicly about what went wrong at Victory, and the official statements from his company, Hillwood, shed little light. It’s easy for his colleagues and others to blame the Great Recession, because the real estate wipeout hurt just about everyone everywhere.

But the economy alone didn’t make Victory go under. And Perot wasn’t merely swept up by events beyond his control.


Perot actually set the events in motion, at least at Victory Park. He embraced a strategy of bigger, faster, and pricier—and when Perot jumps into a market with gusto, others go all in, too.


His initial plan, unveiled almost a decade ago, mapped out 31 high-rise and mid-rise buildings, including eight for residential. Putting all this on 75 acres represented the kind of density that Dallas couldn’t absorb, even after the real estate bubble started to inflate in 2004.

When 9/11 forced everyone to rethink the way they did things, Perot didn’t scrap the Victory Park plan and start over. He simply substituted more residential for retail, more luxury stores for chains, and kept the pedal to the metal.


Perot’s Victory retreat last April had to be humiliating, a public loss of face that rivaled the financial hit. He had championed Victory locally and nationwide and, two years ago, USA Today touted Dallas’ urban revival, with Perot leading the charge. The story included a photo of Perot standing on the glass balcony outside the Ghost Bar at the W hotel.


Perot made his reputation and much of his fortune (as opposed to daddy’s) in more mundane ways: buying distressed land and building industrial parks. His Alliance project in north Fort Worth has become a national center for assembly and distribution, and a great job-generator for North Texas.


With Victory, Perot became an advocate for a much bolder, even sexier, vision. The role seems at odds with his strait-laced, military ways, but he embraced it.


“A U2 concert is fabulous,” Perot told The Wall Street Journal in late 2006, describing the mix he sought in Victory. “Kiss, not so good.” 

Perot once said that Victory Park would be Dallas’ version of Times Square, and New Year’s Eve celebrations have attracted strong local crowds. But that’s one night a year, and Dallas isn’t Manhattan. Development that may have worked on a smaller scale, at more modest price points, ended up overwhelming the marketplace.


From 2006 to 2008, Victory Park added almost 400 condos, 380 apartments, 250 hotel rooms, half a million square feet of office space, and more than 200,000 square feet of retail. Many Victory condos were listed at $500 a square foot, twice the going rate for residential space in Turtle Creek when the building boom started.


In three years, Victory completed the W hotel; the Victory Plaza and One Victory Park office buildings; the Vista and Cirque apartment centers; and a pair of condo properties known as the Terrace and The House by Starck and Yoo. This all followed the American Airlines Center, an 840,000-square-foot entertainment venue that was supposed to keep Victory rocking.


When cranes and construction crews were cranking out the buildings, Perot and Victory Park seemed to be a runaway success. He had converted a polluted rail yard and power plant into the epicenter of a downtown boom, driven by what he said would be a $3 billion project.

By the end of fiscal 2008, Victory had swelled the city’s tax base by more than half a billion dollars, and it had paid out $40 million to the tax-increment finance district that funded many of its improvements. And when the Mavericks made a run in the NBA playoffs, the images of the Dallas skyline and arena were a branding bonanza for the city and Victory Park.


In the process, Perot seemed to settle two long-running debates about economic development. He showed that a sports facility could become the catalyst for a massive mixed-use project, even in a blighted area. And he demonstrated that high-rise, high-dollar living could find a legitimate home along a Dallas interstate highway, hundreds of miles from the nearest oceanfront.


Today, those assumptions are open to challenge again. Victory Park and the nearby area feel half-empty and half-finished. When there’s no basketball or hockey, it can seem like a ghost town. One broker says you can scream, and no one will hear you.


No Critical Mass


Expensive restaurants and retail shops never had a chance. Many people talk about the fancy steakhouse, N9NE, that was banking on late-night diners being a staple of the business, only to discover that Dallasites wouldn’t venture to Victory that late. When the games ended, most fans went home.


For retail shops, the residential and office traffic never reached a critical mass, and the sports crowds weren’t a reliable source of revenue. Today’s sports facilities are designed to get every dollar that a fan is willing to part with, leaving precious little for nearby shopkeepers.

The Victory Park layout didn’t help. Retail is on only one side of the main entrance, because a giant Mandarin Oriental hotel was planned for the other. It was supposed to be 43 stories, with 120 rooms, 90 condos, and 75,000 square feet of luxury retail and 275,000 square feet of office.


Two months after Perot gave up at Victory, the Mandarin announced that it was walking away from Dallas, too. An executive said the city was “overdeveloped in luxury, both hotel and residential.”


Victory had announced two towers, which were supposed to add more than 1 million square feet of office and almost 100,000 square feet of retail. They’re on hold, although Perot continues to own the raw land.


Another company is marketing Victory Park now, and it’s dealing with an abundance of vacant condos and abandoned storefronts. It says that office occupancy is strong, but in downtown Dallas, the office vacancy rate topped 26 percent at the end of the third quarter.


One of Perot’s last buildings at Victory, The House by Starck and Yoo, had more than 90 percent of its condos unsold by late October. With a five-year supply of high-end condos and plenty of office space, it’s a safe bet the dirt won’t be flying for a while.


This isn’t all Perot’s fault, of course. As one builder says about bubble psychology, “If you can prove to a developer that there’s a great market for 1 million square feet of anything, then eight of us will build it.”


And there was no shortage of enablers, from local banks to foreign investors. It was a German real estate fund, US Treuhand, that partnered with Perot and took control of Victory in April.


Grand ideas are seductive and, with easy financing, Victory gave Perot a chance to think big and seize the moment. It’s happened before, with similar outcomes.


Twenty years ago, most of Dallas’ tallest buildings were bankrolled by big-name lenders, and they soon went under. More recently in Fort Worth, Pier 1 Imports and RadioShack built fancy headquarters on the Trinity River, only to sell them after their sales tanked.


The closest parallel to Victory may be Las Colinas in Irving, one of the country’s premier suburban office centers. It set a high standard and was a big success in attracting development and businesses, yet it almost failed in the late 1980s.


The Texas real estate market had crashed, and the founding Carpenter family was being squeezed by a $500 million debt load. Ben Carpenter had bought too much land and spent lavishly on infrastructure, including lakes, water canals, a planned rail line and curbs made from granite.


With lenders constantly threatening foreclosure, the Carpenters were bailed out by the Teachers Insurance and Annuity Association in New York. The debt was restructured, and Las Colinas soon resumed its growth. It remains a home for big-time corporate players, including Exxon Mobil.


When Teachers stepped in, the insurer said that Las Colinas would be a 25-year project, not a get-rich-quick investment. Two decades later gains are evident, but it still seems far from finished.


Don’t be surprised if Victory Park follows a similar trajectory.


Mitchell Schnurman is the business columnist for the Fort Worth Star-Telegram. He has been writing about business news in Dallas-Fort Worth since 1986, covering many of the region’s biggest stories. For the past four years, his column has been named the “Best in Business” by the Society of American Business Editors and Writers.