The Property Report in the Wall Street Journal this morning featured the $200 million Museum Tower, a Dallas condo project that is touted as the "Exception to the Slump" (sub. req’d). It is called an "exception" for a few reasons: (1) new condo construction in this economic environment is not the norm; (2) weakening appraisals for existing condo units show signs of continued distress; and (3) financing for a project of this magnitude is simply difficult.
As highlighted by reporters Nick Timiraos and Kris Hudson, it is this last point that makes the Museum Tower deal intriguing: "The $200 million project, located in a prime parcel in an up-and-coming arts district, is being financed entirely by the Dallas Police & Fire Pension System." (my emphasis added). Say that again … it is being financed entirely by a local pension system!
The original developers struggled for months to find conventional financing. But as most other developers have learned over the past couple of years, traditional financing methods are simply not available. According to Richard Tettamant, the pension fund administrator in this case, the timing was "perfect … to pull the trigger." Tettamant credited the low interest rates and low construction costs as chief factors in the decision to invest in the project.
This project financing deal highlights that alternatives do exist to traditional financing. Others may include: public financing, such as funding through the Federal stimulus package; private investment and syndication packages; public incentive programs, such as local tax increment packages; and public private partnerships (known as PPPs). Like most other real estate and construction projects, timing becomes the driving factor.
Image: Museum Tower Dallas