Cothrum: A Far North Dallas office building gets its reckoning

The Preston Plaza office building at 17950 Preston Road is a 10-story office building of nearly 260,000 square feet built in 1985 with strange triangle floor plates. This building has the same chance of making a comeback as parachute pants, which were also all the rage in 1985.

“The building always struggled for occupancy,” former Dallas Council Member Sandy Greyson told me.

Preston Plaza is on the tax rolls for the moment for $35 million. It creates almost a quarter million dollars of taxable income for the city annually. In my estimation, the entire value of the property is the land, 6.3 acres, and, most important, a parking garage of more than 1,000 spaces.

The tax revenue won’t last in its current situation: the building and the tax base are in decline. Preston Plaza is a microcosm of what is happening all over North Dallas.

This is, however, good real estate. Everyone knows the intersection of Preston and Frankford roads. Dallas must make the most of its good sites. Unfortunately, the office building and the demolition cost hurt the value. The biggest challenge for redevelopment is how long it will take to get the leased tenants out of the building or how expensive it would be to buy them out.

I visited recently to see how dire the situation had become. It was so quiet it makes downtown on a Friday afternoon look busy. You could shoot a zombie movie in it. That said, it’s well cared for and clean; it’s just functionally obsolete.

Occupancy in the building is down to 35%. When you get to this level, it doesn’t support improvements. It’s not shocking that it went back to the lender and went to auction this week.

Nick Kelley, a tenant in the building with Dallas Petroleum Group, speculated that the previous owner paid too much for the building. He hoped the next owner would be an office operator, but he was dubious. “I hope the building finds a good buyer who gives it some love.” A lovely wrecking ball most likely. I called the building’s broker for comment but did not receive a response.

Kelley also observed, “I thought it was a little silly that ownership was putting money into the garage.” Not silly at all. The owner was protecting the part of the property that has value and matters. That’s where things are for North Dallas offices.

Aging office space

Preston Plaza is not alone. Far North Dallas has too many office buildings. These were built during the heyday of North Dallas being the engine that drove the city. I talked to real estate professionals who all agreed that the office market has moved. Tenants either want to be in Preston Center or farther north into Plano or Frisco. There is a giant surplus of aging office space in Far North Dallas.

Greyson, who served eight terms as the council member for District 12 from 1997 to 2005 and from 2011 to 2019, said she’s not surprised at the building’s fate. When the building opened, she was a neighborhood activist who warned there were too many offices being built and believed there would be a glut. Turns out she was right. “Now we have a lot of empty buildings,” she told me.

I also warned there would be an office reckoning. It has taken longer than I thought, with building owners desperately struggling to hang on. Finally, it looks like the office pruning has started, and it is being aided by Senate Bill 840. No longer do you have to worry about the underlying zoning and local politics. You can just get ‘er done. This is why I believe the path of redevelopment of the site is apartments.

“You must have a reset of the basis of the value for it to make sense to redevelop these assets,” Zach Sams, executive vice president with Kensington Vanguard, told me. “We will see more buildings going back to lenders. The good news is that it gives the property a chance to respond to the market with something forward thinking.”

The zoning for the site is General Office, or GO. In my office, our joke is, “G-O is a no go.” Simply put, it’s terrible zoning because it allows only office. Good news, the new state law allows multifamily to be developed on commercially zoned properties like this without a zoning change. In this case, it means a developer could build a tower of up to 270 feet. The new state rules do not set a maximum for developed floor area.

“This site could get really dense,” said Kevin Wallace, principal at Vision+Architecture. “It’s already walkable and connected to retail sites in the area. It has far better walkability than most conversion or demolition projects I’ve examined.”

Wallace envisions one midrise building and the rest being wood-frame construction with 650 apartments.

It’s a bit of an irony that people do not want to office here, but that the same location is good for apartments. Wallace points out that the site is ideal for commuters.

“The Dallas North Tollway is Main Street North Texas,” Wallace observed. “One person might work up near the Galleria or in Frisco and the spouse in Preston Center.” The site is also close to the Bush Turnpike.

Things have really changed: North Dallas used to be a destination — now it’s where you leave from.

From local to state politics

Without the new state legislation, this project would have no chance to redevelop as multifamily. I had pitched the idea of saving the parking garage and building apartments to current City Council member Cara Mendelsohn late last year.

She is one of the few council members with a conservative orientation. I admire her concerns about fiscal responsibility, crime and homelessness. I’m less fond of her focus on not expanding the amount of multi-family in her district; however, I believe she represents the wishes of her constituents.

When I asked her about repositioning the asset to multi-family, she killed it immediately. I appreciated she didn’t drag out the process — something that happens all too often in Dallas. This project died on its second day.

My client was a prominent local developer who liked the site and the value associated with the garage (full disclosure: I am no longer in business with this client). Mendelsohn was having none of it. Greyson and Mendelsohn don’t agree on much, but they’ve been aligned to ensure zoning changes will not allow more apartments. It’s what Far North Dallas voters want. “I know neighbors don’t want more multifamily,” Greyson told me.

Greyson bemoaned the loss of local control. “Senate Bill 840 took the ground out from under us,” she said. “The Legislature took away our voice. Cities know best what their folks need.” The state, however, wants more residents, density and tax base, and local politics have stymied growth.

One of the things that people fail to realize is that Far North Dallas has a lot of apartments. I’m often frustrated when my firm works on zoning cases in South Dallas, and I hear that all the subsidized projects are in the North. Mendelsohn has reminded me on multiple occasions her district has the most of these units.

There is no chance this property would redevelop without SB 840. It would have languished on the market with a declining value. Now, the site gets a chance to participate in the free market. The market seems to want more apartments in the north. Dallas needs more density — not less — and more activity.