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DALLAS-Recognizing there are roadblocks still to clear, Valencia Capital Management has mapped out an $800-million-plus plan to scrape 82 acres in a blighted district and reseed it with 1.2 million sf of office and medical office space, 500,000 sf of retail and up to 3,800 residential units.

If the plan’s not derailed, demolition could begin in first quarter 2007, allowing new development to be ready to rise in the second quarter, says Michael J. Romo, a Valencia partner, the featured speaker at a monthly networking meeting that drew nearly 100 dealmakers to hear what he had to say. Since June 2005, Valencia, armed with bridge equity from Dallas-based Hunt Realty Corp., has acquired 2,295 apartments in seven properties–nearly all distressed or in foreclosure–and has two more, totaling 259 units, under contract on the northern edge of Vickery Meadow, 3.5 square miles of mostly downtrodden inner city blocks with 14,000 rental units and 2,300 condos.

Valencia plans to encircle the 866-bed Presbyterian Hospital campus at 8200 Walnut Hill Lane with mixed-use space patterned after high-end developments like State Thomas, Addison Circle or Legacy Town Center, but with an affordable housing component. “To have a successful neighborhood, you need all price points,” Romo tells GlobeSt.com. “The mix has to meet the market.”

But, the massive undertaking has stirred controversy over Valencia’s bid to get $10 million from a proposed $1.28-billion bond package to help fund infrastructure costs. Dallas City Council is slated to vote Aug. 9 on the bond package so it can go before voters in November. Valencia is seeking the public funding to upgrade water and sewer lines and alter streets to improve traffic flow. “Presbyterian Hospital stands to benefit dramatically from this,” Romo says. “This is not lining our pockets.”

To date, Valencia has gotten 72 acres rezoned–with community support–to allow mixed-use development. The real estate investment manager intends to seek a change for another 10 acres if the Aug. 9 vote goes in its favor.

“If we get zero public financing, the project as it’s proposed won’t occur,” Romo told the DFW Apartment and Investment Brokers Network. “A different kind of project would evolve. We have always retained the option to sell it. The class C apartment market is very vibrant.”

The Valencia development, with the hospital as its anchor, is one of three planned for the outer edges of the Vickery Meadow Improvement District. Dallas-based Trammell Crow Co. is in the preliminary stages to replace a 42-acre multifamily development with retail and local developer Harvest Partners’ $400-million Park Lane Place project along Central Expressway has been integrated into the district to help beef up the tax base. Park Lane Place’s first phase, which broke ground in recent months, calls for 700,000 sf of retail, 315 rental units and 50 condos, 201-room hotel and 65,000-sf health club.

“It will help, but it won’t be the total catalyst,” Wayne Slaughter, executive director of the Vickery Meadow Improvement District, tells GlobeSt.com about the plans from Valencia, TCC and Harvest Partners. “Nobody is coming forward for the heart of our district, which is where the majority of our properties are and the majority of our residents reside.”

Slaughter says the district has gotten a $50,000 grant from the Real Estate Council to develop a comprehensive plan. Architect James Hardwick & Partners, which offices in Vickery Meadow, has been hired to develop the plan, which Slaughter says might be ready for its first unveiling in six months.

Slaughter says pricing of residential units is a concern regardless of who the developer is. However, an affordable component will be required for every project. “If anything, we’ll be upgrading our affordable housing to a better stock of housing,” he says.

Aside from Presbyterian Hospital construction, Slaughter says it’s been roughly eight years since there’s been any new development in Vickery Meadow. Despite the overriding need, Slaughter says the non-profit organization supported Valencia’s rezoning, but is going to stay true to its past and not take a stand on the financial issue.

“The objective here is to transform the neighborhood not to build apartment projects so that we’re not at the same place in 25 years,” Romo stresses. “This is a one-time opportunity for the land assembly. You’re not going to get this opportunity ever again. If we can’t get there, the City of Dallas is going to miss a tremendous opportunity.”

If the bond package is approved, Romo says Valencia will then decide if it’s going to solo, joint venture or sell tracts to developers. “We have the luxury of deciding what we want to do,” he says. “I’m not concerned whether we build every single building.”

Meanwhile, the Valencia team is in the process of creating design guidelines for the as-yet unnamed development. To produce what’s on paper will take seven years to complete.

Tim K. Kaiser, another Valencia partner, says a high percentage of the replacement housing will be for-sale product with open space for parks and hike and bike trails. “That creates a sustainable community,” he emphasized to the crowd at the monthly event in North Dallas, which is co-sponsored by La Jolla Bank and Fidelity National Title Agency Inc.

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