COVER STORY, MARCH 2010

ARCHITECTURE ROUNDUP
Designers talk shop about the future of architecture in Texas.
By Jon Ross

The Heights at Park Lane in Dallas.

Recently, Texas Real Estate Business sat down with three architects active throughout the state to talk about the current market and the impact of the economic downturn on development. While all parties sounded upbeat about the future of the industry, they all acknowledged that some hard times may still be ahead. The participants included Don Powell, a principal at BOKA Powell’s Dallas office, Joel Efrussy of Dallas-based Gromatzky Dupree & Associates and Scott Wilkinson of Kirksey Architecture in Houston.

TREB: How has the recession impacted commercial real estate architecture?

Don Powell: There’s no debt or equity available at realistic terms for developers to borrow to go out to build, so the source of funding has been the biggest change. With that said, we are doing a $500 million project in downtown Dallas that was financed through tax-exempt municipal bonds the state of Dallas sold within 2 days at about 4.67 percent interest, which allowed that project to go forward. Those bonds were sold back in July of last year. We’re already fast tracking that project, which is well under way on construction.

Scott Wilkinson: The recession has put commercial real estate architecture in a holding pattern. Major new opportunities have been at a standstill since late 2007, when major lenders stopped lending money to real estate developers.

TREB: Has the recession curtailed the amount of architecture work clients are willing to request?

Powell: The economy has allowed us much more freedom because of the ability to purchase materials and labor at a much reduced cost due to scarcity of work. A lot of our suppliers and subcontractors have continued to re-price to stay competitive against other subcontractors, and we’ve enjoyed significant savings. This has been a great time to build. For those projects that have funding in place, we’re seeing somewhere between 20 to 25 percent lower costs than we would have anticipated 18 months to 2 years ago.

Joel Efrussy: In the current economy, we see developers with more modest budgets and, in some cases, a more modest vision for their project.

TREB: How did you keep busy last year at a time when not much development was getting off the ground?

Wilkinson: I think it was a combination of finishing major projects that started in 2007 and early 2008, competing for a decreasing amount of work, doing smaller projects and working on institutional projects.

Efrussy: 2009 found us focusing on strengthening relationships with existing clients — assisting them in  navigating the ever-changing economic realities. We have also started focusing on breaking into new market sectors, particularly publicly funded project types, such as medical, government and higher education.

TREB: What signs have you seen that business might be turning around?

Efrussy: We have seen an increased volume of calls from developers requesting proposals, at least for initial feasibility studies. We have also seen a small number of projects that were on hold begin to slowly start up again, as developers begin to take advantage of decreased material and labor costs, as well as finding some opportunities in distressed assets and lower land costs.

Powell: We think there’s pent up demand for a new medical structure both for hospitals and for ambulatory surgical centers and medical office related to those facilities. Adaptive re-use is one of those areas where we’re seeing HUD housing coming in and financing conversions of old lofts or warehouses to residential properties. We still think there’s some potential in that market.

TREB: Talk about some design trends currently seen in the Texas market.

Powell: Integrated project delivery and design-build arrangements between architects, contractors and owners have become much more common. Integrated project delivery brings subcontractors into the beginning of the design process when systems are all being purchased, so that we’re detailing the building given exact information from the people who will be installing those systems. Building information management is an area where we see all of the components in the building being modeled in a collective fashion between the architect, the engineers and the subcontractors. This aides in the delivery, and there’s better cost containment.

TREB: What is your biggest challenge as a commercial architect in the current market?

Wilkinson: Right now, our biggest challenge is to keep a group of talented people busy and profitable by finding opportunities to use their expertise.  Most of our current commercial projects are smaller scale build-to-suit projects for specific users. These are popular because there are companies that are thriving in the bad economy, and they are taking advantage of lower land costs, design fees and construction costs. We are more aggressive in going after smaller projects that we would not have been interested in several years ago.

Efrussy: The biggest challenge as a commercial architect is the tightening of available credit.  Quite simply, no funding means no projects. The residential building slump has reduced the number of multifamily projects that we work on and reduced the budgets of the projects that are still in development. We do see one interesting effect, and that is an increase in the number of young professionals who are now renting in lieu of buying a home. This has led, according to some, to an increased demand for mid- to high-end rental units, although the rental rates have slightly decreased.

TREB: What has been your favorite commercial project in Texas to work on in the past year?

Wilkinson: My favorite project has been working on preliminary studies for a major office building for Skanska Commercial Development in Houston’s Galleria area. It has been refreshing to hear positive comments about moving forward with an office building project in a time when most commercial real estate developers are talking about working on their golf games for the next couple of years. They are talking about a building that will be ready for occupancy in 2012, when we hope the recession will be lifting. The first buildings coming out of a recession are usually successful, and we are hoping for their success with this project.

Efrussy: The Heights at Park Lane is a LEED-certified, high-density mixed-use project with a strong pedestrian focus. It incorporates rental units at a variety of price points, with shopping and entertainment, and it is close to the amenities and employment centers of central Dallas.

The Heights at Park Lane encompasses many of the aspects that we see as the future of commercial design and has become a major asset to the city. It has been a tremendously rewarding project to work for the whole firm, and the project represents our strong commitment to sustainability, urbanism and design excellence.

TREB: What do you believe is the future of commercial design?

Powell: The healthcare profession is going to respond to increased emphasis on insuring uninsured people in this country, and that’s going to create stress on all levels of medical services delivery. We’re going to see a revolution in terms of healthcare being delivered to a much increased population — cost containment is the other issue being dealt with there — but we have to have the infrastructure in place to handle it. That’s going to create opportunities for those of use that are creating healthcare facilities. 

Sustainability, energy conservation, building smarter buildings and looking at lifecyle costs and energy consumption as an integral part of design certainly has become more prevalent. LEED certification has become so prevalent, in fact, that it’s no longer considered extraordinary. Those trends are not unique to Texas, but we certainly think they are here to stay.

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