The city of Dallas is suspending all real estate transactions after unveiling mishaps tied to a 2022 acquisition of a North Texas office tower.
City officials acquired the 11-story, 228,322-square-foot office tower at 7800 N. Stemmons Freeway in Dallas for $14.1 million in hopes of outfitting the building to become a city permitting hub. The city spent millions on renovations, with some city staff moving into the building in December 2023. Shortly afterwards, it became clear the staff occupancy "was not compliant with City of Dallas permitting requirements," City Manager Kimberly Bizor Tolbert told the mayor and city council ahead of an auditor's report set for release this week.
Tolbert, who began her role as interim city manager in May 2024, said she took charge of the situation ahead of her start date, ordering staff to vacate the building and return to the Oak Cliff Municipal Center. The office tower was identified as a priority topic in Tolbert's 100-day transition plan, in which she tapped the Dallas Economic Development Corp. to conduct a full building assessment, with the city of Dallas auditor also auditing the property.
"In the short term, I have instructed all staff to immediately suspend all real estate purchased unless previously approved by Dallas voters or the city council," Tolbert said, in her memo, adding the city planned to leverage its existing agreement with CBRE to "evaluate and strategically repurpose underused assets and support our priority asset monetization projects."
CBRE, a Dallas-based real estate services firm, would also help create new policies and procedures, review staffing and structural needs and explore any necessary technology upgrades, Tolbert said. The city is expected to finalize a request-for-proposal for a comprehensive citywide real estate master plan to serve as a roadmap to decisions and investment across the city's property portfolio.
"Because we are launching a new online land management system on May 5, a once proposed one-stop permitting center is no longer needed," Tolbert said, with the new system being called Dallas Now. "As a result, we will pursue selling the 7800 N. Stemmons Freeway property for redevelopment, rather than continue costly and ongoing renovations."
Mistakes made
The city staff conducted "very limited due diligence," tied to the 2022 acquisition of 7800 N. Stemmons Freeway, Tolbert said, in the memo. The city received "no disclosures," from the seller and engaged JLL to only conduct a "surface-level review of the building." In JLL's report, the brokerage firm identified nearly $1.2 million in immediate repairs with more than $1.4 million in repairs expected over the next 12 years.
But the report was incomplete, Tolbert said, failing to identify major building system issues with the heating-and-air-conditioning, electrical and plumbing, as well as numerous ADA compliance issues.
The site was also unable to accommodate the number of city employees and visitors, with only about half of the total parking requirement of roughly 1,400 parking spaces, Tolbert said, adding the decision to purchase the North Dallas office tower was "neither strategic nor well-considered," with no structured process or clear project leader.
Tolbert and her team have since established a department in August 2024 managing real estate and facilities. To date, the city of Dallas has invested about $29 million into 7800 N. Stemmons Freeway, including its initial purchase price of $14.1 million.
City officials did not immediately respond to an interview request from CoStar News. CBRE and JLL also did not immediately respond to a request for comment.
The city has determined that bringing the building to an occupiable condition would require millions more in additional capital, which the city doesn't have earmarked in the budget. The city expects to spend about $73,000 a month to maintain and secure the vacant property.
"The reality is that we did not conduct sufficient due diligence at the time of the purchase and acquired a problematic facility," Tolbert said, in the memo. "At this point, the most responsible course of action is to sell the site and attempt to recoup as much funding as possible."
Priority projects
The city's department of facilities and real estate management have identified five priority real estate properties for either sale or redevelopment, including 7800 N. Stemmons Freeway, with the remainder including:
- 4150 Independence: The 108-room hotel was acquired by the city of Dallas in March 2022, according to CoStar data. The city hoped to redevelop the hotel into a vacant property to support its homeless services, it said in a former request-for-proposal.
- 2929 S. Hampton: The long-vacant hospital spanning more than 101,000 square feet of space was purchased by the city of Dallas for $6.5 million in September 2022, according to CoStar data. The former hospital was intended to house the unsheltered, but the city has yet to identify developer interest in the project.
- 1000 Belleview: The city acquired a former IBM data center to house its data center needs. The data center property is in need of funding to move forward, the city said in a memo last month.
- A large city-owned tract within the city of Hutchins, for which additional details, including its address, were not immediately disclosed.
Tolbert said a new governance group and approval process will be established by year's end to thoroughly vet and evaluate potential real estate acquisitions. For any future property acquisitions, Tolbert said the city would be required to have dedicated funding for maintenance, operations and repairs at the time of purchase.
The Dallas city council is also considering authorizing the acquisition of a large part of the former Dallas Morning News property in downtown Dallas in a $51.5 million deal from an affiliate of Ray Washburne's Charter Holdings. The site could help make way for the redevelopment of the city's convention center without working around the site, city officials said. The Charter Holdings affiliate purchased the property in 2019 for $28 million, as CoStar News reported, with the city expecting to use eminent domain to acquire the property.