Hillwood Flying High
The Fort Worth-based developer of AllianceTexas is redefining the way folks in "cow town" and outside the Metroplex live and work

Behind a well-maintained barbed-wire fence, a herd of Brangus cattle quietly munches on scrub while a FedEx jet screams to a smooth landing a few hundred yards away.

Nearby, at one of the country's busiest intermodal railroad terminals, a crane hoists shipping containers off a train and loads them onto waiting semis. And just down the road, earth movers cut lots for million-dollar homes.

Yes, rural and urban are blending in suburban Fort Worth, but despite the bustle of economic activity, there are still thousands of acres to develop at AllianceTexas.

The story of Alliance; its developer, Hillwood Corp.; and its chairman, Ross Perot Jr., reveals much about Texas and the trends that will shape the real estate and construction industries in the coming decades. Unlike many developers that plunk down an office building here and an industrial facility there, Hillwood has invested millions into a limited number of sweeping, master-planned communities.

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One of those developments, Alliance, has transformed Fort Worth's economy, generating jobs and tax dollars in northern Tarrant and southern Denton counties.
Another, Victory, is just beginning to make an impact on downtown Dallas, where the polluted site of an abandoned power plant has been transformed into a sports arena.
Whether the latter succeeds may say as much about the city of Dallas as it does about Hillwood.

Alliance is the brainchild of Perot Jr., son of the Dallas billionaire who once ran for president and grew a massive technology business from scratch. Perot's family ties have given him access to capital, and his knack for being in the right place at the right time has proven equally valuable.

In 1982, a young Perot set a world record by being the first to fly around the world in a helicopter. Through this experience, Perot made contacts with personnel at the Federal Aviation Administration. So when the FAA wanted a new reliever airport to take some of the traffic burden off of the Dallas/Fort Worth International Airport, Perot was poised to make a daring suggestion.

His father owned thousands of acres in northern Tarrant and southern Denton counties. (More acreage was added in 1993, when Perot purchased the Circle T Ranch from the bankrupt estate of one-time billionaire Nelson Bunker Hunt.) Perot envisioned the new airport as the centerpiece of a massive enterprise zone, with office campuses, industrial facilities and housing.

Perot Jr. would fly friends and potential investors over the site and say, "there's where the runway will be," said David Pelletier, director of communications for Hillwood.
"He'd lay out his entire vision, and lots of folks thought he was crazy."

But Perot believed that this development-dubbed Alliance-could bring much-needed income to Tarrant County, which had lost many jobs during the 70s and 80s. So he created a plan: the FAA would build the airport; the city of Fort Worth would annex his father's land, as well as provide roads and utilities; and Hillwood would attract companies. When it opened in 1989, Alliance Airport became the first industrial airport in the world.

In the beginning, Hillwood took on most of the risk, said Bill Burton, senior vice president for Hillwood Properties.

"The city of Fort Worth had to agree to be the sponsor of the airport, which was pretty painless," Burton said. "There was no real financial commitment at that point.
Traditionally, cities fund about 10 percent of the construction of a new airport. But in this case, we donated the land to the city for the airport itself. The city annexed the property, had the land appraised and that appraised value was the 10 percent contribution."

The city also committed to bring water service to Alliance, which effectively opened up between 40,000 and 50,000 acres of land for development, Burton said. Fort Worth then funded construction for a first-class crash fire and rescue facility.

"All told, their commitment early on was about $60 million," Burton said. "To date, they have spent approximately $47 million."

Including FAA funds to develop the airport, about $160 million of public money has been spent on Alliance, Pelletier said. But that number is dwarfed by private investments in the area, which Hillwood estimates at between $3 billion and $4 billion.

In the mid-90s, Hillwood started an aggressive spec-building program. The firm would sell land directly to corporations, oversee build-to-suit projects or build space and lease it out. The firm also started up its own in-house construction group.

To date, more than 125 companies have established facilities in Alliance, employing about 20,000 workers. The tax revenue generated by the development also continues to grow. In 1990, the property for Alliance generated approximately $50,000 in tax revenue for Fort Worth, Burton said. Last year, the development sent more than $10 million into the city's coffers, as well as $42 million into other taxing authorities like school districts and counties.

What's more, independent reports estimate that the economic impact of the Alliance project has been more than $19 billion, directly or indirectly affecting one of every 14 jobs in Tarrant County.

"The bottom line is that, without Alliance, none of this would be here-the jobs, the homes, nothing," Pelletier said.

Of the project's 15,000 acres, 11,000 acres have yet to be developed.

"In 1989, we had no space," Burton said. "In 1995, we were at around 4 million sq. ft. Today, we're almost 23 million sq. ft."

Most of this space is dedicated to companies that take advantage of Alliance's transportation and distribution capabilities. The Burlington Northern Santa Fe rail yard receives goods from the ports of Los Angeles and Houston. Its intermodal facility sits adjacent to Burlington Northern Santa Fe's main north-south transcontinental rail line on the west side of Alliance. The intermodal center handles more then 400,000 containers each year.

About 50 of the 125 companies in Alliance are giants whose names appear on lists such as the Fortune 500 and Forbes 500. Companies can take advantage of the development's triple Freeport tax exemption, foreign trade-zone designation and third-party logistics.

"Economic development agencies from other states and other countries have come to see the Alliance program," Burton said.

Hillwood has started work on another Alliance in California, a revitalization project intended to turn a closed air force base in San Bernardino into an active business community. The U.S. Air Force sold Norton Air Force Base to the city in 1996. Hillwood was later selected as the area's master developer. "In this case, the air force base was an underutilized asset," Burton said. "We've turned it into a performing asset with a new investment and new employment in an area that really wants it and needs it.
This was all based on our expertise and experience from the last 15 years of development at AllianceTexas."

The company has taken this expertise abroad, serving as an adviser and developer for international projects in Europe, South America, the Middle East and Asia.

Meanwhile, Back at the Ranch

As part of AllianceTexas, Hillwood has launched two master-planned communities: Heritage and Circle T Ranch. Both of these communities reflect a high demand in Texas for amenity-rich living from middle- and high-income homebuyers.

Heritage is a 2,300-acre community that eventually will include 2,700 single-family homes. Launched in late 2000, the development features homes ranging from $140,000 to $300,000 as well as a 10-acre community center, aquatics complex, tennis courts and meeting space. The city of Fort Worth has developed a 54-acre, master-planned park within the community.

Nearby is Circle T Ranch, a 2,500-acre, mixed-use, master-planned community in the city of Westlake that includes a 430-acre housing development called Vaquero, with 288 lots for luxury homes beginning at $450,000. Circle T Ranch also will include more than 800 acres of corporate campuses and office space, a resort hotel and medical offices.

"This area is right in the path of growth," Pelletier said. "When the first homes at Heritage went up for sale in 2001, salesmen were selling them out of a trailer before the model homes were even finished."

But the future appears to be retail.

"The biggest development we will see in the next 20 years is in retail," Pelletier said.
"From a few years ago through a few years from now, there will have been 30,000 to 35,000 new homes built within a 5- to 10-mi. radius. And all of those residents create a huge demand for shopping facilities."

In August, ground will break on a 1.6-million-sq.-ft. mall Hillwood is developing in conjunction with General Growth Properties. The mall is expected to open in 2006.

"The toughest thing to develop is retail," Pelletier said. "Retailers will sign letters of intent, which means they might be a tenant, but then again it's not a hard-and-fast deal. We believe it's a sure thing, but how fast we can get retail in here is something we're not quite sure of."

Burton said master-planned developments will have the best opportunity to build and maintain value over time.

"Master-planned communities allow you to control the land," he added. "From an architecture and amenity standpoint, we spend a lot of time trying to marshal the highest-quality resources and fully implementing what they have to offer. We want to create a unique environment where companies want to stay and people want to live."

In addition, a master-planned community allows developers to maintain high-quality signage, landscaping and amenities that might attract future tenants or owners. The airport even maintains a crew trained to cater to high-end needs, just in case a key corporate executive or potential high-end homebuyer makes a pit stop at Alliance.

"This is not a five- or 10-year development program," Burton added. "It's a 40- or 50-year development program. We think that a master-planned community will create lasting value for corporate investors, plus create a high-quality work environment and better quality of life."

Onward to Victory

Hillwood has never shied away from risks. It's a company that built office space on spec in 2003 when most other developers were at a standstill. The firm tries to maintain an inventory of 1 million unoccupied sq. ft. at all times, so current and potential tenants can have access to new space immediately.

Perhaps the greatest risk ever taken by Perot was purchasing the Dallas Mavericks.

"Ross' dad thought it was nuts," Pelletier said. "In fact, at the time he bought the Mavericks, Ross Jr. didn't even know how many people were on a basketball team.

"But this wasn't a sports deal. It was a real estate deal."

In 1996, Perot led a group of investors and became the majority owner of the team. The group purchased the Mavericks for about $140 million. But more important, Perot purchased 70 acres near downtown Dallas.

That acreage now includes the American Airlines Center, an arena owned by the city.
Before the arena was even completed, Perot sold the team to current owner Mark Cuban for $280 million, approximately double the purchase price.

Hillwood is focusing its Victory efforts toward bringing retail, office, restaurants, upscale living and dining options to the area. The first of these will be the W Dallas Victory Hotel and Residences, which is expected to open in late 2005.

Starwood Hotels & Resorts Worldwide Inc., W's parent company, has agreed to manage the 251-room hotel and 94 luxury residences for a partnership among Gatehouse Capital Corp., Hillwood Development Co. and Southwest Sports Realty.

The challenge continues, since downtown Dallas has continually failed to attract business, weekend revelers or high-end residences while nearby trendy neighborhoods such as Turtle Creek and Oak Lawn have been successful.

"This is what the vision was - to create a vibrant, active downtown area from what was once a run-down fenced-off rail yard," Pelletier said. "Critics complain that we haven't developed the whole area yet, but they forget what it was like before."

The arena required $125 million in public money, and the team owners kicked in another $300 million for the building. As a result, property values and property taxes nearby already have risen, Pelletier said.

Beyond the 'Plex

While the company's most impressive projects are in Dallas and Fort Worth, Hillwood has diversified to include developments around the area and across the country.

Since 1999, Hillwood has developed more than 6 million sq. ft. of industrial and office product in the Metroplex outside of AllianceTexas and Victory.

Other investments include retail/office property in Georgia and retail space and a residential project in Hawaii. It also has invested in Landmark National and Heritage Golf Group, both prominent operators of golf courses.

Plans on the table include expanding Alliance with a longer runway, which would boost air cargo traffic. The company has raised about $20 million of the $100 million needed for the expansion. There's little doubt that the runway expansion will become a reality. Later this year, a 100,000 sq.ft. air cargo trade center is anticipated.

In the meantime, Burton sees a brightening future for real estate development.
"In 2000 and 2001, we saw the whole capital investment side dry up," Burton said.
"And last year, it was slow overall. This year, we are seeing more developers looking to put more product on the ground, both on the capital investment side and the leasing side."