Quite the contrarian

To know Craig Hall is to know a survivor.

By 1986, his company, Dallas-based Hall Financial Group (HFG), was the largest private-placement investment sponsor in the United States, with more than $1 billion in equity and ownership of more than 70,000 apartment units. But then in the late 1980s, his real estate empire nearly crumbled to the ground, caught in a combination of the spiraling real estate depression of the time and the passage of tax laws that all but shut down his operations.

By the 1990s, Hall had bounced back. Today he is chairman and founder of HFG, still based in Dallas, but now a more diversified company, focusing on the investment side as well as development and management.

In June, he was busy packing and moving back to his Texas home after spending time with his wife Kathryn in Vienna, Austria, where she recently ended a four-year stint as the U.S. ambassador to Austria. In business, Hall has learned a thing or two along the way — like being a patient investor. But he hasn't stopped taking risks and being an entrepreneur. In fact, the words “opportunistic” and “contrarian” come up a lot in conversation about the strategic vision of Hall's company.

“We are opportunistic in that we are able to make decisions quickly,” Hall said. “Our real estate roots have been contrarian, meaning contrary to what the market is doing.”

“Diversified” doesn't begin to describe the company's focus. HFG takes an active and direct role in certain investments, while in other transactions it takes a more passive or back-seat stance. The company's investment and activities range from active businesses in Central and Eastern Europe to Hall Office Park (HOP) in far North Dallas.

Also, about half of HFG's assets today are liquid securities-related investments or direct loans that the company has made. The other half is divided among a range of businesses, including 14,000 apartments in Arizona, New Mexico, Texas and Michigan; office buildings and development land in the Dallas/Fort Worth Metroplex; two hotels in Paris; technology businesses in Budapest, Hungary and in the U.S.; an Internet service provider company in Croatia; a privatization company in Croatia; and a number of other businesses. “Our goal in each case is to be a patient, long-term, opportunistic, contrarian investor,” Hall said.

HOP breaks new ground

Hall's largest development, the 162-acre Hall Office Park, is taking shape 20 miles north of downtown Dallas in the town of Frisco, Texas, a place once considered too far north for most people to drive and still be part of the Dallas/Fort Worth Metroplex. Many market watchers questioned the way-out move early on.

“When originally announced, it was viewed as being too ahead of its time. However, with aggressive marketing, Hall was able to successfully lease the initial phases of the development,” said Greg Biggs, senior vice president and branch manager of Julien J. Studley's Dallas office.

“When we announced the groundbreaking in 1997, we were already getting calls from prospective tenants,” Hall said. He knew that just south of HOP was the successful Legacy business park, which is home to Electronic Data Systems, JCPenney and Frito-Lay — large, one-company campuses. “With 25,000 workers at Legacy business park, there was a proven employee base out of the area, but no multi-tenant space,” Hall said.

He has targeted a variety of tenants for the project, ranging from national corporations to young entrepreneurs, with space needs varying from executive suites to multi-floor corporate offices.

“Our mission is to provide every individual tenant with a progressive work environment of lifestyle amenities, artistic beauty and advanced business services. Our goal at HOP is to give smaller companies the benefits and perks usually only available to large corporations,” Hall said.

HOP tenants include General Electric, Levi Strauss & Co., Gateway National Bank, Frisco Family YMCA, Thyssen/Krupp Elevator, worldpages.com, Kimberly Clark Corp., BridgeSpan Title, Redback Network, Charles Schwab & Co. and Hall Financial Group.

And HOP is completely owner-financed by Hall Financial Group, with no outside financial backers.

A quick drive around the office complex and you notice a strong technology focus — one of the major streets is aptly named Internet Way, and the project's theme is “Technology for a New Economy.” Hall said the idea is to offer technologically advanced space because it's what today's businesses need.

“We are not a telecom hotel, and we are not seeking only high-tech tenants, but we are fully prepared to accommodate those tenants' needs,” he said. “HOP offers a combination of technologically advanced amenities with an aesthetic focus.”

But what about the tech bust and demise of a large portion of the project's targeted tenant base? Hall answers simply, “We haven't seen a fallout from the so-called tech-wreck, because we don't do risky deals.”

And so far, so good. Approximately 620,000 sq. ft. of the nearly 1 million sq. ft. project is complete, and the remaining 320,000 sq. ft. currently under construction will be finished in November. About 400,000 sq. ft. is now leased and occupied, and Hall is actively negotiating additional leases totaling 100,000 sq. ft.

One of the other qualities that stands out at HOP is ambience — lawns, lakes, jogging paths and even the Texas Sculpture Garden, featuring more than 30 works by native Texans. So why the focus on art? Here Hall waxes poetic, sounding more like a well-monied art collector, which he is, than a Texas real estate developer.

“Art enhances people's souls,” he said. “Today we live in a fast-moving world of sterile, unattractive buildings surrounded by a sea of pavement. Providing a setting with green space, lakes, fountains and artwork makes people think, laugh and feel good. This is a major step toward redefining what an office experience should be about.”

But what, if any, measurable difference has it or will it make to the profitability of the project?

“HOP has features that are unavailable elsewhere with strong marketing ramifications, including our corporate art collection, the overall park design and unique tenant services,” Hall said. “Incorporating art into developments has become our hallmark.” In downtown Dallas, HFG bought 1 million sq. ft. of high-rise office buildings that were performing poorly. The company turned them into successful investments, in part because it filled the lobbies and other areas with great art that made people take note of these properties, Hall noted.

“HOP sets a high standard for its future by bringing art into Frisco,” Hall continued. “Having Frisco develop in a forward-thinking and positive manner that is pleasing to the residents, community and people that work here is a goal HFG supports 100%. Thoughtful integration of public and private environments, through art, can make the community more cohesive and better overall.”

A wealth of experience

In Dallas real estate circles, Hall's background is the stuff of near legend. “Craig Hall has outstanding business sense,” said Biggs of Studley. “His ability to fight through and overcome the turmoil in the 1980s was, quite frankly, incredible.”

Hall embarked on his first real estate venture in 1968 at the age of 18 when he purchased a rooming house in Ann Arbor, Mich., with just $4,000 earned from small entrepreneurial ventures he began when he was 10 years old.

By the early-1980s, HFG had grown into the country's third-largest apartment owner, with almost 70,000 units. The company was the industry's biggest private-placement partnership ever, collecting investment dollars from such wealthy individuals as doctors, lawyers and stockbrokers who wanted the tax write-offs and potential profits from real estate. It controlled more than $3 billion in assets at its peak in 1985.

But Hall didn't stop with just real estate investments. Along with thousands of apartments, office buildings and other properties, his domain included two savings and loan associations, controlling interests in a Dallas oil and gas firm, and a high-profile stake in the Dallas Cowboys football team.

Then along came the real estate depression of the late 1980s. The company, like the Texas economy that helped fuel its growth, soon wound up paying dearly for the '80s boom, as did many other companies nationwide.

“We saw that in 1986 our properties were going to lose $120 million in cash,” Hall said. “We had to restructure more than $500 million in troubled real estate loans. The losses wound up being much greater that we or anyone else in the real estate business could have predicted.”

During the early '90s, the company lost more than half of its real estate holdings to foreclosure. But rather than give up, as so many companies did during that period, Hall developed a strategic plan for survival and recovery. The plan included biting a huge bullet by drastically downsizing his company, and significantly restructuring its portfolio and finances.

New opportunities

As Hall struggled to keep his company afloat, along came a downtown opportunity. In the early 1990s, when many downtown office buildings were see-through and vacant, there was a lot of talk about the need for a rebirth of downtown Dallas.

“My wife, Kathy, other members of the Hall financial team and I dedicated ourselves to being part of the revitalization effort,” Hall said. That included investment in the risk-laden and expensive renovation of the Kirby Building on Main Street in downtown Dallas. “What once was an abandoned office building now is a vibrant residential building,” Hall said.

HFG saved the corner location with the thought of bringing in a first-class restaurant. That restaurant now is the very popular Jeroboam, and its success is giving hope to other restaurants that might be considering a downtown location, according to Hall.

“It was another risk-taking decision, given the lack of secured patronage or complementary entertainment facilities nearby,” Hall noted. “It also required substantial additional capital from us, but we went ahead with it because we felt it would be a good addition to downtown.”

In 1993, when Dallas was still filled with skepticism from the real estate debacle, Hall purchased and renovated two older downtown office buildings totaling more than 1 million sq. ft. He also bought 244,000 sq. ft. in the growing Arts District, hoping that he could continue contributing to the revitalization of downtown. The Arts District purchase included an abandoned office development and its parking garage.

Then in 1998, Hall reaped his rewards, selling the office buildings — St. Paul Place and Harwood Center. He looked north, where much of corporate Dallas was moving, and invested in Frisco, where he found encouragement and support from its city planners and officials.

HFG still owns the Arts District land and is putting together a plan for a mixed-use project that will combine high-rise residential, retail and offices directly across from the Meyerson Symphony Center. “But no significant development of such kind can or will work without substantial city cooperation and incentives,” Hall said. “Enthusiastic support and financial incentives are needed to entice developers and capital back to the city.”

With such a strong love affair with Dallas, has Hall ever considered expanding his work and development program outside the Big D Metroplex?

“We hope and believe that we are redefining office space for the benefit of the tenants,” Hall said. “To replicate this program elsewhere requires a large site at a reasonable cost, a long-term vision and significant capital up front. We are certainly open to doing selective expansion in an appropriate local market.”

But HFG's development philosophy goes against the grain of typical development strategies because it involves larger amounts of spending on detail and quality. In addition, HFG spends millions of dollars on art and specialized services for its tenants. For those reasons, Hart said his company would only consider investing in large-scale projects.

The company's next big play may be in California. Hall said he is beginning to aggressively pursue direct lending in California, along with property acquisitions there. “We believe the region is in a real estate recession,” Hall said. “Therefore, following our business philosophy as long-term opportunistic, contrarian investors, California is a primary investment target for the next few years.”

Ben Johnson is an Atlanta-based writer.

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