Dixie Digs Deeper For Deal Potential

At Dixie Development Inc., it’s all about the numbers.

The $30 million company analyzes about 100 properties per quarter and wades through spreadsheets of probable scenarios to determine a projects’ viability. Crunching numbers is something the firm’s founder, Ben Israel, has done since he bought his first building in 1971. That spot now houses the Malco movie theater in Fayetteville’s Fiesta Square.

In 1998, after he retired from optometry, Israel founded Dixie Development with six properties in tow.

Today, the company owns and manages 1.76 million SF of commercial space and a real estate portfolio worth $220 million. Its revenue jumped 89 percent from $16.1 million in 2003 to $30.5 million in 2004.

In the last six months, it’s also launched two new ventures — Dixie Technologies LLC and Summit Steel Erectors LLC.

Investment Structure

“We look for a good return on investment and debt coverage,” said Marla Webb, Dixie Development’s president and chief operating officer.

Israel and Webb look over every opportunity, and have recently hired Stephanie Kuntz as a full-time analyst.

“It’s got to have a positive cash-flow to our investors,” Webb said. “It’s got to have growth and it’s got to have location. There are a whole litany of formulas we plug into it, and if two or three of those formulas fail, we don’t go any further.”

Dixie has about 35 private investors, most of whom started investing with the firm during the last two years, Webb said.

Tom Muccio, former president of Global Customer Teams for Procter & Gamble, said he has been investing in Dixie projects for about three years.

“So far the investments I’ve made with them are in line with my expectations,” Muccio said. “I just really trust them to do the right thing.”

Muccio said he also enjoys the personal experience he gets with Dixie.

“He’s made it easy for me to be able to participate,” Muccio said. “He doesn’t mind when I ask questions because I am not that knowledgeable. He’s patient and he explains.”

Muccio said the big difference between Dixie’s investment opportunities and others is that Dixie actually puts its own money in the project.

“We don’t like to own any less than 25 percent of a project, and we’ll own up to 100 percent,” Israel said. “We don’t cherry-pick it. We don’t take all of the best deals for ourselves. Investors are allowed opportunity into all of our deals.”

Israel said outside investors are integral to Dixie’s success.

“We have investors because it takes a lot of equity cash on a deal,” Israel said. “Banks generally require 15 to 20 percent equity and if you are doing $200 million dollars then you’ve got to have $40 million dollars in equity.”

Joe Kleine, co-owner of two Corky’s BBQ franchise restaurants in Little Rock, said he began investing in Dixie projects in 2000 shortly after he retired from the NBA. Kleine said Israel was his eye doctor when he played basketball for the University of Arkansas Razorbacks from 1981 to 1985.

“It’s hard to have a personal relationship or a friendship with everybody you invest with,” Kleine said. “A lot of times you are going through third parties and brokers. If you are interested, you do things based on the deal. So when the deal is good and you have people you trust and [you] are friends with, it makes it even better.”

Kleine said he’s invested in three Dixie projects, which make up 5 percent to 10 percent of his total investment portfolio.

The Deal

Dixie has about 750,000 SF worth of commercial irons in the fire, including Nelson’s Crossing, a 70,000-SF site on the corner of Joyce Street and College Avenue in Fayetteville.

In December, Dixie bought Legacy West, an existing shopping center in Frisco, Texas. Webb said Dixie is trying to diversify its portfolio so all of the real estate isn’t local.

Dixie is looking at prospects in Tulsa and Springfield, Mo., and Little Rock is “on the radar.”

Israel said one of the biggest things he has learned is patience.

“It takes a long time to put a really good deal together, and if you get impatient, you could take it away,” Israel said.

Israel said it took a 100 percent effort from four or five people to get the Nelson’s Crossing deal closed.

“And then it almost fell apart the day it closed,” Israel said.

Webb said Dixie makes an effort to pre-lease most of its buildings before construction ever begins.

Israel said the person who “dabbles” in real estate suffers.

“So many people think, ‘I can go out and build a building and people will come to it,'” Israel said. “It just doesn’t happen that way. Five years ago that would happen, but today you’ve got to be very actively in the market looking for tenants, writing leases and covering every issue that is out there.”

Webb said some landowners have unrealistic expectations of a property’s value, especially in today’s market. She’s learned not to “fall in love with a deal.”

“If you want to buy something and you are offering a fair market price for it and somebody might want a million dollars more than it’s worth, then you just have to walk away,” Webb said.

When asked about the current real estate market, Israel said he believes the area is headed for a correction.

“Properties two years ago we were paying $12,000 to $14,000 an acre for residential development, and it’s up to $50,000 an acre now,” Israel said. “The same thing is true in commercial land. We were buying commercial land for $4 and $5 per SF and it’s now $12 and $14 per SF. You can’t make those numbers work much higher than that.”

Israel said Dixie will have invested $25 per SF in Nelson’s Crossing before the structure is even built. But, he said, that’s a “superior” location.

“There is no question we could go over there and build anything,” Israel said. “We could build a much lesser building and charge almost the same rents, but that’s not what we do.”

Integration

Israel said the company’s success is due to its vertical integration. There are eight divisions under the Dixie Development umbrella:

Dixie Management LLC, a property management group;
Dixie Real Estate LLC, a real estate services branch;
Engineering Elements PLLC, a mechanical/electrical engineering division;
Dixie Construction LLC, a general contractor;
Summit Steel Erectors, a steel erection firm;
BMM Holdings LLC, a convenience-store operator;
Dixie Landscaping, a landscaping and insulation business;
and Dixie Technologies LLC, a security and automation wiring company.

All of Dixie’s divisions service in-house projects, but the companies also have clients outside of Dixie. Jason Dye, president of Summit Steel Erectors, said four of the 30 jobs Summit has completed were for Dixie projects.

Shawn Williams, director of sales at LeapFrog Enterprises Inc., said Dixie Development helped the Emeryville, Calif., company design its first Bentonville office from start to finish.

LeapFrog leases 3,000-SF in the Bentonville Colonnade. Williams said LeapFrog shopped around many different locations, but settled on the Dixie property.

Williams said Dixie furnished his company with an engineer who worked with them on the blueprints and an interior decorator who helped with color coordination, in addition to cable and telephone installers.