The Evolving Riverside Condo District

The shores of Riverside drive on the south side of Ladybird lake are about to undergo a dramatic transformation. Starting next year, four separate developers will begin construction on as many as 3,000 luxury condo and apartment units. With close access to downtown, the South Congress entertainment district, the lake, and the hike and bike trails, the location is highly desirable yet less expensive than the city core.

As we have reported, some of these projects have requested zoning variances to allow them to build closer to the lake than the 200 feet that the current rules allow. As a result of the zoning opposition, one developer has decided to redevelop the existing structures, some as close as 20-feet to the lake, as opposed to building new structures with a 150 foot set back. As part of the development, an extension of the hike and bike trails between Congress and I-35 and beyond is likely on the south shore of the lake.

The scope of the combined Riverside-area development is incredible: 3,000 units are now planned - more units than currently exist in all of downtown. While it will take many years for the projects to reach fruition, construction of the first projects will begin next spring.

Here is a summary from the Statesman:

The transformation of East Riverside Drive from a sprawling, well-worn, affordable enclave into a dense and upscale urban village will begin in earnest in the spring, when the first planned condo project is expected to break ground.Australian developer Constellation Property Group plans to begin work in March on its 225-unit project at the northeast corner of Interstate 35 and Riverside Drive. The Star Riverside condos, which will sell for between $400,000 and $1.2 million, will be broken into four buildings ranging from 60 to 110 feet high.The first owners are expected to move in in April 2009.Constellation faces competition from numerous condo projects planned in the vicinity.AMLI Residential hopes to break ground by the middle of next year on 375 luxury apartments on 11 acres at the northwest corner of East Riverside Drive and South Lakeshore Boulevard. In addition, Sutton Co. will build at least 45 condos. Construction could take up to two years.Cypress Real Estate Advisors also hopes to break ground next summer on a mixed-use development that will replace 800 aging apartments with as many as 2,500 apartments, condominiums and townhomes, as well as commercial, retail and live-work space on a 50-acre site on South Lakeshore Boulevard.



Introducing Austin's Municipal Parking Authority

As downtown Austin continues to grow and thrive, it gets harder and harder to find a parking spot. For city planners, there are two ways to view this phenomena: either as a problem or an opportunity.

It is clear that parking is becoming a problem: the easier it is to park downtown, the more people will come downtown to shop, eat, live, work, and entertain themselves. High parking costs are already an obstacle to businesses thinking of moving into the city center. Many companies who can afford the rent are put off by the $150-$200 / month cost of providing parking for each and every employee. As parking costs continue to rise, it becomes a tax on every Austinite who wants to enjoy downtown, and it lowers the value of business and buildings who don't see as many visitors as they might if parking were cheap and plentiful.The result hurts the city by reducing sales tax and property tax revenues.

Other cities with emerging downtowns have overcome similar obstacles by building -- or providing incentives to build -- abundant free parking. In Fort Worth, for example. the Bass family which controls much of the land in the heart of downtown, built a successful pedestrian downtown by combining rapid multi-use pedestrian-friendly development with abundant free parking (and a private downtown security force). The combination worked and downtown Fort Worth has gone from an abandoned urban core to a vibrant 24x7 downtown in a little more than a decade.

Austin has a different plan. The City has proposed a Municipal Parking Authority which would build garages throughout downtown in partnership with developers in a joint venture that would bring in millions of dollars of parking revenue to the city. At $19,000 a space, parking is expensive to build. While the City clearly sees the parking shortage as a opportunity to add capacity and earn money for the city, this perspective may be short-sited. By focusing more on low cost parking and less on profits, the city could likely generate more revenue through sales and property taxes as well as hie prices for city owned land sold in the future.

Huge Downtown Site Slated for Development

Over the last few years, much of Austin's downtown has been redeveloped -- or planned for redevelopment.

Whole Foods has transformed an area of car dealers and auto body shops. The second street district transformed a region of old warehouse and industrial buildings. Seaholm power plant has been decommissioned and is now slated for mixed use development. Congress avenue is set to be transformed with a new hotel megaplex and the Austonian tower.

Nestled between all of these projects is the City's oldest sewage treatment plant - the Thomas C. Green Water Treatment Plant - which began purifying water from Ladybird lake in 1925. The plant covers 6 acres across 4 city blocks. In addition to using a key tract of land to process water using 1920's technology, the plant also serves to disrupt the natural grid of the city -- it stops second street at its west end and blocks Nueces and Rio Grande from reaching Cesar Chavez.



The plant, which is located between Cesar Chavez and Third streets between Seaholm and San Antonio is about to be decommissioned to make way for a new development. On November 29, the city will begin the process of soliciting proposals for redevelopment of the site. Once complete, the new development will likely add retail, housing, and office space while filling in the missing streets on the city grid.

The Green site offers an incredible development opportunity. With four downtown blocks, it is a huge chunk of land. The location is perfect -- it is on the lake and adjacent to both the hot second street district and the future Seaholm multi-use development. The site is free of Capital View Corridor restrictions, although portions of the site close to the lake are limited to 45 feet in height.

Over the next year, the City will seek and review proposals from developers interested in the site. Once a developer is selected, construction is expected to begin in 2010. Full build out of the site could take as many as 10 years. The land, which is currently owned by the city, is expected to sell for as much as $65 million (half of the proceeds will then be used for site improvements including reforming the street grid throughout the site). At that price, developers will need to build some tall buildings -- condo, rental, or commercial -- in order to profitably develop the site.

Austin Real Estate Market Forcecast

Fortune and Economy.com just released 5-year real estate appreciation predictions for 54 major metropolitan areas. For the analysis, they looked at the likely price increase or decrease for a luxury home that would ell today for twice the local median price.

Here is a summary of the results:

1
Cleveland

9.6%

2

Indianapolis

7.4%

3

Detroit

7.0%

4

Cincinnati

6.0%

5

Greater Kansas City

1.6%

15

Austin

-4.4%

Average

National Average

-14.7%

50

Baltimore

-27.8%

51

Tampa

-27.9%

52

East Bay, Calif.

-31.0%

53

Miami

-32.3%

54

Orlando

-34.3%


The good news is that Austin is ranked higher than 72% of metropolitan areas with a projected value decrease of 4.4% over 5 years. This is substantially better than the 14.7% average projected for the average metropolitan area. The bad news is that prices are expected to decrease. Obviously, this data does not really say anything about the condo local market.

While reports like these always sound authoritative, it's useful to look closely at the methodology. This survey is based on a historical home price-to-typical rent ratio and assumes a return to historical averages. It doesn't look at any other market fundamentals: growth rates, employment, desirability, etc. In fact, the markets with the highest inbound migration are rated as the weakest markets while those where people are fleeing in droves -- detroit --are rated very high. For Austin, the bottom line is that the market was never caught in the boom that was experiences throughout the country, and the fundamentals are strong: for example, people are coming to town and employment growth is strong. That said, no one really know whether the local market will in fact go up or down over the next 5-years.

After 3 Months, Monarch Converts Back to Apartments

In an embarrassing reversal, the Monarch Condominiums has decided to convert from a 100% condo project to a 100% rental project. This follows the projects switch from rental to condo just 3 months ago.

At the time of the switch, the condo market was very strong and and the downtown rental market appeared unable to support a 305 unit high-end downtown project. As construction costs continued to escalate, the Monarch sought greener pastures in the condo market. With construction costs rising and rents determined by the market, the Monarch likely had no good options. With the building only months away from completion, they made a big bet that they could sell enough condo units quickly enough to make the bet pay off. With experience in the crazy Florida condo market where projects would sell out in days, they were optimistic that the Austin market could support quick sales.

It didn't work out the way they expected. The Monarch was likely hurt by three factors:

- It takes a long time to sell 305 condo units in Austin, even in good times. With just 150 single family sales in central Austin each month, the strongest projects sell 5-10 units per week. With limited time before completion, the Monarch didn't have enough time to sell enough units before completion. When the competition has beautiful sales centers and expensive virtual reality presentations, it can be hard for new projects to quickly catch-up.

- Projects designed for the rental market do not fare well in the condo market. Condo owners expect perfection -- buyers are always pickier than renters. Even with a discount, buyers tend to hold out for the perfect project.

- The project was a victim of bad timing. The credit markets imploded just weeks after they announced their intention to convert from rental to condo. While condo sales continue, the rate of sales was certainly much slower than they expected.

Together, these factors likely forced the developers of the Monarch into a very difficult position. With reports of strong pre-leasing at the new AMLI project on second street at rates of as much as $2.75 per square foot per month -- that's $2,750 / month for 1,000 SF -- Monarch must have concluded that the best shot of success was back in the rental market.

Here is the summary from the Austin Business Journal:

Burns says the decision to switch strategy wasn't at all a reflection of lack of demand for condo units downtown. "For us to have sold as many units as we did in the slowest selling season, I think says a lot," Burns says. "We simply didn't have the luxury of time on sales."The Monarch's units will range in size from 681 square feet to 3,530 square feet with lease rates starting at $1,650. The development will also feature more than 9,500 square feet of ground-floor retail space.Burns says taking Monarch out of the sales picture will likely make the downtown condo market rather tight in the near term. Developments that are near completion like The Shore and 360 are virtually sold out. And while a slew of new projects have been announced, and a few have broken ground, it will be late 2009 before the first of those comes to market.


While converting to rental is probably the best strategy given the market and their short time horizon, it was likely a very difficult decision. With approximately 60 units sold, they must now walk away from all of those contracts. While the rental market may be stronger by comparison, the project is likely looking for rents ranging from $1,650 to $7,000 or more per month. It will be hard to rent the high-end units as very few people are willing to pay those kind of dollars for downtown rental units.

While we've talked about overcapacity in the Austin condo market, the removal of 305 units in the Monarch from the market will have a dramatic effect. With the Monarch out of the picture, there will be very few new units hitting the market in the next year. With less competition, we should see strong sales at the remaining projects whose delivery will be staggered over the next three years -- at least they have plenty of time to sell out before their projects are completed.

New Project: "Zilker Place Condos"

John Wooley, the founder of Schlotsky's, this week announced plans for Zilker Place Condominiums, a new 74-unit condo development on a prime lot on Barton Springs road adjacent to Zilker Park. With quick access to the park and the hike and bike trail, three 5-story buildings will be constructed on a 2 acre lot that currently houses the restaurant Wanfu Too. Prices for the units will start at $300,000 for 900 square feet and will top out at $1.3 million for a 3,030 SF unit. The project will feature a central courtyard and pool, screened porches on many units, and protected views of Zilker Park.

Here is a rendering published by the Statesman:

Zilker Place Condominiums on Barton Springs

When combined with Barton Place, a 270 unit project just a few doors down, it is clear that the area on Barton Springs between the park and Lamar is now in store for a radical transformation. With two large projects on the way, tax increases will certainly put pressure on the remaining restaurants and mobile home parks that form this prime area of the city. As the blocks develop, one of the most important elements -- one that is missing from current plans -- may be a requirement for ground-floor retail up and down the street. It would certainly be detrimental to Austin to lose a full district of iconic restaurants for a few mid-rise condo buildings.

Although Wooley originally hoped to build a much taller tower, he intelligently reformed the project as a 5-story venture that fits just within local zoning requirements. The local neighborhood association has provided vocal opposition to other projects. Given Zilker Place's location adjacent to the park, it would have been very difficult to secure political support for variances.

Density Bonuses: A New Urban Planning Model for Austin?

A movement is developing in Austin to link downtown zoning variances to "voluntary" contributions to community programs. While a density bonus sounds like a special gift to developers who meet the city's stated goal of a dense vertical downtown, in reality, it is the opposite. Density bonuses essentially charge developers for variances -- if they want to build taller, they need to pay for the privilege.

Here is a summary from the Austin Chronicle:

The incentives are the "bonus." For a developer, adding density is gaining additional project entitlements and additional value – more square feet, building floors (height), condo units, retail or office space to lease or sell. Zoning code limits the size of buildings; for example, in the Central Business District, entitlements are limited to an 8-1 floor-to-area ratio, or FAR. To reward developers whose projects advance urban planning and community goals, the city would grant them bonus entitlements in exchange for voluntary developer-funded community benefits – say, funding for affordable housing, parks, walkable streetscapes, and space for small, local businesses.



The thing that makes this a tough issue is the value judgment that it places on density: it assumes that high density projects are bad, and that developers should pay for the right to build bigger projects. The problem is that the Mayor and City Council's actions suggest that they believe the opposite to be true: they have worked hard to encourage high density projects for downtown.

The problem with density bonuses is that they don't seem to be supported by logic. The bonuses penalize dense projects, but do not prohibit them. If you believe that density is good, as much of our local elected officials seem to, then it doesn't make sense to put obstacles in place that will limit density. If you believe density is bad and that the current zoning rules are good, then it might make more sense to simply enforce the zoning rules and limit variances as opposed to allowing developers to pay for something which may not make sense for the city.

As we recently reported, Austin is not a dense city. While people disagree on whether they want tall buildings in Austin, density does have measurable benefits. For example, increased density is better for the environment, it enables mass transportation, and it provides for a vibrant downtown core with more residents and workers per square block. The alternative to density is suburban sprawl which has significant social costs. Additionally, dense projects provide significant tax revenue that can be used to fund important services. A large downtown condo project might contribute $50 million per year in property taxes which can pay for a wide variety of services. That revenue stream seems much more valuable than the hundreds of thousands of dollars in density bonuses currently being proposed by planners. (For more on the benefits of density, read this article).

In fact, the push for density bonuses is not really about density as much as it is about affordable housing. With rapid downtown condo development targeted toward high-end buyers and East Austin development replacing more affordable options, there is a growing consensus that action needs to be taken to ensure a diverse city center. The City wants to make sure that there will be affordable options for central Austin living. Unfortunately, the City's past efforts to achive this goal have not really worked. It's important to note that density is not the challenge to affordability. It makes perfect sense for the city to encourage bith density and affordable housing as important social goals.

When it comes to affordable housing, the big issue is cost. It is expensive to develop affordable housing when land and construction costs are skyrocketing. What the City likes about density bonuses is that they allow the city to tax large-scale projects to fund affordable housing. As reported by the Chronicle, this quid-pro-quo has not been a secret:

Last year, the City Council directed the Design Commission to recommend density bonus options. In the past several years, Downtown high-rise developers had been negotiating ad hoc exchanges of community benefits for neighborhood, commission, and council support of the variances needed to exceed existing entitlements. One early adopter was Constructive Ventures. On its Spring condominiums, the developer pledged to give $250,000 total for an affordable-housing fund and for park improvements along nearby Shoal Creek. This effectively countered Old West Aus­tin Neighborhood Association opposition; Spring received variances at council to build a slender 400-foot tower on land zoned Downtown mixed use (which sets a 120-foot height limit). That $250,000 was also the magic figure for the variance-seeking CLB Partners condo tower, T. Stacy & Associates condo tower, and Gables Park Plaza; the Novare/Andrew Urban Downtown post office projects got additional height for $200,000. (Austin has probably been leaving money on the table; by contrast, the density models suggested at right would generate millions in value for the community.)But everyone involved in all that one-off deal-making – including City Council – found the negotiations exhausting, time-consuming, random, and potentially inequitable. So council members began to push for a standard density-bonus policy.



As this debate evolves into policy, stakeholders will have to decide what is truly important for the downtown Austin. The recent report from the City's density bonus task force has expanded the debate by encouraging not just requirements for variances but also incentives for meeting other urban planning goals. If projects hide the parking garage or include a cultural institution or non-profit, they would be eligible for incentives. Certainly, it makes sense for the city to use every tool that they have to achieve their urban planning objectives. But the risk of density bonuses is clear: blocking variances is one of the city's only sticks, making it tempting for officials to penalize projects that would bring beneficial density in order to achieve other important objectives. If developers opt for lower density projects because the required concessions are too expensive, everybody will lose.

Add AustinTowers to your Google Search Page!

AustinTowers posts news and analysis on the downtown condo market 2-3 times every week. If you use Google for search, we've made it easy to add our news feed to your google home page. Simply click on the "Add to Google" button on the right and you will be directed to Google to create an iGoogle search page like the one below, to add AustinTowers to an existing iGoogle page, or to add AustinTowers to Google Reader. Once added, you'll see our latest headlines whenever you visit your iGoogle page to conduct a web search. If you later change your mind, it's easy to remove the AustinTowers feed or to revert to a basic search page.



As many of you know, you can also subscribe to the AustinTowers feed on this site by simply clicking the Orange RSS feed button on the sidebar or by following this link: AustinTowers RSS Feed

Major Downtown Condo Project On Hold?

Rumors have been circling for months that AquaTerra, a 163 unit 20-story project planned for Barton Springs road between Congress Avenue and south First street, has been having trouble getting off the ground. In fact, the building was supposed to be complete by 2008 -- yet construction hasn't even broken ground.

While we have not received any confirmation from the developers, we have heard from other sources that the project is in fact on hold and is unlikely to ever be completed. If true, this represents the first major cancellation of a downtown condo project. While it is easy to blame the project's demise on the credit liquidity crisis, AquaTerra has been in trouble for many months due to weak demand. Competition is intense to market units to downtown buyers --- projects that are not attractively positioned and aggressively marketed will have trouble getting noticed.

Here is what the project would have looked like:

City Approves Plan for Second Downtown

The Austin City Council today approved the first phase of a plan to create a second "downtown" urban center in the region of north Austin near Braker and Mopac -- essentially the area surrounding the domain. As we have reported in the past, between now and 2015, one developer alone plans to build 50 new buildings with heights ranging from 2-26 stories (as tall as 310 feet). When complete, The Domain will form a second Austin "downtown" with as many as 82,000 residents and 50,000 daytime workers. To put these numbers in context, Mayor Will Wynn has working hard towards a big goal: getting 25,000 people to live in the real downtown by 2015, the same timeframe.

Here is the summary from the Austin Business Journal:

Austin's City Council gave final approval of phase 1 of the North Burnet/Gateway master land use plan, which will create a so-called second downtown in the area around the Domain luxury shopping center by 2035.The North Burnet/Gateway plan's vision is to ultimately create clusters of dense, mixed-use, pedestrian-friendly neighborhoods in the 2,300-acre area north of U.S. 183 bounded by Walnut Creek, Metric Boulevard, Braker Lane and MoPac Expressway.The final plan will allow developers to build denser than anywhere outside of downtown, as high as 15 stories or 180 feet, and up to 30 stories or 360 feet in areas closest to planned commuter rail stops.Phase 1 immediately designates a zoning overlay district in the area to allow vertical mixed uses and other urban design elements, and to preclude interim development not in concert with the plan.A draft plan of Phase 2 -- outlining ordinances implementing the plan -- is expected in six months, says Molly Scarbrough, a city senior planner. Final approval for the entire plan is expected in a year.