Analysis: The Impact of U.S. Financial Market Turmoil on the Downtown Austin Condo Market

It has been a tumultuous few weeks in the financial markets. With the failure of major financial institutions, the government rescue of Freddie and Fannie, the volatile value of oil and the dollar, and the on-again off-again financial rescue package, the dynamics of U.S. markets are rapidly changing.

Like all major products and markets, the downtown Austin condo market will be directly effected by this economic turmoil. Here are some of the ways that downtown condo projects may be effected:

(1) Conservative Spending Will Slow Demand: Yesterday alone, more than a trillion dollars in value was lost in U.S. equity markets. While the markets rebounded today, severe drops in major markets have left buyers with less money, and less confidence in the earning power of their assets. During bear markets, even the rich reduce spending to preserve assets in the face of uncertainty. In tough times, large discretionary purchases are often the first to be deferred. While the Austin real estate market remains one of the strongest in the country, the market turmoil will inevitably hurt demand for downtown condo units -- especially demand for units that may have been purchased as second homes.

(2) Mortgage Rates are Rising: After the rescue of Fannie Mae and Freddie Mac, conforming mortgage rates dropped significantly across the U.S. Last week, with turmoil in the markets, mortgage rates jumped again as credit markets began to freeze. In addition, the gap between the rates on conforming loans and jumbo loans over $417,000 remains large. With many units priced over $500K or even $1 million, rising rates will also likely effect demand.

(3) Precarious Project Funding: While many of the projects currently under construction are fully financed and will be able to continue development as long as sales continue at a steady rate, turmoil in the credit markets will make it difficult for new projects -- including some projects still in the pre-sale phase -- to receive financing. If the market problems continue, we may see some yet-to-be-built projects cancelled.

(4) Lower Supply Increases Long Term Appreciation: For owners of downtown condo units or buyers currently waiting for delivery, the current turmoil could ironically lead to higher long-term appreciation. Demand for downtown housing remains very strong and continued migration into Austin will lead to a steady stream of new downtown residents. With the current turmoil and the general real estate meltdown of the last year, fewer units will be built over the next few years than might have been. When the market does recover, more buyers will be competing for a smaller pool of units, pushing prices higher than if more units had been constructed.

(5) Unexpected Consequences: Since Austin is not a closed economy, it’s hard to know all of the ways that this week’s market turmoil will effect the downtown Austin condo market. When times get tough in California, home owners may cash out and come to Texas, providing an unexpected boost to the local market. If economic conditions hurt the technology industry, Austin may be disproportionately hurt by the downturn.

Nobody knows how long the current economic crisis will last or how it will effect the downtown Austin condo market. While things may get better or worse, one thing is clear: national economic events will have a direct effect on the local real estate market, and a particularly strong effect on the nascent high-dollar downtown Austin condo market.

Where are the 360 units?

It’s been four months since 360 opened to the first residents and yet not one unit has hit the MLS. What’s up? Is there any way to get into 360? When will the units hit the market?

360 has been successful because it is tall, offers great amenities, is well located, and also because it’s priced affordably with the bulk of units originally priced between $200k and $500k.

While much has been made about the project’s sales -- they have been very strong -- we have received recent reports of units becoming available through the sales center. While 360 does have a wait list for some units, it’s still possible to get into the project if you are flexible when it comes to view, floor, and floor plan.

But, given that they have built 430 units, why have no resale units hit the market? The answer lies in specific rules put in place by the 360 developers:

- A non-refundable earnest money deposit is required at the signing of the contract and will be applied to your purchase at closing. At 360, we are offering a six-day rescission period on all contracts. After the six-day rescission period has passed, you may not terminate your purchase contract without forfeiting your earnest money. Also, resale of homes will not be allowed within six months of the first home closing.

- Unless it is otherwise approved in writing in advance by 360 (who has the sole discretion of withholding approval), you may not advertise your 360 home to a third party or offer your 360 home for sale until 6 months from the date of the first home closing.

- The contracts that buyers will be executing for homes at 360 are not transferable to 3rd parties. If you are unable to close on a home you have under contract, 360 will retain the home and earnest money.

- 360 Investor restriction: In total you may purchase two homes; one as a primary residence and one as an investment.

Because of these rules, the first resale units are likely to hit the market around Thanksgiving. Given the demand, it will be interesting to see if these first units carry a premium over the original units prices.

One Day Only: Tour the Major Downtown Condo Projects

For downtown Austin condo shoppers, there is no better way to survey downtown living options than the annual DANA Downtown Living Tour. DANA just announced the details for the upcoming 2008 tour. Here is the announcement:

The Downtown Austin Neighborhood Association (DANA) is holding its 5th Annual Downtown Living Tour Sunday, October 19th, from noon to 5 pm.  The event showcases homes and the benefits of living in downtown Austin.
 
The Downtown Living Tour attracts hundreds of attendees each year and funds DANA-sponsored activities and charities.  Participants take walking tours of downtown residences and retail and entertainment spots.
 
This year's tour will feature the 360 Condominiums, Gables West, Austonian, and other residences.  Second Street retailers will also be catering to the tour’s attendees, and a happy hour (5 - 7 pm) with complimentary food and beverages will follow the tour at the Belmont.  On the eve of the event, VIP ticket holders will enjoy music, food, and drinks poolside at the 360 Condominiums.
 
Tickets are available through DANA's web site at www.downtownaustin.org/DLT.html.  Prices range from $15 for the Tour and $30 for the Tour and VIP party.  The Austin Parks Foundation will receive a portion of the proceeds from this year’s tour.
 
The tour's title sponsor this year is Urbanspace Realtors.  “Over the last 10 years, downtown Austin has experienced intelligent, thoughtful development, fostered by the Downtown Austin Neighborhood Association,” says Urbanspace’s Kevin Burns.
 
“With parks and Lady Bird Lake, shopping, entertainment, food, and arts, downtown Austin has developed into one of the most vibrant urban cores in our nation.  Since 2000, Urbanspace has been an ambassador of urban living, and has grown with Austin’s downtown neighborhood,” says Burns.
 
DANA's mission is to improve the quality of life for those who live, work and play downtown. DANA influences decisions that affect downtown, educates and listens to residents and stakeholders about downtown and issues that affect them, and fosters a downtown community through social events.

Important New Downtown Development Site

With the large number of downtown building projects under construction, planned, or pending, there are not too many open lots awaiting development. Now, an important new site is about to hit the market just a block from the prime 6th & Congress intersection.

The Texas General Land Office is selling it’s now-vacant prototypical 50s building, formerly the Texas Comptrollers office, to raise money for the State’s Permanent School Fund.

The site is located in a prime downtown location on 6th and Colorado street. Free of Capital View Corridor restrictions, the site will most likely be developed as condos, commercial office space, or as a hotel.



According to the Austin Business Journal:

A major downtown tower could soon replace the vacant 1950s building at the corner of Sixth and Colorado streets.

The Texas General Land Office confirms it’s working with CB Richard Ellis Inc. to put the 76,000-square-foot Starr Building and adjacent garage up for sale. A deal has not been signed, but the GLO hopes to contract with CBRE to put the property on the market in the next month.

The GLO acquired the four-story building in 2005 on behalf of the state’s Permanent School Fund for just over $4 million. That same year the building’s last tenant, the Texas Comptroller’s Office, moved out and the property has been unoccupied since.

The GLO staff has determined the best use for the property would be to demolish the building and build a new structure on the site, Press Secretary Jim Suydam says. The GLO will evaluate the purchase proposals it receives and likely choose the one that nets the most money for the school fund. The Permanent School Fund’s board would have to approve the sales agreement.

Moscow. Dubai. Austin? Star Luxe to Build "Real Estate Collectors' Dream" in Austin

In a surprise move, Constellation Property Group (CPG) of Australia has added a new ultra-high-end project to it’s $200 million condo development. With 18 units starting at 4,000 square feet and priced well above $1 million, Star Luxe is the second phase of CPG’s development just East of I-35. The first phase, Star Riverside, will feature 64 units overlooking the lake and starting at $600k. To follow are Revolution Riverside, the likely third phase, which will feature units priced at $400K - $700K and a fourth and final building which may be a hotel. Star Luxe is planned for completion in 2010.

For Star Luxe, the developers are shooting for the stratosphere. According to Eugene Marchese, President of both CPG and it’s design firm, "Sotheby's is handling the sales," he says. "They've already gone out and tested the project with their international offices and we're getting good responses from as far away as Moscow and Dubai." As reported in the Statesman, “The musically inspired units will have curved walls to evoke the shape of a guitar. Each unit will have a balcony of about 600 square feet — larger than some of downtown's lowest-priced condos. Owners will be driven from the airport in the building's "signature fleet," where they will be received by a white-gloved valet and waited on by 24-hour concierge service.”

While I could write lots about this project, nothing conveys how bold this project is better than the press release:

Award-winning Australian developers Constellation Property Group (CPG), acclaimed for such projects as the Bondi Beach “Icebergs” and the recent sensation STELLA in San Diego, have announced their newest project Star Luxe, a limited collection of opulent, one-of-a-kind penthouse residences. Selecting Austin as their next point of U.S. discovery, the developers will once again collaborate with architects Marchese + Partners International (MPI), who were inspired by the imagination of Texas’s capital while designing the project on Lady Bird Lake. Eugene Marchese, President of CPG and MPI says, “Star Luxe will be one of the most exceptional structures the world has seen. The size and design of each residence will make these customizable homes a true ‘real estate collectors’ dream.”

Inspired by Austin’s immersion in art, music, and architecture, Star Luxe will deliver three grand designs: ‘The Guitar’, shaped by the instrument’s exquisite lines, ‘The Salazar’, fashioned after an imagined artist within the Art Nouveau movement, and ‘The International’, modeled after Marchese’s signature ultra-modern designs and premium technology. Star Luxe supersedes any previous definitions of luxurious real estate with these lakefront penthouses situated alongside Austin’s lively Hike and Bike Trail. The project’s immersion in art, music, and architecture seems to keep in line with Austin’s anti-gentrification slogan of keeping the city ‘weird’.

Star Luxe’s approach to servicing its residents is to free them from everyday concerns. Residents will feel immediately settled upon entry with their “Demands List” previously arranged, instructing the 24-hour concierge of their ‘re-stocking’ requirements such as preferred groceries, clothing, beverages, reading materials, toiletries, and even a 5-course meal. Additional desires such as private trainers, nutritionists, personal shoppers, maids, and even the latest movies and music accessible from sophisticated in-home technology will all be arranged as well. Each unit at Star Luxe includes a safe room with comprehensive surveillance, secure garage spaces, wine storage, water filtration system, and exclusive Italian kitchens with Gagganeau appliances. “Collapsible” glass walls will be a central feature of each residence, blurring the line between indoor and outdoor spaces. The palatial 4,000 square foot penthouses with their massive balconies allow owners to enjoy the feeling of a lakefront private home with urban style living conveniences.

Star Luxe residents will take advantage of the property’s four acres which includes a private spa, outdoor pool with BBQ, private cinema, pet exercise area and a lush Zen garden. Marchese explains, “Star Luxe owners will want for nothing; this will be their place to experience privacy, inspiration, and sumptuousness like never before defined.”

Star Riverside

Major SoCo Infill Project Announced: New Hotel & Retail to Emerge

Over the last year, commercial brokers have been shopping one of the largest remaining south Congress parcels -- a full block across from Vespaio -- to a variety of potential commercial tenants.

Today, developers announced that the prime site will be developed with a 90-room boutique hotel, ground-floor retail and restaurants, a plaza with the Hey Cupcake Airstream trailer, and 350 spots of underground parking (a first for the neighborhood). The property is owned by the adjacent church and currently used for parking. One early requirement of the development was to provide ample Sunday parking for the Church. This may be one of the reasons that the developers plan to include 350 spots for a 90-room hotel and It is this requirement which supposedly made condo and rental development difficult on the site.

Dick Clark South Congress Hotel
DICK CLARK ARCHITECTURE

The project is being developed by a team led by Bill Gurasich, a founder of GSD&M and co-owner of the Mansion on Judges Hill, a beautiful boutique hotel on MLK bvld between Lamar and Guadalupe. The project will be designed by Dick Clark, a well-established Texas contemporary architect who also designed the nearby “04” retail, restaurant (Mars), and condo project.

The developers are planning to include two “major” restaurants. Work is expected to begin in 2009 with the project to be completed in 2010.

While development in the heart of the South Congress ecosystem is always sensitive -- it’s truly one of the City’s great assets -- the existing weed-ridden block today serves mostly to break the flow of pedestrian traffic. A small hotel, underground parking, and extensive retails and restaurant are about as good a use of the block as can be expected. And Dick Clark is one of the few architects who has proven that he can successfully integrate new development into the South Congress streetscape.

A Radical New Plan for Zilker Park Residences

Last November, developers announced plans for 74 units to be developed on the eastern edge of Zilker Park on Barton Springs Road. With units starting at $300K and topping out near $1.3 million, the 3 building project was to sit on the border of the park with direct access to the hike and bike trails. Over the last few weeks, as listings were pulled from the MLS, it became clear that a change was in the works.

Today, the developers announced a radically different plan for the site with revised plans that include a reduction from 74 to 40 larger units, the addition of a hotel, and an expansion of the site through the purchase of an adjacent restaurant (formerly Wanfu Tool).

Here are the key details on the new project:

- 40 units ranging in size from a 1,515 square foot one bedroom to the largest 3,241 square foot unit.

- Prices range from $659,000, one of the highest starting prices of any project in Austin, to $1.4 million. According to the developers, about 1/3 of prospective buyers are contracting for multiple units, the highest priced of which has been near $3 million for 6,700 square feet.

- The project will include three 5-story condo buildings and a fourth building will house the newly-announced 65-room boutique hotel

- Although the project has not received construction financing, work is expected to begin in March with the first residents moving in as early as March of 2010. No clear timeline has been disclosed for construction of the hotel.

- As expected, access to the adjacent park is the top selling point and key differentiator for the project.

- 16 of the 40 units, or 40%, or have been sold (or are pending) with deposits of 10-15%.

- According to the developers, most of the buyers are empty-nesters and many are paying in cash.

- A sales center will open in the former restaurant building as soon as November.

The repositioning of Zilker Park Residences shows that while the market is tough, well-positioned boutique projects can be successful. With 40% of units accounted for, ZIlker Park Residences is off to a strong start. The up-market repositioning of the project based on early sales shows that demand remains for high-end downtown housing is real, and this bodes well for other projects currently under development. In addition, it also shows that demand for boutique hotel rooms remains strong. No doubt, this will be the toughest hotel room to book during the Austin City Limits Festival.

ZIlker Park Residences


Here is a summary of the project from the Austin American Statesman:

Developer John Wooley has added a boutique hotel to his proposed condominium project on Barton Springs Road bordering Zilker Park. He also has a new financial partner — the real estate development firm of Fort Worth billionaire Ed Bass.

Original plans for the project, announced in November, had 74 condominium units at the eastern edge of the park. The new design includes 40 condominiums and a 65-room boutique hotel whose operator Wooley said he's not ready to disclose.

Wooley also has purchased the former Wanfu Too restaurant site on Barton Springs Road, expanding the size of the project to just less than two acres.

His partners in the project are his brother, Jeff Wooley, and Sands Harris, a Harvard-educated architect and veteran developer of condo and mixed-use projects, including five such projects in the 72-acre master-planned Victory development in Dallas.

Fineline Diversified Development, Bass' development and investment arm, is a new equity partner. Bass was the equity partner in La Frontera, the 330-acre master-planned commercial development in Round Rock . . .

Prices are expected to range from $659,000 for a one-bedroom unit with 1,515 square feet to $1.4 million for a unit with 3,241 square feet. However, Wooley said about a third of prospective buyers are contracting for combined units, and the highest priced of those is in the $3 million range, for a unit with 6,700 square feet.

All will have balconies and screened porches.

Wooley said he decided to go with fewer but larger units based on the response to his initial marketing efforts.

Most potential buyers "are empty-nesters or people who soon will be," he said. "A lot of them have pretty large families, and when their children and grandchildren come home, they don't want to be in a loft or a one-bedroom."

Wooley said he has signed or pending contracts for 16 units, with buyers paying deposits of 10 or 15 percent.

Wooley said most of the buyers "are clearly planning on not having a mortgage," and thus won't be affected by the credit crunch that is limiting the availability of home loans.

Boecker said the project was appealing for several reasons, including the involvement of Sands and John Wooley, and the location near Austin's most prized park.

Development Update: The other 13 Buildings Rising Downtown

Austin Towers focuses on downtown Austin condo development, tracking the top projects currently under construction in the downtown area. As any observer can tell, there are many other downtown projects currently under construction downtown. Whether hotels, dorms, garages, or retail, all of these projects will change the face of downtown Austin

Here is a run-down of other important projects (information provided by City of Austin) which are currently under construction downtown:

Austin Market District, South Block Ph. II
The so-called Austin Market District is a four block zone spanning from 5th street to sixth street on Lamar. This project, on the Southeast corner of fifth and Lamar, involves construction on the garage portion of this second phase of an existing project. When completed, the 2nd phase will add a seven-story parking garage, 10,000 sq. ft. of retail space and 10,000 sq. ft. expansion to Pure Austin Fitness.

Hotel Van Zandt
The site has been cleared and San Diego-based JMI Realty will start construction late this year on a hotel project on Lady Bird Lake. The hotel, which will have 307 rooms, will be operated by San Francisco-based Kimpton Hotels.
Start Construction: November 2008
http://www.hotelvanzandt.com/
Austin Hotel Van Zandt

Gables Park Plaza
Construction has started on this primarily residential project (294 apartments and 185 condominiums), along with 22,000 s.f. of retail and 11,000 s.f. of office and a 5,000 s.f. restaurant.
Completion: Early 2010
http://www.gables.com/

Gables Park Plaza Austin

La Vista on Lavaca
Construction started in 2007 on this mixed-use building which will have a first floor restaurant, a 3-floor Executive Business Center, and 31 condos (700 s.f. to 2,000 s.f.) on the top floors. Construction, however, has recently stalled without explanation.
Completion: April 2009
http://www.lavistaonlavaca.com/

La Vista On Lavaca Austin Condos

The Ashton
MetLife Inc.'s Dallas office has teamed with The Hanover Company of Houston to build a 36-story tower on the half block lot just west of the 100 Congress. The project (formerly named Altavida) will include 258 rental units and a 5-level parking garage and ground floor lobby, visitor parking and retail space. Five levels of below-grade parking will connect to the existing 100 Congress garage.
Completion: Spring 2009
http://www.altavidaaustin.com/

The Ashton Austin Altavida Downtown Rental

Crescent
The project is a apartment development consisting of 169 multifamily units near Congress and Riverside in the South Congress area.
Completion: Late 2008
http://www.crescentaustin.com/home.html

Crescent Austin Rental

300 Lamar Boulevard South
Phoenix Property is building a 5-story, 137-unit apartment project with ground floor retail and restaurants, on the site formerly occupied by Binswanger Glass Co.
Completion: Early 2009

The Presidio at Judges Hill
Dallas-based Stonehill-PRM Realty is developing a 45-unit condo on the southwest corner of Martin Luther King Blvd. and West Avenue. Pricing starts at $235,000 with 45 units ranging from 689 to 1915 square feet.* Expected completion date of the model is mid-September with an expected completion date of November 2008. The project is being designed by Allan Nutt Architects, who also designed Piazza Navona in West Campus.
Completion: December 2008
http://www.presidioatjudgeshill.com/

Presidio at Judges Hill Austin

Legacy @ Town Lake
Legacy Partners is constructing a 31-story luxury high-rise residential building, with 187 apartments and 9 live / work lofts at ground level. The site is across the street from the Milago condominium project, at the corner of Rainey and Cummings Streets, adjacent to the Town Lake Hike and Bike Trail.
Completion: October 2008 (first units), complete Feb. ‘09
http://www.legacyonthelake.com/

Legacy on Town Lake Austin Rental

La Vista de Guadalupe
La Vista de Guadalupe, a 22-unit multifamily development, is going up at 813 E. Eighth St., just east of downtown. The development will have apartments from one to three bedrooms in two buildings, with rents from $300 to $725 per month, targeting a mix of incomes. Each unit will have nine-foot ceilings and full appliances, with designs that maximize energy efficiency. The development aims to provide
housing for residents who are finding it difficult to stay in the East Austin area because of dramatic increases in rents, aiming at families below the median income. La Vista de Guadalupe is owned by Guadalupe Family Community LP. Guadalupe Neighborhood Development Corp., a nonprofit that focuses on neighborhood revitalization and preservation, will serve as the developer and
property manager.

Super COOP
Alan Robison This is a 7-story, 178 unit multifamily / co-op development.

21 Rio
This is a 16-story, 117 unit private UT housing project with some first floor retail.

21_Rio__UT_private_dorm

The Quarters
John McKinnerney This is a 100-unit multifamily project with ground floor retail.
http://www.quartersoncampus.com/

In addition, AustinTowers continues to report on the following downtown condo projects, all of which are actively under construction or recently completed:

360
Austonian
Barton Place
Bridges on the Park
Four Seasons Residences
The Shore
Spring
W Hotel & Residences