Day 1:
Meeting with Austin Officials
Today we met with city officials at Austin City Hall. The first thing I noticed was the actual building itself. From outward appearances, it was very attractive with a façade of limestone and other contemporary materials. The inside was attractive as well and thing that I noticed the most was the presence of lots of natural light. I think the city did a nice job with the architectural design and to put it bluntly; it “felt” like Austin the moment I walked in.
After pictures with Dr. Forgey we began our discussion with the panel of city officials. We discussed how the downtown area was essentially broken up into two TIF districts and how the city uses public/private partnerships with regards to development. Within the discussion to projects were brought up. The first was the old water plant downtown that is no longer being used to supply the city with water. The second property was the old electrical plant that is still in use. The water plant was interesting because of its massive footprint, square footage, and remediation. Moreover, its proximity to the arts district made it a very attractive development site. As I mentioned, the City Hall building was impressive. Not only was it built to LEED certification, but it was also built to Austin’s own code requirements which is, by city standards, much higher than LEED standards. In fact all municipal buildings now require silver LEED certification or better.
Another interesting tidbit is that Austin does not actually sell city land but uses ground leases for most of their property. While this isn’t earth shattering, it is an important consideration with regards to the legal structure of the development. In addition to the ground lease issue, the city also has sightline restrictions with regards to the state capital. In fact, there are 23 such sightline areas which developers have to take in consideration with regards to vertical height. While this isn’t necessarily a problem it does make it an issue to consider when developing a new project, and this also has the propensity to add additional cost as more land may need to be procured to accomplish the project. All in all, I thought it was a good meeting and it gave me a better perspective on how the city handles its affairs with regards to development.

Austonian Luxury Condominiums

One word describes this project…..WOW! The Austonian is a luxury high rise condominium project in the heart of the arts district. Much consideration was put in the project. Not only is the sight strategically place in the heart of the arts district, but its 50+ stories also make it the tallest building in Austin. I wonder how Frost Bank feels being in its shadows? The property caters to the Austin elite, with a panoramic view of the skyline in its top floor fitness area, decadent interior finish outs, and a jaw dropping 500$ to 1000$ price per square foot price tag. Features I found impressive where the quality of materials in the individual units, the theatre, the dog park, and especially the outdoor pool area. I really thought it was a terrific idea to literally break up the outdoor space into separate “living areas”. Another feature I thought was crafty, was partnering with upscale vendors to offer their services to the residents using the facilities the property provided. However, there was some quirkiness with regards to the aesthetics in some areas. First all, there was wallpaper in some of the units and in the ballroom area. I thought that was odd. Moreover, there was carpet in the ballroom/meeting area as well. Why not put in hardwoods like the rest of property? The last thing I would have liked to see in the residential units where arches in some of the doorways or open areas. It just seemed to me that were many sharp angles and given a project as opulent as this, the arches would great more of an airy feel and would soften up the living areas.
Aesthetics and amenities aside, the one take away I got from this project was that when marketing a property of this magnitude, you need to market your property not only to those who call Austin home, but those who travel for either business or vacation to the city. Moreover, the property caters to elite crowd and you’re not just buying a property but rather an exclusive lifestyle.

Chestnut Commons

Chestnut Commons was 64 unit affordable housing developments (80% of MSA) just East of I-35 in Austin. It was developed with 25-35 demographic in mind with units ranging anywhere from 1000 to 2000 square feet. Although many of the units were free standing, they were classified as condominiums rather that SFR. There were several things that stood out about the project. First was the density of the units. It appears they were designed for SINKS and DINKS, and those who wanted to own, but were simply priced out of the expensive real estate market inside the city of Austin. With this in mind they were sold for roughly about 150k on average. Coupled with low mortgage rates, and special mortgage programs geared towards affordable housing by FNMA and FHLMC, these sold very quickly. In addition, I thought the common areas were well thought out and designed. Even though yards , and commons areas were small, the property was laid out so that neighbors could mingle and come in contact with each other. This creates an urban feel in a suburban environment. However, the most interesting to me is actually pretty simple. Given the units were essentially built with the same floor plans and construction material, the bright colors each unit was painted with gave the feel of differentiation and made the project feel lively and upbeat which is what I think of when I think of Austin.





Day 2:

Ronald McDonald House/Mueller Development

Let me begin to say I was completely surprised when we got to the sight. I as child, I remember seeing the old McDonald House commercials and expected to the site to be somewhat depressing. However, when we arrived my assumptions were completely shattered. The McDonald House’s purpose is to give children and their families a place to stay in a nurturing environment with families that are dealing with the same health issues. With that in mind, the nonprofit has to create not only a place to stay, but an environment where families can simply be families and take a much needed break. With this in mind, the building was laid out to address this. However, the property was also built to LEED Platinum a standard which is not only commendable, but it is the only one of its kind in the world and just one of 12 buildings in the world. The building itself was designed for efficiencies, and this was seen in several instances. The most notable was the use of natural light. It was everywhere, and this actually serves two purposes. Not only does it reduce the use of internal lighting, but it creates happier environment for the people that call it temporarily home. In addition they site also used systems to capture rain water for irrigation purposes as well as drip irrigation from the HVAC units rather than irrigating from the city water system. This not only conserves resources, but this in conjunction with the lighting saves money. This brings up an interesting construction fact. Even though there is an addition 14% to 16% increase in construction cost, the McDonald House is projected to recapture these expenses in less than 3 years. The net effect is more money the nonprofit can use in following its mission.

The Mueller project is adjacent to the Ronald McDonald House and the Dell Children’s Hospital. They both sit on a Brownfield sight which was the old airport. The project itself is about 600 acres and is a Master Planned Unit Development. While these projects are not unique in Texas, the premise of the project is. The development was planned with energy efficiency and environmental conservation on mind. Given that Austin bills itself as a “Green” city, this makes sense and people are often willing to pay a premium to be environmentally conscious. Aside from its mix of SFR, apartment rentals, retail etc, the property featured environmental components such as ponds that naturally filtered waste water before storm runoff went into the sewer systems and into the creek system as well as designated areas for reclamation of the Blackwood Prairie which has been decimated. In many regards the project reminded me of the old Stapleton Airport redevelopment in Denver, CO and the success the city has had with that. I’m sure the Mueller project will have similar success, especially with the hospital in close proximity and the variety of housing choices to fit income levels of those that work there.


Sea Holm Water Plant
This was a property that was briefly discussed with Austin City Officials. Given that Austin does not offer much in development incentives, they were interested in seeing this site reused for another purpose. The vision is to reuse the site as a 7 acre mixed development with residential, retail and outdoor amphitheater for entertainment. However, given the magnitude of the property and remediation costs, financial assistance was granted in the form of 13 million dollars in assistance to clean the property up. While the property is deemed historic, the developer is struggling with the costs and while additional incentives to make the project viable. Another issue is the property is in a state capital sight line, and this will have to be addressed when/if they are to develop the 26 story tower as part of the master plan. On a side note, I wonder what they are going to do with the huge crane inside the building. I was told they are going to keep it and use it somewhere. I love the creative component of these projects.


Lunch with the Department of Agriculture
After eating some tasty BBQ we were treated to a presentation by the Texas Department of Agriculture. The topic discussed was the need for economic development in rural communities. While the state can assist in infrastructure, they cannot assist in attracting business to their community. Their suggestion was instead of spending the few marketing dollars they have trying to lure in the big fish, they should focus on existing business or look for energy, and biotech companies that may have longer staying power. To be parochial, it’s best not to put all your eggs in one basket, or count your chickens before they hatch.

Hill Country Galleria

This medium to high-end lifestyle center in the hills west of Austin was a case study in failed projects and value investing. Although we did not meet with the developer or the investors on this project we, did meet with the leasing broker representing the owners. The project was built for a total of 180 million dollars but due to issues with lease up, the economic downturn and a myriad of co-tenancy issues the project ultimately went into bankruptcy. The project was purchased out of BK in an all equity deal buy two partners from the Weitzman group for approximately 75 million. When I asked the broker if he was getting requests for rent relief, he responded that almost all tenants were getting some sort of break on their rent. However, once the economy rights itself (and it will), and the co tenancy issues are resolved, the ROE should be substantial for this property. Given the property has no debt, and it was purchased at a discount, I would think this would be a home-run investment for the owners.


Day 3:

Meeting with San Antonio Officials
In meeting with city officials today, there was a clear contrast with the meeting we had in Austin. Whereas Austin had a laid back feel to it with regards to culture, San Antonio seemed much more rigid. A simple example is their code enforcement. In Austin the code officials wore khakis and a polo, but in San Antonio, they wore uniforms replete with a badge. It just seemed so formal. Furthermore, when discussing code issues, they seemed rigid and unbending to unique circumstances. Other issues discussed where how to revitalize neighborhoods surrounding the urban core; mainly the King William Historical District. Other topics that were discussed were the new Federal Courthouse and GIS issues. Overall, I would say our meeting was lukewarm. The official’s seemed to be unorganized with regards to a clear initiative and an actual strategic plan. I also got the sense that there a few some hostilities between each department.

Vistana

The Vistana project was a mixed use project developed by Ed Cross who was kind enough to meet with us and give us a tour. The project features retail on the first floor and apartment living above as well as a parking garage. The property itself was huge in that it took up an entire city block and showed a 97% lease rate. While this is terrific in any market, he is having success where all other projects of this type in downtown have failed. However, I was more intrigued by the additional revenue opportunities within the project. Not only was he receiving rents from residents and the commercial space but he was also leasing out the excess parking spaces which has can add substantial value to the property dependent on the increase in NOI and the existing cap rate. For example, 200 parking spaces at five dollars a day 5000 per week, this equals 260000 dollars. At a7% cap rate , this add as additional 3.7 million dollars in value. It was also interesting to hear him talk about how he got started and how he owns several properties around the city.
Mr. Cross was also kind enough to meet us for drinks on the River-Walk after wards where he discussed the property at 1221 Broadway and the issues he had in buying it from the bankrupt developer. While I cannot remember all the specific details, the lessoned learned was “don’t be your own architect”, and “leave your ego at the door”. I would like to see what comes out of the project given its current state looks like a bombed hull of a building.


Day 4


The Friedrich Building

The Friedrich Building is an old industrial building that used to house Friedrich Refrigeration. The footprint is about 6 acres and encompasses just over 530k square feet. Simply put, the site is HUGE. It currently houses a few small business, and revenue is coming. My understanding is the property was purchased for about 8 million dollars with the intention of turning it into a data center. There has been some remediation on the property but not all. While the building is pretty cool in a Nightmare on Elm St. kind of way, I’m not really sure what to do with it. The leasing agent who toured the property with us had mentioned “selective demolition” which is certainly an option, but without some serious incentives it would be difficult to make this project work. However, the property does sit on a TIF district and the city has made some infrastructure and capital improvements with regards to roads and streetscaping. Also, the street the property sits on goes directly to downtown and the Alamo dome. It would be a great location for urban work/live lofts if a developer could get the right financing/incentive package in play.



Alamo Architects

The meeting with Alamo Architects went very well. They were kind enough to take time out of their day to show us how they used adaptive/reuse on their building that the currently operate out of. They essentially converted and old warehouse into a LEED Silver building. They did this by installing windows throughout for natural light, reused as much as the old materials as possible which save landfill space, and installed water capture system to catch the condensing drip and rain water to irrigate their landscaping. The coolest thing they did, was they used the old concrete to form a barrier (which doesn’t like tacky at all). I’m sure that in it of itself scored them a LEED point or two.


Marty Wender

What do Mart and the Energizer Bunny have in common? They have tons of energy! Marty was nice enough to not only speak with us in his office but to feed us as well. Thanks Marty! This meeting was different in that all the projects we looked at were development, adaptive reuse, etc., and Marty was all about land acquisition and land plays. Marty did his research on growth patterns and acquired parcel after parcel of land in the northwestern corridor of San Antonio. In doing so, he was able to work a deal with city with regards to the infrastructure and essentially sell the parcels off to developers as he sees fit. He’s most known for Sea World, The Hill Country Resort, as well as numerous data centers. He is also about of a salesman and politician rolled into one, and always looking to make deal and set things in motion.

San Antonio Riverwall Project

The extension of the San Antonio Riverwalk was put together to offer amenities to the actual residents of San Antonio. While the lower portion of the river is geared towards to tourist, the upper portion has been remediated with local artwork and sculptures. It is also broken up into several sections that create a different feel to it. In the process the city cleaned up the bums and “less desirables” and has spurned redevelopment along its upper banks. Business such as the VFW have benefitted as has the Museum of Art. In keeping with the context of culture and history old items like the bridge have been incorporated and small details such as the lathwork on the outdoor crossing posts were made.


Friedrich Lofts



Day 5

Meeting with Houston Officials

The meeting in Houston was by far the most laid back so far. In meeting with officials the underlying theme was no zoning, code based enforcement, and that they relied on deed restrictions to handle the uses for the property and land. You could almost make the argument that it’s the Wild West and anything goes. The city basically reference code 42 and how it was dynamic. They also suggested they Houston is a test market for new projects to see how they fare. Given a less restrictive development environment it should make it easier and less expensive for a developer to get a project off the ground. In addition they did discuss infield development and the need for economic incentives to play a role in getting developers to look at projects inside the loop rather than the suburbs. There are many people that don’t like Houston, because in many regards its not homogenous and controlled. For me, I prefer less control, and like the idea of developers managing themselves rather than the government doing it for them.

West Ave

The West Ave project is located in the posh neighborhood of Westheimer. The project itself is a Gables project and consists of ground floor retail and apartment living upstairs. While they have had success in leasing the apartments at over 85% occupancy, they have struggled on the retail with only 41% leased. The residential units are finished out very nice with hardwood floors, granite countertops, and even a built in I-Pod doc that plays through built in speakers. Maybe this is why there are getting an eye-popping 2.00 a square foot. When I asked them about other properties, Ben told us that Gables on focuses on an exclusive property type and they have been selling pieces of their portfolio that do not fit within that context. Ben also addressed the issue with the retail space on the second floor. Although, it is not leased, they are looking at either converting it to flex space, or worst case, residential units. My only regret with this project is I wish we could have spent more time. The story of how the parcels were required and the financing of the project were very interesting.

The Core

Michael Morgan was the Developer of this property. He is also the only one willing to share financial information which I am greatly appreciative of. Although h is property is only a few miles away, it caters to a different market which is the 25-35 year old, in a slightly lower tax bracket. Currently he is getting about 1.40 a square foot for his units, and the proximity to nightlife makes his property attractive to his tenants. His loan on the property is currently indexed to LIBOR and his partners are an equity REIT. In visiting with, I wasn’t so much impressed with his property as much as with his common sense approach to development which is basically focus on one thing at a time and stay the course.
New Hope Foundation

The New Hope Foundation is a nonprofit organization that focuses on ultra low income housing. While not a halfway house, housing here is a stepping stone. The Bays Crossing property was an old run down hotel that the city asked New Hope to take and remediate. While the acquisition was high due to its proximity to I-45, they agreed to remediate the property. Rents for units which are finished out like dorm rooms run about 450 dollars a month. Unique features on the property include a sound wall to shield the property from highway noise and common areas for residents to get out of their rooms and mingle with other residents. The Canal property while similar was cheaper to design but has the same mission in supplying affordable housing for those who would otherwise be homeless. This property features a landscaped courtyard and is closer to within the city. Both properties are financed with a variety of incentives such as low income tax credits as well as grants from foundations, and other public and private donors. I really like the mission of New Hope in that they are providing a service where the public sector has failed and the private sector can not engage because of the profit motive. It’s too bad that Dallas does not have something similar other than basic homeless shelters.

City Centre

The City Center development looks like something Dr. Matthew Cypher would embrace with open arms. Developed by Midway Companies, Brandon Houston gave us a tour of the property. The mixed used development includes, over 500 residential units, retail and office, restaurants, a hotel, and 22 condominiums over the hotel. 60% of the equity came from the Michigan’s Teachers Pension fund and the remaining from private investors. The land was acquired from a defunct mall and was negotiated privately before it came to market. Because of this Midway was able to obtain a substantial discount. The property is also situated in one of the wealthiest areas in Houston that is also headquarters for many prominent oil and gas companies. One thing that Midway did not plan on was getting more per night in there hotel than what was originally in the pro forma. Because of the high level of corporate executive traffic and the lack of decent hotels, they are able to capture more of the market. The only substitute hotels are the Omni which is old, and extended stay hotel and motels. They have a virtual lock on the market. The only downside to the property is the submarket they exist in is primarily geared towards oil and gas, so if there are shocks to that industry, they may take a hit on their revenue.

Day 7:

Dallas City Officials
We met this morning with John who is the Director of Parks and Recreation for the City of Dallas. He discussed the city’s plan for a a six acre park spanning the Woodall Rogers Expressway. In doing so Dallas would be creating a link between Uptown and Downtown which is currently lacking and causing a divide in the city. I found this interesting in the Dallas is deeply segmented in its areas. We have Uptown, Downtown, the Arts District, Warehouse District, Greenville area etc, but everyone of this links are broken. The only way to access them is by automobile or in some cases light rail. However, they way Dallas is assembling the land is by invoking eminent domain which I don’t agree with. While it’s probably good for the city to have the park, I don’t believe the government has the right to take land for any purpose. While the Supreme Court ruled that this is acceptable if it is for the public good, I still don’t agree with it. He did mention, though that the project has been funded through Federal Stimulus money, private money, bond money, and state money. Mayor Leppart also took time out of his day to meet with us briefly. When asked about LEED certification and if Dallas would follow Austin’s lead, he responded that the new buildings would be built to LEED certification, but would not be built to a higher standard beyond that. He also spoke of the Vacant Building Initiative which essentially is the city’s way of policing owners to either fix their buildings to make them marketable or force a sale.

A Loft Hotel

The A-Loft hotel is a Starwood hotel adjacent form the new Omni hotel and across the street from Dallas City Hall and the Dallas Convention Center. The hotel owners used the property as a redevelopment project ion that it was the old Santa Fe/Haggar building. In keeping with its historical roots and compliance with the historical tax credits used to finance the hotel, much of the internal infrastructure as well as the external façade were kept intact. In addition the property featured “loft” style hotel rooms that mix old warehouse style living with funky furniture and colors. Couple this with an open lobby area with local artwork that rotates on a monthly basis, and you get a hip luxury hotel that is sure to capture downtown hotel rooms from the new Omni, Hotel Indigo, and other boutique hotels.

Craig Ranch

Craig Ranch is a master planned community in McKinney Texas. We met with Mr. Craig who spent several hours with talking about his 600 acre development. The project consisted of SFR, condominiums, office space, retail, a medical district and a TPC golf course. In addition to the development, he has several strategic partners with Texas Health Resources, the Dallas Stars, Texas Health Resources, PGA, and several Michael Johnson, and other athletes. The takeaway I got from him was the CCR on the master plan with regards to usable porches, stone facades, and green areas. If the CCR are strict with regards to construction materials, there is a high likelihood that the development will be sustainable over the long haul. I also like his vision of development where there are other amenities that you can walk to rather than drive, and they he has public transportation for the residence so they can enjoy all the project has to offer. From a business standpoint, he made a very good point about the roll back taxes and possibly making a deal with the city to negotiate those lower given the substantial economic impact his project has on the municipalities. My suspicion is that Craig is his legacy he wants to leave behind, much like the Stemmons and Carpenter families.