City of Houston
We met with:
Richmond Coward, Planner
Brian Crimmins, Planner variances and landscape ordinances
Ryan Albright, Planning issues and development
Marlene Gafrick, Director, New construction
Zoning
This city has a very different take on real estate to other cities. They do not have any zoning, but rather choose to control their market through building codes. This makes for a faster development environment, and allows the market to dictate where something will work instead of city planners.
For example, a sub-urban area in Houston will often end up with grocery stores popping up in their neighborhood, something that creates some concern among the residents. In this specific case, the city was approached to help the area with congestion and to ensure that the grocery store did not ignore the residents. The city simply asked the store to speak to the residents with regard to facade and some other issues and left them to it. At the end, the neighborhood was happy as they could walk to the store, and the grocery store had good access to their client base.
They have a one size fits all ordinance. An unintended consequence of this is that a drive through restaurant will still have to provide parking as if it where a traditional restaurant. They are seeking some ordinance changes to remedy this.
There are some parking code violations that have come up with this, shared driveways for instance. Often the owners will build a deck above the driveway, and end up not having enough space to allow a fire truck into the site.
An important code change is the recent adoption of area designation in the code, a variation from the one size fits all approach. The CBD is one such area.
Some interesting artifacts of not having zoning are:
Few planners can control a large area, they manage the a very large area with only 12 planners; No height restriction on Multi Family Housing other than the FAA within the urban areas, inside the loop highway 610.
This city also wants to limit the sprawl problem insofar as this is possible. They have promoted infill development in the city core by allowing maximum density.
An interesting side effect of the lack of zoning is that a place of worship might be very close to a sexually oriented business, but it generally works out as establishments that serves alcohol must be at least 1000ft from the next land use that does not.
TERS District
The city has a TIRZ district implemented to help target redevelopment into the downtown area. This is similar to a Tax Increment Financing district.
Mission
Their stated mission is to: to ensure the city remains a vibrant and growing economy. This goal is being sought after with various incentives and economic development to drive the downtown areas. The city feels that use determines lifespan for real estate, and cite a local project where a low density garden apartment was on the table for demolition only 10 years after it was constructed to raise the density.
Transit Lines
Transit core ordinance allows the same density allowances to be built along the transit lines, both existing and up coming. They have allowed the code to preempt the actual development.
Ownership
Most people "inside the loop", the area just outside of the CBD running up to the ring shaped highway that runs a full circle around the city, are renting. This student sees a future where development has been stimulated so far that people do not own their own homes, as there are only rental apartments within the city limits.
Urban Sprawl
The city seeks to reduce utility costs by keep sprawl to a minimum through increased density in the city center.
Connectivity
They are a multi-centric city. We want to promote connectivity between different areas.
Impact Fees
The city limits its fees insofar as possible to keep the cost of development low. They will typically charge extra fees for areas outside the urban area, without adequate infrastructure. For instance they charge the extra amount that the water line would have to be extended for the new development.
Deed restrictions and land ETJ
They have a very large ETJ, the area under their authority, with few areas under 2 authorities as in other cities. This speeds the development process as the developer needs to only meet one city group.
Deed restrictions can be set on a property will usually by the developer, on an at will basis.
The city is bound by law to enforce the deed restrictions. there are only 2 ways around this, finding the original deed writer and convincing him to change his mind, and state involvement. Many land owners have run afoul of this law, and the city recommends caution when purchasing property and a thorough title research before committing.
Incentives
There are numerous incentives underway, and some new ones coming, all the usual kind, historic preservation, TIFs and brown field incentives. They have extended the incentives along the rail lines to spur development along this important linkage.
on an ending note, they offered the following advice for doing business in Houston,
Always check the deed restriction, assume the worst, do an thorough due diligence, look at the flood plane, and ask the planning department for as much information as possible.
Thursday, May 27, 2010
Marty Wender
Mr Wender is a master developer operating in San Antonio. He has been rather successful over the years with his more recent development, West Over Hills, attracting clients such as the National Security Administration, Microsoft, Sea World.
West Over Village
He gained the sea world business against much criticism from the development community and his investors as he had to take a loss on the deal. This was acceptable in his opinion as the trade off was increased traffic and ancillary services.
The National Security Agency (NSA) is one of his clients for this particular development. The contact at the NSA bought the property sight-unseen as Microsoft already had a data center there. The credibility and market research of Microsoft won Marty the business.
As the master developer he is responsible for infrastructure and permits. This ensures that the area is developed with a plan in mind and that the utilities are able to manage the load.
He has a philosophy that there are 2 kinds of people in the world, Givers and Takers. He has found in his career that the Givers always do better than the Takers, but unfortunately represent a smaller fraction of the population of business people.
Mr Wender believes that you cannot solve a problem with a negative statement, a throw back to a logic course he took in his undergraduate degree. This view has helped him to solve difficult problems by always looking for the solution instead of complaining about the problem. He promotes this positive approach.
He is a consummate salesman and had a lot of advice to offer about the topic, always pitch toward your clients needs, don't dictate to the market, work harder than everyone else. Always go the extra mile toward impressing your client. Meet their basic human needs as well as the business ones. For instance, he tells a story about a client who really enjoyed a BBQ place nearby but was unable to dine with them before his flight left. Marty personally saw to it that they had ample supply for the flight and all the crew before take off. He smiles and says, "I don't know if I got the deal because of that, but it sure didn't hurt"
He is one of those kind souls that was willing to offer of their time and energy to help the next generation of developers and real estate professionals. For this I am grateful to have made his acquaintance.
The business that he operates while small is good at outsourcing its vital roles to maintain the level of professionalism that his clients and investors expect.
Some challenges he has faced in his resent career are the following, the north side of town, where the development was going was over the recharge zone for the aquifer that feeds San Antonio, the ground while hard, was predominately limestone, which made installing utilities much more costly, and the environmentalists found some endangered species on his proposed development site.
All of this together combined to violate the 11th commandment, "time is the enemy of a real estate deal."
Mayor Garza at the time was trying to direct the market south of the city, and also created many obstacles to Mr Wender's developments in the north.
He began to look west and found the area that would become West Over Hills, an area close to 3 new economic drivers which had gone largely unnoticed by the development community. The Medical Center, USAA moved into the area with 18000 employees and University of Texas at San Antonio (UTSA) built a new campus as well.
The deal structure he created with his partner is a limited partnership with a pref. return to the equity investor. Marty believes in using assignable contracts to limit personal risk in all of his deals, although he admits that it will be hard to slip this past the banks in today's market.
Mr Wender supports numerous philanthropic initiatives in his area, among which is the issue of dyslexia in school children. He believes in empowering the "differently abled" toward their life goals. Having overcome this challenge himself, he is well aware of the challenges and rewards associated with this learning style.
Marty left us with the advice,"Be a giver, get involved in the community and find a mentor"
Please click play for the photos of Mr Wender and some of his projects
West Over Village
He gained the sea world business against much criticism from the development community and his investors as he had to take a loss on the deal. This was acceptable in his opinion as the trade off was increased traffic and ancillary services.
The National Security Agency (NSA) is one of his clients for this particular development. The contact at the NSA bought the property sight-unseen as Microsoft already had a data center there. The credibility and market research of Microsoft won Marty the business.
As the master developer he is responsible for infrastructure and permits. This ensures that the area is developed with a plan in mind and that the utilities are able to manage the load.
He has a philosophy that there are 2 kinds of people in the world, Givers and Takers. He has found in his career that the Givers always do better than the Takers, but unfortunately represent a smaller fraction of the population of business people.
Mr Wender believes that you cannot solve a problem with a negative statement, a throw back to a logic course he took in his undergraduate degree. This view has helped him to solve difficult problems by always looking for the solution instead of complaining about the problem. He promotes this positive approach.
He is a consummate salesman and had a lot of advice to offer about the topic, always pitch toward your clients needs, don't dictate to the market, work harder than everyone else. Always go the extra mile toward impressing your client. Meet their basic human needs as well as the business ones. For instance, he tells a story about a client who really enjoyed a BBQ place nearby but was unable to dine with them before his flight left. Marty personally saw to it that they had ample supply for the flight and all the crew before take off. He smiles and says, "I don't know if I got the deal because of that, but it sure didn't hurt"
He is one of those kind souls that was willing to offer of their time and energy to help the next generation of developers and real estate professionals. For this I am grateful to have made his acquaintance.
The business that he operates while small is good at outsourcing its vital roles to maintain the level of professionalism that his clients and investors expect.
Some challenges he has faced in his resent career are the following, the north side of town, where the development was going was over the recharge zone for the aquifer that feeds San Antonio, the ground while hard, was predominately limestone, which made installing utilities much more costly, and the environmentalists found some endangered species on his proposed development site.
All of this together combined to violate the 11th commandment, "time is the enemy of a real estate deal."
Mayor Garza at the time was trying to direct the market south of the city, and also created many obstacles to Mr Wender's developments in the north.
He began to look west and found the area that would become West Over Hills, an area close to 3 new economic drivers which had gone largely unnoticed by the development community. The Medical Center, USAA moved into the area with 18000 employees and University of Texas at San Antonio (UTSA) built a new campus as well.
The deal structure he created with his partner is a limited partnership with a pref. return to the equity investor. Marty believes in using assignable contracts to limit personal risk in all of his deals, although he admits that it will be hard to slip this past the banks in today's market.
Mr Wender supports numerous philanthropic initiatives in his area, among which is the issue of dyslexia in school children. He believes in empowering the "differently abled" toward their life goals. Having overcome this challenge himself, he is well aware of the challenges and rewards associated with this learning style.
Marty left us with the advice,"Be a giver, get involved in the community and find a mentor"
Please click play for the photos of Mr Wender and some of his projects
Wednesday, May 26, 2010
Alamo Architects
The owner and his assistant
This LEED Silver building is quite interesting in that it attained its LEED status by using many of the materials that where already on the site. The previous owner was using it as a furniture manufacture and storage warehouse. There was a lot of concrete on the site that the Alamo group reused as planters, conversation pieces and a wall around the parking lot. As one of the components that the United Stated Green Building Council (USGBC) measures is the weight of the wasted material, this weight saving earned them many points toward LEED.
The building is clad in steel cladding, considered to be longer life than traditional wooden or chipboard siding. Powering the office cubicles in the spaces required a cable tray for the power and data lines as the floor, one slab of concrete, was kept and reused. Much of the gates and other metal objects on the site where used in the planters for climbing plants to use. This was another weight saving toward the LEED certification.
The reason that they decided to do this project as a LEED silver one was that they felt the market was moving toward green building standards and they wanted to "walk the talk" This was their first green building, they have subsequently built many green buildings for clients.
One lesson learned was that the decision to go green if made early, during the planning phase lowers costs and frustration. They did not make the decision early enough for their own building, and feel that they would have attained a Gold rating if they had done so sooner.
The site is small enough that they did not have to include any kind of storm water detention facility. they did however include a rain water catchment barrel. This only gets 50% of the rain that falls on the building, but is supplemented with the air conditioner condensation. This is surprisingly high at 70 Gallons per day for a 150 ton unit. Many industrial units can generate much more water than one would assume. This water is used to water the plants on the site.
The net effect for them is good in terms of lowered operating costs. They enjoy 20% lower cost on utilities than their last office space despite the larger size of this site.
LEED certification pays off it would seem.
LEED silver!
Reused concrete walkway
Green space in the entry way
Rain water catchment
Parking wall - Reused concrete
The site before construction started
Cubicle siding - reused garage doors
Reused wood paneling
This LEED Silver building is quite interesting in that it attained its LEED status by using many of the materials that where already on the site. The previous owner was using it as a furniture manufacture and storage warehouse. There was a lot of concrete on the site that the Alamo group reused as planters, conversation pieces and a wall around the parking lot. As one of the components that the United Stated Green Building Council (USGBC) measures is the weight of the wasted material, this weight saving earned them many points toward LEED.
The building is clad in steel cladding, considered to be longer life than traditional wooden or chipboard siding. Powering the office cubicles in the spaces required a cable tray for the power and data lines as the floor, one slab of concrete, was kept and reused. Much of the gates and other metal objects on the site where used in the planters for climbing plants to use. This was another weight saving toward the LEED certification.
The reason that they decided to do this project as a LEED silver one was that they felt the market was moving toward green building standards and they wanted to "walk the talk" This was their first green building, they have subsequently built many green buildings for clients.
One lesson learned was that the decision to go green if made early, during the planning phase lowers costs and frustration. They did not make the decision early enough for their own building, and feel that they would have attained a Gold rating if they had done so sooner.
The site is small enough that they did not have to include any kind of storm water detention facility. they did however include a rain water catchment barrel. This only gets 50% of the rain that falls on the building, but is supplemented with the air conditioner condensation. This is surprisingly high at 70 Gallons per day for a 150 ton unit. Many industrial units can generate much more water than one would assume. This water is used to water the plants on the site.
The net effect for them is good in terms of lowered operating costs. They enjoy 20% lower cost on utilities than their last office space despite the larger size of this site.
LEED certification pays off it would seem.
LEED silver!
Reused concrete walkway
Green space in the entry way
Rain water catchment
Parking wall - Reused concrete
The site before construction started
Cubicle siding - reused garage doors
Reused wood paneling
Friedrich Lofts
The Friedrich lofts are located just across the tracks from downtown San Antonio. The building was originally used to manufacture HVAC systems for the residential and commercial market. They didn't follow a cohesive plan when they where designing the plant resulting in some strange space configurations. The original owners built adhoc buildings onto the site as they needed it, including extending the roof across some alleyways to utilize that space as well.
We met Patrick Sheer, the broker for the property, who furnished us with some detailed and interesting information about the history of the property, how the area declined with the construction of highway 281, cutting it off from downtown, the original use and current developers plans and sale price. He is asking for an ambitious $8m for this project. The current income does not support this value.
The site is well developed in certain areas into office space. There is 10000 square feet of office space at the moment. We where fortunate to tour one of the offices, which is occupied by an architecture firm. See pictures below for the specifics, but the space was well used by and large.
One issue that this project has is large industrial rooms with few walls. When the spaces are broken up into smaller sections, it becomes hard to get natural light into the majority of the useable areas.
This is one reason that the project has not continued in other areas. There was some talk about creating residential and retail in the other areas, but overcoming the lighting issues is complex, especially for the residential units.
It is in a serious state of disrepair in some places, with a portion of the roof collapsed in one room. It is not safe for public use at the moment as there are nails sticking up from the floor in one room, massive pits in the floor in another and inadequate ventilation in other areas. In short, the developed portion of the site is very clean and well designed and redeveloped with about 2 thirds of the site still needing major repair work.
The site is in a Tax Increment Financing (TIF) zone, is eligible for new market tax credits, historic tax credits and is also in a Planned Unit Development (PUD) zone. An interesting artifact of the organic way that the buildings grew around each other is that the site is quite flexible in terms of Historic tax credits, a major boon over other historic sites.
If a developer could build housing on the site, and employ those same people in another part of the site, he could claim some tax credits from the federal government under another plan aimed at minority groups.
The city asked them to park in another space as the parking area that they where using did not have sufficient ventilation. The cost of renovating this space is therefore wasted until a new usage can be found.
A final note is that this site is a brown field site with some PCB, asbestos and lead based paint that would need to be remediation.
Historical industrial elements in enterance
Another view
Architect Offices enterance
Inside the offices
Inside the offices
Parking area
Space available for construction
Space available for construction
Space available for construction
We met Patrick Sheer, the broker for the property, who furnished us with some detailed and interesting information about the history of the property, how the area declined with the construction of highway 281, cutting it off from downtown, the original use and current developers plans and sale price. He is asking for an ambitious $8m for this project. The current income does not support this value.
The site is well developed in certain areas into office space. There is 10000 square feet of office space at the moment. We where fortunate to tour one of the offices, which is occupied by an architecture firm. See pictures below for the specifics, but the space was well used by and large.
One issue that this project has is large industrial rooms with few walls. When the spaces are broken up into smaller sections, it becomes hard to get natural light into the majority of the useable areas.
This is one reason that the project has not continued in other areas. There was some talk about creating residential and retail in the other areas, but overcoming the lighting issues is complex, especially for the residential units.
It is in a serious state of disrepair in some places, with a portion of the roof collapsed in one room. It is not safe for public use at the moment as there are nails sticking up from the floor in one room, massive pits in the floor in another and inadequate ventilation in other areas. In short, the developed portion of the site is very clean and well designed and redeveloped with about 2 thirds of the site still needing major repair work.
The site is in a Tax Increment Financing (TIF) zone, is eligible for new market tax credits, historic tax credits and is also in a Planned Unit Development (PUD) zone. An interesting artifact of the organic way that the buildings grew around each other is that the site is quite flexible in terms of Historic tax credits, a major boon over other historic sites.
If a developer could build housing on the site, and employ those same people in another part of the site, he could claim some tax credits from the federal government under another plan aimed at minority groups.
The city asked them to park in another space as the parking area that they where using did not have sufficient ventilation. The cost of renovating this space is therefore wasted until a new usage can be found.
A final note is that this site is a brown field site with some PCB, asbestos and lead based paint that would need to be remediation.
Historical industrial elements in enterance
Another view
Architect Offices enterance
Inside the offices
Inside the offices
Parking area
Space available for construction
Space available for construction
Space available for construction
The Vistana
Ed Cross has been named in an article entitled "A Decade of INFLUENCE - 10 places & people that have improved Downtown San Antonio," by Bill Conroy, editor of the San Antonio Business Journal. His larger than life style and enthusiasm for sharing with students was evident in this project as we explored many different spaces with him.
This huge development in downtown San Antonio started as a parking garage of all things, and little bit by little bit it was upgraded until it now covers a full city block, has 247 apartments for rent, 4 level parking garage, storage, and a the floor is all retail space.
The project is 530,000 square feet in size.
The Apartments are loft style, well-lit, have access to a rooftop pool and fitness center, and are finished with granite and other high end materials. The ceiling height is enough to illicit the coveted "wow" response when you first walk inside.
His Tower Apartment, is the icon of the building, visible from the street level. It is a huge 3 level apartment with 360 degree balconies surrounding 2 of the levels. Being rented for $7000 per month, it was available for our viewing, a fact for which I am grateful. This apartment would be wonderful for entertainment of guests and other social functions.
The retail on the project is sadly empty at the moment, as Ed Cross and his agents seek a suitable tenant.
This project is a ways away from the norm for this developer who got started doing warehouse space as he discovered that the Tenant Improvements on retail and maintenance on office blocks have a detrimental effect on the ROI he could receive. He states "all you have to do is sweep it" in reference to the process of getting the warehouse space ready for the next tenant.
He entertained 2 mythical tenants in his planning phase, Nurse Betty, who works at the local hospital; and the knuckle Head. This young man is single, under 25 and fond of dropping large objects down the trash chute among other mischievous deeds. Having this focus allowed him to build to suit the needs of both (security and safety for Betty and unbreakable trash chutes for the other one)
The finance on this project is long term, fixed rate from a life insurance company, which has helped him weather the storm in the financial markets.
He volunteered as a guide for the DTA, a downtown association that ushered guests through various buildings in the downtown area for tourism. This he said was a great way to conduct focus groups as he would ask them after touring a building what they thought of the project.
One small issue that will be a benefit for the next project is that he overestimated the parking requirements for the the project. As such, he can use these extra spaces when he builds something new next door.
Rooftop Pool
Ed Cross show us an internal corridor - A full city block!
Inside an apartment
The Tower Apartment inside
The Tower Apartment view from the top
City of San Antonio
We met with David McGowan, Jesus Garza, Richard who stood in for Patrick Howard, Betty Feldman, one of the city's architects and Laurence Doxsey.
The key phrase I heard at this meeting was "catalytic projects." there is a prevailing meme that if the city invests in a key development for a specific area, it will generate other investment from the development community.
David McGowan, who is with the economic development arm of the city believes this, and is working with the federal government for a new 3 Million federal courthouse. He is involved with new market tax credits and HUD financing as well.
Jesus' Garza is working with Geographic Information Systems in the city. The city of San Antonio is one of the largest military training cities in the country. There are many bases around the city that act as economic generators.
Some zoning problems arise with the military from time to time regarding extraterritorial zoning, as much of their development is beyond the city limits.
His focus is to find developers who will develop in the city, under the "Inner City Reinvestment Act", which waives most if not all city fees, a saving of around 3% for the typical project.
The biggest barrier too inner city development is in the nature of their local economy. They are a tourism driven industry, and as such, hotels have traditionally been the only companies that can afford to develop along the San Antonio river walk. The per square foot cost is usually to high for other businesses to pro-forma well.
His is working with local universities and he in the King William neighborhood, in which development was sparked by artists involvement. As the artists moved in, the area became more attractive to other residential projects.
By way of incentives, they offer
1) Waives all city fees for permits(3%)
2) a Landbank for accumulating land for redevelopment
He is looking to attract business into the downtown area, among which he mentioned,tourism, military, biomedical, market for urban residential and advanced manufacturing.
As with all the cities we met with, they expressed a concern about urban sprawl with the resultant congestion and rising costs of providing services.
Betty Feldman, the city architect, spoke about one of the sites we would later visit, 1221 Broadway street, a failed project with a long history of litigation. She expressed some satisfaction that Ed Cross is going to be finishing the development, which is located immediately off the river walk.
Richard spoke about community development management as the effect of student housing on the inner city can be large as it brings in large amounts of discretionary spending in some cases.
Laurence, mentioned Mayor Harbor, who passed a resolution to change some of the green ordinance. All city buildings will follow sustainability guidelines from this point forward. The Department of Defense and the Department of Education are on board with the cities green initiatives. he mentioned that a little known fact is that LEED was started through government involvement. He has a colorful history as he worked with these original codes before coming to San Antonio.
Before coming to San Antonio, he helped Austin gain its position as the "green city" that it is today. Many of those same programs and doubtless, many more are being implemented under his direction in San Antonio now. For instance, PACE- property assessed clean energy, Retro fit ramp-ups, Efficiency and block grants of $12.9m for solar panels, $8m for advanced lighting in buildings, a tree planting program, public transportation European style with bicycles available on loan,a Green Fleet program, with 91 hybrid sedans, 30 propane trucks,comressed natural gas for 30 garbage trucks and some weatherization work.
He expects to save around 771 Megawatt of energy over the next few years of these programs.
The key phrase I heard at this meeting was "catalytic projects." there is a prevailing meme that if the city invests in a key development for a specific area, it will generate other investment from the development community.
David McGowan, who is with the economic development arm of the city believes this, and is working with the federal government for a new 3 Million federal courthouse. He is involved with new market tax credits and HUD financing as well.
Jesus' Garza is working with Geographic Information Systems in the city. The city of San Antonio is one of the largest military training cities in the country. There are many bases around the city that act as economic generators.
Some zoning problems arise with the military from time to time regarding extraterritorial zoning, as much of their development is beyond the city limits.
His focus is to find developers who will develop in the city, under the "Inner City Reinvestment Act", which waives most if not all city fees, a saving of around 3% for the typical project.
The biggest barrier too inner city development is in the nature of their local economy. They are a tourism driven industry, and as such, hotels have traditionally been the only companies that can afford to develop along the San Antonio river walk. The per square foot cost is usually to high for other businesses to pro-forma well.
His is working with local universities and he in the King William neighborhood, in which development was sparked by artists involvement. As the artists moved in, the area became more attractive to other residential projects.
By way of incentives, they offer
1) Waives all city fees for permits(3%)
2) a Landbank for accumulating land for redevelopment
He is looking to attract business into the downtown area, among which he mentioned,tourism, military, biomedical, market for urban residential and advanced manufacturing.
As with all the cities we met with, they expressed a concern about urban sprawl with the resultant congestion and rising costs of providing services.
Betty Feldman, the city architect, spoke about one of the sites we would later visit, 1221 Broadway street, a failed project with a long history of litigation. She expressed some satisfaction that Ed Cross is going to be finishing the development, which is located immediately off the river walk.
Richard spoke about community development management as the effect of student housing on the inner city can be large as it brings in large amounts of discretionary spending in some cases.
Laurence, mentioned Mayor Harbor, who passed a resolution to change some of the green ordinance. All city buildings will follow sustainability guidelines from this point forward. The Department of Defense and the Department of Education are on board with the cities green initiatives. he mentioned that a little known fact is that LEED was started through government involvement. He has a colorful history as he worked with these original codes before coming to San Antonio.
Before coming to San Antonio, he helped Austin gain its position as the "green city" that it is today. Many of those same programs and doubtless, many more are being implemented under his direction in San Antonio now. For instance, PACE- property assessed clean energy, Retro fit ramp-ups, Efficiency and block grants of $12.9m for solar panels, $8m for advanced lighting in buildings, a tree planting program, public transportation European style with bicycles available on loan,a Green Fleet program, with 91 hybrid sedans, 30 propane trucks,comressed natural gas for 30 garbage trucks and some weatherization work.
He expects to save around 771 Megawatt of energy over the next few years of these programs.
Sunday, May 23, 2010
Hill Country Galleria - Austin
This project is an example of a project that has managed to pull itself out of failure at the last moment. Low occupancy has plagued the mall (a very large open air construction, with green space and an interesting fountain out front of the leasing office) with lower cash flow than would have been expected at the outset.
This retail project was built in an area that had a population too small to support it's size. There are 100 000 people in the capture area where traditionally there would be 150K needed to support a project of this size. However, the demographic in the area typically has a higher net worth than demographics of other areas. This fact spurred the developer to risk doing the project.
The recession presented a real challenge to the project with occupancy still recovering to a more stable level. Some of the stores have rent concessions, which will remain in effect until the occupancy of the center increases to above 70%. For instance, the Barnes and Noble franchise is currently listed as the 4th best of it's peers in the surrounding area, but does not have to pay a percentage of it's sales to the galleria as per the lease agreement.
This open air mall does not have a typical anchor store at the moment, which the developer feels will be key to creating better traffic flow into the project. They are seeking an "organic" grocery store such as Whole Foods or Central Market at the moment too meet this demand.
The project is funded mostly by high net worth individuals who are sitting tight in the hopes of seeing a return. This does not seem too far off as the occupancy is approaching the 70% barrier, above which the mall will earn far more. The smaller retailers are experiencing slow sales at the moment, but are also surviving.
Their typical lease times are 5 years with a 3,4 or 5 year extension option after the initial period.
After the visit, I expect that the worst is behind this project.
Nighttime at the Mall
Some of the shops
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