5/19 San Antonio City Official Meetings

We met with various city officials at the Cliff Morton Development and Business Center in downtown San Antonio. We had discussions with everyone involved in the real estate process, from the city architect to code enforcement officials. San Antonio is growing fast and there has been much development beyond city limits. This puts major stress on the cities infrastructure, especially its water and power services. They charge developer impact fees and require specialized land use planning as new areas emerge. Many of their public private partnerships involve new market tax credits, historic tax credits, HUD 108 financing, TIFS, TIRZ, and they typically spend more money on urban rehabs than on new development. They generally want to stop sprawl and develop a vibrant core in the inner city. UTSA has been a major influence on the cities development and they often contemplate what the downtown would be like had the university developed in the urban core. We also talked about their various sustainability initiatives. This city strives very hard to be at the forefront of green development and sustainable standards. They have various electric, CNG, and hybrid vehicle fleets and are looking to expand. They are also very sustainable as far as building and redevelopment are concerned.

5/19 San Antonio Site Visits

The Vistana

This “lofty living downtown” mixed use development is the first predominately residential structure built in downtown San Antonio in nearly two decades, according to developer Edward Cross. Mr. Cross has been an avid investor and developer in real estate in San Antonio and people in the industry are familiar with his various projects around town. He has developed and moved many properties over his career. His most recent, The Vistana, is a 247 unit apartment community with a first floor retail component near downtown. There is also a major parking component that has several floors of garage spaces. Their typical apartments are one and two bedrooms ranging from 700-1200 square feet. We met with Mr. Cross after our tour and discussed his business practices and philosophies.

5/27 Dallas Site Visits

ALoft Hotel

This is a historic warehouse building that was turned into a hotel. Each room is unique with a loft feel. Each of the 193 units in the hotel are totally different. They have also incorporated 8,000 square feet of meeting rooms in this old Santa Fe railroad structure. The management, hotel, architect, and investment team provided us with enormous insight into how they made the project feasible by utilizing TIF’s, historic tax credits, and grants. They had mild asbestos and lead paint restoration but were able to produce the very interesting low service, high character hotel that the ALoft brand is known for.

Craig Ranch

We met with Mr. Craig Ranch himself, a.k.a. David H. Craig, Chairman and CEO of Craig International, at this 2500 acre “new urbanism” development off of 121 freeway in Mckinney, TX. This project has a TPC golf course which is the only PGA owned course in the state of Texas. This mixed use development has a outdoor theme that encourages positive pathos and ethos vibes from all its inhabitants. They have several athletes that have endorsed and bought plots in the project and are currently negotiating to bring in several corporate entities into their development. Mr. Craig is a well versed international business man who has done all types of corporate real estate investing around the world. We appreciate his kindness in sharing of his “special sauce” that he employs in all aspects of business.

5/18 Austin Site Visits

Ronald McDonald House

We began our day at Austin’s Ronald McDonald House which serves the municipalities Dell Children’s Hospital. It is a Platinum LEED certified building that was designed to maximize efficiency by through site strategies, design, development, water efficiency, construction, energy systems, recycled material, waste management, lighting quality, thermal quality, and air quality. This building is 30 units and had a construction cost of $11.3M, up from the $9.5M proposal figures. There is typically 16%-18% increase in construction costs for a LEEED Platinum project. This building was able to recover those extra costs in two and a half years. It is a LEED Platinum rated building and was one of the first of its kind. Upon its certification, it was one of twelve LEED platinum buildings in the world. Twenty percent of the LEED points came from using environmentally friendly construction material. It is also a brownfield development located on the old Austin airport, which is slightly north of downtown and just west of interstate 35. Its features and benefits include: underground drip irrigation that saves %50 of irrigation and uses runoff water, 30% water use reduction, 48% of building materials was purchased from within 500 miles of Austin, 94% of rooms have a view of outside, ambient lighting, film on glass to reduce, low VAC materials, no formaldehyde in any material used, and 82% of waste from construction was recycled. The film placed on regular windows as opposed to using tempered glass saved $100K in construction costs. This building is one of the benchmarks for sustainable development. Its unique non-profit use was the driving factor behind being frugal money by reducing operating expenses and extended the intended life of the “House.”

Seaholm Power Plant

This is one of the few redevelopment projects that the City of Austin has chosen to pursue and provide funding and incentives to. The city has contributed $13M to the clean-up of the contaminated site. This may be the first and last time that Austin decidedness to get involved in a project of this scale. Their intention is to save this historically significant landmark by providing enough incentives to make the project profitable for the private sector. They have succeeded in attracting a developer through by getting the site a federal RFR (ready for re-use) certificate and issuing a RFP (request for proposal. The MDA (Master Development Agreement) will allow the seven acre site to be made into a mixed use development that utilizes the existing structure. The new development will also include a 26 story tower while working around the capital view corridor that exists in this area.

MuellerDevelopment

Our second stop for the day was the Mueller Development, which is a multi-use development adjacent to the hospital district which houses Dell Children’s Hospital and the Ronald McDonald house. The Mueller project is a “brownfield” development which was previously the Austin Airport. It has PUD zoning and is very flexible as far as uses go which ensures that highest and best use will be maximized by the developers throughout its continued construction. Currently, the site has 1150 Residential units and 100 acres of parks that have been donated to the city. 600 homes are having been sold and currently are occupied. They are 85% leased on their 440 rental units. 25% of all homes are affordable and at or below 80% MFI with many financing options for needy home buyers. There is a Austin Energy Rating minimum for every type of structure. Homes must be at lease 3 stars, while commercial building must be at least 2. The developer has chosen to focus on energy efficiency and environmental conservation because of the green nature of Austin and its citizens. Many of the plants are natural and habitats of the original Blackwood Prairie are taken into consideration.

Hill Country Galleria

This retail and office center is a prime example of a lack of due diligence and market research on the part of the developer. The 1.3M square foot shopping center and office facility is located on Bee Cave, which is slightly southwest of downtown Austin. The original construction cost of this site was approximately $180M. This cost was unsustainable and toward the end of construction the owners could not find a bank to provide permanent financing. As a result, the center went into foreclosure and was bought for $75M of pure equity by two principles of the Weitzman Group. According to the retail leasing broker, besides the office, the site will be 70% leased soon and he thinks that the current owners will have a good return on their investment when they sell the project, which will hopefully be fully leased, in a few years. There are various complex co-tenancy and other issues with the current leases that would have doomed a owner at any higher of a price point. This purchase will likely prove that great investment opportunities still exist, but the risk they entail comes with the territory.

5/18 Meeting with Texas Department of Agriculture

We had lunch with two rural economic development managers that work for the state at Scholz Garten, near the capitol building. They discussed the various challenges that rural areas encounter during different stages of their development and what the state does to assist these small municipalities. In the US, 80% of people live in urban cities, while 20% of the population lives rurally. Unlike large cities which, for the most part, are maxed out on the sales taxes that they can charge, smaller cities lie in counties that do not have a vast array of public spending. It is therefore up to the cities to decide how much they should tax their citizens in order to fund the ongoing development of the city and its infrastructure. Going after large corporations and attracting businesses to small towns is a major expense that does not always produce results. Cities must choose to focus on a few of Texas’ core sectors of business: aerospace and defense, advanced technology, bio-tech, energy, information and computer technology, and oil and refining. The general consensus of our discussion was that rural areas are often best served by using money that they would otherwise allocate for attracting big business by using these funds to help support local people and businesses. There are a variety of state programs that exist to aid cities in attracting economic development and small cities should focus on using this state funding to chase outside investment.

5/17 Austin Site Visits

The Austonian

Our property tours began with one of the premier residential condo projects in Austin, Texas, The Austonian. The tallest building in Austin standing at nearly 700’, the Austonian is perhaps the most high end condominium building construction that the city has ever seen. According to its proprietors’, it is the first “true luxury” product in the Austin area. It is situated in the downtown Austin area and provides easy access to everything downtown has to offer. This condominium recently received its certificate of occupancy and will be occupied starting at the beginning of June. The building itself is fifty plus stories and provides views that all of the surrounding structures can only dream of. The fitness center on the top floor and the entertainment area on the floor below it offer a incredible atmosphere and view. The tenth floor has endless amenities that range from a pool to a dog park and a bar to a theater. Excavation of aggregate for this massive structures foundation and parking took an entire year. Parking is provided above and below ground to the delight of many buyers. Prices range from $500 to $1000 per square foot in the 170 residences. We really appreciate the opportunity to view its magnificence. The builders had deep pockets and focused on unique drivers of their luxury clientele: convenience, luxury, exclusivity, and privacy.

Chestnut Commons

We concluded the day with a final property tour of Chestnut Commons, a 64 unit development in east Austin with an affordable housing component. The vast amounts of structures on this site are strategically painted a variety of bright colors. Livable spaces from 1000 to 2000 square foot of various floor plans. According to the developer, all units sold off quickly with a nearly fifty percent capture rate! Affordable multi-family financing for 80% of MSA provided for a low cost of financing. Although the original target market was people 25 to 30, these homes sold to a vast variety of unique buyers from the area. Most of these buyers saw the $100k to $200k prices coupled with the new quality building as a steal for residences in the area, which commonly capture these prices for existing structure.

5/17 Austin City Hall

We had great meetings with city officials at Austin City Hall today as well as interesting property tours. The structure of Austin City Hall deserves some discussion in itself. The sustainable aspects of its construction, which began in 1999, proved that the design and development teams were wise beyond their years. Although it is the standard for sustainable development, LEED (Leadership in Energy and Environmental Design) was in its infancy at the time of the construction. The design team incorporated sustainable aspects into its development and it was later decided, after seeing the LEED rating system emerged, that the building would shoot for a Silver rating by allocating only a 4% increase in construction costs. Everyone was blown away when the final inspections were done and it achieved a Gold rating. The second highest designation for LEED certification!

Our first discussion was with the city of Austin’s project manager of public works, Fred Evins. An architect by trade, Mr. Evins is on the forefront of the visionary experts at the city planning department. His original focus at this position was to build infrastructure, such as libraries and fire stations, but he has grown into a more sophisticated business role involving attracting large corporations to Austin, while providing support to the growing entrepreneurs and start-up companies. He is now primarily focuses on downtown development and is particularly influential in getting the 6 blocks along the 2^nd street distruct redeveloped into a large pedestrian domain. RFP’s, TIF’s, PID’s, ground leases, and public/private partnerships are the main vehicles that he uses to make investment viable for the private sector. Although Austin is very conservative in their approach to funding private programs, each one of these concessions allows them to attract developers. Capital view corridors as well as other interesting and unusual zoning and legislation make the redevelopment initiative challenging. The city seems to be coming around to the idea making small concessions until things happen. One major initiative is providing support for low income housing. Increased multi-family affordable housing construction continues to be provided by utilizing local, state, and federal benefits.

Christopher Johnston, Austin’s Manager of Development Assistant, joined us as Mr. Evans discussion drew to a close. This became a gradual transition into a discussion of his job of providing a place for a “one stop shop of all aspects of development.” This a unique initiative where the city provides answers to an average of 500 walk-in citizens per day as well as an online question portal. Their interests range from citizens interested in development to large corporations that schedule formal development meetings. The idea is to provide all Austinites with information regarding development of all parcels within the Austin city limits. They have been very successful and this is a unique approach that most other cities neglect to take. Austin is thick with regulations stemming from their environmentally concerned citizens. They help people understand these regulations and answer questions from a broad range of disciplines.

These regulations are very broad, but are incorporated into all aspects of building. For this reason, Leon Barba, the cities Assistant Director of Inspections, joined us towards the end of Mr. Johnston’s discussion. Our main focus with Mr. Barba was how these regulations were incorporated into the building codes of the city and vice versa. The city makes regulations in order to try to meet the intent of the building code. They usually begin this process by reviewing plans for proposed construction. Although framing an plumbing are the top violations that occur just like in any other city, a unique feature of Austin’s code is based on accessibility requirements, which are pushed by the city and advocacy groups. Environmental fees are also major consideration for Austin’s development because of their push for sustainable development. Most sustainability measures are tied to water quality which remains a driving factor of regulation. Austin is broken into four environmental zones that range from restricting construction on 20% of parcels to more than 85%.

Our next guest was Michael Knox, the head of Downtown Economic Development, who has served the city for 22 years. He stressed that guidelines are made to best provide for the cities intended use of development. The unique downtown experience is perhaps their best marketing tool and they want to keep it that way. The environment in the downtown area is something that other cities just simply can’t compete with. Spurring continued green development is a major feature that will continue to make Austin unique. Not very many incentives are offered because there is enough interest in the social environment that concessions from the city are not required. Downtown is a place people simply want to be.

Richard Morgan caught the tail end of Mr. Knox’s discussion which greatly transferred into the green building discussion. Mr. Morgan is the Green Building and Sustainability Manager of Austin Energy. He provided great insight as to how a corporation can work with a city for the greater good of both parties. They provide services to 4% of Texas’ residents. He discussed Austin’s unique sustainable rating system, which is commonly known as Austin Energy Green Building Rating System. The city utilized their own rating system to get their own intent out of environmentally friendly projects through this system. Two to three stars in the Austin energy system is roughly correlated as a silver LEED certification: three to four for gold, and four to five for platinum. Their SMART program focuses on residential sustainable development and over the last few years 50% of all multi-family has been done according to their standards. They charge much smaller fees for their designations as opposed to LEED certifications. Although Austin is ranked as the 8^th greenest city, it is likely to be among the greenest cities in the US because these ranking are done by LEED certifications only and Austin’s unique rating system is not incorporated.