Texas Developers Call Collaboration Key To Advancing Master-Planned Communities
Master-planned community projects often pose financing challenges that can delay development for years. But finding the right investors and working closely with city staff can help ease the process, Texas developers say.
MPCs — large-scale, highly amenitized residential developments — are becoming increasingly popular residential options across Texas, with the largest concentrations in Houston, Dallas-Fort Worth, Austin and San Antonio. Nearly 20 Texas MPCs ranked among “the top 50 best-selling nationwide” last year, according to an RCLCO Real Estate Consulting report.
But tedious processes like obtaining bonds and gaining city permissions can deter project completion. Building relationships with the right collaborators is critical, especially as some of these projects can take 10 or 20 years to complete, panelists said at Bisnow’s Central Texas MPC and Residential Conference in Austin earlier this month.
“Being able to find the people that can believe in the sponsors and believe in the deal and believe in the city and believe in the economic development” is challenging but key to getting MPC projects off the ground, said Justin Reynolds, founder and president of Sapelo Real Estate Group.
Navigating the challenges of MPC development can help boost the presence of these developments, which attract buyers to their combination of upscale amenities and sense of community.
Last month, Houston-based developer Rockspring closed on a $28.2M loan to start construction on The Highlands, a 254-acre master-planned development that will feature houses, apartments and retail in the city of Marble Falls. Another MPC development underway in Texas is The Ridge, a 6,200-home community south of Austin that was acquired by Wilson Capital this month.
Every MPC development requires a special district for financing and entitlement, said Duane Brignac, senior vice president of operations and finance for Texas-based real estate consultant T. Wilson. Generally, the first thing cities will want a developer to do is bring their property into city limits, he said.
Cities typically fund MPCs through public improvement district bonds, which are generally used to pay for public improvements. But if a city council doesn’t issue a bond and the developer has already annexed the property, “he’s stuck,” Brignac said.
He suggested MPC developers work closely with the city council every step of the way, annexing a property on a phase-by-phase basis and including “contingencies” in development agreements to ensure that the project keeps moving forward.
Other financial challenges can put an MPC project on hold, such as slow-growing tax bases.
“It really can make or break your project if you have to wait for a long duration in order to get enough taxable revenue on the ground to get those bond receivables,” said Myra Goepp, president of land developer Benchmark Austin.
Underwriting a deal in a down market is another obstacle.
“Being able to thread the needle on the underwriting at this point, I think, is one of the challenges that we are facing right now,” Reynolds said.
The financing process for MPCs is “not a one-size-fits-all,” said Mike Sullivan, a managing director at Piper Sandler.
He said it is about investors “listening to the client's goals” to best “monetize their reimbursements, get them the dollars that they need upfront or for reimbursement themselves, and then continue to monitor how the project's progressing.”
Reynolds said “carefully placing” capital with trusted professionals is “critical in finding the right investors at the right time.”
Panelists also said that while collaboration with city workers is important, municipal staff change periodically.
“Leadership changes, mayors change,” Goepp said. “They have different interpretations of what agreements you have.”
But sharing project details early and “working your tail off to build trust” with city staffers will help to create alignment and keep projects moving through the process, Reynolds said.
