Downtown's Biggest Owners/Developers Talk Austin's Longevity
Overbuilding concerns were nowhere in sight at Bisnow’s Downtown Austin event yesterday. Although our experts think office and multifamily rents may flatten, they see room to run in development. Reps from Cielo, Trammell Crow, Parkway, Lincoln Property and Aspen Heights talked about how their developments are going and what they see in Austin’s future.
Cielo hosted us in Austin Music Hall, which was a last hurrah for many Austinites who’ve attended concerts there over the years. Cielo founding principal Bobby Dillard says it will be razed in February or March to make room for Third and Shoal, a 350k SF Class-A office building with ground-floor retail. The retail will focus on serving the office tenants and will mostly be food-based. One unique and exciting plan is a big restaurant facing the creek where people can come in off the trails for a drink or quick bite. The office design has changed there to add outdoor decks for almost every floor, including two very large ones close to the top. Cielo will charge around $36/SF NNN. Bobby likes that Austin’s entrepreneurialism means that we have amenities, restaurants and companies that you don’t see elsewhere.
Here are the moderators from our two panels: ECR principal Jason Steinberg and Gracy Title SVP Bob Roberts. Trammell Crow is building right next door; principal Adam Nims says Northshore (the 39-unit apartment development) will deliver its first units in Q1. The units average 1,050 SF and rents will probably be around $3.25/SF, but aren’t locked in yet. Simultaneously, Trammell Crow is building its 29-story, 500k SF GreenWater office building. Adam says the scale has been challenging. Investors have historically seen Austin as a smaller, lower-tier market, and it’s hard to get someone comfortable with a very large capital placement. Adam is excited about the changes happening in this quadrant of Downtown—the office and multifamily developments underway, infusion of retail (there’s over 100k SF coming, largely as first-floor offerings of other projects), library and the bridge opening will spark a huge burst of activity there.
More than half the potential tenants Lincoln Property VP Seth Johnston talks to are from outside of Texas. He’s leasing up 5th+Colorado, which will deliver on April 1. (Tenants there will pay up to $35/SF.) It’s been a long 2.5 years developing this building, especially because Austin’s tenant base is still pretty immature in that you have to start construction before anyone will sign. But he’s noticed that begin to change in the last 12 months or so, and is getting good activity at Lantana Ridge even though the 175k SF office project hasn’t yet broken ground in southwest Austin. Seth’s pictured here, right, with Independent Bank’s Joel Cavness.
Downtown Austin’s dynamic atmosphere is driven by multiple property types creating demand for each other, says Aspen Heights VP Ryan Fetgatter. His team is breaking ground today on the Independent, a 370-unit condo property that’s 30% pre-sold at sales prices north of $700/SF. (You’ve heard a lot about it—it’s going to be the tallest residential tower west of the Mississippi and has a unique cantilevered design.) Most of the buyers are people who already live in Austin and want to be in the heart of town. Ryan’s team is also under construction on 200 rental units at Eighth and Nueces, which will deliver late next year. Pictured is our all-star panel: Parkway managing director Mike Fransen, Ryan, Bob, Seth, Hotel Van Zandt GM Joe Pagone, Adam and Bobby.
Austin is probably the second-coolest US city that people want to be in, says Parkway managing director Mike Fransen, left, with Live Oak Gottesman’s Mike Joyce. (He says Miami might be the first; it’s hard to beat the beach.) Austin quickly propelled into a different tier and attracted new investors. That means he feels like a tour guide half the time, constantly walking investors and potential tenants around to learn the market. But we’re not a lock yet—people are interested in us but not dead set on being here; Mike says you’re as likely to lose a deal to another city as another landlord/developer. One of the biggest challenges for him these days is melding the market with his REIT’s metrics. It’s hard for REITs to stomach Austin’s pricing or to get a sense of its long-term position.
We’ve got more coverage from our Downtown Austin event in our next issue; stay tuned!