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After dry spell, area's real estate development pipeline is flowing again

Shonda Novak, Commentary


After several years with a virtually dry construction well, Central Texas' real estate development pump is being primed again.

The pipeline of planned projects is replenishing, and construction cranes — the "state bird," as developers jokingly call it — are multiplying in the region.

While the local apartment market has been sizzling for nearly two years, other sectors are now picking up steam. Residential, office and hotel projects — and yes, more apartments — are in the works.

Some projects that had been sidelined during the downturn now have financing and are rushing toward the starting gate.

It's all evidence the real estate market is heating up in a city that has fared better than most during the economic downturn.

"God willing and the creek don't rise, Austin is likely to see a wave of development at a level it has never seen before," predicted Mike Kennedy, president of Commercial Texas LLC, an Austin-based commercial real estate services firm.

Local architect Brett Rhode, a principal in Rhode Partners, said the firm is designing four large-scale apartment projects downtown ranging from eight to 24 stories. In addition, "we are leading feasibility studies for a significant number of new projects in or near downtown — including hotel and office projects," Rhode said.

"I see the urban (apartment) market continuing to grow through the end of the year, and then level off," Rhode said. "I am optimistic that this current surge of activity will be a catalyst for a more sustainable cycle including new office and retail in downtown Austin."

Rob Golding, CEO of Live Oak Gottesman, an Austin-based firm that develops, leases and manages office, retail and industrial properties, noted that "activity in a general sense is really picking up pace across the spectrum." At Bury and Partners, an engineering, land planning and landscape architecture firm, "Definitely my phone is ringing more, and it's both clients I've had relationships with for awhile and new clients," said Robert Pilgrim, a vice president and director of planning.

At local business events, there's "an excitement that I haven't seen in three years," Pilgrim said. "Everybody has smiles, and everybody's talking about being busy."

Newly announced projects include an office tower Cousins Properties Inc. plans at Third and Colorado streets downtown. And last month, White Lodging Corp. said it has financing in place for Austin's biggest hotel, a 1,012-room JW Marriott convention hotel that's set to break ground in June. In addition, Manchester Texas Financial Group is forging ahead with a convention hotel planned for East Cesar Chavez and Red River streets.

Talk to local developers, and they'll tell you the change is palpable.

At a recent Urban Land Institute event in Austin, developers agreed the number of deals on the drawing board is a testament to the strength of the local market.

"A lot of development deals are happening here because the people who develop, who finance development and who invest in development think that Austin is a smart place to be," said Kent Collins, a principal at Centro Development, an Austin-based apartment developer. Collins said that's in part because more people are choosing to live and work in Austin.

In fact, development activity is picking up so much that the city can't keep up with the permitting workload, said Richard Suttle Jr., an attorney for developers. Last month, city staffers acknowledged a backlog, saying the delays are due in part to a flood of applications for new commercial and apartment buildings.

Following the apartment sector's lead, office rents are beginning to rise, concessions are drying up and new construction is being talked about as excess inventory gets absorbed, Golding said.

"We and a number of others are all actively back in the market looking for sites," both suburban and downtown, that would come to market in two or three years, Golding said.

As is typical in the current lending climate, lenders and prudent developers aren't moving forward without having tenants committed for at least half the project, he said.

On the retail front, leasing also is picking up, with most of the activity from fast-food franchises and other service providers, although as yet there hasn't been a new spurt of retail development, Golding said. But as retail occupancies climb, rents will rise, and the new development seen in the apartment market and being contemplated in the office market will migrate to retail, Golding said.

But like any real estate veteran, Golding sounded a cautionary note. With the economy still fragile, the debt and equity markets for real estate remain cautious.

"Yes, the spigot is being turned back on, and people are feeling bullish on the market," he said, "but it's got to be disciplined enthusiasm." Translation: "That means we're not going to try to do anything foolish. There's always a lender who will make a loan. It's up to the developer to decide when and how much risk they're willing to take."

Shonda Novak covers real estate and development for the American-Statesman. Contact her at 445-3856 or snovak@statesman.com


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