Is TxDOT paying too much for new office site?


Highlights

TxDOT has agreed to pay $8.9 million for a Southeast Austin tract to build an office campus.

The agency and ACC last fall had tentatively agreed on a $6.4 million price for a similarly sized parcel.

TxDOT and the SE Austin land’s owner say the price is justified by the market, an appraisal and TxDOT’s needs.

But the appraisal used to buttress the pending sale had flaws and had to be amended in the past week.

The Texas Department of Transportation is moving rapidly toward paying $8.9 million for a large plot of raw Southeast Austin land for a new office complex, even though the agency had talked with Austin Community College about buying a similarly sized parcel a few miles away for about $2.5 million less.

The Texas Transportation Commission’s vote May 25 to proceed with the more expensive tract also came despite receiving an appraisal showing the per-square-foot price was a third higher than another buyer paid for neighboring land two years ago.

Moreover, in determining an appropriate value for the 49-acre East Stassney Lane site that TxDOT wanted to buy, an appraisal firm included a high-priced grocery store site in the mix of comparable sites — which ultimately helped boost the appraised value for the East Stassney site to $8.53 million.

THE BACKSTORY: TxDOT to pay $8.9 million for Southeast Austin site to combine offices

TxDOT staff cited that appraisal during a three-minute presentation to the commission before the vote. After having a longer closed-door meeting about the real estate purchase, the commission approved it unanimously without questions or discussion. Asked last week about the appraisal and other elements of the pending deal, commission Chairman Tryon Lewis said he trusts that TxDOT staff made the right decision.

“I’m no expert on appraisals. I can’t really speak to each and every detail and comparable” property, Lewis said. “But the staff looked at a number of parcels over a long time. They were extremely careful, very conscious of money and getting good value.”

TxDOT officials say the pending purchase of the heavily treed and creek-riven property on East Stassney Lane — despite the price differential with the ACC land and the adjoining property — nonetheless is a good deal for the agency and the workers they hope to relocate there from existing facilities in Central and North Austin.

The land’s current owner says the price is justified based on the tract’s location near Interstate 35 and Ben White Boulevard, by its advantageous “limited industrial” zoning, and by the scarcity and market values of large undeveloped land parcels within Austin.

RELATED: Industrial park planned for Southeast Austin

Still, last month’s news about TxDOT picking the East Stassney site came as a surprise to officials at Austin Community College. The transportation department and the college had detailed discussions last fall about co-locating their campuses on 124 acres that ACC owns on FM 973.

TxDOT had approached the college with a proposal to buy up to 45 acres, land that also carries limited industrial zoning, according to ACC chief financial officer Neil Vickers. ACC purchased that parcel in November 2015 for $10.5 million, or about $1.94 per square foot.

That land, just southeast of the Travis County Correctional Complex, is a flat field of hay where the college hopes to build a campus centered on workforce development programs. College officials say now they thought having TxDOT next door could provide educational and vocational opportunities for its students.

RELATED: Austin Community College praised for filling workforce gaps

Roland Tilden, the TxDOT real estate executive proposing the partnership last fall, even had polished renderings in hand at meetings last year showing how an ACC campus and a TxDOT complex could coexist. A $6.4 million sale price was on the table, TxDOT spokesman Bob Kaufman said this week, or about $3.25 per square foot.

“That seemed like a fair price, and we were willing to continue discussions,” Vickers said, adding that there were a few meetings through October on the proposal. Then, silence.

“We hadn’t heard from them since,” Vickers said.

Agency considered its commuters

The ACC site had drawbacks, Kaufman told the American-Statesman.

TxDOT estimated that it would have to spend $500,000 to extend a wastewater main to the property. And he said an appraisal showed that TxDOT would be overpaying by as much as 50 percent at the price under discussion last fall.

Instead, the Texas Transportation Commission on May 25 approved the East Stassney purchase at $4.17 per square foot. The agency is in a 45-day “due diligence” period that officials say could be extended.

TxDOT’s plan for the land, chief administrative officer Rich McMonagle told the Statesman, is to build 400,000 square feet of office space and other buildings and move about 2,200 agency employees there from three TxDOT work places in Austin. The agency would also close a leased North Austin warehouse and relocate its contents to the consolidated campus.

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“We believe all that property is buildable, or can be made buildable,” said McMonagle regarding the East Stassney site, adding that the agency had been examining land parcels for about two years before acting on this one. “You can move earth around to level or regrade it…Of the sites that we’ve looked at, it is the least costly of what is available for our needs and around our timetable.”

Location was a key consideration.

The agency, he said, has plotted by ZIP code the homes of its workers at the East Riverside DriveCamp Hubbard and Centimeter Circle offices that would all relocate to the new complex. The East Stassney property is about a 6-mile drive from the Riverside location, where about two-thirds of those TxDOT employees work. The ACC site is about 2.5 miles farther than that.

“We’re trying to find a site that will minimize the loss of our quality employees,” McMonagle said.

Appraisal raises questions

That convenience would carry a cost, both on the front end and potentially during development of the TxDOT campus.

Before the Texas Transportation Commission voted on the sale last month, agency officials pointed to the appraisal by JLL, a worldwide firm specializing in commercial real estate, to justify the price.

That appraisal raises some significant questions.

The two appraisers who authored the report on the East Stassney site owned by Parcum Development — dubbed “Parcel 7” — included five comparable undeveloped properties of that general size and in that quadrant of Austin that sold over the past two years. That group of sales includes a 33.36-acre parcel abutting the Parcum site.

That parcel at the corner of East Stassney and Burleson Road, unlike Parcum’s property, has no creek crossing it and is flat. The tract, which has a warehouse complex under construction on it, sold in March 2015 for $3.10 per square foot, the JLL report says. TxDOT would be paying 34.5 percent more for Parcum’s land next door.

JLL’s list of comparable properties also includes a 15.58-acre “confidential” site at an undisclosed location that sold in December for $7.03 per square foot. Its inclusion in the appraisal has the effect of driving up the final appraised value for the Parcum land.

The report later notes that a “planned H-E-B store” would go on that confidential site, a retail use generally considered much more valuable to a buyer than the type of low-rise offices that TxDOT likely would build. Local appraisers told the Statesman it would be inappropriate to use a retail sale as a comparable sale in an office project appraisal.

RELATED: Grocery chain H-E-B buys property in Del Valle area

In addition, the original report at two other places lists a sixth comparison property: 41.2 acres on U.S. 183 just north of East Riverside Drive that it says is “under contract” for $2.10 per square foot. In the report’s discussion, the land is described at one point as being west of the Austin airport and then, in the next sentence, east of the airport.

But this low-priced sale, located about 2.5 miles from the Parcum site, does not appear on the charts showing the appraisers’ calculations.

TxDOT’s Kaufman referred all questions about the appraisal to JLL. Randy Williams, JLL’s executive vice president and one of the report’s authors, said in an email that the references to the U.S. 183 property were a “bleed over from a previous report.” Williams said JLL had sent TxDOT a corrected version about 10 days ago that no longer contains references to the U.S. 183 sale.

He declined to answer questions about other aspects of the appraisal, including why the pricier H-E-B site was included as a comparable sale.

Owner says price is fair

Parcum owner Ray McFarland bought the East Stassney property in August 2015 for an undisclosed amount from developer Trammell Crow Co., a unit of CBRE Group Inc., as part of a 102-acre purchase, according to Travis Central Appraisal District records. In two interviews and a series of texts and emails, he disputed the notion that TxDOT might be paying too much for his land.

Asked about the JLL appraisal, and specifically whether it made sense for the firm to include the higher-priced H-E-B site as a comparable sale, McFarland replied, “Austin is out of land.”

“We have a very real shortage of large user tracts,” McFarland said. “There are transactions as we speak in the $9 to $12 per-foot range and up. The Stassney site is perfectly suited for a large office user, and campus sites like this are very difficult to find.”

McFarland also dismissed the relevance of the ACC option, noting that tract is farther away from Central Austin. And he said that the zoning category of his land, which is a combination of limited industrial and limited office categories, would allow both the office and warehouse uses TxDOT has in mind and thus adds considerable value.

TxDOT, however, is a state agency and not legally bound by municipal zoning restrictions.

“Whether TxDOT has to worry about it or not, you can’t just take it out of the conversation,” McFarland said. “There is a massive lack of inventory (of available land). … Show me anyone that can sell anything in this area for less than $5 a foot. If they (TxDOT) don’t buy it, I could sell it for that in a matter of hours to another party.”

Dani Tristan, a commercial real estate broker with McAllister & Associates, noted the much-lower 2015 price of the adjacent land: $3.10 per square foot compared to the $4.17 per square foot that TxDOT has signed a contract to pay. And he said a creek cutting all the way across the north end of the Parcum parcel, as well as a shorter swale closer to East Stassney, could take as much as 17 acres — more than a third of the site — out of development for TxDOT.

“It’d end up being a 17-acre park for their employees at a cost of $2 million to $3 million,” said Tristan, who is not involved in the TxDOT land search. “Anything that’s flat would be a better site, unless you account for the extensive topography in the purchase price. We don’t know what it would cost to make that land flat” with earth-moving equipment.

The JLL appraisal, however, says the site’s terrain “does not result in any particular development limitations.”

Developer Ed Wendler, who likewise has no involvement in the transaction, said the East Stassney site’s canopy of trees and low spots could be a plus for TxDOT.

“Even TxDOT has to attract and retain employees, especially if you want them to drive to Southeast Austin,” Wendler said. “Part of that is an attractive workplace. Could be that trees and a creek are amenities. They could either pay to create those on a flat piece of farmland, or pay a little more for a site that has it naturally.”

What’s next for ACC site

During a visit last week to the ACC site on FM 973, Vickers described the college’s piece of farmland as “very appealing.” The college typically wants only 80 to 100 acres for its future campuses, he said, but bought extra land here because of what it considered an attractive price.

Allen Kaplan, a longtime ACC trustee who left that position in January, said the college in the beginning would build a workforce development center on the site “to relieve some of the pressure on the Riverside campus, where automotive and other trade spaces are very cramped.”

But at this point there is no timeline for developing the campus, or money identified to do so, Vickers said. The 124-acre site is large enough, he said, that selling off 45 acres to TxDOT would leave the college with ample space to meet long-term needs. For now, however, that partnership is off the table.

“If they’d call again,” Vickers said, “we’d talk again.”



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