Travis County commissioners gave the greenlight Tuesday for the county health district to approve a 99-year lease of a portion of the former Brackenridge hospital campus for use by the University of Texas’ Dell Medical School.
Central Health owns the prime six-block, 14.3-acre site at East 15th and Red River streets in downtown Austin, where the now-shuttered University Medical Center Brackenridge stands.
The hospital closed last year and relocated to the newly built Dell Seton Medical Center at the University of Texas, which is diagonally across the street. The new hospital serves as an anchor for UT’s fast-growing medical school.
On Tuesday, commissioners approved a proposed 99-year lease of two of the six Brackenridge blocks to The 2033 LP, a limited partnership related to a nonprofit established by Austin businessman and UT graduate Sandy Gottesman.
The Central Health board of managers will vote on the agreement at a specially called meeting at 5:30 p.m. Tuesday.
Under the proposed plan, The 2033 LP would lease about 2.6 acres and then sublease it to the University of Texas. The UT System Board of Regents approved a preliminary plan for the lease in late February and is scheduled to consider advancing the plan when it meets Wednesday.
In February, Central Health announced that it had changed course on its plans to choose one master developer to redevelop the former hospital campus. Board members said they wanted to speed up the redevelopment process and make money sooner.
“We realized that the economics weren’t as good as we were hoping,” said Central Health President and CEO Mike Geeslin, speaking to commissioners Tuesday. “The 2033 Fund proposal presented us with an opportunity to begin earning revenue on this property that supports the Central Health mission.”
If approved, the first year of the lease could generate up to $6.6 million in upfront payments, including $1.4 million in rental income, for Central Health. Over 99 years, the ground lease would generate about $450 million.
Base rent would be $815,436 on the hospital block and $610,000 on the medical office block, according to the proposed lease. In addition to annual escalations, rent will be reset every 15 years to ensure fair market value.
One of the blocks The 2033 LP would be leasing contains the north wing of the former hospital, next to the main hospital tower.
Officials said Tuesday that Central Health is still determing what to do with the tower. The proposed lease agreement gives the agency until Jan. 31, 2019 to decide.
The other block, which houses a medical office building that will be vacated by year’s end, would be redeveloped to create office facilities for the University of Texas’ Dell Medical School and other medical research and innovation partners. The 2033 LP will pay for demolition.
The space could also be used for mixed-use, retail or commercial development that would support the university’s health care missions.
“UT is excited to extend our collaborations with Central Heath, or its designee, to transform the Downtown Campus into a destination for innovative clinical care, health care research and medical operations,” said UT President Gregory L. Fenves in a statement.
The 2033 LP will pre-pay three years of rent to Central Health for the medical office block. Depending on what Central Health decides to do with the former hospital tower, the 2033 LP could make more pre-payments on the hospital block to fund building demolition costs.
The lease also includes a user premium fee of $1.35 million for the medical office block, and a sliding scale of fees depending on how soon the hospital building block is redeveloped.
Commissioner Gerald Daugherty asked whether Central Health had legal authority to sign a 99-year lease without competitive bidding, a question that local attorney and former county judge Bill Aleshire had brought to his attention.
Geeslin said the matter had been found to be legal by internal and external legal counsel. Travis County attorney Tom Nuckols agreed with that assessment when asked Tuesday.
“When the RFP (request for proposals) was issued, developers could submit any number of permutations of proposals for this tract,” Geeslin said. “So there was a competitive bidding on the front end of this process.”
He added that the RFP and preceding request for qualifications made clear that Central Health had a right “to do a separate deal for all or portions of this property.”
“All interested parties were put on notice that at any time we could take one block or two blocks or a portion of this property and negotiate in a way that at Central Health’s discretion was in the best interest of Central Health and its mission,” Geeslin said.