Exploring San Antonio’s ‘Exploding Urban Core’

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The Rand Building under construction. Photo by Iris Dimmick.

The Rand Building under construction. Photo by Iris Dimmick.

How badly do more people want to live and work in downtown San Antonio?

When USAA Real Estate Company purchased One Riverwalk Place, one of downtown’s three Class A office towers, it had enough space to bring 150 USAA employees into the building. All but 50 of the slots were assigned by the parent company, and an email was sent out asking if any of the other 17,000 employees based in San Antonio had any interest in filling one of the remaining slots.

“We received something like 4,000 or 5,000 responses from people” who wanted one of the 50 slots, Austin Reynolds, director of Office Asset Management for USAA Real Estate, told a sold-out audience at the Plaza Club Wednesday. The standing-room only luncheon was hosted by the local chapter of the American Institute of Architects and the Society for Marketing Professional Services (SMPS). The program was titled, “Perspectives on the Exploding Urban Core.”

Reynolds was joined by fellow panelists David Adelman, principal at AREA Real Estate, Lori Houston, director of the Center City Development and Operations Department (CCDO), and moderator Robert Rivard, director of the Rivard Report. Most attendees were from local architecture and engineering firms and construction companies that are active in urban core development, and eager to see the pace of downtown redevelopment accelerate.

The decision to purchase One Riverwalk Place was purely an investment decision made by USAA Real Estate Company, Reynolds said, but it prompted then-CEO Joe Robles Jr. at the parent company USAA, to muse at the time that perhaps some of the insurance giant’s employees should become part of the “Decade of Downtown” movement.

Austin Reynolds, director of Office Asset Management for USAA Real Estate, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick.

Austin Reynolds, director of Office Asset Management for USAA Real Estate, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick.

Reynolds said the success of the company’s first investment in downtown San Antonio has inspired USAA to look for more opportunities in the urban core and to allow more of its employees to fulfill their wish to work downtown.

“The intent is to move many more,” Reynolds said during a panel discussion, joking that he wished the USAA letters now visible atop the building were even larger. He also suggested the need for more parking has USAA exploring the possibility of building a parking garage.

Reynolds’ casual predictions for more USAA employees to head south amid obvious demand within the company set off a buzz in the room.

In the near-term, 150 USAA employees will occupy three floors of the 18-story building. The remaining floors are leased to law firms, investment companies, and other tenants. The 261,633 sq. ft. building is currently 100% leased and occupied. It hovered around 65% occupied before USAA bought the building, Reynolds said.

USAA's logo is installed on the top of One Riverwalk Place. Photo courtesy USAA.

USAA’s logo is installed on the top of One Riverwalk Place. Photo courtesy USAA.

“Certainly parking is an issue but we’re working on a long term solution,” he said. “I think the (USAA) Real Estate Company can move downtown as well – if we could build our own tower or move into One Riverwalk, that would be highly desirable.”

San Antonio has relatively low downtown real estate prices compared to Austin, Dallas, and Houston, Reynolds said, but more downtown residential units are needed before San Antonio will see a boom in commercial development.

Downtown Housing Stock

“Housing is our strategy because it creates disposable income (in the area),” Houston said, and with that comes commercial opportunity and the desire for office space downtown. If housing goals are met, it could bring $200 million per year in disposable income to the area. “If we can capture just half of that … our retail can be less focused on tourism and more focused on neighborhood retail.”

Lori Houston (center left), director of the CCDO, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick

Lori Houston (center right), director of the CCDO, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick

Rivard began the program by reaching back more than a decade to the purchase of the vacant Pearl Brewery by Kit Goldsbury and Silver Ventures, followed by the 2005 election of Mayor Phil Hardberger, and the subsequent hiring of City Manager Sheryl Sculley, as the start of a new progressive era that continues today. Houston, who has served as the director of the CCDO since its inception, also traced the beginning of accelerated center city development to the Hardberger era followed by Mayor Julián Castro declaring ‘The Decade of Downtown” and a grass-roots push within the SA2020 initiative to make downtown a major priority.

The nonprofit community visioning organization, SA2020, set a goal of 7,500 new housing units in the urban core. So far, the CCDO counts 4,300 units built, under construction, or on the drawing board, leading Houston to express confidence the 2020 goal will be met.

Adelman whipped up the audience by suggesting the bar is now set too low.

“It’s an unreasonable goal because it’s too low. I naturally would say that – I’m a developer and I’m looking for opportunities,” Adelman said to laughter. “But I really think that the demand for downtown housing is extremely deep.”

If the price point and target audience is met, the possibilities go far beyond 7,500, he said. The variety of different types of housing will become more and more important as more diverse demographics seek downtown living. Developers can target Millennials or Empty Nesters, but as “product differentiation happens … there is an anecdotal appetite for condominium (ownership) development.

“The rental market is going to continue to transition from what would historically had not been a traditional renter to a new style renter,” he added, referring to people who would rather invest in other things than real estate or a home.

Adelman and Houston enlivened and dominated the panel discussion, engaging in back-and-forth banter that was both friendly and challenging, with both displaying a deep knowledge of the market.

Vacant Building Ordinance

Weak codes, private property rights, and low county tax evaluations traditionally have enabled absentee property owners to avoid the cost of upkeep while sometimes waiting decades for buyers or development opportunities. This has created a barrier for a truly vibrant downtown landscape with hundreds of neglected buildings standing vacant in the historic city center. To combat this problem, the City initiated the so-called Vacant Building Ordinance, a pilot program that incentivizes owners of vacant properties in the city center target zone to bring their properties up to code, offer them for sale at fair market value, or risk fines and other penalties. Owners will have to register their vacant properties and make improvements, or face stiff fines.

The pilot program began on Jan. 1 with dedicated staff members, funded by the new year’s budget. Letters from the City Office of Historic Preservation, which is managing the pilot program, are now going out to hundreds of vacant property owners and putting them on notice to register their properties, or demonstrate they are under repair or for sale. About 400 notices have been sent out to such owners to date, Houston said.

“The property had to be vacant for 90 days to be listed as a property that can be registered,” she said. “We have 11 properties that have already registered … and we’re sending out another 100 letters in the next month.”

About 60 vacant property owners are making improvements to avoid having to register. Others are now looking into putting their properties on the market, Houston said.

“We’re three out of the 400,” Adelman said, after Rivard asked him about a specific vacant property at the corner of Broadway and Jones that has an AREA Real Estate sign. His company has since replaced broken windows and cleaned up the surrounding area. That particular property is for sale. “I’m going to do everything we can to try to comply,” he said.

“Part of the policy requires that if you are marketing the property, you’re exempt from registering, but you need to be marketing at a fair market rate,” Houston said, and City staff is open to hearing justification for property prices.

“The staff that has approached us was less forgiving than Lori just made it sound,” Adelman said to uncomfortable laughter, “but that’s okay … there have been some bad actors (owners) out there. And those bad actors aren’t helping the overall landscape. While it’s going to be costly and a little bit painful to push forward through this ordinance, I think in the end it is going to generate some new activity.”

David Adelman, principal at AREA Real Estate, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick

David Adelman, principal at AREA Real Estate, speaks during the urban core development forum hosted by AIA San Antonio and SMPS. Photo by Iris Dimmick

Downtown isn’t the only area where vacant buildings and absentee owners have become a problem. Staff plans to extend the program citywide to mitigate the effects of blighted commercial corridors and neighborhoods which includes a decrease in adjacent property value, diminished quality of life, and health and safety hazards.

“The policy is working,” Houston concluded. “You’ll see quite a few more properties that are on the market.”

City-Weston Urban-Frost Bank ‘Megadeal’ Still Pending

Secrecy has surrounded the status of the unsolicited public-private partnership proposal submitted to the City last summer by Weston Urban and Frost Bank, a project that would add the fist new Class office tower to the city’s skyline since construction in the 1980s of the Weston Centre. The proposed tower would become the new corporate headquarters of Frost Bank, assuring their long-term presence downtown, and it would deed the exiting Frost Bank tower, where Wednesday’s luncheon was staged, to the City, allowing it to consolidate widely dispersed staff located in multiple locations.

A number of other City-owned properties, such as the Municipal Plaza Building and the former Continental Hotel, would be redeveloped by Weston Urban, and hundreds of new residential units would be built in the surrounding area, sparking what likely would be a decade-long redevelopment of the western downtown area north of Main Plaza.

From the downtown development proposal by Weston Urban and Frost Bank submitted to the City of San Antonio dated Aug. 8, 2014.

From the downtown development proposal by Weston Urban and Frost Bank submitted to the City of San Antonio.

See more details about the three-way asset and development trade here.

“Having a new tower downtown would be huge, the last tower (built in San Antonio) was in 1988, the Weston Centre,” Houston said. “We’re very excited about the opportunity … but as (former) Mayor Julián Castro mentioned at the unveiling of this project is that it has to be cost neutral to the City of San Antonio.

“We’re really working to complete our due diligence and working with the leadership to make sure that this makes sense for everyone. And we hope to have an announcement in April-May timeframe.”

Primera Partners, the San Antonio-based owners of the 20-story Riverview Towers at 111 Soledad St., submitted a proposal to sell the building outright to the City and is also being considered.

Adelman impatiently called for the microphone to place an exclamation point on Houston’s remarks and suggest a more aggressive posture by the City leadership.

“I don’t think we can overstate the importance of this transaction,” Adelman said. He admitted he is not familiar with the financial details of the proposal, but said it is obvious that the City needs to consolidate its workforce into one place.

The other obvious advantage, he said, would be for San Antonio as a whole.

“(Allowing) a skyline-changing headquarters building for Frost Bank, a pillar of this community, is critical. The last thing we need is Frost Bank leaving (downtown),” he said. “What the public side needs at this moment is incredible leadership … to say that it has to be cost neutral (as Castro said), is very short-sighted. It should be cost appropriate.”

The City, he said, needs to lead by example and invest in its downtown development. The status of the Weston Urban proposal, which has been under review since Castro was still in office in July, remains the subject of much conversation and speculation in the downtown development community. Graham Weston is the co-founder and chairman of Rackspace, founder of the tech incubator and co-working space Geekdom, housed in the historic Rand building, which he purchased and is redeveloping, and a major philanthropic force downtown. Many feel that if he can’t succeed in making such a major public-private partnership work with the City than no one will be able to do so.

Houston’s prediction of news in April also produced a noticeable stir in the audience.

There was a lot of back and forth between Adelman and Houston on a variety of issues – to be clear, though, no one left the table defeated. Cities and its developers go back and forth every day as part of the process. At the end of the day, the City is beholden to its citizens – who also happen to be the development community’s customers.

“It started with the leadership and getting people to understand that if you have a healthy downtown, your entire city benefits,” Houston said, citing that in 2007, only $10 million of the bond program went to downtown development. In the 2012 bond program, $93 million was allocated. “But (ultimately) the community made downtown a priority.”

The coming 2015 bond, she suggested, offered the opportunity to accomplish even more.

 

*Featured/top image: The Rand Building under construction. Photo by Iris Dimmick.

Related Stories:

San Antonio, Under Construction: We’re Not Slowing Down

Vacant Building Ordinance Could Be Game Changer

USAA Plants its Flag in Downtown San Antonio

Weston Urban Delivers Tower Proposal to City

Mayor Castro Unveils Downtown Megadeal

13 thoughts on “Exploring San Antonio’s ‘Exploding Urban Core’

  1. I like the investment that usaa has made in this city unlike years ago when they shipped many people to Phoenix. .we l don’t need a another big company to move to Dallas under the mayor’s and city managers nose.

  2. I LOVE being at the USAA Riverwalk office. I only hope we continue to expand our downtown presence! With the main office at or almost at capacity it only makes sense to give people a more urban option rather than going further out . I think it’s also key to attracting the creative class that large companies across the nation are fighting for right now..

    • I loved working downtown at Frost. It’s an awesome company and fun to be downtown where I can walk to lunch, did my dry cleaning, and other things just by walking.

    • Will, you rock! Keep spreading the good news of working downtown. I absolutely loved it. The aggregation and diversity of talent led to many collision points which facilitated the exchange of ideas and generation of energy that just wouldn’t occur as often or naturally in a more suburban setting.

      • Mike

        That’s a rumor we wish were true, but there is no evidence that is the case. USAA already owns one downtown office tower, and the company certainly has many employees that would prefer to work downtown. Perhaps after Weston Urban builds the new Frost Bank Tower and fills it with tenants there will be a demonstrable market need for another new tower. We do hope your rumor is true and that we are caught by surprise. –RR

  3. DOWNTOWN ECONOMIC CRITICAL MASS FOSTERS THE CREATION OF THE CREATIVE BUSINESS CLASS: when enough businesses (large corps. in this case) create a synergy of communication, social and business interaction, and collaboration in downtown to make more investments via partnerships or the creation of a new businesses downtown.. produces more demand for housing, services, revitalization and ART.

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