It's a good time to be in the development business in downtown San Antonio. Demand keeps surpassing supply as more and more people, locals and new arrivals, signal their desire to live and work in the urban core in neighborhoods and along avenues alive with public life and lots of lifestyle choices.
That was the key takeaway Friday at the fourth annual workshop on infill development organized by the City's Center City Development and Operations Department, in partnership with Centro San Antonio and the Urban Land Institute.
A full house filled a newly opened Pressell Auditorium at the Witte Museum, itself the subject of a major expansion and renovation with Phase One slated for completion in May 2016 and the entire Witte expansion finishing in 2017.
Compared to urban sprawl, or developing on the outer edges of the city, infill developers breathe life into undeveloped parcels, vacant lots and underutilized buildings in the urban core. While downtown land is more expensive, 300% higher than land outside of Loop 410, the advantages of a well-planned infill development project outweigh the costs. As a city becomes more dense, the cost of government services decreases, public transportation becomes more viable, and urban cores become more attractive to young workers.
Friday's sessions and presentations were all about San Antonio's growing momentum downtown and in the surrounding neighborhoods, and the ample opportunity that still exists for developers. Presenters explored federal, state and local incentives.
But it's the City of San Antonio that is driving the development wave with an array of incentives and market advice that can prove essential to making projects work for developers, reducing their risk and allowing for more higher quality construction. The risks first-wave developers were taking along Broadway five years ago have diminished as more and more successful residential developments have come on-line, and leasing rates have climbed from less than $1.50 to nearly $2 a square foot.
Centro San Antonio CEO Pat DiGiovanni was the first to present Friday morning, giving the audience a virtual tour of a downtown with a lot on the drawing board, although San Antonio still has the lowest number of housing units per square mile compared to it peer cities group. He focused on Houston Street, which he said some consider the most historic pedestrian street in Texas, connecting cultural hubs such as the Alamo, River Walk, Majestic Theatre, and soon, the San Pedro Creek Project and future Frost Bank Tower.
Houston Street is lined with historic buildings and is seen, after decades of struggle and failed redevelopment, to be on the verge of coming alive with mixed-use projects and new residential units. The historic Maverick Building, a pet project of developer David Adelman, is undergoing a complete renovation and will become workforce housing for downtown workers with a restaurant or bar at street level. A few blocks west, The Last Word, Juniper Tar, and Bohanan's all beckon.
The workshop featured a panel with Frank Pakuszewski, principal of 1836 Asset Development, LCC; John Beauchamp, chief investment officer at Hixon Properties Incorporated; Lori Houston, director of the Center City Development Office. The panel was moderated by Robert Rivard, director of the Rivard Report.
The City adopted the Center City Housing Incentive Policy in 2012, which provides incentives to developers building two or more housing units in the downtown area. Those incentives include city fee waivers, SAWS impact fee waivers, a tax rebate, grant opportunities, and a forgivable loan opportunity, all of which depend on the specific development project. Typically, the incentives total 10% of the development cost, so a $40 million project could yield $4 million in incentives.
Before the City's Housing Incentive Policy, developers would meet independently with City Council and City staff to receive incentives, a lengthy process that delayed construction for months. Now developers can go online and access City guidelines to gauge their eligibility for specific incentives before sitting down with City staff.
Houston urged developers to bring their project to City Hall early in the process to ensure maximize their potential incentives and to see her office as a partner. Her department is capped at about $1.75 million annually in available incentives, excluding tax abatements. The Center City Development and Operations Department didn't even exist until 2008, and now counts a large and growing staff.
"It is limited based on resources, but it allows the developer to know what they're going to get," Houston said. "It also allows them to not worry about the gaming, they don't have to come to staff, they don't have to lobby the council members."
Beauchamp began planning the development of the River House Apartments on the Museum Reach in 2009 before the City's Housing Incentive Policy, so he met independently with City staff to negotiate an incentive plan. That process took about a year, but he walked away with a $1 million grant.
The grant permitted Beauchamp to hire Overland Partners to design River House, which sits behind 1221 Broadway in River North, and to add construction amenities such as layered stucco, steel balconies, and smaller-sized brick for detailing.
"The city incentive package allowed us to move forward with the project to begin with, and allowed us to put in some of these details that make the building feel a little bit better than a standard building," Beauchamp said.
River House rents are slightly less than $2 per sq. ft., which is similar to other housing projects in River North, where most multi-family projects range from $1.85 to $2 per sq. ft.
"Rents have gone up, that's good for developers, the bad news for developers is construction prices have also gone up," he said.
Pakuszewski and partners were among the first to build luxury town homes in River North, beginning with the East Quincy Townhomes, 25 high-end town homes across from the Pearl Brewery which sold for about $430,000. East Quincy Townhomes was the second for-sale property in the River North area, and something of a risk at a time when many doubted there were sufficient buyers to justify the risk.
With the success of each succeeding project, however, more and more developers and city officials are gaining confidence that San Antonio's urban core economy is evolving, propelled by a wave of arriving professionals accustomed to life in more expensive markets and locals finding better paying jobs that allow them to enjoy a higher lifestyle. Forbes Magazine reported that San Antonio experienced the greatest increase in Millennial population growth of all U.S. metro areas between 2010-2013 with a 9.2% increase.
"Not everyone wants a DIY (do it yourself) old home," Pakuszewski said. "People want new."
That, he said, explains in part how quickly the town homes sold. Only a single unit remains on the market.
*Correction: A previous version of this story stated the Maverick Building will become an affordable housing complex when in fact it will become a workforce housing complex.
*Top image: Downtown Bethesda, Maryland. Courtesy image.