The Lay of the Land
Timing Is Everything
None of which would matter if the market weren't ready. "Our timing has been good," says Tom Stacy, downtown property owner (Littlefield Building, Stephen F. Austin Hotel, Perry-Brooks Building, and more) and former chair of the Downtown Austin Alliance (DAA). "There's a national trend toward urban-core redevelopment, which we needed to do out of desperation after the bust. We had cheap, empty, brand-new space, and it was less expensive than building in the suburbs."
While opinion leaders of the pre-Watson era threw fits and wrung hands over downtown, real people quietly filled up Austin's famously empty skyscrapers and noisily returned the Warehouse District to its historic roots as Austin's party-and-vice quarter. These developments are not unrelated, says Stacy. "The restaurants and bars, the entertainment options, are what's attracting some of our other new users to downtown -- like the multimedia companies. We would lose a lot of our overall appeal if we lost them."
So now we're ready to build some new stuff, but new stuff -- or recycled old stuff -- in any downtown is terribly complicated. The land is way too expensive -- $50, or $75, or $100 per square foot, take your pick -- to use for just any old thing. But there aren't many uses -- including, in Austin's case, single-family residential neighborhoods -- that aren't already in, or want to be in, or want to remain in, the Central Business District.
This produces the three-pronged conceptual conflict between developers, financiers, and politicians that has shadowed the Smart Growth Era nationwide. "It's very difficult to get the first project done, which has everything to do with financing -- lenders are notoriously risk-averse and against pioneering, so that first deal is extraordinary," notes Charles Heimsath of Capital Market Research, chair of the DAA's Economic Development Committee. "But once that first deal's done and it's successful, which it usually is, you'll have in rapid succession a number of other projects."
In the current market, the first deals are high-end residential projects: the LBJ Holding Company's renovation of the 1939 Brown Building, and the Sutton Company's Brazos Lofts (the first of three Sutton loft projects currently in the pipeline). Both involve reuse -- hence the ambiguous term "loft" to describe what are really apartments -- which makes them cheaper, though not cheap. But in Austin, as in many New Cities of the Sunbelt, "there's a shortage of buildings to recycle," says Sutton's Mac Pike. "Most of the new residential development is going to have to be new construction."
Enter the city, which last year primed its pumps by turning development rights to some of its surplus downtown land over to eager residential developers, AMLI (in the Warehouse District near the proposed CSC site) and Post Properties (at the Poleyard at the foot of Shoal Creek). In the intervening months, the city has learned for itself how complex downtown development actually is.
"Now that the investment has gone into these blocks, what happens to the adjacent blocks?" asks Planning Commissioner Ben Heimsath, chair of the city's Downtown Development Advisory Group. "With the Poleyard, you have a prime destination and traffic generator. That has implications for the lakefront, for Sixth and Lamar, for transportation throughout downtown ... for everything, actually. Simply doing land use planning doesn't cut it." This lesson has been brought home hard by the CSC deal, which has screwed up -- sorry, prompted a "revisiting" of -- the city's original agreement with AMLI.
The Language of Cranes
The barely controlled chaos, shiny and exciting though it might be, of the city's Downtown Initiative has been amplified by the noisy remnants of the anti-boondoggle war cry. And once again we hear tell that the Free Market -- if such a thing exists anywhere in the world of real estate -- should develop downtown with its own money. But what would we get if it did?
Well, we sure as hell wouldn't get the headquarters of Computer Sciences Corporation, for good or ill. But that doesn't mean we wouldn't get new office space at all. Indeed, two projects have been announced, though not brought to groundbreaking, for privately held blocks right next to the CSC/City Hall site. Charles Heimsath, whose job it is to read the market tea leaves, expects these and more to come through. "I think the character of downtown will change dramatically, as it did in the mid-1980s, in the early part of the next century," he says. "When a couple of 25-story construction cranes tower over downtown office projects, you'll really see things take off."
Having been badly burned by the bust, though, downtown property owners are looking for ways to diversify their traditional crop. "We could have leased the ground floor of the Brown Building as office space five times over," says the LBJ Holding Co.'s Jim McBride. "But we want to use that space to offer services and amenities" -- i.e., retail -- "to the community in nearby buildings and the tenants of our own building. And those retail users are still looking for an acceptable return. They'll come, but not in anticipation of the people being here -- only after."
Except for cases like CSC -- designed, among other things, to give downtown a demographic transplant -- the people of whom McBride speaks are the downtown residents of tomorrow. As Stacy -- who is readying the old apartments in the Littlefield Building (a call-girl hangout back in the day) to come to market as rental properties, and plans to occupy one himself -- puts it, "We couldn't stop the downtown residential market if we wanted to."
But what kind of residential would we get? We all know it won't be Section 8, and so far the market has lagged on any kind of rental housing, Brown Building excluded. "There's a very strong demand for sale property downtown," like the Sutton projects, notes Charles Heimsath. "But there's a much broader and stronger demand for rental housing that I don't think would be adequately addressed simply by the market, because the land cost is so high. If you want a 24-hour living environment that is affordable to a wide range of people, you have to intervene in the market to write down the cost of the land."
The affordability gap matters for lots of reasons, including its effect on the interrelated downtown property market. A broad tenant base will support a broad retail base, but if all we get is wealthy folks using their downtown loft as a pied-à-terre (as has already happened with the Brown Building and Brazos Lofts), all we'll see is the boutique retail that is gradually filling up Congress Avenue's storefronts.
Can a neighborhood laundry, by contrast, pay downtown's high-altitude rents or property taxes? And if the city does intervene to produce affordable housing, will it also provide affordable retail spaces? "If you have inexpensive land, you can have mom-and-pop downtown businesses, but what you'll really end up with, if the market is completely in charge, is extended-stay hotels and IHOPs," says developer Perry Lorenz. "Those uses are impossible when land costs $100 a square foot, but then Mom and Pop get shut out. The city, through incentives, is the only entity with the power to manipulate that market."
There are places for small retail to rent, though not to own: those mandatory ground-floor retail spaces the city now requires of almost all downtown projects, which right now, as the Brown Building's example shows, "don't make much economic sense," in Charles Heimsath's words. But promoting a broad -- and huge -- downtown residential base is itself a powerful incentive.
"We could have a vast number of residential units," says current DAA chair Will Wynn. "When I step back and look at Downtown Austin I see it as being only 20% built out, when you consider the vacant land, the surface parking lots, the underutilized spaces. We could quadruple the square footage downtown and still have an appropriately human-scaled enviroment. And we'll have that many more opportunities for retail of all kinds as part of that environment."
The other end of the retail scale is likewise problematic. "We'll have local retailers downtown," says Stacy, "because out-of-town chains all want to have 600,000 square feet as close to Sixth and Congress as possible, or else it's not worth it for them." For years and years, a big "destination retail" project has been viewed as essential to downtown renewal, but it's become accepted that the market will not bring such a project to Austin without extensive public subsidy.
"The city needs to make a conscious decision to have regional retail, then decide where it will go," says developer Robert Knight. "And there aren't many areas in downtown where it could be done. It would take a commitment even greater than with CSC to prime that pump." (One of those few places is along Lower Waller Creek, where Lorenz and Knight own property; more on that on p.28.)
The city has been in a pump-priming mood, and Michael Knox, the city's chief downtown planner, notes that "we probably do need some destination retail to bring a different kind of person downtown." But whether that translates into a conventional mall anchored by a Nordstrom (for whatever reason, the example is almost always Nordstrom) is an open question. "I think we need to leave the door open with respect to what, exactly, we want," says Charles Heimsath. "The era of the large mall is declining nationally, and we're bucking national trends by saying we want to encourage one. We need to be open as a community to different models."
Any talk of "destination" anything in downtown provokes a question: Where the hell will they park? "To get the big retail projects back into downtown you'll need big structured parking," says Stacy. "People need to know they can 'go to that garage at X and X.' "
For developers, Austin's transportation problems largely boil down to the space, time, and money consumed by auto storage. "Right now, parking drives the types and sizes of residential uses we can build," says Sutton's Mac Pike. "There must be a more efficient way of using the parking that's here." Even though both the Brazos Lofts and Brown Building are retrofits, both required brand-new and quite pricey parking garages. "That was 20% of our cost," says McBride. "In other markets, the parking could have been provided cooperatively."
There's much talk of creating a central agency to manage parking; such an entity would likely want, or need, to build cooperative garages at strategic locations, especially if and when surface parking lots disappear from downtown. But "you reach a point where you can't put more people downtown if they're all coming in single-occupancy vehicles," says the city's Knox. "If the average height in downtown is seven stories, we'd need nine-story parking garages on every block."
The chair of the DAA -- a group of major property owners -- is equally emphatic. "We can't get there from here with our current driving and parking habits," says Will Wynn, likely the only DAA board member who commutes to work on the bus. "Austin already has a beautiful assortment of older structures without any parking, so there will clearly have to be a managed plan (and) common-use garages downtown. But 92% of the people downtown drove there in single-occupancy vehicles, and stowed their cars all day long, taking up space, choking our roads. If we could just get two people per car and not one -- there's a number of little things, nuances, where we could just start tweaking our current habits."
Demand management naturally involves transit. The DAA has already taken the lead in sponsoring Capital Metro's new DilloDASH, a lunchtime circulator service that stops more often than the regular Dillos and runs every five minutes. As well, the transit authority and the State of Texas have finally -- out of necessity, because the new Capitol Complex projects have led to a temporary parking shortage -- established direct shuttle service between suburban transit centers and Granite Mountain.
"A successful circulator system like the DilloDASH can create a critical mass -- it shows that people will use mass transit downtown, which in turn shows that light rail can work," says Southern Union Gas Co.'s Bobbie Barker, chair of the DAA after Stacy and before Wynn. "Once state employees get on the Dillo or the shuttle, they'll see what's happening downtown and that will create a grassroots behavioral change."
Lest that seem like hippie talk, "conservative Republican from Amarillo" Rick Crawford, former legislator and current director of the State Preservation Board -- in effect, the manager of the State Capitol -- says, "It simply makes more sense to have transit routes with more direct service to the Capitol and to downtown. I'd like to see mass transit work in Austin some day." (Crawford notes that, since the start of the session, ridership on the shuttles -- which run from Cap Met's transit center at Research and Lamar and from the Toney Burger Center in southwest Austin -- is "way, way up.")
While we have a politically diverse consensus, how about the whole hog -- a stand-alone downtown redevelopment agency? That is, a separate organization, backed by at least some public money, that would plan, buy, sell, trade, develop, and manage downtown real estate, to ensure that the Central City remains responsive to the public interest? You can just hear Sammy and Bob choking on their breakfast biscuits.
Most of the glamour spots of America's new urban renaissance -- from Boston and Providence, to Cleveland and Minneapolis, to Portland and San Diego -- have such an entity. However, the old-style urban-renewal "authority" -- with self-perpetuating powers that often supersede those of other jurisdictions -- is a dying species, replaced by the more user-friendly "development corporation," which does all the heavy lifting but leaves decision-making power in the traditional hands. Either way, downtowners want one.
Whether they're afraid that this council will screw up downtown, or that the next council will screw up what this council's done, they look to "getting downtown out of the political process," in Robert Knight's words. "These are really investment decisions -- the city is just a great big developer, and if it wants downtown to develop in a certain way, it needs to make the same kind of decisions an investor would."
Now, if this were merely Austin wanting the shiny tools in the other guy's toolbox, regardless of whether they worked ... well, it wouldn't be the first time. But a stand-alone entity with some autonomy from the vicissitudes of council politics, an independent means of finance (most such agencies can float their own bond debt), and the flexibility to meet the market halfway, project by project, would do two things that could help us get a truly diverse and partly affordable downtown.
For one, a development agency, unlike the city, could engage the market as an equal partner, rather than as a stern superior (the Don't-Do-That regulatory approach) or as a begging supplicant (the Please-Do-This incentive approach). "We're much better at regulating and prohibiting than at creating new stuff," says Knox. "We're trying to get the city a little more into the proactive mode, but now is the time to get a development agency moving. It can be a good developer and a downtown booster while still looking at social issues that are broader than profit."
For another, a development agency can maintain successful strategies, and discard unsuccessful ones, over time. "In our current situation," says Ben Heimsath, "we have learned a lot and gained a lot of momentum, and thank God we have a City Council that's willing to take risks, which is not generally the norm. And the pendulum can swing with the next council. How often would we need to start from scratch when the ad hoc stars don't align?"
Heimsath's Downtown Development Advisory Group is charged with blueprinting such an agency, and indeed the DDAG is "potentially the embryonic form of such a corporation," notes Will Wynn. What the DDAG will recommend -- or what the council will accept -- will probably involve more direct oversight by the city than one sees in other places. "We need accountability in whatever entity emerges, and the citizens of Austin need to follow it very closely," Heimsath says. (As Knox recounts, when the idea of a "semi-independent" agency was floated to a previous council, "the first question was 'How independent?'")
But the agency's leash would have to be long enough, "once you've made the decision that you want housing at a certain corner, to pick partners, make land deals, and work like a private-sector developer," Heimsath continues. "Our tradition for eons has been to have great ideas that went nowhere, and we have to recognize that our current experience, as exciting as it is, is transitory. We have to lock the responsibility for being steward and visionary for downtown into a structure that Austin can agree to. Otherwise, one or two more projects, and then one goes sour and the pipeline gets shut, and downtown is dead."