Mueller: The Art of the Deal

So. Let's say you have this big chunk of land. And let's say you've got big plans for it. That you'll get to -- someday. And then let's say your neighbor has big plans for a chunk of land he owns, and you don't like them. And he says he'll trade you, and he'll even build what you want on your land. Sounds great, right?

That's the rub, say the few remaining critics of a proposed land deal that would give Stratus the city-owned Robert Mueller Municipal Airport in exchange for some of Stratus' land over the Edwards Aquifer: It sounds great, even to longtime Stratus critics like City Council Member Daryl Slusher. "We want to develop Mueller, and we would prefer not to have urbanized development on Stratus' other properties, and so we could make both those things happen, potentially," says Slusher. "[Stratus has] already said they'd follow the Mueller master plan, so we could end up with less development on the aquifer and more in the urban core."

Stratus, formerly known as FM Properties, was until 1997 a subsidiary of Freeport McMoRan, the Jim Bob Moffett-owned company whose Barton Creek development plans triggered the SOS movement 10 years ago. The company still owns a few thousand acres southwest of the city, which it would very much like to develop -- and which the city of Austin would very much like to prevent it from developing out.

In this case, Stratus has the upper hand. Despite the SOS ordinance -- passed to limit growth over the Edwards Aquifer -- Stratus can build under older, less restrictive rules, thanks to House Bill 1704, the 1999 law that limits the city of Austin's power to regulate growth. And while Stratus' offer to settle outstanding litigation with the city would allow the company to build more on its environmentally sensitive lands than the SOS ordinance would allow, it's still less than Stratus would be allowed to build under 1704.

On the other hand: What was once Mueller Airport is now a 711-acre vacant lot that has been master-planned by San Francisco's Roma Design Group for a mammoth redevelopment project, expected to take at least 20 years, that would transform the old airport into a mixed-use urban village close to downtown Austin. The city has made no decisions about how to implement the master plan, which means Mueller is virgin territory for developers eager to take on land projects in the urban core. That is, developers like Stratus.

Backers of a Stratus-Mueller deal would like to see Stratus develop its land over the aquifer under impervious cover written into the SOS ordinance. In return for giving up its rights to more intense development over the aquifer, Stratus would get a dollar-for-dollar "interest" in the Mueller project -- that is, for each dollar of development it gives up in its Edwards Aquifer properties, Stratus would gain a dollar's interest in an airport deal. That's about as far as the details go; for example, no one is yet quite sure what that "interest" would be (land? development rights? square feet of built space?) or how much such an "interest" would be worth.

But as is the New Austin Way, even though the Stratus-Mueller merger is scarcely more than a doodle on a Cedar Door cocktail napkin, it has already been anointed by the Mayor Himself as the city's best -- perhaps only -- way to save Barton Springs. That would be a pretty nice coup for the Watson Council, and such a deal has obvious upsides for Stratus as well. But how good a deal is it for Mueller?

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Boys in the Hood

Austinites, especially those living in the neighborhoods around Mueller, have spent more than 15 years hashing out a post-plane vision for the old airport. After the Bergstrom move became a fait accompli, this process became formal back in 1996, with the creation of the RMMA Redevelopment Process and Goals Task Force. In 1997, the state of Texas extorted 282 acres of the site for its own uses, and with that in mind, Roma was contracted three years ago to turn the local task force's goals and recommendations into an actual buildable plan for a Smart Grown, mixed-use, transit-oriented, pedestrian-friendly, you-know-the-rest urban village -- which is what the neighbors wanted all along.

In theory, this plan included the state's parcel, but in 1999, the state semi-officially, semi-permanently abandoned its Mueller project (only time will tell what the upcoming legislative session brings), giving the city back its 282 acres -- which was good -- but depriving the New Mueller of its first major developer and anchor tenant, which was bad. Now that the city has to put up its own money, and not the state's, to pay for roads and sewers and other infrastructure -- especially given that the New Mueller fund in the city budget is already many millions in the hole -- a "master developer" that would take over the heavy lifting looks really attractive.

Enter Stratus, holding the stone that could bump off two city birds. A Stratus deal looked even more appealing when compared with the alternative -- doing a nationwide search for a master developer, which could take months if not years. (The city isn't yet sure even what it would ask prospective master developers, and has indeed re-upped Roma's contract, for the fourth time, to help the city staff decide.)

At City Hall, folks get downright irate when anyone suggests that Mueller fatigue is making Stratus more attractive now than it will be the morning after. Slusher, for one, argues that the deal is far from done. "There's still lots and lots of discussion to be had with Stratus," says Slusher, "and if it turns out this isn't a good idea, then absolutely the city would go through with doing a national search for a developer. I don't get any sense that anyone at the city is simply looking to get rid of Mueller."

Mayor Pro Tem Jackie Goodman says she's eager to get on with development. "I don't get the feeling that we want to get rid of it; people are really committed to the plan," and to the Mueller Commission, and to citizen accountability, Goodman says. "But we're also committed to not letting this great big chunk of land sit empty and vacant for years to come. When I say 'Let's talk to Stratus,' it doesn't mean 'Let's give away Mueller to Stratus.' But some of the stuff we plan is really hard to artificially induce. We need to be open to opportunity.

"I thought the goal was not to take longer to start redeveloping Mueller than we had to," Goodman continues, "and if we were going to finance it ourselves it would take forever. So I thought we should pass it by [Stratus] to see what their expectations would be if it were brought up" in settlement talks.

In the beginning, a Stratus swap was an anathema to the Mueller Neighborhoods Coalition, which is the only real interest group working on the old airport, and which as such has had remarkable leverage and input in a city that supposedly doesn't listen to its neighborhoods. To the MNC, all swap talk was folly until the Roma plan was actually adopted as an ordinance (zoning, building standards, et al.) and until the city had created a citizens' oversight process to ensure that the plan got followed over the next two decades of buildout.

And after spending years in ass-numbing meetings and frantic lobbying efforts to make their vision for Mueller into public policy, the MNC wasn't about to sit idly by as the city dealt Mueller away to a developer, such as Stratus, who had limited -- okay, zero -- experience at major mixed-use projects. That view is still held, most vocally, by the neighborhoods' soi-disant best friend on the City Council, Beverly Griffith, who argues that "to bring the master plan to fruition, it will take the talents and integrity of one of the nation's best master developers -- [one] with experience and a successful track record."

This means doing a search, which is "exactly what our consultants recommend and what East Austin deserves." Griffith is also motivated by a desire to hold onto Mueller land as long as possible, arguing that selling pieces of the New Mueller later, after they've been built out -- or perhaps not selling them at all, but rather signing ground leases with commercial tenants -- is the best deal for the city and its General Fund. Therefore, any talk of swapping Mueller land, Griffith says, "is not in the best interest of the city or the surrounding neighborhoods."

Griffith made that argument at the end of October, and her position hasn't much changed, even though in the intervening weeks Stratus-Mueller has gone from an interesting idea to a likely scenario. Right now, Griffith's stance is actually somewhat more revanchist than that of the MNC, whose de facto leader, Jim Walker, is also the new president of the Austin Neighborhoods Council and the chair of the Mueller Commission. "I've never said we shouldn't talk to Stratus at all," Walker says. "I just feel we need to have a plan officially in place, with ordinances, before we can really know what we're talking about."

In any event, now that Kirk Watson has announced, as he did last week, that Stratus' original settlement offer was basically dead, and that a Mueller swap was the only alternative currently on the table that could keep Stratus from paving over the aquifer, to stand on principle seems like standing on shaky ground. "I feel like we're being asked to find ways to make this work," says Walker.

Apparently, Walker believes that one way to make a deal work better is to collaborate with environmental groups. The Mueller Neighborhood Commission has been talking to SOS for months and is presenting a neighborhoods-environmental front in dealing with the city and Stratus. The city, according to the neighborhood organization, should adhere to the Mueller plan, "as it should adhere to the SOS Ordinance." And it should use the best science to evaluate Stratus' settlement offer, "to inform neighborhood planning in Southwest Austin." (The latter is an odd request, given that the city's neighborhood planning program isn't anywhere near working on the city's southwest fringe, but it's apparently one of Griffith's new talking points.)

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Who Gets What?

What would Stratus get? First of all, as Goodman implies, players on all sides are bending over backward to disclaim any effort to swap all of Mueller for all of Stratus' holdings, though that's how the deal has been rendered by local media. "It seems to me that the city needs to determine what level of development is acceptable in Southwest Travis County, and the difference between that and what we're entitled to build would be the value that we'd want to realize at Mueller," says Stratus CEO William H. "Beau" Armstrong. "It's not necessarily acreage, or square feet, or fee [i.e. ownership of Mueller land], or particular product types -- just assets of equal value."

In other words, Stratus could get the right to build a chunk of retail here, a bunch of houses there, and an office building somewhere else within the old airport fence, if that will make the math work. Armstrong says that, based on the Roma plan, valuation of Mueller development rights should be "really simple ... a rational process." However, while Roma has estimated that the cost of the New Mueller, from public and private sources, lies in the $2.2 billion range, nobody has yet tried to officially determine the value of the improvements called for in the plan.

Yet it's unlikely that that's how a Stratus deal will work. First of all, Stratus doesn't really build all that much -- it basically plans and plats, lays in pipes and lays down roads, and sells the improved land to builders who produce view homes. "We're a master developer now," says Armstrong. "We establish the ground rules, develop a regulating plan and zoning plan, and put in the infrastructure. We're good at the basic block-and-tackle work -- keeping costs under control and ensuring quality."

Second, what Stratus has built, or made possible, is pretty far from what's envisioned at Mueller. The New Mueller would be a diverse, green-built, transit-oriented, central-city village, and Stratus' developments are not. Stratus also has a perceived experience deficit. Even Slusher notes that "we've talked about Stratus bringing in a national developer, or people with national stature, to work on Mueller, for them or with them."

Stratus, however, seems to be betting on the idea that being here in Austin is itself an asset, and being from outside Austin is a liability. "There's a significant dumb tax for working in Austin. You have to know the process. I think any national developer would just work with local partners anyway," Armstrong says. "There's so much talent in town, and Austin is such a unique place, that by the time you bring an outsider up to speed, your opportunity has passed. And do we really need more developers?"

It would be easier to write off such comments as self-serving if the city had a really good idea what it would do instead. After all, as Goodman notes, "I haven't said to Stratus, 'You'll be the master developer,' because I'm frankly not sure what the master developer is. If we're going to talk about one, then we really need to lay out what the master developer would do and oversee."

Now that the city has created the Mueller Commission and is on its way to translating the Roma plan into an actual zoning ordinance, Goodman continues, "I assume we're putting our faith into that mechanism to keep it true to the plan. Stratus wouldn't be able to do whatever they wanted to do."

So Stratus, the Mueller neighbors, and the city have all wrapped their heads around the notion of a Stratus-Mueller marriage. And given that the old airport ain't getting any younger, it may not take much wooing to convince the citizens that Stratus is good for Mueller. "Right now, the market is ready for the Mueller project, the neighborhoods are ready, and the industry is ready," says Armstrong. "It's just a matter now of the political process. It's the city that's not ready."