Austin at Large: HealthSouth – Headed South?

A seemingly straightforward P3 deal instead brings Council’s tensions to the fore


The former HealthSouth site on Red River could be redeveloped into affordable housing (Photo by John Anderson)

In the beginning, there was Brackenridge Hospital, an actual city department like Austin Energy, that, after some urban renewal, landed on 15th Street near I-35 more than 50 years ago. Brack begat HealthSouth, a medical (not psychiatric) rehabilitation hospital that was connected to the south end of the Brack campus, near 12th and Red River, but leased out separately to a specialized operator of such facilities.

The city then got out of the hospital business in 1995, leasing Brack to Seton; 10 years later, it conveyed both the 13-acre campus and the Seton lease to Central Health after it was created by voters in 2005. The link to HealthSouth became practically and then literally severed, and after the city bought out Health­South's lease it had an asset. Much of Brack has now been demolished, and Central Health has ambitious, if still fluid, plans for what is now super valuable Downtown Austin real estate right next to UT's Dell Medical School, unencumbered by protected Capitol views. This is the intended hub of the city's semistalled Inno­va­tion District, and Cen­tral Health's stated goal is to use the money it earns from the Brack campus to provide stable funding for medical services to poor residents in Travis County, just as it did from Seton's lease. HealthSouth is not part of that deal.

There was some energy, for a while, to retain HealthSouth as a medical center regardless of what happened on the Brack campus. Scenarios mostly involved psychiatric care, which is still scarce and dear for the many central-city residents and employees with low incomes who live in subsidized or public housing, or who have no housing. The county-owned Sober­ing Center is next door; the Dell Seton Psych Emergency Department is two blocks away; Integral Care owns the former Ronald McDonald House next to Waterloo Park; there were synergies.

And Also Lots of Politics

There's also a big, ambitious (there's that word again) overhaul of Austin State Hos­pit­al, championed by Kirk Watson, as a center for brain health that can do more direct psych care for Austinites than it does now. As for the local partners, at the moment when the iron was hot enough to strike on this concept, the city and county were already crosswise on economic development and land use at Palm School and the Expo Center and hotel occupancy taxes. Both Central Health and Integral Care are going through a rough patch reputationally. And there's an election coming up! So yeah, good idea, bad timing.

Once it became clear the city was going to do its own deal for HealthSouth, its Economic Development Department went looking for a real estate partner to develop this corner of the Innovation District, and in January 2021 Council chose Aspen Heights, who – I will just say this as a dude who used to work for developers – have appeared since to be operating at the edge of their range. They may be able to conceive and finance a marketable development here; they've proposed two towers with 921 units (plus office/retail, a child care center, a music venue, parking, etc.). Some number of those units – more than 10%; beyond that, who knows – will be income-restricted. Aspen Heights says it can do more if the city subsidizes the units, either through its housing funds and bonds or simply by reinvesting the (undetermined) proceeds from this lease into the new project's housing. But making the numbers work is only part of the job before them; this last 18 months have been spent trying to produce a draft master development agreement, which could take another year to finalize.

This Is a Moving Target

I have to speak in general terms here because at the July 28 Council meeting, the HealthSouth deal got kicked forward to Sept. 30, because Aspen Heights dropped its latest and greatest version of its proposal on city staff the night before the meeting. This is apparently not the first time Aspen Heights has reworked its offer, which is not really what is supposed to be happening, even if they and City Hall are "negotiating." Not everybody is as good at this as Catellus at Mueller, Southwest Strategies at Seaholm, or Endeavor at Saltillo. Slack can be cut! But 18 months is a long time to wait to start from scratch – what Aspen Heights described at the July 28 meeting is really a different proposal from the one Council saw in January 2021, including an adjacent piece of property. The late backup online for the July 28 meeting has three successive motion sheets, each conveying Council's increasing annoyance with their greenhorn partners: To paraphrase, "This is your last chance, you WILL do the assignment properly and on time or you will fail the class."

But Aspen Heights' naivete and awkwardness should not obscure that they felt the need to rework their proposals multiple times under pressure from this Council, which is not of one mind about HealthSouth.

Adler seems taken by the idea of an elaborate and baroque P3 market-driven solution providing a grab bag of desired community benefits; CM Kathie Tovo has, pretty much from the jump, taken a maximalist position on how much affordable housing the city should be aiming for here. Why not 100%? It's city property. On the same agenda, Council approved a (very good) proposal for 100% affordable housing on city-owned land in East Austin, just south of Mueller, despite objections from nearby neighbors. Here on a Downtown property with few neighbors (yet), why should the city settle? Unlike Central Health, the city can afford to not make money on its real estate here. Why not just go for the community benefit and have a traditional housing nonprofit build a project at HealthSouth? Tovo sure as heck is not convinced that Aspen Heights is going to deliver here; she voted against the motion to extend their deadline to Sept. 30, saying she'd prefer to cut Aspen Heights loose and bring in traditional housing partners. Stay tuned!

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