After Years in the Works, City Kills HealthSouth Redevelopment Deal

The HealthSouth site where the development of about 1,000 housing units was in the works (Photo by John Anderson)

After coming back from the brink of death last summer, a deal between the city and developers to turn an old hospital building into housing that at one point included 200 affordable units has officially died. Staff with the city's Economic Development Department decided not to extend the Exclusive Negotiating Agreement with developer Aspen Heights over redevelopment of the property next to the old Brackenridge Hospital site now known as HealthSouth, which had already been extended six times over the past few years. The negotiating agreement expired June 30.

In a memo delivered to City Council on June 28, EDD staff wrote that the developer "recently indicated that the Council approved term sheet is no longer financially feasible due to market conditions." The terms dictated by Council in a Sept. 29, 2022, vote included a range of community benefits – about 232 affordable housing units (out of 921 units in total), an affordable child care center, a live music venue, and a $200,000 mural painted on one of the two towers proposed for the site. Aspen Heights did not respond to our requests for comment, but according to the EDD memo, their latest offer reduced the number of affordable housing units to around 64.

The decision by EDD staff appears to have frustrated some Council members. In a message board post on June 28, CMs Natasha Harper-Madison and Zo Qadri (prior to redistricting, the site was in Harper-Madison’s district, but now it is in Qadri’s) asked staff for an executive session briefing so they could better understand why the deal fell through. The CMs wrote that staff's "sudden decision" was "premature," given the importance of the property and that it has been winding its way through the lengthy redevelopment process reserved for city-owned properties since 2016.

But an EDD spokesperson told the Chronicle that staff fulfilled Council direction provided last fall; they submitted a draft Master Development Agreement to Aspen Heights in March, which the developer responded to with a "revised offer" two months later. That offer, further modified in June, "significantly deviated" from the Council-approved term sheet, according to EDD. Staff explored other financing tools and partnerships to make the deal work, but the changes Aspen Heights made to expected community benefits were "too extreme to overcome."

Staff intends to initiate an expedited request for proposal process to get the ball rolling on redeveloping HealthSouth with a new set of partners, but even under an expedited timeline it will likely be another several years before anything is finally built on the vacant hospital property.

* Editor's note Friday, July 7, 9:38am: A previous version of this story incorrectly indicated that HealthSouth is part of the old Brackenridge property; it is adjacent but separate with different ownership. Also, the site is no longer in District 1, but D9, following redistricting. The Chronicle regrets the errors.