Horse Race

In 10 memorable years, Austin’s downtown office market has gone from bust to boom to booming like crazy. This dramatic turnaround in the city’s core has developers’ heads spinning over the prospect of turning dirt in an area of town that hasn’t seen new office construction since 1987. That was about the time the market bottomed out and left downtown with a cheerless portfolio of empty office buildings and the highest vacancy rate in the nation for 21 months running. Oh, things were ugly all right. Businesses went belly up, homes were lost, Rolexes were pawned — but we’re getting too far afield here. This is 1999 and aren’t times supposed to be good? “Yeah,” Jeff Pace drawled over his cell phone the other day, “but we haven’t forgotten what happened in the 1980s, and financers haven’t forgotten either.”

Pace, vice president of CarrAmerica Realty Corp., is one of a handful of developers jockeyingto be the first to break ground on a new office building downtown. Real estate sources agree that of the field of five proposed office buildings, only one — possibly two — projects will get off the ground this year. “Everybody’s in a tailspin right now because they’re all competing for the same tenants,” said one real estate guru. “Plus, no one wants theirs to be the second project to go up, especially with whispers of tougher economic times ahead.”

Still, Colliers Oxford Commercial, which tracks the local real estate market in quarterly reports, saw the downtown office occupancy rate

balloon to nearly 95% at the end of 1998. By most accounts, that’s a figure that justifies putting up a new office building, particularly in light of downtown’s newfound popularity. Even so, the days of bankers throwing down money like so many playing cards have gone the way of the S&Ls of the Eighties. In this age, developers wanting to lay down stakes for a new office project must work harder to pull their financing together. That means showing proof of demand by rounding up prospective tenants and locking them into pre-lease agreements.

Which brings us back to the fierce competition going on downtown. Here are some of the key players:

• CarrAmerica. This Washington, D.C.-based real estate investment trust wants to build a 23-story, 400,000-square-foot office highrise at 300 W. Sixth. Local real estate sources give CarrAmerica high marks for its highrise successes in 24-hour cities like San Francisco and Washington. The company opened an Austin office in 1996, promptly snapped up a line of office buildings, and wooed Pace away from real estate warriors Trammel Crow. CarrAmerica has focused most of its efforts in the Austin suburbs, but now has turned its attention to the hot market downtown. Said Pace: “It’s a very tactical time right now.”
• Scott Young Properties. Home-grown developer Scott Young is exploring relatively uncharted office territory at Fifth and San Antonio Streets (former home of the Covert Isuzu and Buick dealerships) with a 500,000-square-foot, two-building complex called Museum Park. “We feel very fortunate to have this location because there is very little contiguous space downtown,” Young said. Young, whose other projects have included the Whole Foods-Book People buildings, the 600 Lamar building, and GSD&M’s headquarters, said he expects to break ground by the spring.
• Metropolitan Life Insurance Co. The investment division of this downtown company is planning to build a 250,000-square-foot high-rise at 101 Colorado Street. Like CarrAmerica, Met Life is going after the high-end tenants who can afford to pay top dollar for a prestigious address.
• Bonner Carrington Development. This company is looking to construct a 300,000-square-foot office building at 200 Congress Ave.
• Simmons Vedder & Co. A Houston development company, Simmons Vedder is planning a 10-story office at West Third and Brazos.

Real estate sources say that Met Life and CarrAmerica are the two best candidates to get their buildings off the ground — Met Life because of its deep pockets and CarrAmerica because of its record of putting up high-rises in other markets. Longtime real estate broker Michael Kennedy, president of Michael A. Kennedy Interests, summed up the landscape this way: “It’s going to be nail-biting time for these guys right down to the wire.”

This article appears in February 5 • 1999 and February 5 • 1999 (Cover).