Before heading out for the day I received a call from Mr. John Rosato saying that he could meet with us again at 2:15, saying his meeting had been canceled. This is good news, as I really wanted to see this project and discuss it with him. After a couple of phone calls to determine if we could meet with him at 2:15 and still make it out to the Hill Country Galleria without issue.
The Ronald McDonald House Charities
Our first destination was the Ronald McDonald House Charities, a charity organization that houses family's of children who are receiving medical attention at nearby hospitals. It was the first LEED Platinum Ronald McDonald House Charities in the U.S. and the third LEED platinum building in all of Texas.
Ms. Jan Gunter, who had been working with me to set this meeting up, introduced us to the CEO, Mr. Kent Burress. He was quite knowledgeable, because he oversaw the project from its infancy and spearheaded the building's LEED rating. He walked us through the entire building discussing each lead point that was achieved and the decision process that led to the final product. I would list out most of the LEED points that the RMHC earned, but it would be more efficient to just refer you to the USGBC and LEED websites. In short, there are just too many to list.
With the exception of the HVAC system, all the quantifiable LEED initiatives have paid for themselves within the first 2 ½ years of the buildings operation, and may have been sooner. The HVAC creates positive air pressure for each individual guest room, where the air pressure inside the room prevents (pushes) the outside air from the hallways from coming in when you open the door. It also is basically a closed loop system, in that the air is not circulated between units. This makes for a much healthier environment, especially for those children who have completed or are in the process of finishing treatments at the adjacent hospital.
Mr. Burress was quite passionate about his build and extremely proud of the building's accomplishments pertaining to its ecological efficiency, its ability to exceed the charity’s mission for the building, and especially the "good work" it accomplishes in the lives of so many families.
The Mueller Airport Redevelopment
The Ronald McDonald House Charities is a part of a greater real-estate development, called the Mueller development (pronounced Miller) by Sante Fe Railroad’s real estate arm, Catellus. It is the old Mueller Airport site, with approximately 700 acres of retail, office, single-family and multi-family residential, hospitals, schools, parks, reclaimed prairie land, etc. We met Ms. Jessica Reynolds at the Mueller visitor center where we all circled around a huge model of the development. The model showed all current and future phases of the project. One thing I thought was a little strange, or at least from what I understand, Ms. Renyolds said that Catellus doesn’t sell parcels of land to other developers, but will to home builders. Regrettably, I didn’t have my note pad with me and was unable to take notes to help me remember what was discussed, so this portion will be cut short. We did explore the development as it stands currently before departing for lunch.
Lunch w/ The Texas Department of Agriculture
We met Ms. Judy fort and Ms. Sherri Gothart-Barron from the Texas department of agriculture, economic development. It was a joy to have them join us for lunch as they're very personable and quite funny. After our meal each lady discussed initiatives for economic development and more specifically in rural communities. Ms. Fort mentioned a few issues that many communities face and how her department can help them. Ms. Gothart-Barron explained her part in trying to get communities to understand the economic impact of catering to retirees and the elderly. Baby Boomers have a high propensity to spend money and will continue to do so during retirement. Therefore communities that cater to this generation stand a higher chance of reaping the tax benefits of the retirees’ expenditures.
Seaholm Power Plant
At 2:15 we met Mr. John Rosato to tour the Seaholm Power Plant. Over the course of the next month the plant is being rented out for filming one seen in the movie remake True Grit (w/ Matt Damon & Jeff Bridges). The project has been going on for about five years, mostly trying to work out the specifics of the contract with the city, as well as the city remediating the site. The northwest corner of the site has oil or gas contamination in the soil and is currently being removed. The power building itself had oil that had leaked from the turbines and other machinery, which then soaked into the concrete. The city addressed and removed the contaminated areas. To be efficient the City of Austin Power Company used the oil from the turbines to lubricate all the other machinery in the building, like cooling fans. This caused the oil to become airborne and spread throughout the building, which has also been removed.
Because of the current market situation and a lack of construction financing, construction will be most likely in two phases. Phase 1 will be the renovation and selected demolition of the existing power house and a low rise portion. Inside the power house will be some offices, but mostly retail and gathering spaces for public functions. In order to maintain the Capital View Corridor the low rise portion must be 40 feet or less. It will house retail on the ground level and residences above. Between the two new buildings and the power house, will be a public plaza. Three of the five boilers will be removed from the power house’s north side to open up the it’s interior to the plaza. On the west side of the project there will be a vehicular entrance from Cesar Chavez (1st Street) that is lower than plaza level. Phase 2 will be a tower of luxury condominiums and the Seaholm Plaza Hotel. I am looking forward to this project’s completion and to see the beautiful spaces created, though it may be quite a few years off.
Hill Country Galleria
The Hill Country Galleria is a great example of how a great project sometimes must go through growing pains in order to be successful. We met with Mr. Lance Morris, of the Weitzman Group, the Galleria’s retail leasing agent. The project initially was constructed for approximately $180 to 190 million, but recently went through foreclosure and sold for about $75 million from Bank of America and other financial institutions. The new owners are 2 of the 3 managing principles of a REIT management company and a UT law professor, Adrian Overstreet. To aid the project in passing through the local government’s approval process (& land acquisition?), the original developer built a new city hall and library building, donating it to the town of Bee Cave. Also, to entice Dillard’s to anchor the shopping center, the developer gave the large retailer some nice incentives (I just can’t remember what they are at the moment).
Currently the retail portion has an occupancy rate just below 70%. This figure is important, because it is the trigger in a leasing clause for some of the tenants. This clause states that if tenancy goes below 70%, that their rent rates will decrease. This is quite the motivation to get tenants into the remaining 30+% of space. Most, if not all the tenants, have asked for rent relief. But in order to get the relief, the tenants were required to disclose their latest sales reports. Many tenants dropped their request, because their sales probably didn’t justify the need for relief or they didn’t want to disclose this information. Most of the leases are 5 year terms with 3 or 4 options for renewal.
In order to fill the vacant shops, the owner has been paying a larger portion of the tenant improvement costs. With restaurant T.I. from $60-70 per square foot and basic retail from $30-40 per square foot, the current T.I. surpasses the normal T.I. of $15-$20 per square foot. These figures are much higher than what they should be and have direct impact on the owner’s cash flow.
The office component of the site has seen an exponential increase in occupancy since the new owners have taken over the property about 70 days ago. The Hill Country Galleria has seen an increase in office occupancy from 3% to about 50% in that time.
Although there was a fairly large amount of consumer traffic during our visit, there is still not enough population to sustain the retail facility. Currently the population is about 100,000 people within a five mile radius, but 150,000 is needed.
Discussions are currently taking place with an undisclosed organic grocer (Wholefoods?) to be an anchor tenant opposite Dillard’s. If this lease is signed, it will be a huge boon to the project. In the end, as the surrounding population grows and the tenancy increases, this project has the potential to bring in excellent cash flows for the new owners.
* DISCLAIMER: Any figure mentioned above must be confirmed with the property owner or their agent to justify their validity and are more of a representation of the nature of the market/s with respect to that individual project.
Consulting with Professor Forgey and his iPhone, I decided to avoid traffic in Austin (which there wasn’t any) and San Antonio and take the back roads, 290 to 281, the 90 miles to San Antonio. The drive through the Hill Country of Texas was beautiful. I was pleasantly surprised that it only took about 75 minutes to get to the city limits of San Antonio and a few more to get to where I was staying, Andy & Lori Everett’s (my second cousins) home in the Stone Oak development.
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