COVER STORY, JUNE 2006

BUILDING UP IN DOWNTOWN
Downtown development organizations stay busy as interest in urban redevelopment increases.
Leah Sanders

Cities in the United States continue to see revitalization in urban areas, and Texas’ downtowns are no exception. Residential, office and hospitality development are all strong, and retail is beginning to follow. Despite the difficulties of building in areas of high density, companies are meeting the challenge of urban development because of the intense interest in the inner city. Texas Real Estate Business recently spoke with urban alliances that are active in creating strong downtowns in Austin, Dallas, Houston and San Antonio.

Downtown Alliance/San Antonio
San Antonio

The new Grand Hyatt, which broke ground last summer, will add approximately 1,000 rooms to downtown San Antonio’s hospitality sector.

“I think transportation and the cost of gasoline and related factors are going to drive inner-city development and rapid transit options versus continued urban sprawl,” says Ben Brewer, president of Downtown Alliance/ San Antonio. “We’re just starting to see that corner turn in San Antonio where people are getting a little bit fed up with the commute. It has already happened in Dallas, Houston and Austin.”

The city’s growth is aided by the presence of Downtown Alliance/San Antonio. Initially created in 1982 as the Downtown Owners Association with only about 30 members, the private, non-profit organization was re-worked in 1994 and currently has approximately 250 members. The organization includes some public entities such as the city of San Antonio, as well as private organizations such as the San Antonio Tourism Council and the Downtown Residents Association.

“I’ve been the director of Downtown Alliance/San Antonio for 17 years, and there’s probably as much interest and activity right now as I’ve ever experienced.” Brewer says. “Hospitality is one side of the hot market, and residential is the other.”

The downtown hospitality sector, for example, has 2,000 planned rooms, adding to the current 11,000 rooms. Of the new rooms, approximately half will be located in the new Grand Hyatt in San Antonio, a development project of Faulkner USA that broke ground last June. The convention headquarters hotel will serve the Henry B. Gonzalez Convention Center and will feature 76,617 square feet of ballroom and meeting space. It will also include five levels of underground parking and 147 luxury residences.

In the multifamily sector, approximately 450 condominium units and approximately 1,000 rental units are planned. The multifamily developments include both new construction and conversion projects. La Cascada, a 46-unit luxury condominium highrise that is being developed by San Antonio-based Loopy, Ltd., has recently been completed.

During the next decade, the north end of downtown, called River North, will also likely see residential development. According to Brewer, the area lends itself to medium density, three- to five-story residential projects. The area may see as many as 4,000 new units, and the residential development could also spur some retail support, as well as office projects.

The need for residential development in River North is being stimulated by the San Antonio River Improvements Project and the further development of the extension of the Riverwalk. “A Riverwalk address is worth its weight in gold,” says Brewer. “The most valuable real estate in the downtown core flanks the river, and the majority of the new development that has taken place in the last decade has been along the river, whether it’s a new hotel being built, a residential project or a new retail development.”

Downtown Austin Alliance
Austin, Texas

In the early 1990s, downtown Austin was in need of a boost. The city had seen an office building boom in the previous years that created too much office development and left high vacancy rates. In response to the recommendations of a Regional Urban Design Assistance Team (R/UDAT), a public improvement district was created in 1993 to fund the Austin Downtown Management Organization, now known as the Downtown Austin Alliance (DAA).  

A little more than a decade later, the downtown area has turned around. Office vacancy rates have dropped from between 30 and 40 percent to approximately 12 percent — and they are continuing to fall. The nightlife is hot, the demand for residential options exceeds the market, and retail, while coming more slowly than other products, is making a come back. The DAA, which has been active in the turn-around, recognizes the need for continual rejuvenation of every aspect of the downtown.

“Obviously, growth at the center is very important to the entire region,” says Charlie Betts, executive director of the DAA. “It’s where people come to be entertained, go to cultural events and have fun. Most of the business headquarters are downtown, so people come to do business.”

In the time since 2000, when the city jumpstarted residential growth by selling land for a little less than market value for multifamily development, the downtown population has grown from approximately 2,800 to approximately 5,500. Thirty multifamily projects, totaling 4,851 units, have been announced and will be underway within the next few years.

With the addition of residential units, Austin is in continuing need of new retail development. A study that Washington, D.C.-based Economics Research Associates conducted on behalf of the city of Austin and the DAA found that the city, which currently has 350,000 square feet of retail, will have demand for 900,000 square feet of retail by 2008.

“Retail has been lagging. We are moving aggressively to attract more retail to downtown Austin because the demand is there,” says Betts.

The proactive program that the DAA has enacted includes a retail recruiter focused on bringing new retailers that will benefit the downtown. With a strong food and beverage establishment already in place, Austin needs retailers that will provide furnishings, men and women’s apparel and specialty stores.           

The city has assembled a six-block area into what is known as the Second Street Retail District and is in the process of bringing a balance of local and chain retailers to the 225,000-square-foot district. Retailers at the Second Street Retail District, which was formerly made up of warehouses, include Cowboy Cool, Eliza Page, Gomi, Lucky Soles, Milk and Honey Day Spa, Octane, Shiki, Shorelines Gallery, III Forks, Austin City Hall Java Café, Jo’s Hot Coffee, Royal Blue Grocery, Design Within Reach, Loft and The Home Retreat.

“Downtown is already seeing positive new retail developments coming online and being very successful — even exceeding expectations,” Betts says. “A healthy, vibrant downtown is an absolute must for the entire region.”

Central Houston and Houston Downtown Management District
Houston

The downtown Houston skyline.

“There’s a lot of excitement regionally over what’s happened downtown in the last 10 years. It’s nothing short of remarkable,” says Bob Eury, president of Central Houston and executive director of the Houston Downtown Management District. “There’s been approximately $4 billion worth of public and private reinvestment during the past 10 years, such as adding a huge amount of housing to where we’ve had very little, continuing to add to the office space in downtown and adding a tremendous number of new hotels downtown.”

With the success of office and hospitality development, residential and retail are the primary targeted sectors. In addition to creating a retail grant program, the Houston Downtown Management District currently has a full-time staff member who seeks retailers and works with brokers and property owners to bring in hard and soft goods. According to Eury, the food and beverage retailers are already setting up shop without much effort from the Downtown District and Central Houston.

One retail development under development in downtown Houston is The Houston Pavilions. Developed by Houston Pavilions, LP, the project will feature 350,000-square-feet of merchandise, apparel and food and beverage. House of Blues will anchor The Houston Pavilions, and Lucky Strike recently signed on to the project as well. The development will also include an additional 200,000 square feet of loft office space.

The city is also looking forward to the new Downtown Park, a $114 million park that the Houston Downtown Park Conservancy is developing. Located opposite the George R. Brown Convention Center, the 12-acre park will feature a green lawn, space for outdoor events and performances, a pond and an underground parking garage. It will also have two unique food and beverage concepts that Schiller Del Grande Group is creating specifically for the park.

“It takes an area that has already been a green space and really drives it over the top in terms of being a really terrific urban park,” says Eury. “It’s a really exciting project, and I think it will stimulate more development around it.”           

Central Houston and the Downtown District look forward to the strategic advantage of the redevelopment in downtown Houston. “I think that the image of Houston is, in many ways, shaped by how the community — and the world, to some extent — views the success and health of downtown,” says Eury. “A vital and growing downtown reflects positively on a city as a whole.”

DowntownDallas
Dallas

The 48-year-old DOWNTOWNDALLAS, a private organization with approximately 200 member companies, remains fresh and vibrant in its activity. First formed as the Central Business District Association in response to changes brought by new shopping centers, suburban residential growth and additional office space in the 1950s, the private organization has grown and expanded to include a Downtown Improvement District, which provides supplemental services such as safety, cleanliness and marketing, and affiliates such as Dallas Civic Ventures and Central Dallas Transportation Management Association.

“The goal is to strengthen downtown,” says Peter Armato, CEO and president of DowntownDallas. “We are focused on keeping the downtown economically competitive and providing a great environment in which to live, work and visit.”

One strategy of downtown redevelopment in Dallas in recent years has been retail revitalization. To strengthen the retail core downtown, DOWNTOWNDALLAS created a Main Street Retail Incentive Program in March 2004, utilizing $2.5 million in public funds to jumpstart soft goods retail development. The incentive program gave qualified tenants rent subsidy for 2 years when they signed 5-year leases. The initiative had some early successes, and Main Street retailers now include Kul Designs, an art gallery with home accessories; Swirll, a winery; and small apparel boutiques. DOWNTOWNDALLAS is now seeking to incentivize between 23,000 and 27,000 square feet of retail for the area in Phase II of the program, which launched in May.

DOWNTOWNDALLAS also works closely with the city of Dallas to create incentive packages primarily through a Tax Increment Financing (TIF) District to spur residential development.  Since the creation of the first TIF in the Uptown neighborhood in the mid-1990s, the downtown residential population has grown from just a few hundred to more than 26,000, and is expected to increase to more than 30,000 by the end of 2007.

One particular success utilizing TIF funding is the attraction of Cleveland-based Forest City Enterprises to undertake the Mercantile project in the central business district. The project includes the redevelopment of the historic Mercantile Tower as well as other buildings and will feature apartments, condominiums, retail and parking space upon completion, which is expected for 2008.

“It will be a dramatic anchor to that end of Main Street and beyond to Commerce. It will be one of the largest collections of redevelopment we’ve ever seen by a single developer inside the downtown,” Armato says. “Forest City has a good track record of taking these shopping centers in urban cores and attracting exactly the right tenant mix to complement what’s going on in neighborhoods and create a kind of anchor.”

In addition to the new development and redevelopment, the city is getting a new look in other ways. Several new urban parks have been proposed, and these parks — along with the proposed Woodall Rogers Deck Park and existing plazas and squares — will compose one of the most comprehensive urban parks systems in the United States upon completion, according to Armato. “We really need to restore the urban fabric, and these parks will be great urban amenities in addition to acting as catalysts for further office, retail and residential development,” he says.

The city will also be focusing on transportation issues during the next 5 years. Soon, the city will be carefully undertaking the task of converting several one-way streets in downtown to two-way streets to provide easier access to businesses and stores. The expansion of the city’s light rail system, Dallas Area Rapid Transit, will also help commuter options by making downtown the crossroads of the regional light rail system.            

The redevelopment of downtown Dallas has been aided by the strong support of the business community and property owners, which recently petitioned for the renewal of the downtown improvement district and its assessment for the next 7 years. Armato also credits the success to Dallas-based developers as well as regional and national players who are developing in the city.

“We’ve really had the good fortune of getting some very capable developers,” he says. “Dallas is blessed with many developers who are based here and have been building around the country and the world, but we’ve also been able to attract many from other cities to take advantage of emerging opportunities.”

Merriman Associates/Architects returns Interurban Building to its original grandeur in downtown Dallas Merriman Associates/ Architects recently restored the Interurban Building in downtown Dallas. The building now houses 132 apartment units as well as the city’s first and only urban market. Built in 1916 as the Interurban Building Train Station, 1500 Jackson Street has long been a part of downtown Dallas. The building, which once served as the train station for the North Texas trains, was the activity center of downtown in the 1920s. However, in the ‘70s, it lost its luster when all of the exterior ornamentation was removed. With Merriman Associates/Architects’ (maa) recent restoration, the Interurban Building once again shines as a vital part of Dallas’ downtown. “The goal of the renovation was to recreate the original grandeur and beauty of the building,” says Milton Anderson, vice president and director of design with maa. “We recreated the Interurban Building per historic photos of the exterior ornament and façade, making it as close to the original building as economically feasible.” In addition to restoring the building to its original architectural beauty, maa is filling a void for housing in the city’s urban core. The Interurban Building features 132 apartment units, as well as first-class amenities such as a restaurant, a bar, a pool, a spa and fitness facilities, parking and the city’s first and only urban market. “The need for housing in the Dallas central business district is essential to the growth of the city center, and because of that the project became apartments,” Anderson says. “The soul of the project was to create affordable living units for mid-income professionals in the local market.” Andres Construction completed the $13.5 million project for owner Barker Nichols last summer, and the property has already garnered considerable attention. The Interurban Building was the 2006 winner of the Seventh Annual Preservation Dallas Achievement Award in Urban Revitalization. It is also registered by the Texas Historical Commission and the Dallas Landmark Commission. “The project is unique because of the history,” Anderson says. “I like to call it an ‘urban re-creation’ as opposed to ‘restoration.’ The building today is once again a hub of activity.” — Lindsey Walker

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