by Jan Buchholz
Original article in Austin Business Journal, March 27.
Three years ago Karl Koebel was pretty much a one-man cheerleader for Austin’s southeast submarket.
The real estate broker and investor purchased property at Texas FM 812 and Elroy Road to open a satellite office of his Marketplace Real Estate Group brokerage.
This property is 20 minutes from America’s hottest downtown, near an international… more
It seemed a bit out in the boondocks, but Koebel planned to capitalize on the national and international cachet generated by the new Circuit of The Americas racetrack nearby, which hosted its first U.S. Grand Prix in November 2012.
Though wealthy foreigners, fans and affiliated businesses seemed enamored with the idea of buying property in the Austin region in the midst of the Formula 1 racing excitement, the pace of investment near COTA hasn’t generated many big headlines. In fact, some doubts about the long-term viability of the signature event and the track began to surface last year, suggesting it may not be an undiscovered Garden of Eden hidden away from the glamor of downtown.
But don’t tell Koebel that. He’s never wavered in his enthusiasm for the largely rural area east and south of Austin-Bergstrom International Airport. Koebel’s so gung-ho that he convinced George Robinson III and Doug Launius to partner with him on the purchase of 390 acres at State Highways 71 and 130 in late December. The trio, operating as SH 71-130 Holdings LP, are planning a mixed-use development.
“It’s really all about transportation access,” Koebel said. “You can get to a job downtown in 15 minutes.”
Businesses moving money now, dirt soon
Commercial investors, corporate campus planners and now residential master-planned community developers are catching sight that this very well might be the land of opportunity. Acreage is available for prices much lower than other parts of the city, creating a reasonable basis for all sorts of development.
Even the area adjacent to COTA has finally seen some traction, in the form of an out-of-state automotive company that intends to build a 50,000-square-foot facility next to the racetrack.
Moberly, Missouri-based Finspeed, which produces high-performance wheels, is a business that’s staking its future on COTA. Recently, company founder Daniel Finke purchased a 25-acre site on FM 812 to build its new headquarters.
“We wouldn’t have come here without a racetrack of that caliber in the area,” Finke said. “We did look at Atlanta but the quality of life for our family is better in Austin. The main driver for our relocation, though, is COTA.”
Finke knows many companies affiliated with the racing business and said his experience may lead other entrepreneurs to follow suit.
Certainly Travis County Commissioner Margaret Gomez is a believer.
“I think this will attract more business,” Gomez said.
She was invited to the closing when Finke signed on the dotted line. Gomez and Finke credit Koebel’s proactive marketing for carrying the day.
“Karl had signs all over, so I called him,” Finke recalls of his first visit to Austin. “I cannot say enough about how helpful he’s been, I’m not wired for real estate. I don’t like that part of it, but he was refreshing to work with.”
The facility, which did not seek county incentives, is in preliminary design. A temporary site will begin operating early this summer. Two engineers, a machinist and office staff — about eight employees — will move to Austin.
“We need about 30 people but we haven’t been able to find the talent. The quality of the people I find in Austin will determine how many I hire, but we could have up to 150 in the first five years,” Finke said.
For other companies where the racetrack isn’t necessarily a draw, there are other positive factors about the area. Development costs generally are lower. The state and Travis County have channeled millions of dollars in road construction to the area — building the SH-130 toll road and making major improvements to Texas Highway 71.
About $14 million in improvements to Kellam Road leading to COTA from Texas Highway 71 are nearly finished — and the decision to make Kellam a major arterial road looks to be having a positive spillover effect.
A 650-acre parcel that the Texas General Land Office put on the market in 2013 now is under contract to an Asian investor, according to listing broker Carter Breed of CBRE Group Inc.
“The investors were drawn to the property because of its proximity to the airport and Formula One racing,” Breed said. “They are still determining uses for the property depending on market conditions but they are extremely optimistic about the growth prospects for the submarket.”
Investor activity across the area has “really picked up,” he added.
Reality trumps prejudice, perceptions
Many long-standing Austin real estate developers and homebuilders still aren’t particularly interested in the southeast submarket but more recent players aren’t weighed down by historical perceptions.
Brookfield Residential, a Canadian-based master-planned community developer, is building two projects in the area: Easton Park and Addison.
The larger — Easton Park — with 1,500 acres eventually will include between 8,000 and 10,000 living units and about four million square feet of commercial development. Currently, the first 200 lots are in development with the first model homes slated to be open this fall. Addison, the smaller community, is preparing for a grand opening in the next couple of weeks. It features 500 homes on 200 acres. Already 50 homes have been sold and residents begin moving in within the next 30 days.
Shaun Cranston, senior vice president of Brookfield Residential Texas, views the southeast submarket as a blank canvas with vast opportunities. He’s also noticed that the development community emerging there is markedly different from the rest of the city.
“We don’t have historical prejudices. We look at this from a different set of development lenses,” Cranston said.
One commercial developer who does have long-standing ties to Austin but also likes what Southeast Austin offers is Trammell Crow, which started Expo Business Park in the late 1990s at the intersection of Montopolis Drive, Stassney Lane and Burleson Road. The office and industrial development covers more than 100 acres. Two buildings are under construction that will add another 240,000 square feet to the multitenant development.
“I really think the southeast submarket is one of the top two or three. Last year it was the top performer,” in terms of vacant space filling up, said Brad Maples, vice president of Trammell Crow. “We think it’s just going to get better.”
He, too, cites improvements to State Highway 71 and the close access to downtown. The Triple Freeport Exemption, which exempts companies from paying taxes on short-term inventory, also is a big plus.
KDC Real Estate Development & Interests — a large developer based in Dallas which specializes in build-to-suit facilities for national heavyweights such as State Farm Insurance, Toyota, Fedex, Raytheon and Fluor — is looking closely at opportunities in the southeast submarket.
“We’re definitely interested in that area for all the reasons mentioned. It’s 15 minutes from downtown. It’s five minutes away from the airport. It’s near major highways. In most cities an area like that would have been developed years ago. So there is definitely going to be opportunity,” said Jake Ragusa Jr., senior vice president and partner with KDC.
Helping the process along is an aggressive leadership stance at the Del Valle Independent School District, which has worked hard to up its game — increasing test scores, improving facilities and turning out more college-bound graduates.
Kelly Crook, the district’s first female superintendent and an Austin native, is earning many of the kudos.
“She’s a very progressive thinker. The [Austin] Chamber really looks at Del Valle with awe,” said Cranston, who is helping facilitate new school construction in communities that Brookfield is building.
He notes that Del Valle school teachers are among the highest paid in the region, and Crook is positioning the district for formidable growth.
“I really believe the sky’s the limit when it comes to growing Del Valle,” he said.
Austin Community College also is shopping for land in the southeast submarket to build a campus that likely will cater to residents of the area who need specialized workforce training to stay and thrive in Austin.
No relief for retailers
One of the missing development pieces in the southeast submarket is clear to spot. Retail is in very short supply.
One of Austin’s most reputable real estate researchers said he doesn’t expect retail development to prosper in that area despite the existence of an international airport, new businesses, enhanced transportation and new neighborhoods, which normally heralds retail creation.
“Currently the prospects for new retail and office development are miniscule, but they will improve over time as the residential development proceeds,” said Charles Heimsath, president of Capitol Market Research. He does, however, like Koebel’s chances for success.
“It seems likely that the area that will develop first is at the intersection of Highway 71 and SH 130, one of the few locations that has good transportation access and city water and sewer,” Heimsath said.
Some area politicians are hoping a major grocer will invest on the southeast side.
Buck Cody, a principal with Austin-based Endeavor Real Estate Group, said Southpark Meadows — which his company developed at I-35 and Slaughter Lane — will probably serve the entire submarket for the time being. He doesn’t expect retail to emerge in any significant manner further east for the foreseeable future.
“For nearly 10 years now there has been very little new anchored retail grocery development in Austin at all,” Cody said. “From a regional shopping destination perspective, for the foreseeable future Southpark Meadows will continue to serve south and especially southeast Austin.”
Retail broker Britt Morrison with The Weitzman Group begs to differ. He believes this is the perfect time for developers to take advantage of retail opportunities because expectations are lower.
“This is Austin’s last untapped area for commercial potential,” Morrison said. “Homes come first and commercial second. This has huge potential.”
Morrison said it might be wise to follow the lead of McDonald’s and Wendy’s, which put down roots in the area some time ago.
“The fast-food guys have already figured it out and their locations are doing extremely well,” he said.
Jan Buchholz covers commercial and residential real estate, construction and architecture and retail and restaurants for the Austin Business Journal.