Austin American-Statesman from Austin, Texas • 105

Business Sunday, September 2, 2001 K3 Austin American-Statesman Downtown Austin manages to roll with punches f- 5 If I DjU it Continued from Kl and the high-tech boom of the past four years, creating momentum that has defied the recent slowdown, said Charlie Betts, executive director of the Downtown Austin Alliance, an association of property owners. Major public projects, such as the Austin Convention Center expansion and the ambitious transformation of Palmer Auditorium and the old City Coliseum into contemporary performing arts and events centers, have helped cushion the impact of the slowdown. "The cranes aren't going away," Betts said. Downtown, once a residential wasteland, has added hundreds of apartment and condominium units, with another 2,000 planned or under construction. Nine major projects are under way, with possible expansions already being discussed for some of them.

New restaurants, such as P.F. Chang's, Eddie V's Edgewater Grill and Kenichi, have taken the place of empty buildings and weed-strewn lots, attracting crowds at lunch and dinner. Downtown also is getting more hotel rooms, with construction beginning on the Hilton Hotel at the convention center and the nearby Hampton Inn and Suites. Downtown's tax base has soared from $965.5 million in 1997 to $1.8 billion in 2001 an increase of 88 percent. "We get as many serious calls as we've ever gotten," said Robert Knight, president of Knight Real Estate which owns four blocks near the convention center with developer Perry Lorenz.

That's not to say times have been easy. The market turnaround was sudden and jolting, forcing some developers to shelve their plans and others to rethink them. Mark Matson for American-Statesman Fleming's Prime Steakhouse Wine Bar, left, and business in the shadow of the expanding Austin P.F. Chang's are among new restaurants already in Convention Center, right, on East Second Street. Just ask the folks at one of downtown's most high-profile and eagerly anticipated projects.

Earlier this year, the partners at Schlosser Development Corp. said the SixthLamar shopping center and office building would break ground in April. But upheaval in the movie theater industry threw a wrench into the plans, making it more difficult to nail down one of the anchor tenants for the shopping and entertainment center. At the same time, the rising downtown office vacancy rate from 3 percent to 7.5 percent since December has caused the developers to rethink the size of the office building. Despite these unexpected hurdles, Brad Schlosser said he's confident the project will break ground by the end of the year.

The retail market, he stressed, remains strong. The 16-story Hampton Inn Suites, under construction at San Jacinto Boulevard and East Second Street, has endured three different downtown real estate markets in the past year and a half, said Stanley Woelfel, vice president of development for the Houston-based Valencia When Valencia Hotels Inc. was planning the 209-room hotel early last year, the downtown market was strong. The office market was virtually full; tenants were desperate for space. As the plans were being finalized, the market got even stronger when Intel announced plans for a 10-story design center, followed by Vignette announcement that it would build a headquarters complex on Town Lake.

"Now we're in the third market," Woelfel said. When you include sublease space, the downtown office vacancy rate is the highest since the early 1990s, the fate of Intel's project is unknown, while Vignette has abandoned its plans, and two luxury condo projects have postponed their groundbreakings until next year. But Woelfel isn't concerned. The hotel won't open until November 2002, and the developer already has had inquiries from groups planning conventions through 2005. "We're very confident in the long-term market for downtown Austin," he said.

Most developers are taking a long-range view. Big projects, such as office towers and hotels, can take two or more years to build. Most developers are convinced that the economy will turn around by then. "If you try to guess short-term real estate cycles, you're never going to get it right," Knight said. "Most of the people looking at doing hotels and (apartments) don't see it as a flash in the pan." Stuart Shaw, a principal with Bonner Carrington joked that his company works in "Old Testament" time.

Bonner Carrington has been working on apartments and retail space with AMLI Residential Properties for several years. The AMLI project, in the works since 1998, is part of a six-block project that includes the Computer Science Corp. buildings, a new City Hall and two blocks of apartments. The apartment project needs a final ground lease with the city, which owns the land, before work can continue, Shaw said. If all goes as planned, the companies hope to start construction on the first 220-unit phase at Colorado and Second streets at the beginning of next year, with the first residents moving in by early 2004.

The second phase would be completed a year later. At the same time, Shaw said they're working on the Second Street District, 105,000 square feet of restaurants and shops for the ground floors of the CSC buildings, the new City Hall and the AMLI apartment buildings. "The country and the state are in a correction period," he said. "That will come and go. Meanwhile, the retail market in Austin appears to be pretty good.

Everybody is hopeful and somewhat confident the economy will turn around." In any case, he said, downtown needs more places to live and shop, and the two sectors feed each other. Post Properties delayed the start of the second phase of its apartment project near the Seaholm Power Plant to late 2002. But not because it has doubts about the market. The first phase of the project is 98 percent leased, said Kent Collins, senior vice president of Post. He said the company wants to start work on apartments in the Triangle project in North Austin.

"I do firmly believe that the fundamentals for downtown are here, and we've created a good foundation for growth," Collins said. The two dozen or more projects under way "will continue to bolster downtown's health and its place as a vibrant center of the community. "Do I wish the boom was still happening? Yes. But we still firmly believe in downtown and Central Austin as a residential market." On Congress Avenue, Atlanta-based Cousins Properties bought the 7.5-acre site at Fourth Street and will start work on a 33-story office tower late this year the first such project on downtown's main street in 20 years. Cousins has said it wants 90,000 square feet pre-leased before starting construction.

"Prospects of breaking ground look good for this year," said Tim Hendricks, senior vice president of Cousins Properties. But some developers have taken a wait-and-see attitude. Houston based Hines Interests is in no hurry to move forward with its expansion of Bank of America Center at Fifth Street and Congress Avenue. Hines plans to add a second, 26-story, tower to the center at 515 Congress with possible residential and retail projects in the future. Hines got the needed zoning approvals this year but has no timetable for when construction might begin, said project manager Carle-ton Riser.

"We wanted to put ourselves in a position to do redevelopment when it makes sense," Riser said. "Obviously, the current conditions give everyone cause for concern. But We' still think Austin is a solid invest in the long term." This cautious attitude is one. of the things that differentiates this slowdown from the bust of the 1980s. Back then, money was everywhere and developers could get their buildings constructed without having tenants locked up.

In 1984, there were a dozen office buildings approved or under construction in downtown Austin. A new downtown skyline seemgd to emerge overnight from the tiers of One American Center to the pyramid of 100 Congress. When the bust hit, the buildings went begging for tenants. "This development has been more market driven," Betts said. These days, most developers won't start before they have tenants for about half of the Can-America's 300 W.

Sixth St. office tower, for example, was nearly half leased before it broke ground Pace expects it to be 75 percent leased by the time the first tenahtr the Clark Thomas Winters law firm, starts moving in furniture and equipment at the end of the year. Many think the market slowdown has been healthy. "The real estate market in this city was way too hopped up, way past what could be sustained, Schlosser said. "It was irrational exuberance.

What's happened js, that people are getting back to reality." Last year, companies find available space downtown, and rents were increasing at a staggering pace. "Affordability does become a consideration," Betts said. "Now. 'negotiate' is a verb that's being-used again." Austin also needed a breather to! give the streets, power lines and other infrastructure time to catch' up with the frantic pace of devel: opment, Betts said. And it's not exactly like com struction has screeched to a haltj To the contrary, residents can look; forward to snarled traffic, the grit-of sawdust and the pounding of hammers for at least the next few; years as apartments, hotels, office buildings and other devel opments take shape across' downtown.

Once some of the major projects: get done the convention center-expansion, some of the new ments "you're approaching critical' mass," Knight said. "We're likely to wake up and realize we have a real city on our hands. That will be real refreshing." a You may contact R. Michelle Breyer at mbreyerstatesman.com or 445-; 3641. Staff writer Slronda" Novak contributed to this report.

Officecommercial projects Project Congress at Fourth Status Expected to break ground next month, with late 2003 completion. Rezoning completed; no timetable for construction start. I 1 Original plans 33-story office tower, the first new high rise on Congress Ave. in 20 years Add a second, 26-story tower with 250,000 square feet and additional retail and residential space. Bank of America 515 Congress Ave.

Computer Sciences Corp. Three-building complex 200 and 400 with up to 3,500 employ- W. Cesar Chavez St. ees and street-level retail. Can-America Building 300.

W. Sixth St. First building opened last month. Second one, two blocks west, to open next year. CSC will occupy two floors and sublease the other three.

Third building on hold. Building will open in January; on track to be 75 percent leased by end of the year. Bonds were sold in June, an 18-month delay; construction has started, and hotel should open in January 2004. Completion in late 2002. vb i' t-'t I i 23-story, 550,000 square foot office tower with street-level retail.

29-story, 802-room hotel with penthouse Hilton Hotel Red River at Fifth Street. Hampton Inn and Suites Second Street at San Jacinto. 16-story, 209-room hotel near the Austin Convention Center. Block of restaurants to serve Austin Convention Center visitors. Restaurant row Second Street between Trinity and San Antonio.

Sixth Lamar North Lamar between Fifth and Sixth streets. $100 million project announced nine years ago with 430,000 square feet of retail plus offices. P.F. Chang's and Fleming's steakhouse are open; Roy's Restaurant is under construction. Construction start set for late this year, pending a new theater tenant.

Office space has been reduced because of soft market. Construction on hold; company may indicate possible direction late this year. Sap 1 1--v xHsy- 10-story design center was to have opened in Intel Corp. Fifth Street between Nueces and San Antonio. A 6 09 CO 8 9 5 10 3 Publiccultural projects St.

it 4 A St. Capitol complex 11 Austin City Hall West Cesar Chavez between Lavaca and Guadalupe St. Excavation underway; opening expected in February 2004. On track for spring 2002 opening. Sung ParivAmerican-Statesman CO i Convention Center expansion Red River at Fourth Street K35) Long Center for the Performing Arts Barton Springs Road at South First Street.

Garage is heading toward completion late this year; new exhibit center to be ready mid-2002; the Long Center is set to start work in mid-2002. $46,7 million, building by architect Antoine Predock. expansion will include a ballroom and two new exhibition halls. Renovated Palmer Auditorium will become three-stage Long Center; the new Lester Palmer Events Center will handle meetings and exhibitions too small for Austin Convention Center. Groundbreaking had been set for October on a new $65 million museum designed by Richard Gluckman.

center Convention 'aSt 'r'i. Construction now will begin in 12-18 months. Austin Museum of Art Third Street between Guadalupe and San Antonio. "To, Sp, 'Ss rli Mark Matson for Amencan-Statesman II- I -TIM' mi-, Phase I construction set for mid-2002. Mexican American' Cultural Center Town Lake at River Street.

American-Statesman Sources: American-Statesman reporting; developers; City of Austin Emerging Downtown Project report, July 2001.