By Richard Webner | @RWebner | Heron contributor
Mayor Ron Nirenberg and the City Council gave enthusiastic support on Wednesday to the city’s proposal to rewrite a five-year-old agreement with Zachry Hospitality regarding its plan to develop the northwest corner of Hemisfair, a long-delayed project.
Leaders at Zachry, the city and the Hemisfair Park Area Redevelopment Corp., or HPARC, want to amend the agreement the council approved in February 2017, under which Zachry would build apartments, offices and a hotel around a newly-built Civic Park.
The agreement established a deadline for Zachry to begin construction by July 2018, and the original timeline promised completion of the buildings by mid-2021—but the company has yet to break ground. The Covid-19 pandemic is largely responsible for the delay, along with other disruptions such as the withdrawal of the original residential developer, NRP Group, according to a presentation Assistant City Manager Lori Houston gave to the council at its Wednesday B session meeting.
Under the agreement, Zachry was obligated to begin paying rent of $1.925 million a year by August 2021 at the latest, but it has not paid a cent.
On Wednesday, the mayor and council members expressed no misgivings with regard to Zachry’s failure to meet the terms of the contract.
“With this project, we’ve seen many iterations and it’s no surprise that we’re seeing a new one related to the interruptions within the last few years,” Nirenberg said. “I appreciate Zachry and the team at HPARC in their efforts to get this back on track in a way that, I think, fits the larger vision that we had at the beginning … I know this has been a bugger of a project over the last 10 years.”
When District 9 City Councilman John Courage asked Houston whether the city had considered issuing a new request for proposals, after Zachry’s delay, she said the city had a schedule to fulfill, wanting to finish construction in time for the NCAA Final Four tournament, which San Antonio is hosting in 2025.
The council is expected to vote on the revised agreement on April 7, Houston said. The project’s new design is expected to be complete in December, and will have to go before the city’s Historic and Design Review Commission.
The late rent is largely responsible for the delay in construction of Civic Park, which was slated for completion in 2020 but only broke ground in January.
HPARC’s plan was to use the rent to pay off $18.1 million in debt the city issued to build Civic Park. Because the rent has not been paid, the city is proposing to make the payments for HPARC until 2029. HPARC would then pay it back, along with interest it wouldn’t have had to pay if the rent had been on time.
After the meeting, HPARC CEO Andres Andujar expressed confidence that the development would be finished in time under the new agreement.
[ Related: Zachry’s failure to make Hemisfair rent payments prompts new lease agreement | March 14, 2022 ]
When asked whether he faulted Zachry for not meeting the terms of the contract, Andujar said, “We’re all partners. You know, during a negotiation, there are always points of view and different opinions. But the proof is in the pudding. We’re bringing forth an agreement that has unanimous agreement from the development team and HPARC and the city. And that’s what we need.”
“Have we had some hard days over the last two to four years? There have been the hard days, of course. But this is my greatest fault: I’m an optimist,” he said.
When the city bid to host the 2025 Final Four, it committed to have a 10-acre gathering spot in Civic Park, Houston said.
“It is very conservative,” she said of the new timeline. “We’re hoping to get done earlier, but we feel this one we can commit to.”
David Zachry, the chairman and CEO of Zachry Hospitality, declined to comment when approached after the council had discussed the proposal.
Zachry-Hemisfair lease comparison
|Components||2017 agreement||2022 proposal|
|Hotel||200-room Hilton-brand hotel||200-room Hilton-brand hotel|
|*Multi-family Housing||385 units (38 workforce housing units)||525 units (87 workforce housing units)|
|Retail/Restaurants||50,000 – 75,000 gsf||65,000 gsf|
|Office (leasable)||60,000 – 110,000 gsf||None|
|Parking||800 spaces||1,100 spaces|
|Total private investment||$200 million||$340 million|
|* Original bid solicitation required housing project reserve 10 percent of the total unit count for workforce housing.|
The new agreement would change the project’s balance of apartments, retail and offices—most significantly, by eliminating a planned seven-story class A office building in response to the Covid-19 pandemic’s disruption of the commercial real estate market. Zachry Hospitality and Zachry Corp., its parent company, will have offices in the project, but there will be no leasable space, Houston said.
The new iteration will include 525 apartment units in two complexes, versus 385 units before. Johnson Trube & Associates, a multifamily developer from Austin, will build a complex on East Market Street with 350 units—all of them market-rate—as well as 50,000 square feet of retail and an 800-space parking garage, Houston told the council.
Johnson Trube has built several high-rise complexes in Austin, including the 18-story Skyloft, two blocks west of the University of Texas at Austin campus.
Local developer David Adelman, who built The ’68 apartment building next to Yanaguana Garden, near the southwest corner of Hemisfair, will build a 175-unit complex with 15,000 square feet of retail and a 300-space garage. The complex will include 87 units of “workforce housing,” with 55 units reserved for tenants making up to 60 percent of the area median income (AMI), and the remainder for those making up to 80 percent AMI, Houston said.
[ Scroll down for a chart showing AMI levels. ]
“This project is very similar in size to The ’68, so he’s done it already for us—so we know he can do it,” Andujar said. “Trube we’ve checkout out—very serious, quiet player. Good housing experience, good-quality high-rise projects.”
In another major change, Zachry would construct the project’s parking facility, which the city had planned to build at an estimated cost of $59.5 million. The new garage will contain 1,100 spaces, versus 800 before.
The development team had wanted to build underground parking, but after running into problems with groundwater, all or nearly all of the parking will now be above ground, Andujar said.
Nirenberg praised the project for creating housing where so much of it had been destroyed to make way for the HemisFair ’68 World’s Fair. Several council members expressed gratitude to Zachry for promising benefits to its employees at the planned hotel, such as maternity leave.
“I want to thank our partners for sticking with us,” said District 1 City Councilman Mario Bravo, whose district includes Hemisfair. “I’m really excited about this. I like that this new proposal increases the amount of housing, and I also like that although it increases parking, it reduces the number of parking units per housing, and that’s the direction we should be going.”
Here are some other changes the agreement would bring:
» Rebate of state sales tax and hotel occupancy tax: The city will pledge the rebate of all state sales taxes and hotel occupancy taxes generated by the development to HPARC, which will pledge them to Zachry to offset the cost of the parking garage and other improvements.
» Utilities: Instead of parking for the parking garage, the city would pay for the construction of $8 million in utilities through the Hemisfair Tax Increment Reinvestment Zone, or TIRZ, a cost which Zachry is responsible for in the current agreement, Houston said. The city will do the work as part of an existing plan to fix up South Alamo Street, which will be more convenient to surrounding property owners, Houston said.
[ Scroll down for a chart explaining how TIRZs work. ]
» Hotel pavilion: Zachry would provide an “annual financial credit” of $150,000 to HPARC in the form of a privilege to use a pavilion attached to its new hotel. Essentially, Hemisfair will receive a $150,000 credit it can use to rent the pavilion for events. If it does not use the entire credit in any year, Zachry will compensate it for the remainder. HPARC could rent the space to conventions, Houston said.
» Property owners association: Zachry would help create, and contribute at least $125,000, to a nonprofit property owners association, which tenants of the development will participate in. The purpose of the funding is to help activate the park, Houston said.
» Schultze House: HPARC will be allowed to use the historic Schultze House, which Zachry now leases at Hemisfair. It will likely partner with a private company to turn the space into a restaurant or music venue, raising an estimated $150,000 in revenue a year.
» City property taxes paid: Each year, David Adelman, as developer of the apartment complex with workforce housing, would pay HPARC an amount equal to what the complex would have owed in city property taxes if it had not received an exemption because it is being built with the Hemisfair Park Public Facilities Corp., or PFC.
[ Scroll down for a chart explaining how PFCs work. ]
The amended contract will have provisions to ensure that the project will stay on schedule, requiring Zachry to make deposits which it could lose if it doesn’t move forward, Andujar said.
“In the event that they pull out, then that makes up the difference, and we’re ready to go and rebid the project if we need to,” Andujar said.
HPARC “followed the letter” of the existing contract, he said. After Zachry did not pay the rent as required in August, a notice of noncompliance was issued, he said. They then entered a “cure period” while negotiations were conducted for the amendment, he said.
“People that are established, like the Zachry Hospitality group, have a better chance of financing the deal, and groups like Zachry which are well-capitalized show promise of being able to pull this off,” Andujar said. “They have done a project like this before, several times. So this is the time. If not, we have remedies.”
Richard Webner is a freelance journalist covering Austin and San Antonio, and a former San Antonio Express-News business reporter. Follow him at @RWebner on Twitter
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2021 Area Median Income
|1 person||2 person||3 person||4 person||5 person||6 person|
|Source: U.S. Department of Housing and Urban Development|
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