Editor’s note: This is a column of analysis.
Let’s make one thing clear, the Decade of Downtown in San Antonio is alive and well. It hasn’t expired. And it will continue as long as there are city policies designed to incentivize the production of market-rate housing in the downtown area.
That is unless the City Council says otherwise.
On Nov. 18, the council’s approval of a tax reimbursement incentive worth up to $7 million for a luxury apartment development near the Pearl was must-see TV. I saw it as the far-left ideologies of new City Council members clashing with the old forces of big developer money. Whatever you want to call it. Capitalism. And capitalism won.
Encore Multifamily of Dallas is building 386 market-rate apartments on the edge of Government Hill, a block from Broadway, opposite the Pearl.
On the dais, District 2 Councilman Jalen McKee-Rodriguez, whose district encompasses the project, said he would support the incentive package, but with great reluctance.
Since running for office earlier this year, McKee-Rodriguez had been adamant about not supporting tax incentives for housing developments that didn’t include some level of affordable (or below-market) units.
“If you can’t build affordable housing that meets our community’s level of need, then you don’t need incentives that cost our tax payers,” McKee-Rodriguez tweeted on Sept. 20. “Should be a simple concept.”
Weeks before the vote, the councilman told Encore he did not support the incentive package. So what changed?
During the meeting, McKee-Rodriguez explained how he’d negotiated from Encore some concessions, such as incorporating a clubhouse that neighborhood groups could use as meeting space, building a splash pad for the community, and a hiring preference toward workers who live nearby for 10 permanent jobs after the apartments are built.
But I needed more from McKee-Rodriguez. The concessions Encore made didn’t seem to equal what the East Side councilman had been preaching.
A few weeks ago, in front of City Hall, McKee-Rodriguez told me that any development that was seeking tax breaks needed to earn his support by providing half the units for people earning up to 60% of the area median income, or $40,020 for a family of three. At Encore’s project, that would equal 193 affordable apartments.
[ Scroll down for a chart showing AMI levels. ]
In an interview two days after the council approved the Encore incentive, McKee-Rodriguez told me the project had the support of Government Hill residents—he was speaking not of the pro-development Government Hill Alliance, which was going to support it no matter what (as its history has shown), but of other residents who aren’t part of the neighborhood association. This is important to note, because Government Hill is perhaps the most splintered of all inner city neighborhoods. Last I checked, there were three neighborhood groups in this stretch of homes that connects the East Side with the Broadway corridor.
Plus, he said, the board of the Midtown Tax Increment Reinvestment Zone (TIRZ), from which the $7 million incentive is sourced, had already considered and approved previous iterations of the project. He also said the project had the support of previous District 2 council members. And in August 2017, the Encore property and others surrounding it, totaling more than 20 acres, had been rezoned by the City Council for mixed-use development. In short, the project was too far along in the process to stop it, he said.
“If the development was going to happen, (I asked) what can we get out of it?,” McKee-Rodriguez said. “It’s not always so simple, because of the system we have and support of previous council members. … It’s really hard to come in at the tail end—and I came in even after it was approved by the Midtown TIRZ—it’s really hard from that point to say, ‘Well, all these stakeholders don’t matter, because I got elected.’ And moving forward, it’s a lot easier for me to maintain that, but I did want to be reasonable and make sure and that at the end of the day the community need was being met.”
[ Related: Midtown TIRZ board approves up to $7M for Encore apartments north of downtown San Antonio | Aug. 31, 2021 ]
Anatomy of a deal
Encore’s development is considered the first phase of what’s been coined Broadway East, a 23-acre mixed-use development first envisioned by local firm GrayStreet Partners before the company sold most of the land to Encore and local firm Fulcrum Development. In an email, Peter French, GrayStreet Partners’ development director, declined an interview at this time, but said his company is working with Fulcrum, the majority owner, on a master plan for the area; Encore was building its development independently.
The vision is to build another Pearl with apartments, restaurants, office space and perhaps even a hotel.
Encore’s 4-acre property consumes most of the land bound by East Grayson, North Alamo, West Carson and Austin streets, but adjacent parcels add up to 23 acres of undeveloped land and some run-down industrial buildings, most of which was held previously by the San Antonio Independent School District.
Encore’s building will cost $90 million, and the infrastructure upgrades in the area will cost another $10.4 million, according to Encore. Encore originally requested $10.4 million in Midtown TIRZ dollars, but city housing officials returned to the Dallas developer with the lower, up-to-$7 million figure. It’s worth noting that Encore also completed the 338-unit Encore SoFlo apartments in south downtown, which received an incentive package worth an estimated $5.9 million, in 2019.
In its Midtown TIRZ application, Encore said the TIRZ dollars would fund “extensive utility improvements, street reconstruction, demolition of outdated buildings, landscaping and common areas, new sidewalks, parking garage screening and enhanced lighting.” Indeed, the parcels in this section of Government Hill are empty, the buildings vacant, the streets in terrible condition, the sidewalks crumbling.
The company also said that the upgrades would “extend beyond what would be required for this project.” City officials, in speaking to the City Council on Nov. 18, said as much and framed the package as an economic development initiative. The upgrades made will “not only serve this project, but to serve adjacent properties and accommodate and promote their redevelopment,” the application reads.
This practice, whether it’s funded by a TIRZ or another mechanism, has become common in San Antonio.
For larger examples, see the $72 million that transformed the ditch known as the San Antonio River north of downtown into the Museum Reach (most of the cost approved by the City Council under Mayor Phil Hardberger) and $40 million for the reconstruction of the Broadway corridor (100 percent approved by, well, you—assuming you voted for the streets portion of the 2017-2022 bond). The most recent example is $24 million in TIRZ dollars for infrastructure upgrades in and around the former Lone Star Brewery, approved by the City Council in May, toward GrayStreet and Midway of Houston’s redevelopment of that property.
[ Related: Olivo: Lone Star Brewery’s $24M incentive deal needed more critical analysis | May 23, 2021 ]
In a TIRZ, the increment, or rise in tax revenue, spurred by the presence of the development itself, is collected and used for public upgrades within the zone. City housing officials expect Encore’s project to accumulate closer to $5 million in increment dollars over 10 years, which will be used to reimburse Encore for infrastructure costs.
Another $1 million (or 25 percent) of Encore’s tax reimbursement will be collected and placed in the city’s affordable housing fund. Encore will also fund a $20,000 displacement study, which will attempt to gauge how Encore’s apartments will impact residents of Government Hill, one of San Antonio’s poorest neighborhoods.
In return, the city helps redevelop a blighted segment of the inner city, and also bolsters the local tax base. While Encore will be reimbursed for the city portion of its property tax bill, the company will pay other taxing entities, such as the San Antonio Independent School District and Bexar County, which will see increased revenues as the area appreciates, as more projects get built, as Government Hill becomes more trendy. Encore’s contribution to the city’s affordable housing fund, and its funding of a displacement study, are fairly recent policy changes the city added to the practice of incentivizing infrastructure that begets the construction market-rate housing.
The way McKee-Rodriguez sees it, the city is not incentivizing the actual building, but rather the area’s infrastructure, which is in terrible shape anyway. That said, Encore says the project is too expensive to build without the tax reimbursements. But the argument goes the other way, too. Without the development, it may be many years before those streets and sidewalks get repaired.
The TIRZ policy
During our interview, McKee-Rodriguez made a point that housing officials have made to me before. Under the city’s current TIRZ policy, Encore’s development qualifies for every penny it will collect.
So McKee-Rodriguez and other council members, most notably District 1 Councilman Mario Bravo, recently have requested a re-evaluation of how San Antonio uses the TIRZ tool. TIRZs have been traditionally used to reimburse developers for upgrades the rest of the city can enjoy. Streets and sidewalks, but also aesthetic improvements, preservation of facades, things we all have to look at until the end of our days. Then, in recent years, it also became an affordable housing tool—which housing officials never really fully explained. (To be fair, we never really asked.)
McKee-Rodriguez, as a newly-elected council member, but also as the new chair of the Inner City TIRZ (which covers much of the East Side), said he will make it his mission to tweak the TIRZ policy to include environmental sustainability and affordable housing standards for projects that are awarded TIRZ dollars.
Though the Encore incentive dollars are justified based on the current policy, McKee-Rodriguez and officials with the city’s Housing and Neighborhood Services Department are not robots. TIRZ is not an as-of-right policy. It’s not turn-key. There are votes to be made. And the only person to vote against the Encore package is a man by the name of Jake Jopling.
Jopling is the director of asset management at AREA Real Estate, which is David Adelman’s development firm, and he also sits on the Midtown TIRZ board. During the Aug. 31 meeting of the Midtown TIRZ board, Jopling said he could not support the project without seeing Encore’s pro forma, or financial documents, demonstrating the need for the reimbursement.
“It’s tough for me to wrap my head around why we would provide $7 million for this project,” Jopling said during the meeting. He made an observation I hadn’t thought of: the presence of 1800 Broadway. It’s not like nothing’s been built east of Broadway. The market-rate 1800 Broadway apartments, built by another Dallas developer named Criterion, stands directly across from Encore’s land. In a sense, 1800 Broadway could be viewed as the first phase of Broadway East. Pretty much kitty-corner, the construction of Jefferson Bank’s 13-story headquarters continues, which will include restaurant and retail space, contributing to Encore’s, and GrayStreet and Fulcrum’s, mixed-use vision for this area of inner San Antonio.
Others on the Midtown TIRZ board expressed consternation about the deal, because the project was 100 percent market-rate, but voted in favor of it anyway.
To Jopling’s point, city officials in the past have talked about helping segments of the downtown market reach critical mass, or the point when the forces of capitalism take over, and apartments sprout on their own, minus the help of public subsidies.
There are examples of this happening now. Austin firm Sabot Development is planning a 10-story, 299-unit apartment mid-rise on the other side of the San Antonio River from the Pearl, it has said, without the use of tax incentives.
Two weeks ago, OHT Partners of Austin won conceptual approval from the Historic and Design Review Commission on a 4-story, 310-unit market-rate apartment building at 400 Probandt St., near the Lone Star. In its documentation to the city, OHT Partners emphasized that the “full cost of the development will be shouldered by the developer.”
Of course, it’s worth noting that every project is unique with its own set of variables, including location—which alone includes cost of land, any environmental challenges the site may face, what’s already built near it, the condition of the infrastructure around it, etc., etc. And when a developer says an incentive package is necessary, we must either take their word for it, or take a look at their pro forma, which are only obtainable through open records requests.
I’m going to end this segment here, because I’m leading us down a rabbit hole worth exploring, but for another time. For now, let’s take a breather. Refresh your coffee, or pop open another Topo Chico or whatever you hepcats are drinking these days. There’s more to unpack. We’re almost done.
Decade of Downtown as a policy
During the 2022-2027 bond discussion, some City Council members have talked about making this current decade the Decade of the Neighborhood, almost intimating that the city should shift its investment strategy away from downtown.
The Decade of Downtown is not over until San Antonio’s policies say it’s over.
Currently in San Antonio, there are tax increment reinvestment zones, or TIRZs, and the Inner City Development Incentive Program. At the state level, there are public facility corporations, or PFCs, which, through local entities such as the City of San Antonio and the San Antonio Housing Authority, offer property exemptions (meaning no property taxes, not to the city, not to the county, not to the school district—no one—are paid) to developers for the production of apartments, half of which must be reserved for people making up to 80% AMI, which the city no longer characterizes as affordable. [ Read the state PFC statute here. ]
The Center City Housing Incentive Program, or CCHIP, created under Mayor Julián Castro in 2012, was the engine behind the Decade of Downtown. The city’s goal way back then—in the late aughts and early 2010s—remains the same today: Increasing downtown’s apartment and condo density. The thinking is that a more vibrant downtown will yield a multitude of benefits, including an increased tax base, and the creation of a more happening place (to use this 43-year-old’s antiquated verbiage) attractive enough to lure back San Antonio’s young talent after they graduate from college, or to lure non-natives, as well.
So far, most of the incentivized apartments have been on downtown’s outskirts, in and around the Pearl and in Southtown. But some projects, such as Encore SoFlo, have begun to pop up in downtown proper.
The CCHIP was as-of-right, or turn-key, meaning the incentive packages didn’t require a City Council vote. As long as a project met CCHIP’s criteria, it would receive an incentive package. The policy itself was what the council approved or adjusted, which it did several times to meet the growing need for more affordable units in San Antonio. The 25 percent of a tax break developers pay into the city’s affordable housing fund is a remnant of those CCHIP adjustments that the city kept.
CCHIP was designed to speed up the redevelopment of the downtown area, but also to introduce a certain level of transparency.
CCHIP expired at the end of 2020, but the city still negotiates with developers on subsidy packages on a case-by-case basis—which ultimately require City Council approval.
[ Related: Housing in San Antonio at crossroads with expired downtown incentive policy, new council members elected | July 8, 2021 ]
For example …
In May, the City Council approved a tax rebate incentive worth an estimated $7.5 million over 15 years for Weston Urban’s much-hyped 32-story high-end apartment tower at 305 Soledad St. In return, the city will receive $2.2 million, or 25 percent of the taxes due over the same period, toward its affordable housing fund. Again, like the Encore project, other taxing entities, such as SAISD, will benefit by receiving increased revenues as property values increase. Plus, San Antonio will be another large housing project closer to a denser downtown in terms of apartment totality the city desires.
The question you have to ask yourself in this case, as in the Encore case and all other cases of tax breaks: Are the tax rebates worth what the citizens of San Antonio are getting in return?
And what about process? Now that CCHIP is dead, a certain level of transparency in talks between city downtown officials and developers is now gone. But we know through open records requests that developers such as the Lynd Company and Hixon Properties have requested incentives for projects unknown. (Look for reports on these requests in the coming weeks).
It’s through an open records request we at the Heron learned that the city and a Boerne developer named Universal Services Group signed an incentive agreement for a 216-unit apartment development at 500 N. Main Ave. That package is worth up to $4.4 million. Like Encore’s deal, 25 percent of the city property taxes will feed into the city’s affordable housing fund, worth an estimated $1.1 million over 15 years.
[ Related: Developers of $400M Riverplace project sign incentive agreement with city | April 20, 2021 ]
But those agreements will still require City Council approval, which is the only point in the process when they will come to the surface for the public to view and scrutinize, if need be.
The argument could be made that if the city is going to continue to doll out tax incentives anyway, why not bring CCHIP back? Whereas now, deals are being made behind closed doors like they were in the years before 2012, when apartment buildings such as the Vistana (now known as Inspire Downtown) received incentive packages most would characterize as exorbitant.
[ Related: Vistana apartment building sold to L.A. investment group | Oct. 9, 2019 ]
To be fair, there are some of you who gladly want your tax dollars to fund these developments. (As Chief Appraiser Michael Amezquita has said in interviews before, if a developer gets a tax break, the rest of us have to make up the difference.) Adelman once told me the city isn’t offering enough incentives, that the city should turn the incentive spigot full blast. You want affordable housing? Build as many housing units as possible, and the market will take care of itself based on the laws of supply and demand. It’s been some years since this philosophy last surfaced in the local housing debate, because, at least in San Antonio, Mayor Ron Nirenberg has shifted the city’s housing priority toward affordable housing. Hence, $150 million proposed for the city’s first housing bond next May.
Another question to ask: Can San Antonio support both downtown residential growth and meet its affordable housing needs? Nirenberg has told me in interviews before that the two are not mutually exclusive. Nirenberg voted in favor of the Encore incentive package, just as all other council members who were present did. On the flip side, a few weeks ago, we also learned that the city has committed to helping the San Antonio Housing Authority in its desire to redevelop the Alazan-Apache Courts and maintain, and even expand, its 501 public housing units.
When it comes to discussions of gentrification and the city’s role in that process, I would argue that the Encore project is THE example of potential displacement from a city incentivized project. Yes, I know I made the point about 1800 Broadway and Jefferson Bank’s projects being already underway. But Encore’s property is directly across the street from Government Hill’s single-family homes. There are other examples of city-incentivized developments abutting single-family homes, most notably in Tobin Hill, but here we’re talking about one of the largest apartment buildings (with more to come) next to one of the poorest communities in San Antonio.
Government Hill is unique in that it’s also a ZIP code—more or less—called 78208. It was the poorest ZIP code, I want to say, back in 2016 or 2017. According to the latest census data, the median income in 78208 is $24,100. Even as the blocks nearest to Broadway have gentrified, the lower-income housing stock starts to show the farther north you get into the neighborhood.
McKee-Rodriguez talked about efforts to either prevent displacement, or mitigate it for any long-term households—or, in layman’s terms, make it less shitty (my words, not his) for those who have to move from a neighborhood they lived in their entire lives. Or, as a city official recently put it to council, “what resources are available to help them not fall into a worse situation.”
This was the commitment made by NHSD Assistant Director Ian Benavidez at the council meeting two weeks ago.
During the meeting, District 7 Councilwoman Ana Sandoval asked Benavidez about how the city would go about accomplishing this.
“It’s a difficult question to answer,” Benavidez said. “Gentrification and displacement have several causes. For us, to be able to identify which projects may cause displacement, we first need to understand what’s caused displacement in the past. Many projects that we’ve heard of, everything from San Pedro Creek to the Pearl, we are going to be looking at to establish a baseline. (We will) also be looking at a Lone Star impact assessment.”
“We’ll actually have two projects that are going on but with different variables around them (Encore and Lone Star). We’ll get even more data. The goal of these studies is to analyze other areas of the city that have experienced change, and then use that as a predictor for what this development may do, or other developments may do, based on the similarities of other projects.”
Sandoval then responded, “I think we’re going to have to come up with new tools that we don’t have right now to mitigate displacement. Moving people outside of the community that they may have lived in for generations, I don’t think that’s ideal. It’s not where we want to go. And wherever we send them they’re never going to get back the full richness they had in the community they were.”
In our interview, there was a certain tone to McKee-Rodriguez’s voice when we spoke. The councilman talked about how he had assembled a team of community activists who worked previously for the Texas Organizing Project and the Esperanza Peace & Justice Center.
“So we’re very, very progressive, very far left” McKee-Rodriguez said. “We have an idea of how things are going to go. What’s the progressive solution? What’s the conservation solution? … I always knew it wasn’t that simple.”
“We just realized just how nuanced everything is,” he continued. “Everyone is not always going to be happy with my decision, but I hope everyone knows that every single vote I take comes with hours and days of lengthy conversation that really weigh heavily.”
Of course, for the purposes of this analysis and this case study, I’m focussing on Government Hill, and Encore’s latest development.
On the near West Side and in the Lone Star neighborhood, District 5 Councilwoman Teri Castillo will likely find herself in similar situations next year as developments continue to simmer in her district. While McKee-Rodriguez made housing a priority during his campaign, Castillo, herself a historic preservationists and housing advocate, made it her top priority.
Approved in May, the aforementioned Lone Star incentive package worth $24 million was former District 5 Councilwoman Shirley Gonzales’ “finale” to eight years on the council, as she put it.
“People want to stay on the South Side,” Gonzales said during the meeting of the market-rate housing planned for Lone Star. “They really don’t want to move anywhere else. They love their neighborhoods and their communities, but we don’t have a lot of new product in the area.”
Castillo, who was, at the time, in the middle of a run-off campaign, said she did not support the incentive agreement because it did not include more guarantees for the Lone Star community. She talked about the need to make sure that when developments of these magnitudes are introduced next to vulnerable communities, that those communities are “well-equipped to stay afloat.”
“We can’t just give incentives and hope it works out in our favor,” Castillo told the Heron at the time. “We need to know: When the project is completed… are they going to be paid a liveable wage? Are they going to hire from the community? Are they going to provide community access to these private spaces?”
As developers such as Adelman and others attempt to redevelop blighted parts of west downtown, the inner West Side, and even the Lone Star neighborhood, how will Castillo handle similar incentive decisions?