http://austin.bizjournals.com/austin/stories/2008/08/04/story1.html?b=1217822400^1677422
Friday, August 1, 2008
Condos, top half of skyscraper cut
Credit crunch and condo boom blamed for changes to Van Zandt project
Austin Business Journal - by Laura Hipp ABJ Staff
The Hotel Van Zandt will open in 2010 without the 55 condominiums previously planned for the top of the boutique hotel.
San Diego-based JMI Realty LLC has scrapped blueprints for the condos that would have ranged in price from $500,000 to $2 million.
The rocky banking environment and numerous condo projects pending in Austin prompted JMI to step back, Senior Vice President Greg Clay says.
"I bet there are five other projects [in Austin] trying to get capitalized that likely won't because the national residential market is in such disarray," Clay says.
The building's height was reduced by nearly half to 16 stories, he says. Plans to have roughly 300 rooms in the hotel have not changed. Construction should begin in November and be finished by September 2010.
The project's cost, once estimated at $125 million, will be slightly more than $90 million.
The development will be next to The Shore, a 192-condo project by High Street Residential Inc. Both sites are located where Red River Street ends at Davis Street, in a part of downtown known as the Rainey Street area or the Waterfront District.
The Hotel Van Zandt is JMI Realty's first project in Texas. Much of JMI's portfolio is in San Diego, including Petco Park, where the San Diego Padres play.
Clay says the hotel will be similar to the Hotel Solamar in San Diego -- with an Austin flair, of course.
Kimpton Hotels & Restaurant Group LLC will manage the hotel. JMI is in talks with Austin chef Kevin Williamson of Ranch 616 to develop a restaurant and bar, Clay says.
JMI will consider developing other projects in Austin once the economy improves, Clay says. In 2009, the developer will open an office at 111 Congress Ave., which will be its second in the country.
Clays says lenders were more interested in funding the hotel portion of the development.
"The debt market is more difficult than the equity markets," Clay says. "We were lucky to find a lender who was willing to do ground-up hotel construction."
He says there will be few hotel construction projects in Texas securing loans through 2009.
Austin should expect other condo projects to change plans in light of the economy, economist Ray Perryman says. Some developments may convert to apartments and become condos once the market improves.
"The mortgage situation has made it very difficult," Perryman says. "It's difficult to get projects financed right now."
Lenders are nervous, and buyers cannot easily secure mortgages, he says. The problem stretches across all U.S. housing markets.
"As for the fundamental of supply and demand, nothing has changed," Perryman says. "If 1 percent of the people in Austin decide to live downtown, it will fill up everything there."
There are more than 4,000 condos under construction or planned downtown.
Clay says the primary competition for his condos would have been the W Austin Hotel & Residences, Four Season Residences and the Austonian.
"We've got concerns about the depth" of the market, he says.
JMI's headquarters also provided an early lesson.
"One reason we were so convinced to not do condos when things look crowded is because of what we watched happened in San Diego," Clay says. "They're already converting condos for sale to rental."
JMI walked away from $3 million spent so far on items related to the condo portion of the development, he says. The total cost of the condos would have exceeded $50 million.
Staff is revising blueprints for the hotel, Clay says. Kansas City, Mo.-based Walton Construction Co. LLC remains the general contractor, and bidding for subcontractors will reopen in October.
Strong interest is expected from subcontractors, who will need business as the economy slowly recovers.
"Our hope is this is one of the few projects subcontractors can bite into and get aggressive on," Clay says.
"Austin -- and Texas, in general -- has seen good times the last 20 years," he adds. "But as this slowdown makes its way into every state, I think that the community is going to feel the drop off in construction starts."
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