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March 22, 2019

Volume 40, Number 49

Its almost here.  One more edition of this weekly newsletter is all that remainsAfter exactly 40 years — we are ceasing publication.  It is triggering a bit of personal nostalgia.  But, put that aside.  Lets dive into this weeks look at the Austin area.

Speaking of looking,” if you want to know about a major overhaul of downtown Austin, you can get an elaborate look at the future plansIt will be more than just a dog and pony show, it will be dogs and ponies with bells and whistles.  The Downtown Austin Alliance (DAA) and the City of Austin call it The Downtown You Will Always Love.”  They call the presentation a celebration.”  And it will take place at the Austin Public Library downtown.

Plans are still evolving for the event April 30 (weeks after this newsletter ceases publication).  But, based on preliminary announcements of what is currently in place, they are going allout to convince you the redo of downtown will be spectacular (my word, not their’s).  Some examples:

Be the first to hear findings from our new State of Downtown report while enjoying some of the citys best food, drinks, and live entertainment,” said DAA in a promotional piece.  Okay, this is all well and good.  But, what about the bells and whistles?

“Take a step into the future with our unique VR experience,” DAA said.  “As the goggles go on, guests will be transported into a virtual world representing the future of Austin mobility.”

Or to put it another way:  “Guests will learn about the community’s vision for the future of downtown – and how we are going to get there – through compelling speakers and hands-on activations featuring local artists and the latest technology.”

Okay, let’s read between the lines.  When DAA says “the future of downtown will certainly feature welcoming, engaging places for all to enjoy” the translation is likely to include less auto access, less parking, wider sidewalks and more emphasis on bicycles and scooters.  Also, you need to raise some questions:  what will be the total cost, the impact on businesses and, importantly, will such a costly project with drastic changes be submitted for voter approval?  Participants at the 4:30 pm to 7 pm will be charged at least $55 to be dazzled. Read more →

March 8, 2019

Volume 40, Number 47

First an important announcementIn four weeks, this newsletter will reach its 40th anniversaryFor four decades, we have chronicled events about the remarkable Austin areaForty years, with a deadline every weekThis represents approximately 3 million words in 2,000 newsletter editionsAnd now, the time has come for us to change our career emphasis.

 The March 29, 2019 issue will be the final edition of The Neal Spelce Austin Letter, that we first published April 1, 1979.

 Were not going awayWe are just stepping aside from this timeconsuming enterprise, as we step forward in different directions.

Our efforts are now being turned toward an exciting new ventureAfter years of encouragement from numerous associates, friends and family, yours truly has undertaken the humbling task of a memoir book projectTo modify a line from a Farmers Insurance TV commercial, “Its about a thing or two, because weve seen a thing or two.”

The book project includes an indepth look at Austin how the metro has evolved to a globallyimportant city.  Humbly, we have come to recognize no else has during the past 40 years written each week (or, importantly, been involved in) how Austin has emerged in ways that many could never imagineThe book also includes some entertaining (we hope) accounts of a long and varied career.

We still plan to contribute our insights, perspectives and analyses to LinkedIn similar to what weve done in this newsletter, only it will be free to those who follow us on LinkedInSo, if you are interested, simply join our LinkedIn familyAlso, we are continuing ongoing consulting work, putting our decades of wideranging experience and knowledge to good use.

Well share more about all this with you over the next few weeks, before we reach the 40year milestone at the end of the month.  Well be working with our computer gurus to wind down.  Subscriptions will receive prorated refunds as appropriateAnd, we will be glad to answer any questions you may haveJust shoot us an email.

We want you to know how very much we have appreciated our loyal subscribersNow, lets get on to this weeks edition. Read more →

February 15, 2019

Volume 40, Number 44

Its more than a coincidence.  Its a bigtime trend unfolding before your eyes.  The companies of the future are betting on a future in Austin.  When you look at the size of the deals, its not bethedging or dippingacorporatetoe in the water.  Youre seeing fullblown commitments the likes of which are seldom seen in cities around the US.  The big office towers downtown and in North Austins Domain are visual indicators of this trend.

It’s usually risky business for a developer to put up a speculative office building.  Not now in Austin.  Before buildings are even completed, they are substantially leased by substantial companies.  Those pre-leases have the financial backers patting themselves on the back about how “smart” they were to support such normally-risky ventures.  Consider a few examples of what is happening in Austin in recent weeks.

The biggest and most obvious example is a visuallystrikingly 35story office building on the north shore of Lady Bird Lake downtown.  It soars to the sky, with setbacks that taper toward the top to resemble a sail on a giant sailboat.  According to news reports, all 723,000 sf have been leased by Google.  Let this sink in.  Then consider another example.

It was reported this week Amazon is leasing 145,000 sf (four floors) of a Tower under construction in The Domain that is set to be completed in the 2nd quarter of next year.  Amazon already occupies about 250,000 sf in two other office towers in The Domain.

One more example.  Facebook is said to have leased an entire 17story tower to be completed later this year in The Domain.  We’re talking about 320,000 sf.  Remember Facebook already employs about 700 people downtown, has pre-leased another 250,000 sf in a downtown skyscraper under construction and also has a fetch of employees in The Domain.

These are just a few examples and it’s certainly not a complete list.  (We haven’t even discussed the expansion of Oracles huge campus along the south side of Lady Bird Lake.)  But, let’s go back to our original thesis:  these successful mega companies are sitting on top of stacks of cash and they are pouring resources into the Austin area as they expand to become megamega entities.  Quite an endorsement of our economy, lifestyle and workforce. Read more →

February 8, 2019

Volume 40, Number 43

No doubt the availability of affordable housing is important inside the Austin city limits.  Check the exploding growth in metro suburbs where less expensive residential units can be found.  Austinites recognized this and voted in last Novembers bond election to raise $250 million toward affordability initiatives.  But, did they realize this expenditure could possibly reduce parking?  This is part of a proposal the Austin City Council will consider 2.21.19.

Austin City Council member Greg Casar has put forth a plan that will be considered in less than three weeks, and it has gained support from other council members.  City staff has been directed to draft a resolution to accomplish his objectives.  Generally, his plan would relax building size and parking restrictions if affordable housing is included in specific projects.

Right now, his plan would apply to the entire city – not limited to areas such as downtown or the West Campus adjacent to UTAustin.  As an example, this could include the high-dollar West Austin neighborhoods where it is difficult if not impossible to find lower-priced living units.

Admittedly, Casar’s plan is aimed at developers who are already specializing in subsidized, low-income housing.  It would allow those developers to make at least 50% of all rental units available to renters who earn 60% or less of the median family income.  For homeowners, income restrictions would be set at 80% of the median family income.

In return, developers would have looser height restrictions.  They could go 25% higher than the current building codes allow.  Also, and this is important, parking minimums would be eliminated.  Casar maintains that waiving these current requirements would allow a significant number of affordable units to be build at little cost to the taxpayer.

Of course, this does not address the additional stress of more vehicles in areas with no parking provided for them.  Don’t forget:  once these regulations are in effect for areas where affordable housing is currently desirable, the plan is still slated to be citywide.  So the devil will be in the details as the language is lockedin prior to the 2.21.19 City Council meeting when it will be up for consideration.  Another factor to consider:  this is planned to stand apart when the City Manager presents an overall code rewrite in the weeks ahead.  Stay tuned. Read more →

January 19, 2019

Volume 40, Number 40

To rent or to buy in the Austin area?  And where?  These are not only important decisions facing newcomersEven longtime residents have to weigh this decision during various stages of life.  A new report analyzed this question for several metropolitan areas in the USAnd, according to the national 2019 Rental Affordability Report, it is more affordable to rent than to buy in Travis, Williamson and Hays CountiesThis is true even as rents are rising, as well home prices.

The report calculated rental affordability as a percentage of wages to rent.  For housing affordability, it was calculated as a percentage of wages and the monthly cost of owning a 3-bedroom, median-priced home, based on a 3% down payment plus mortgage cost, property taxes, homeowner’s insurance and private mortgage insurance.  

In a separate study, rents in Austin ranked highest in the state.  In 2018, rent grew an average of $57 a month, or 4.4%, to yield an average monthly rent of $1,361, according to RentCafe.  So, even though rents are rising at a fast rate in the Austin area, it continues to be more affordable to rent than buy.

The flip side of the equation – home prices – is a major factor.  Even though Travis County home sales are declining, the median home price continues to rise.  In Williamson and Hays County, prices and sales are both rising (as many opt to leave Travis County.)

Rising interest rates, regulatory barriers, higher building material costs and labor shortages all contribute to the increasing cost of housing.  Not to mention, demand.

As long as the Austin area continues to be a magnet for newcomers (many from higher cost areas such as California), the demand for new homes will increase.  And some newbies opt to pay rent until they have time to become established in the area, before deciding where and when to buy a home.

Of course, as home prices rise, many potential homebuyers will be priced out of the market, making them renters.  Its a cycle that keeps repeating itself.  And, it looks like there is no immediate end in sight. Read more →

January 11, 2019

Volume 40, Number 39

Property values are increasing dramatically in highdemand, lowavailability parts of Austin.  Take the land west of the UTAustin campus where hot new development projects include highrise (and highdollar) luxury living units.  But, prime land is at a premium.  So, how do you meet strong demand?  An emerging trend is to build in air space above existing structures that are ideally located.  At the forefront of this trend is a church.  Thats right, a church.

You couldn’t ask for a much more ideal location for high rise student living units than in the 2000 block of Guadalupe Street (The Drag), alongside the UTAustin campus.  This is the location of St. Austins Catholic ParishSt. Austins is in active negotiation for air space development rights above its property.  This could be a big win-win for both parties.

Currently we are negotiating an exclusive agreement with Greystar, where we will spend the next couple of months developing the financial model that tells us if we could make a project work for all of us,” the pastor, Rev. Fr. Charles Kullman, told his parish.  The property is huge.  It not only includes the church facility itself but other buildings such as the rectory, offices, school, etc.

Greystar, he said, is a global leader in student housing with assets close to $30 billion.  “They stood out with their global experience and specific experience in West Campus, and it has the balance sheet needed to support a potential project of this size,” said Fr. Kullman.

Negotiations are not public, but the church will probably want to improve its existing facilities and negotiate ongoing payments from the development, while it maintains ownership and control of the land and church assets.  Greystar would, within existing city zoning regs, see how many living units (condos? rentals?) it can build and how high it can rise above the church facilities.

So, what’s the timetable?  “No decision to move forward will be made until everyone is comfortable with the financial model and it is approved by the Diocese,” said Fr. Kullman.  “I expect it would be sometime in late February before we get through this next step.”  St. Austins, by the way, tried to work a similar air space deal with UTAustin, but was told the universitys business model does not include student housing off their own property.  Also, we understand a small UTAustin fraternity, Acacia, is also working on an air space deal. Read more →

December 7, 2018

Volume 40, Number 35

Its common these days for glowing national articles to be written about Austin.  So when an opinion piece in a respected national publication criticizes actions by Austin, you need to be aware of what is being said.  Within the past week, The Wall Street Journal (WSJ) wrote the City of Austin risks becoming the San Francisco of the South an expensive playground for wealthy progressives.”  And it cited examples.

 “It would be hard to find a better example of left-wing naiveite in municipal affairs than what transpired here in November,” wrote the WSJ in its opening sentence.  “Voters in the Lone Star State’s progressive bastion overwhelmingly approved a $925 billion bond package, but rejected a simple ballot initiative for an independent audit of city spending.”

“The defeat of the audit wouldn’t be so galling if the new bonds didn’t so obviously demonstrate the need for an independent review of Austin’s books.  Spending in the Texas capital is more like what one would expect in some profligate California city,” observed with WSJ.  “With this new bond package, Austin has been reduced to using debt to fund parks, public safety and sidewalk repair instead of paying for them out of its $4.1 billion annual budget.”

It cited other examples saying Austin “spends too much of its steadily growing budget on dubious social programs and utopian schemes, financed by a steadily growing tax burden.”  It ticked off actions such as mandatory paid sick leave “with an exemption, of course, for union shops.”  A solar-ready requirement for all new homes and commercial buildings was another example, as was “exorbitantly high development fees that get passed on to consumers.”

The priority of the citys ultraprogressive political establishment is to serve the interests of the wealthy, ultraprogressive white people who fund and elect Austins insular political class,” claims the WSJ opinion piece.  “As living here gets more expensive and as the city’s elite dig in to protect their left-wing haven from disruption and change,” it becomes more like San Francisco.  Tough talk.

Let’s put this in perspective.  Readers of the WSJ can agree or disagree with this assessment.  This is not the point.  The pointthis review of the City of Austins governing policies is now out there for all to see.  In a respected publication. Read more →

November 30, 2018

Volume 40, Number 35

Dear [MM_Member_Data name=’firstName’],

As we move into December its time to look ahead to 2019.  This is especially true when you single out real estate an essential portion of the Austin economy.  It also affects personally so many residents of the fastgrowing 5county Austin metro area.  So, what can you expect to happen next year?

The Urban Land Institute and PWC’s Emerging Trends in Real Estate:  2019 gives high marks to the Austin area and to Texas’ major metros.  In fact, Austin ranked #6 in the study, but it took a back seat to #1 Dallas/Fort Worth.  San Antonio ranked #20, while Houston ranked #37 in the review of the nation’s major markets.  These strong Texas cities have a significantly higher percentage of a younger population than the rest of the US.  This means there should be strong labor force growth and productivity.

As a result, demand for housing in these Texas markets is expected to remain strong through 2019,” Dillon Cook, founding partner and COO with Range Realty Advisors (RRA), told GlobeSt.com.  “Also Millennial demand for housing in these Texas markets is expected to continue for many years as a growing share get married, attain higher income levels and have children.”

There’s more to this positive real estate outlook than just demographics.  “Housing demand continues to be fueled by relatively low interest rates, low unemployment and continued economic growth,” Cook pointed out.  And Austin is among the nation’s leaders in these categories.

Yeah, but, what goes up must come down, right?  This may be true, but it’s all relative.  Range Realty Advisors points out “the ups and downs of economic cycles can vary substantially globally, regionally and by state.”  Cook says it is entirely possible the next nationwide economic downturn will look and feel very different in Texas compared to other states.

In previous economic downturns, there have been several causal factors – rampant speculative development for oneIn Austin most speculative real estate development is leased/sold as soon as its finished.  There are other national and international factors that are not currently apparent.  Conclusion:  “Add to this strong economic and job growth, high level of consumer confidence and business investment, and many believe Texas will continue to be a magnet for real estate investors and developers for years to come,” notes RRA. Read more →

November 9, 2018

Volume 40, Number 32

Austins reputation as a home for heavyweight companies of the future is wellrecognized and welldeserved.  After all, when you start calling the roll of Austin majors Dell, Google, Apple, Facebook, Indeed, 3M, etc., its hard to know where to stop.  The list is long and impressive.  But what about smaller enterprises that could be the biggies of the future?  Where does Austin stand as the site for startups?  New information late this week:  startups accounted for a larger share of businesses in Austin than in nearly all major US metros in 2016.

Young companies account for a larger share of businesses in Austin than in nearly all other major US metros.  So, it’s important to note that for the first time, the Survey of Business Owners compiled as part of USCensus Bureau data, included data regarding the number of years a firm has been in business.

Here’s how the numbers break out.  Take the newbies, those firms with less than 2 years in businessAustin with 4,444 companies, or 11.6% of all employer firms, ranks #3 in the nation, behind #1 Las Vegas and #2, Orlando.

Those Austin companies that have been in business a little longer, but less than four years, break out this way:  10,807 Austin businesses, or 28.1% of employer firms, place Austin at #2 in the nation, behind #1 Las Vegas.

And the oldies?  Austin firms in business less than six years15,077 Austin businesses, or 39.3% of firms, place Austin at #2 in the nation, behind #1 Las Vegas.

How did other major Texas metros fare in this review of the 50 largest metros in the US, in business less than 6 years?  The DallasFt. Worth metro was 5th in the nation, Houston was ranked #10 and the San Antonio metro was 13th in the US.

In the past, Austin has been noted as a good place to start a company.  After all, Dell started in a UTAustin dorm room.  But, this is the first report putting precise numbers to the entrepreneurial environment in this area.  This late report came to us from the Austin Chambers VP/Research Beverly Kerr.  Her analysis goes much deeper by the way.  For instance, she breaks it down by womenowned firms, minority and veteran entrepreneurs.  And she reports on Austin’s #4 US 2016 ranking for firms receiving significant funding from outside investors. Read more →

October 19, 2018

Volume 40, Number 29

UTAustin is without doubt one of the Austin areas most important economic engines.  (Years ago we made a speech titled If you want to stop growth in Austinmove the university to Amarillo!”)  So,how is UTAustin doing?  Especially, how does it compare with other peer institutions?  In the world?  How about this UTAustin rose ten points to be ranked #39 worldwide by one of the most respected global rankers of universities.  Impressive.

The editors of Times Higher Education World University Rankings (THEWUR) singled out Yale University and UTAustin for making major advances this year.  It attributed UTAustin’s leap to “significant increases in its institutional income and research volume.”  The ranking relies on a combination of reputation surveys and quantitative metrics in five areas:  teaching, research, research citations, international outlook and industry income.

It’s difficult to get detailed information on the specifics underlying THEWUR’s ranking but, according to UTAustin, it “correlates with recent expansions in research funding, research reputation and academic reputation.”

UTAustin ExecVP/Provost Maurie McInnis said investments in faculty compensation and interdisciplinary research, combined with the addition of the new Dell Medical School, are enhancing UTAustins research impact.  (If memory serves us correctly, UTAustin’s rankings have suffered in the past because most peer institutions boasted medical schools.)

And UTAustin’s future appears even brighter.  McInnis said “by placing greater emphasis on doctoral programs and strategic hiring, the university aims to become even stronger in years to come.”

Other Texas universities placing in the ranking include Rice University (#86), TexasA&M (#159) and UTDallas(lumped into a range of #201-#250).  UTAustin has done well in several other global rankings:  Center for World University Rankings, #31 … USNews&World Report’s latest ranking of Best Global Universities (#32) and Nature Index’s ranking of #23 in the world for scientific research.

As its stature grows nationally and worldwide (and this growth is expected to continue surging), UTAustin enhances much of what makes Austin, Austin. Read more →