A two-tower project in downtown Austin dubbed HealthSouth has come to a halt.
Officials said last week the city has terminated its contract with the developer, Aspen Heights, because it could no longer meet the project's goals.
The city entered into an agreement last year with Aspen Heights to redevelop the nearly 2-acre site. The project, located near Waterloo Park and the Dell Medical School, would bring a mix of uses, including 921 apartments — 25% of them affordable — affordable commercial space, an affordable child care center, and a live music and art venue. The site has been vacant since 2016.
The area is centrally located and would have provided residents with access to public transit, jobs, doctors offices and other services.
City officials said staff will reevaluate options and come back with recommendations on how to move forward.
In a memo to the City Council last week, Assistant City Manager Veronica Briseño wrote that the developer said the terms of the agreement were "no longer financially feasible due to market conditions.”
In a 2022 report, commercial real estate agency CBRE, forecasted a 14.1% year-over-year increase in construction costs that it attributes to “soaring construction demand, inflation, supply chain disruptions, labor shortages and the war in Ukraine.” Financing rates have also risen, putting a higher price on borrowing.
Briseño said the developer suggested scaling back on the terms of the agreement — for example, by reducing affordable housing on-site from 25% to 7%.
The city extended the agreement six times, but was ultimately unable to reach a deal with Aspen that stayed within the city’s goals, which include creating affordable housing close to jobs and day care centers.
“For these reasons, the city is terminating the [contract],” she said.
Requests for comment from the developer were not returned. In a letter to City Manager Jesús Garza, Stephen Drenner, who represents Aspen Heights, blamed the city, saying it failed to meet its responsibilities and refused to negotiate.
“We continue to believe that the city’s goals can be met, but with some modified strategies, in this less-than-friendly macroeconomic environment,” Drenner said.
Kathie Tovo, who helped shape the deal while serving on the City Council, said the partnership had been challenging from the beginning but supported the termination. The city still has an obligation to carry out the project's goals.
“We have an opportunity on our city land to create places for families to live so that those families can live close to where they work," she said, "and really live out the values that we as a city have said we want to achieve."
Tovo said moving forward the development should be a city project with the Austin Housing Finance Corp., which builds affordable housing, and the Economic Development Corp., which helps manage finances, so the goals of a project are met.
“This is a public asset, and it needs to be used in such a way that it really benefits the public,” she said.
Some city leaders, however, said the “sudden decision” to terminate the agreement was premature.
Council Members Zo Qadri and Natasha Harper-Madison requested an executive session or discussion at the council’s upcoming July 18 meeting.
“We wholeheartedly believe that by allowing council the chance to weigh in on the matter and be adequately briefed, we as a body can ensure that the redevelopment of the HealthSouth site aligns with our collective vision for a prosperous, inclusive, and vibrant city,” they said in a joint statement.
Briseño said staff will take the next 60 days to reassess its options and come back with recommendations on how to move forward.
