Downtown Residents Association

RIVER NORTE

Dec 17, 2007

City's ambitious project is a developer's dream

Web Posted: 12/16/2007 01:14 AM CST

Greg Jefferson
Express-News
Over the past three years, developer Edward Cross II and partners have quietly reeled in parcel after parcel in a near-downtown territory they're betting will take off when a dreary, overgrown section of the San Antonio River is recast as a linear park.
They have spent millions ?— through a small constellation of partnerships ?— on property along or near the river in a swath west of the Interstate 35-Interstate 37 interchange, and they're still looking for deals.

Cross said they own land in 10 locations in the area, which is coming to be known as River North, and want to eventually build housing on most of those properties. The ongoing river upgrades, he added, will create "a world-class amenity" to help draw residents downtown.

"I think River North will develop as quickly as people like me can build buildings," he said.

Cross and his partners are easily the biggest recent buyers in the 355-acre River North, with holdings there valued at $16 million, according to 2007 data provided by the Bexar Appraisal District. That includes the graffiti-marred shell of a Broadway condo project formerly owned by developer George Geis.

Other developers and speculators also are sniffing around, looking for opportunities to eventually cash in on the promise of the $68.3 million worth of river improvements between Lexington Avenue and Josephine Street.

Your turn
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"There's a lot of activity and a lot of interest in what's going on in the area," said Patrick Shearer, principal of Cambridge Realty Group. "Prices have increased, and there's a lot of people looking for potential investments."

Mayor Phil Hardberger saves some of his most boosterish rhetoric for the river project, which will redo stretches of the river north and south of downtown, along the Museum and Mission reaches. The river, he says, is San Antonio's heart and the project will connect the city's North and South sides.

Following close behind is the prediction of a nearly $1 billion economic jolt generated along the Museum Reach, from 10,000 new jobs, profits and multiplying property values and tax revenue once the area's fully developed. That forecast, part of a report released by the San Antonio River Foundation, relies almost entirely on developers.

The mayor is hailing their interest.

"Ed Cross is a smart businessman, and he's buying a lot of property in River North," Hardberger said. "What does that tell you?"

But the potential for business people to profit from river improvements has cast a cloud over the project before.

Seven years ago, San Antonio voters rejected three propositions that would have raised sales taxes, including $30 million worth of river improvements from Mission Espada to Brackenridge Park. Beyond its tie to an unpopular light-rail initiative, the measure's undoing was the suspicion that some developers ?— primarily Geis, a friend of then-Mayor Howard Peak and a property owner along the river north of downtown ?— would have an inside track.

"It lost due to a campaign of innuendo about the effects of the river improvements, that some developers would be enriched by them," said Peak, who championed river upgrades as mayor. "The irony was that that's exactly what it was supposed to do: increase property values, which would increase tax revenue to the city. Yeah, there are going to be some people who make money. But a whole lot of benefit is going to come to the city, to its residents."

The planned construction of a 13-mile linear park along northern and southern stretches of the river would stand as one of the farthest reaching capital projects in San Antonio's modern history.

Work on the urban segment of the Museum Reach started in May and is expected to wrap up in May 2009.

The Museum Reach encompasses two zones: the urban segment from Lexington to Josephine, and the park segment from Josephine to Hildebrand Avenue. Only the former is funded.

Near the northernmost tip of the urban segment, the Pearl Brewery redevelopment is a massive work in progress, one that could benefit hugely from the river upgrades and spur nearby development.

Silver Ventures, backed by San Antonio billionaire Christopher "Kit" Goldsbury, bought the defunct brewery in 2002. Silver Venture's Rio Perla Properties is now forging a 22-acre "urban village" out of the site, with plans for residential, retail and commercial tenants. Already open is the Aveda Institute beauty school and the Center for the Foods of the Americas culinary school.

Without the improvements, a river trek to Pearl Brewery would be "long, lonely, creepy," said Ben Brewer III, president of the Downtown Alliance, an organization of property owners that's one of River North's prime backers.

In October 2006, the Downtown Alliance created a nonprofit, Downtown San Antonio Community Development Corp., that took out a line of credit to pay for a master plan for River North, unveiled two weeks ago at a standing-room-only presentation in the San Antonio Museum of Art's auditorium. The final cost is expected to exceed $400,000.

The master plan for the area ?— bordered by Interstates 35 and 37 to the north and Third Street to the south ?— calls for eventually building 5,000 housing units, 250,000 square feet of retail and 400,000 square feet of office space.

For now, River North is a planning principle, essentially a name that's waiting for the neighborhood to catch up.

"Clearly, the prices have gone up in the last three years ?— the area's been discovered," Cross said.

North bound

Overall property values in the River North and Museum Reach territories have increased 18 percent between 2005 and 2007, from $261 million to $309 million, according to an analysis of Bexar Appraisal District data.
Cross ?— whose Cross & Co. also markets properties ?— began seriously buying in River North in 2004, not long before engineer Andr?©s And?ºjar and an intern at his firm began studying the area's potential for redevelopment. A presentation on the Mission Reach improvements piqued And?ºjar's interest.

River-level sidewalks, landscaping and water features will be hallmarks of the project, as well as a lock and dam that will clear the way for barge trips ending at the Pearl Brewery redevelopment.

"We started from the precept that private development follows public investment," said And?ºjar, head of the San Antonio office of Parsons?—3D/I.

He became River North's original promoter.

The aim of River North, which ends at the freeway, he said, is to create a mixed-use, high density, low-rise urban neighborhood out of a mixed bag of properties. River North is home to AT&T facilities, the San Antonio Museum of Art, Providence High School, most of the San Antonio Express-News campus and several stately old churches, as well as vacant buildings on Broadway and decaying industrial sites. Most of the area is zoned for light industrial use, which would have to change for it to develop as envisioned.

The planned linear park and the absence of river-level retail ?— ruled out because much of the Museum Reach is in a floodplain ?— would make for an inviting setting for nearby residential development.

But the sprawling project isn't the only public benefit headed developers' way.

A year ago, the City Council created a 194-acre Tax Increment Financing Zone, set to expire in 2031, within River North to pay for public improvements, such as drainage work. The zone board will collect property tax revenue stemming from new development and increased property values to cover the upgrades.

"The TIF has the potential to be the second impetus for development, the river improvements being the first and foremost," said Peak, a Downtown Alliance board member.

Deputy City Manager Jelynne Burley said the River North tax-increment zone is poised to become the largest the city has undertaken.

But it got rolling amid a few raised eyebrows.

Two months before the council OK'd the zone, the Downtown Alliance formed its nonprofit with the aim of administering the district. The Community Development Corp.'s original five-member board members included Cross and another developer, James Lifshutz.

The presence of Cross and Lifshutz on the nonprofit's board, especially Cross, spooked some in the development community because of their holdings in the area and the potential for moving along favored projects. City officials also looked askance at the board.

"Obviously, they could be interested in doing projects, and we wanted to avoid any appearance of a conflict of interest," Burley said.

Cross and Lifshutz left the board, replaced by nearly a dozen non-developers, including Burley, county officials and a representative from the San Antonio River Authority. Cross, however, said he had lent his name only to help get the nonprofit started. "Once we had a valid entity, we were going to roll off the board."

Ironically, Cross or Lifshutz could serve on the TIF board, which would have the power to approve projects and likely will be appointed by the City Council in January. Under state law, property owners are allowed to sit on such boards. But Burley said their roles on the nonprofit's board could have endangered its tax-exempt status.

In a complicated maneuver, city officials are looking to create an entity ?— a local government corporation ?— to contract with the Downtown Alliance-linked nonprofit to administer the TIF zone and oversee projects. The hand-off of those duties to a private-sector nonprofit would be unprecedented in San Antonio.

In the works

When And?ºjar began pushing the redevelopment concept of River North in 2005, he said he had no stake in it ?— nobody paying him for the numerous presentations or hours spent sifting through Bexar Appraisal District data, no client pursuing a project in the area.
That's not the case now.

And?ºjar said his expertise in the area is attracting clients interested in ventures close to the river.

He's working for the Paradigm Group LLP, which bought 1.35 acres from Geis at West Ninth and St. Mary's streets near Providence High School. The plan is to build a 126-room hotel, 24 condominiums and a restaurant.

He's also working on another project that, if consummated, would be worth "tens of millions of dollars." He wouldn't provide details.

"Just with the things that I'm aware of, that are in early design and early development stages, we could easily see $150 million (worth of projects) under design and construction by the time the river opens in May 2009," And?ºjar said. "That's just River North."

Cross, who's also building the 247-unit Vistana apartment complex overlooking Milam Park on the west end of downtown, believes demand is high for city-center housing, and said that will guide the development of his property. Nevertheless, one of the first projects will be an office building.

He's avoided drawing attention to his purchases and plans in River North. But there's a big project he's becoming very well know for.

The shell

The defunct Villaje del Rio project next to the Interstate 37-Interstate 35 interchange is a poster child for hard times on the stretch of Broadway close to downtown. Work on the project stalled in 2004 over a dispute between Geis, his contractor and his lender.
Except for accumulating graffiti, the structure's condition is the same today: a four-story shell of concrete, stone and exposed support beams.

After firing the general contractor, Dallas-based Andres Holding Corp., Geis' Villaje Del Rio Ltd. defaulted on his loan from Deutsche Bank Berkshire. The lender, in turn, handed the note and the deed of title over to the U.S. Department of Housing and Urban Development, the loan's insurer. Cross said one of his partners at Cross & Co. found the defaulted loan for sale on a HUD Web site, and they jumped on it.

Cross said they immediately saw the potential for a mixed-use development of their own.

In the meantime, Geis pushed the project into Chapter 11 bankruptcy, and Colina Del Rio acquired it at a foreclosure auction in August 2006. The partnership includes Cross, Cross & Co. Vice President David Adelman and Mexican investor Sheldon David Kahn, among others.

Cross said Kahn, whom he described as a longtime friend of Adelman, has put money into all of Cross' River North deals and is a minor investor in Vistana.

Cross said he's looking to jump-start work at the site next spring, though he declined to provide details.

However, Geis is challenging Colina Del Rio's title claim in court, which will block any construction until the litigation's resolved.

The Downtown Alliance's Brewer said Colina Del Rio's work could remove a major blot on Broadway and help set the tone for the area's redevelopment.

For his part, Geis works out of a single-story building on Broadway that looks vacant to passers-by, next door to his old project. Noting the property's rundown appearance, he questions Colina del Rio's commitment.

"If these guys were real developers, they'd take care of the property," he said. "They're money speculators."

At one time, Geis controlled substantial acreage in River North and farther north along the Museum Reach.

He bought his first 3.5 acres of riverfront property in 1993, and in the late 1990s had 56 acres under contract between the highway interchange and Brooklyn Avenue. Out of that bundle, he bought nearly a dozen acres.

"I always thought, with or without the river improvements, this would be a good area to start a neighborhood near downtown," Geis said.

Today his holdings are down to 4.1 acres, most of which he owns with a partner. And he's selling off some of it.

"Every week" ?— that's how often he's taking calls from potential buyers.

Prices are rising, which is good for Geis as a seller. But as a proponent of low-rise, mixed-use neighborhoods, it worries him as well. If the cost of land gets too high, he said, builders would probably start favoring forbidding condo or apartment towers over shorter structures.

Like Geis, developer Lifshutz believes the River North area would blossom as a residential, retail and commercial hub even without the river improvements.

He likes the ideas behind River North, but he's not rushing into new developments or opening his checkbook to add to the properties he acquired a decade ago.

"Quite frankly, I'm waiting to see what happens with River North ?— which underscores the need for River North," said Lifshutz, whose Cadillac Lofts was one of the pioneering housing ventures in the area. "River improvements alone will not maximize the value in the area."

But Lifshutz, co-owner of El Tropicano Hotel, already is a substantial property owner on the river, allowing him to be patient. He's also behind the redevelopment of the Big Tex Grain Co., which would benefit from the Mission Reach improvements on the South Side.

Developers and speculators who now want in are clamoring.

Through brokers, they're contacting people like Manuel Ornelas Jr., vice president of the Plastic Supply of San Antonio. He says he's fielded calls from potential property buyers for months. And he expects his neighborhood to have a vastly different face in a few years.

His store operates amid a handful of other small businesses and overlooks the river from the corner of East Elmira and West Josephine streets, about a quarter-mile from the Pearl Brewery.

As he sees it, the river project's aim is simple. "They want to keep the tourists here another day, to get them to go to places, like the museums, that they couldn't see downtown."

Ornelas said a convergence of factors could eventually move the company to sell the location it's operated from since 1975: offers too good to refuse and property tax bills, spawned by higher property valuations, too big to take.

gjefferson@express-news.net
Database Editor Kelly Guckian contributed to this report.


Online at: http://www.mysanantonio.com/news/metro/stories/MYSA121607.01A.RiverVisionMoney.297e16b.html