AMERICAN-STATESMAN STAFF
When the 36-story Ashton opens next month, the $110 million tower at Colorado and West Cesar Chavez streets will raise the bar for luxury apartment living in downtown Austin.
With such amenities as marble-tiled bathrooms, two-story penthouses, a wine cellar and private movie theater, the Ashton also will have rents averaging about $2,500 a month. That will rise to about $3,000 once incentives of two months of free rent ends.
The Ashton is opening during a year when a record 980 apartments will be added in and around downtown, even as the economy has stagnated and job growth has slowed, raising questions about whether there will be enough tenants to fill the new spaces.
On that issue, real estate experts differ. Some say that the apartment market is healthy, with units leasing well and at high rents.
Others say that although the market is faring better than expected, downtown still has too many apartments.
Between the new competition and the softer economy, landlords at some of the projects say leasing has been a challenge, prompting them to offer from one to three months of free rent to entice tenants.
The list of projects offering some free rent includes 5th Street Commons, Gables Residential's new project on West Fifth Street, Legacy on the Lake, a 31-story apartment tower on Rainey Street at the eastern edge of downtown, and many others.
The Ashton's developers, the Hanover Co. and MetLife Inc., don't typically offer concessions on new projects, which include luxury high-rises in many major cities. "It's strictly because of the economy," said Ed Hamilton, a development partner with Hanover. "We don't know when the economy is going to turn around, but when it does, we'll see the rents go back up and we'll get rid of the concessions."
Twenty units are leased, and Hamilton said Hanover expects to average 20 leases a month once the Ashton opens in mid-July.
The project "is in a class by itself," he said. "We feel like there's that many people in Austin who want that lifestyle."
Greg Willett, vice president of research for MPF Research , a consulting and research firm, said that though there appears to be "significant demand" for luxury rentals downtown, "we have delivered too many units all at once."
"There are always going to be some people who can afford it and pay whatever it costs, but it's a pretty shallow pool," Willett said.
He added that although the downtown market's performance isn't fantastic, it is surpassing MPF's low expectations.
But local real estate consultant Charles Heimsath said the downtown market is strong.
"Not only are the units leasing rapidly, but they're leasing at very high rates," said Heimsath, president of Capitol Market Research, which has consulted on many downtown projects.
Of the 13 newest apartment projects in and around downtown, nine have occupancies of 90 percent or more. Heimsath said 900 of the 1,200 units added last year were leased, and "that shows a lot of strength in the market."
Heimsath builds his case by the numbers.
More units rented, at lower prices
In June 2008, downtown's 1,493 apartment units were 72.2 percent occupied. By December, 354 more units were added, bringing the total to 1,847. The occupancy rate rose to 80.4 percent.
Since then, another 296 units have been completed, and occupancy has risen to 85.3 percent.
Another 684 units will open between now and the end of the year, which will include the first 128 units in the 294-unit Gables Park Plaza west of the Seaholm Power Plant, along with the Ashton and Gables' Pressler project on West Fifth Street.
Rents, however, have been dropping.
They fell from an average of $1,876 a month in June 2008, to $1,792 in December and $1,578 by May, Heimsath said.
Part of the reason, Heimsath said, is that new mid-rise projects, such as Red River Flats on Red River Street, the Crescent on East Riverside Drive and the 300 N. Lamar complex have rents that are generally lower than those in a high-rise.
The other reason is obvious, he said.
"In the competition for market share of tenants, one way to attract interest in leasing is to offer concessions," Heimsath said.
Willett said MPF's research shows "pretty significant rent cuts everywhere," including downtown.
Citywide, Austin apartments were 89.5 percent occupied in June, down from 93.4 percent a year ago, according to MPF Research. The average rent was $823 a month, down from $839 a year ago.
On his downtown outlook, Willett noted that his perspective differs somewhat from Heimsath's because MPF looks at the big picture of how Austin compares to all the markets it tracks.
Spencer Stuart doesn't mince words when he talks about leasing efforts for the Legacy on the Lake, which opened in October.
"Leasing has been a challenge because of the economy, and our concession levels are higher than we would have liked," said Stuart. He is a senior managing partner with Legacy Partners Residential Development Inc., a Foster City, Calif., firm with luxury apartment projects in Texas, California, Arizona, Colorado and Washington.
Stuart said the developer expected 80 percent of the Legacy's 187 units to be occupied by now. The building is 60 percent occupied, although leases are signed that will raise that to 84 percent, once the tenants move in.
"The good news is that Austin is still creating new jobs, and that's balanced against the bad news that Austin is building a big supply of new apartments," he said
Moreover, "downtown seems place for young professionals to work and live, so we think the downtown properties are pretty well-positioned to outperform the overall market," Stuart said.
The normal rent for a one-bedroom unit is $1,260 a month. But with two months of free rent, the cost works out to $1,060 a month.
For two-bedrooms, the discounts put the average rent around $2,077, nearly 6 percent off the market price, Stuart said. Two of the four 2,800-square-foot penthouses are available, with rents averaging $6,200 a month.
Stuart said he expects the building to be fully occupied by October, two months later than anticipated.
But had concessions not been offered, "I don't even want to think about it," Stuart said. "That would be ugly."
Asked if the project will be profitable, he said: "The jury's out on that, and it will remain out for a while. It all depends on the recovery and the economy and overall demand."
With the capital markets in lockdown, Stuart thinks it will a couple of years before financing is available again for high-rise residential construction in downtown Austin, and a year after that before the next new construction crane rises. "So it will probably be 2013 before you see any new construction. That's my best guess," Stuart said.
But, "we expect the Austin market to lead the nation in the recovery," he said, mainly because Austin is still producing new jobs.
Positive long-term outlook
At Gables' 5th Street Commons, only 38 of the 150 units are left to lease, just five months after opening, said Jennifer Wiebrand, a development associate with Gables. Walk-in traffic "has been very strong," she said.
Interest has been spurred by concessions that have varied from one to three months of free rent — promotional pricing that Wiebrand said "will likely not be available again."
Although Gables is "somewhat concerned about the amount of competitive product that will be delivered in and around (downtown) in the next 12 months \u2026 our long-term outlook for the market is positive," she said.
Downtown's attractions, including its growing retail, restaurant and entertainment options, "will lead to long-term health in the downtown-area residential market," Weibrand said.
At the 29-story, 305-unit Monarch on West Fifth Street, developers are offering two months of free rent on some two-bedroom units, and three months of free rent on the four remaining penthouses. The project is 97 percent leased.
At Greystar Red River Flats, at Red River and Ninth streets, rents for one-bedroom units have been lowered to $1,250 a month from $1,650, and two-bedroom units are renting $1,850 a month, $575 off the market rate, said Candiss Escobar , regional property manager. The project is 96 percent leased.
On top of rent discounts, some complexes are offering incentives for tenants who sign a lease within 24 to 48 hours of seeing a unit, said Shannon Sullivan, leasing consultant for Robertson Hill Apartments on San Marcos at East 10th Street.
With the three-month rent special, one bedrooms at the complex now start at about $950 a month, down from $1,260 a month, and two-bedroom units normally priced at $1,800 a month are renting for about $1,400 a month, she said.
At Cole, 119 new apartments on South Lamar Boulevard just south of Lady Bird Lake, it's been "extremely busy," said Jessica Higgins, a leasing professional with Lincoln Property Co. On average, five new leases a week have been signed since leasing began April 15, Higgins said.
With current specials, studios start at $1,202 a month compared with the $1,420 a month market rent; one bedrooms start at $1,384 a month, down from the $1,636-a-month market rate, and two-bedrooms start at $1,947, down from $2,301 market rent.
Downtown landlords and leasing agents say that although the market is softer, demand remains healthy. Renters run the gamut: students, downtown workers, employees in Austin on temporary assignments, and people who want to test the market before buying a condominium.
From what he's seen of the Ashton, Oliver Everette said he liked everything, from its "elegant, sophisticated" finishes, expansive views and proximity to shops, restaurants and theaters.
"It feels like I'm in a high-end boutique hotel," said Everette of L Style G Style, who helps publish the upscale lifestyle magazine for Austin's gay and lesbian community. "I would expect to see this in a W (hotel) or the Austonian."
Everette, who now rents in the Monarch, plans to move into a two-bedroom unit at the Ashton.
Linda Glessner, who lives in nearby apartment building, said she was drawn to the Ashton's "understated elegance" and its proximity to the lake and to downtown's "very vibrant, energized environment."
"I think it's just unparalleled," said Glessner, a senior associate dean in the Continuing and Innovative Education division at the University of Texas.
Having watched the building rise for the past two years, "I'm real excited about making the move," she said.
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