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HealthSouth redevelopment stalls over affordable apartments proposed

Friday, June 30, 2023 by Chad Swiatecki

The redevelopment of the former HealthSouth hospital property downtown appears to be at a standstill, with the Economic Development Department recommending the termination of a negotiating agreement with the Aspen Heights Partners development group.

In a memo published Wednesday, Assistant City Manager Veronica Briseño informed City Council and Mayor Kirk Watson that Aspen Heights feels the term sheet for the redevelopment is no longer realistic due to current market conditions. She said the company would likely only offer 65 affordable apartments on the site – out of 921 total units – rather than the 230 specified by Council last year.

The memo also noted, “Due to the significant value the downtown HealthSouth property can offer to the Austin community, staff will reassess its redevelopment strategy to ensure the Mayor and City Council priorities and community benefits are maximized and delivered swiftly.”

Last summer, there were indications that the number of affordable units on the site might fall short of the city’s goals. The project was also designated to include a substantial child care facility and a live music venue with a 10-year lease and another 10-year option at a rental rate of 60 percent of market levels.

Some Council members, including former District 9 representative Kathie Tovo, said last summer that Aspen Heights’ inability to deliver a financially feasible mixed-use project on prime downtown property indicated the company wasn’t aligned with the city’s priorities regarding affordable housing and other community benefits.

Tovo said at the time that putting the project into the hands of the Austin Housing Finance Corporation and the Austin Economic Development Corporation would likely result in a finished development that meets affordability and other goals.

Council members Zo Qadri and Natasha Harper-Madison were unavailable for comment about the memo on Thursday.

In a joint posting on the City Council Message Board, they wrote that the Economic Development Department likely is moving too quickly in its decision not to extend the negotiation agreement with Aspen Heights, which was set to expire on Thursday after a series of extensions.

The post claimed that the department had failed to deliver updates on the negotiations with Aspen Heights in recent months, despite Council requests to do so. It also suggested the matter be taken up during the executive session at Council’s July 18 meeting, so the term sheet and other matters can be discussed as substantially as possible.

“This will allow staff to provide a comprehensive briefing to Council, shedding light on the situation and enabling Council, including the four new members who weren’t on the dais during last year’s deliberations, to provide valuable input on how to move forward. We believe this is a reasonable step to uphold the principles of openness, accountability, and collaboration that are essential to serving the best interests of our constituents and the Austin community as a whole,” the post read.

Tovo on Thursday told the Austin Monitor that the desirability for downtown real estate and the favorability of the Austin market as a whole suggests Aspen Heights is a poor fit for the redevelopment, which initially kicked off in 2018.

“I and others asked some pretty hard questions of them, making sure that they were prepared to proceed with the project. And so it’s extremely disappointing to be a year later, a year down the road,” said Tovo, who was term-limited and did not seek reelection last year for the seat won by Qadri. “To be in this very same position we were in last year, where the staff said they recommended to the City Council that we do not extend the (exclusive negotiating agreement) further and that we instead look into doing the project as a partnership between the Austin Housing Finance Corporation and the new Economic Development Corporation, that we would very likely get more affordable units and a higher level of affordability if we pursued it that way.”

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