When Vancouver-based developer Intracorp came to Austin, it did not start with a baby step.
Instead, it launched 44 East, a 50-story condo development in the Rainey Street District. Intracorp took several risks with the project: it was surrounded by similar luxury towers, located in the city’s fastest-developing neighborhood. It was also selling condos, while the vast majority of Austin’s for-sale residences were single-family homes.
The risks paid off. 44 East sold out, and Intracorp has since spread out to condominium projects, including One Oak at 2209 South 1st Street and Congress Lofts at St. Elmo at 4315 South Congress Avenue. Its latest project, Leland South Congress, is looking to ride the wave of another fast-developing Austin neighborhood and push the city’s center of gravity farther south.
Brad Stein, the company’s Texas president, has led its growth into Texas since the start. Seated in his office at 515 Congress in downtown Austin, Stein does not project the bluster or braggadocio of many big-city developers. He has a lawyerly calm, animating more when talking about development policy than sales stats. He has a hard stop to pick up his daughter from a guitar lesson.
As Intracorp prepares its latest condo development, it is facing an uncertain time in Austin’s housing market, and by extension its future. The population boom, rent growth and job dynamism that have fueled Austin’s explosive growth story have slowed in recent months. Stein offered his thoughts on how those changes will shake out, as well as the risks of development and how the city can encourage density.
This conversation has been edited for length and clarity.
Austin’s city council recently passed a series of reforms to encourage denser development and speed up projects. What has changed, from a developer’s point of view, at city hall?
With this current city council, we’re seeing a lot of votes go 10 to two, where two years ago it was six to five. So there definitely seems to be the political will by a supermajority of the council to put in pro-housing policies. The city council understands that we have a housing crisis, and that we have to do something about it. But we need to be responsible about it. How do we deal with affordability? How do we deal with transportation? How do we deal with parkland? We can’t just say, “No, we’re not going to let development happen,” but we also need to think about these things.
[The new zoning classification] DB90 is something we took advantage of on Leland South Congress, which received zoning approval last week. The city lost multiple lawsuits on [another zoning classification] VMU, and when they lost the last lawsuit in December, they implemented DB90 within 60 days. That was enacted in February, and we received our final zoning approval in March. So we got through a zoning case in three months. I really applaud the city for that.
That’s really impactful for us as a developer — think about our investors. We purchased this land and said, “Okay, this is VMU2, so we can go 90 feet.” Then there’s a lawsuit, and the city loses, so our investors wonder, what now?
That was an argument that we made to the city council: If you want to see people invest in this community, they have to know that the rules that you make are going to be adhered to.
Austin residential rents have fallen the most of any city in the country, in part due to a relative supply boom. Does that worry you at all as a condo developer?
If you look at the cranes in the sky, each one of these new projects has a rental component. That’s a lot of rental units that are going to be delivered to the market in a short period of time, on top of a number of rentals that were delivered to this market over the last two years. We’re still seeing population growth — though we might be back to our 2019 numbers, and not in the hyper mode that we were in 2021 and 2022. It’s possible that you could say this market is oversupplied, and you’re seeing the impact of that, in rent concessions or stagnant rent growth. But I think that’s short term, you don’t see a ton of new apartment projects that are getting financed right now.
They’re not getting financed right now based on a combination of things. Interest rates in the capital markets are a factor, but also people believing a perception that there’s an oversupply in the Austin market. It’s going to take probably two, maybe three, years to work through and absorb that supply. But if we continue our trends of population growth, then we’re still under-supplied over a 10-year period.
The recent supply boom has also spooked lenders. How have you been able to get deals across the finish line with the slowdown in capital markets?
Lenders are definitely tapping the brakes on rental deals. Still, we’re seeing lenders on the for-sale side. Early this year, we were starting to get phone calls asking what we have. We weren’t getting those phone calls with lenders being proactive in 2023.
Now, the terms might have changed from some years ago. The interest rate might be higher; the fees might be higher; they might be asking for things like a minimum multiple that they weren’t before. The equity side has been the biggest challenge. On the rental side, the equity has largely dried up, or is asking for a really high development yield going in. People aren’t able to get their deals to underwrite for equity.
On the condo side, we have found that private equity is sitting on the sidelines, but the family offices and the high net worth individuals are still seeing opportunities to invest. For Leland, we’ve completed our capital stack. We have a collection of family offices on the equity side, and we have [Michael Dell’s] MSD on the debt side. They were also the lender in 44 East, so having that previous relationship with them has been strong.
44 East was a big first step to take in a market. Were you or Intracorp brass worried about that?
Shortly after I started with Intracorp, we had 44 East under contract, and we hit the ground running. And I really credit [Intracorp founder] Joe Houssian and [CEO] Don Forsgren because, unlike a lot of companies that want to come into Austin from out of state, they thought it was really important to have somebody local. By 2018, I had lived here for 16 years. Now, I’ve lived here for over 20 years.
Some people start with a small project, like “We’re going to dip our toe in the water to see.” They went with a 50-story high rise. I threw a lot of outside-of-the-box ideas at them, and they were embracing those ideas.
Everybody knew that 44 East was a really good site. Intracorp comes from Vancouver, where you’re very attached to the water. And 44 East was a waterfront site. Then we assembled the site next to it.
We kicked that project off in 2018, so we would meet in a conference room, in-person, weekly. The level of engagement and collaboration, where there were probably 30 people in that room, was crucial. That shifted in 2020. You can still work effectively without sitting in the room, but I think that having that at the beginning of the project definitely benefited us.
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You also developed Congress Lofts at St. Elmo. That neighborhood is still under development. What do you make of its growth and future?
The growth in that neighborhood is organic. I give a lot of credit to [Veloway Threads co-founder] Adam Zimmerman, and the folks who put the Yard together, because they saw this opportunity.
A lot of other downtowns have great old brick buildings that used to be industrial buildings. In Austin, we don’t have that. So this was our industrial area that was really well-suited for adaptive reuse. They did great placemaking there with the Yard and what they had to work with. But also, if you think of the location, it’s on South Congress and it’s really close to downtown. On its own, it’s a really good infill urban location, but when you add the placemaking that they’ve done at the Yard, and now with the Yard 2.0, there’s going to be a whole bunch of new stuff there — some announced, some not announced. There’s this critical mass happening. If you’re young, and you want to live in a really dynamic pocket, that’s what it feels like.