Redevelopment of a 67-acre parcel of land formerly home to Rackspace Technology could begin as soon as January 2024, overhauling the former shopping mall into an industrial space with eight to 10 tenants.
Ohio-based Industrial Commercial Properties (ICP), which specializes in such projects, is expected to close on the property Dec. 15.
Speaking to the Bexar County Commissioners Court Tuesday, ICP Executive Vice President Keith Brandt laid out ambitious plans for a $40 million renovation with new facades, green space and redeveloped parking lots in the former location of the “Castle,” which by 2022 housed virtually no employees due to downsizing and the pandemic-induced remote work.
ICB specializes in these kinds of conversions and has 150 properties across the country, with tenants ranging from Fortune 50 companies to startups.
Brandt suggested the Rackspace building, once an old shopping mall, could look similar to the former American Greetings headquarters space in Brooklyn, Ohio, which ICB subdivided in 2015 to house industrial tenants and large office users.
“Activity breeds activity,” Brandt said of the Ohio property. “Once we completed the 13 tenants, we landed an Amazon about a year and a half later.”
ICP is “bullish” on the Rackspace property, located along Interstate 35 in an area annexed by a small nearby bedroom community, Brandt said. A rendering of what it could look like after another redevelopment shows new trees and facades over what was once a Dillard’s and JC Penney.
“One of the strongest spots on this whole site is a former Montgomery Ward, that has not been touched since 2006,” Brandt said. “That will be one of the first spots that we’re going to redo because that’s going to send a message to the entire marketplace because of the visibility right off [Interstate] 35.”
When Rackspace took over the complex in 2018, it built up roughly 750,000 square feet of the complex’s total 1.2 million square feet. Much of that space was hardly ever touched, Brandt said.
Tenants would move into the space gradually as sections of the redevelopment are complete. Construction would be completed by 2026, but tenants could likely begin moving in as soon as 2025, he said.
“I believe that what you’ll see when they transform this area… will be a diverse kind of jobs that will be a better fit for the area around us,” Windcrest Mayor Dan Reese said at the Commissioners Court meeting.
A tough gap to fill
The City of Windcrest and Bexar County’s main objective is generating the kind of tax revenue needed to make up for the loss of the San Antonio-founded tech company Rackspace.
Rackspace announced Oct. 21, 2022 that it planned to relocate from its home of 14 years to smaller office space on the far North Side.
Property tax was almost entirely forgone as part of Rackspace’s deal to come into the Windcrest location in 2007, but sales tax revenue generated by Rackspace being in that location contributed roughly $1 million of Windcrest’s $10 million city budget, the mayor explained.
“The movement of Rackspace out of the City of Windcrest and into the City of San Antonio has created quite an issue for us,” Reese said.
To incentivize the redevelopment, the City of Windcrest, county entities and the Northeast Independent School District will give the ICP development tax incentives valued between $5.6 million and almost $7 million over a seven-year period.
Local officials are celebrating the deal as a win to avoid blight setting in at a major property, but they cautioned that it’s too soon to know how much return taxpayers can expect on their investment.
“In seven years it’ll become fully taxable for all the agencies,” said Bexar County’s executive director of Economic and Community Development David Marquez. “At that time, [it will be] appraised, we’ll know clearly then what our taxes will be.”
While vacant, “it’s an underutilized asset,” Marquez said, which makes estimating its worth challenging. “It will be valued in the future based on what goes in there.”
Rackspace has agreed to repay $9 million in tax breaks to various taxing entities it was promised for ending its agreement early, according to the 2007 agreement it made with the city that runs through 2037.
Of that, $2.5 million will go to Bexar County, which agreed Tuesday to reinvest that money into ICP’s redevelopment project through the Windcrest Economic Development Corporation.
At a Nov. 6 meeting of the Windcrest Economic Development Corporation, Chairwoman Jennifer Newman said if the City of Windcrest does not get involved in the purchase of the property, it could sit vacant — creating a security threat and an eyesore.
“And then we have to try to do a successful deal after a failed deal,” Newman said.
The same day, the Windcrest city council approved a new incentive agreement with ICP that keeps the property off the tax rolls for seven years. The city will collect sales tax that comes from the property and ICP will pay $100,000 a year to NEISD for seven years in lieu of taxes.
“We’re not giving away the farm here,” Newman said. “But we are incentivizing a project to get what we want, at a very, very critical time, and a very critical piece, the most critical piece of commercial real estate in the city.”
