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This article was originally published on Monday, April 27, 2015.
The City of San Antonio, Weston Urban, and Frost Bank have reached a far-reaching development agreement after months of study and negotiation that will give the San Antonio skyline its first new office tower in more than 25 years and set in motion the biggest real estate play in the central business district in decades.
The public-private partnership deal will keep Frost Bank, founded on Main Plaza nearly 150 years ago, anchored downtown in a distinctive new headquarters tower to be built on the site of its motor bank, and allow the City to consolidate 1,200 civilian employees working in eight different locations into the existing Frost Bank Tower, completed in 1975, which will undergo $30 million in upgrades and get a new name once it becomes city property.
At least 265 new residential units will be built by Weston Urban in new and existing buildings as part of the complicated property sales and swaps among the three entities. That number seems conservative, given Weston Urban’s development plan.
“This is a big deal, and not just a big deal, it’s a great deal for downtown and for San Antonio,” City Manager Sheryl Sculley said. “This will not cost the city budget any funds, in fact it will be net positive.”
Announcement of the long-anticipated deal was made at a Monday morning press conference attended by Graham Weston, Frost Bank Chairman and CEO Dick Evans, Mayor Ivy Taylor, City Manager Sculley and others on the three teams involved in making the deal happen. Weston, chairman and co-founder of Rackspace, also is chairman of Weston Urban, a real estate development and investment firm. He is, more than any other individual, the catalyst behind the deal, one that represents the culmination of years of effort on his part to revitalize the western downtown reaches of the city. Weston attended Monday’s press conference alongside Weston Urban CEO Randy Smith, who is overseeing the tower project and other property acquisitions, and David Barnett, who Weston said “was the person who brought the crazy idea to me in the first place.”
“What a great day for San Antonio and for our downtown,” Mayor Taylor said at the start of the press conference. “For almost a year now we’ve been working hard to bring about a project that will boost our downtown and change our city for the better, a project that addresses so many of the basics that need to be in place to have a flourishing and vibrant downtown as an anchor for our flourishing and vibrant city.
“As mayor, I couldn’t be more thrilled about this Public Private Partnership with Weston Urban and Frost,” she added. “In addition to providing valuable downtown housing, it will enable the City to consolidate operations into City-owned buildings downtown. The economic impact is huge – in addition to the new tower and housing, it will provide much needed retail opportunities along our two major retail corridors, West Commerce and Houston streets.”
Smith said he anticipated City Council approval of the deal on June 4 following a May 28 public hearing, and that it will then take one year to design the new office tower and another 30 months to construct it, suggesting the new Frost Tower will open in early 2019.
“So that’s three and half years from a Council vote to a finished tower. That would be the first of the dominoes to fall. Once Frost Bank moves out, the City can start its renovations,” Smith said.
Speaking of the new Frost Tower still in the conceptual stage, he said, “We all want this building to be something San Antonians are proud of and that redefines our skyline.” He said a local design firm will work with a second firm with a record of tower design that has not been selected.
Weston said the building will change the downtown skyline.
“Frost Bank cares a lot about what the building is going to look like, too,” Weston said Monday. “We are going to run a design competition among the most prominent architects in the world, and I think you’re going to see a really exciting shape to this building, one that you’re not going to forget. The design competition is going to begin in the next month or two, and I don’t know how long it will take to get the final image of the building, but I’m confident it will be something all of us are proud of.
“We certainly hope it will be the tallest (office) building in town,” Weston added.
Evans said Frost Bank doesn’t care if it is the tallest.
“I just want to remind you: Our building in Austin is not the tallest building in Austin, but it is the most recognized,” he said.
Weston also thanked Mayor Taylor and City Council for moving on the proposal.
“Mayor, let me say thank you for not punting this off to the next Council, which would have been an easy thing to do,” Weston said.
As he discussed the Weston Urban vision for activating street life along multiple downtown blocks affected by the P3 agreement and bringing new retail to Houston, Commerce and Flores streets, Smith said he couldn’t predict how many stories the new tower will stand, only that it would have at least 400,000 sq. ft. of office space and that Frost Bank will occupy 250,000 sq. ft., leaving 150,000 sq. ft. of new Class A office space for other entities. It also will have it own parking garage.
“Everyone focuses on the top of the building, but I think it’s just as important how the first 30 feet engages the community, how the building looks from the street,” Smith said.
The Rivard Report will update this story with press conference coverage later today.
Frost Bank Headquarters to Stay in Downtown San Antonio
“Frost Bank was started nearly 150 years ago on Main Plaza, so we have been an integral part of downtown San Antonio for a long time,” said Evans, who has worked for Frost Bank for 44 years. “We are grateful to have the opportunity to participate in the public-private partnership. I am really excited for San Antonio getting a new, iconic downtown office tower that allows us to keep our company downtown.
“I can’t say enough about my friend Graham Weston and his leadership and vision, doing the new tower, doing all the residential, and with the other properties he has acquired, there’s no telling what else he will do,” Evans said. “It’s a win-win-win for the City, for Frost Bank, for Weston Urban, and for all of San Antonio. The city needs this, it’s going to spur all kinds of things. Others will want to come to San Antonio and jump on the bandwagon. I’ll be glad when people don’t think we are headquartered in Austin, because everybody knows that building.”
For Mayor Taylor and City Councilmember Roberto Treviño (D1), whose district includes downtown and who attended the press conference, news of the deal breaks on the same day early voting begins for the May 9 City Election. It’s bound to provide both candidates with a boost.
“This project will continue the momentum downtown,” Treviño said, adding that he looks forward as an architect to working the tower development team and the Historic Design and Review Commission, which will play an oversight role in approving a final design.
This is the first so-called P3 proposal initiated by the private sector since the Texas Legislature passed a bill in 2013 enabling cities and private developers to accelerate urban renewal projects through so-called public-private partnerships. The City of San Antonio has initiated several P3 proposals, notably at the Red Berry Estate on the city’s Eastside and at Hemisfair Park, but nothing remotely of this scope.
“This project will continue the incredible momentum we are experiencing in downtown San Antonio,” Weston said. “When complete, this will be the first office tower built downtown in three decades. Its proximity to the San Pedro Creek Improvements Project makes it an extremely desirable location. While the tower will forever change our city’s skyline, we’re equally excited about the proposal on the whole and creating unique housing options in the core. ”
His family owns the Weston Centre, the last Class A office tower built in the city, which opened in 1989.
The transaction, in its scope and complexity, is unprecedented. Weston Urban and Frost Bank approached the city with the unsolicited P3 proposal in June 2014, and submitted a formal proposal in August. Smith said the total investment by the three parties could exceed the $325 million project to expand and modernize the Henry B. Gonzalez Convention Center now under construction.
- The City will sell the Municipal Plaza Building at 114 W. Commerce St., the now-vacant San Fernando Gym at 319 W. Travis St., and a parking lot at 403 N. Flores St. to Weston Urban to “facilitate the creation of 265 new housing units downtown.” 65 of those units will be in the Municipal Plaza Building on Main Plaza and are expected to attract substantial interest either as rentals or condos for sale.
“It’s hard for us to look forward to 2019 and know what the market wants,” Smith said, noting that Weston Urban would plan for rental apartments, but be prepared to convert to condo sales if market demand warrants it.
The City will continue to own and use its public meeting rooms on the ground floor of the Municipal Plaza Building for weekly City Council meetings and other assemblies.
One interesting aspect of the final agreement is the way the coming redevelopment of San Pedro Creek through downtown is affecting both views and values of long-ignored or under-utilized real estate along its path.
The original P3 proposal from Weston Urban called for the City to include in the sale the historic Continental Hotel, which is in bad need of renovation and now houses the City’s Metro Health Department, at 322 W. Commerce St. That property was removed from the transaction when the parties were unable to agree upon a sales price. Its value, Center City Development Office Director Lori Houston said, will be enhanced significantly by the multi-million dollar bond-funded work along the Commerce Street Corridor, as well as the San Pedro Creek Improvement Project.
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“The original plan was for Weston Urban to build 35 units, but we think we can do more,” Houston said. “With the San Pedro Creek Project, it should be worth more.”
The City will issue its own request for proposals when Metro Health is ready to move into the renovated Frost Bank Tower several years from now, Houston said.
- Frost will sell its existing office tower and its 732-space parking garage to the City for $51 million, three million less than it asked for in the original proposal. The City will finance the sale and improvements by issuing debt that will be serviced with the annual rental savings of $3.5 million it now pays to house staff in other locations. The City will occupy 12 floors of the building and lease out the remaining six floors.
- Weston Urban will construct and own the new office tower with Frost Bank as the named tenant, to be built on the site of the Frost Motor Bank and a parking lot at the corner of North Flores and East Houston streets.
The City’s Financials
Even without the proceeds from the eventual sale of the Continental Hotel, the City’s 30-year cash flow analysis shows it acquiring and upgrading the existing Frost Bank Tower for less money than it now spends to house the 1,200 civilian employees that will office there. The City employs 8,000 civilian workers in total, many of whom work at remote sites, such as solid waste, parks and recreation, and in development services. It also employs about 4,000 uniformed police and firefighters unaffected by the P3 deal.
Weston Urban’s purchase of the three City properties will yield $6.4 million in sales revenue and the City will eliminate $3.5 in annual lease payments. Tenants for the six available floors, and parking garage revenue at night and on weekends, will add additional revenue.
Finally, the City stands to benefit from the ad valorem taxes on the new office tower, which Smith estimated will cost $100 million-plus. The current Frost Bank Tower is on the tax rolls for only $30 million.
A Rejected P3 Proposal
Houston said the City rejected a second P3 proposal made in late October, just an hour before the deadline for other parties to offer counter-bids to the Weston Urban/Frost Bank proposal. Primera Partners, the San Antonio-based owners of the 20-story Riverview Towers at 111 Soledad St., proposed selling the building to the City, currently the building’s principal tenant.
“We turned it down: One, the tower is 248,000 sq. ft. and we need 350,000 sq. ft., so we couldn’t consolidate in that building, and there isn’t any parking,” Houston said.
“Plus it wouldn’t have kept Frost Bank downtown,” Sculley added.
Frost Bank Properties Acquired by Weston Urban
Weston Urban also will acquire the vacant square block of green space one block north of the current Frost Bank, unused property that Weston Urban will activate as a park open to the public and available for private events once the new office tower is completed.
Weston Urban also consolidates another entire square block farther north along the future San Pedro Creek by adding to its 2013 purchase of the S.X. Callahan Building at 425 N. Flores St., a onetime auto service center, by acquiring both City and Frost Bank parking lots in a block bounded by Cameron Street to the west, West Martin Street to the north, and North Flores Street to the east.
Smith said Weston Urban would eventually develop the site as a multi-family apartment project.
*Featured/top image: The Frost Bank Building (right). Photo by Scott Ball.