City Council on Wednesday heard details of a proposed new agreement between local developer Zachry Hospitality and the Hemisfair Park Area Redevelopment Corporation (HPARC) that would put the long-delayed mixed-use development in the northwest corner of Hemisfair back on track.
Under the agreement, the planned office space at Hemisfair would be replaced by more apartments and Zachry’s estimated investment in the public-private partnership project would increase from $200 million to $340 million. The higher price tag is due to inflation and additional parking.
The project’s completion date, originally set for 2021, also would be extended to 2025 when San Antonio is scheduled to host the NCAA men’s basketball Final Four at the Alamodome in April. The goal is to have the park open and available for events during the tournament.
The development sublease agreement eliminates the proposed 69,000 to 110,000 square feet of leasable office space within the 5-acre development and increases the number of residential units from 385 to 525. The 200-room hotel remains part of the overall picture.
City Council likely will vote on the matter at its April 7 meeting. Under the master lease agreement between the Hemisfair public facility corporation and HPARC, City Council must approve all development agreements for public-private partnership projects within Hemisfair.
City Council members were generally supportive of the new deal after they heard city staff’s presentation.
“I do think that the changes in the interim have been productive [and] good changes for the overall project,” Mayor Ron Nirenberg said. “Time has proven valuable for us in that respect.”
Councilman Mario Bravo (D1) said he’ll vote in favor of the new deal. While it increases housing and parking, “it reduces the number of parking units per housing unit and that’s the direction that we need to be going in.”
In 2016, Hemisfair officials selected a joint proposal by Zachry Hospitality and housing developer the NRP Group for a mixed-use development made up of office, residential and parking structures, and a boutique hotel in the northwest quadrant of Hemisfair. After City Council approved the deal in 2017, the project was set to break ground in 2018.
As originally proposed, the joint project included market-rate and affordable housing, office space, retail, hotel and a parking garage.
But NRP later dropped out of the project and the city asked Zachry to postpone construction until after the 2018 NCAA Men’s Final Four and the city’s tricentennial celebrations in May 2018.
The start of the pandemic in 2020 further delayed Zachry’s plans. With decreased demand for commercial office space in the last two years, Zachry and the city sought to revise the agreement.
“We put everything on pause,” said Assistant City Manager Lori Houston, including Zachry’s lease payments which were earmarked for Civic Park.
Recently, Hemisfair officials moved ahead with plans for Civic Park, a “great lawn” addition in the northwest part of Hemisfair, separating the project into two phases and breaking ground in January. The cost for phase one is supported through private donations and Hemisfair’s ground leases.
The original agreement with Zachry required the developer to make lease payments that would support debt service on phase one of the park. But due to the delays and missed rent payments, HPARC could not make the debt service payments.
The new agreement allows HPARC to defer payment to the city through 2029 with the understanding that it will reimburse the city with interest.
The city also has agreed to rebate all state hotel occupancy sales taxes to HPARC, which will in turn rebate the taxes to Zachry to help offset parking costs and other public improvements at Hemisfair. The city will still collect all San Antonio hotel occupancy taxes and city sales taxes.
Another major change to the agreement is how the parking garage will be financed. In 2017, the city committed to funding and operating a parking garage in Civic Park, with the $59.5 million cost coming from the city’s parking enterprise fund, which was drawn heavily upon during the pandemic when city garages went unused.
Instead, the amended agreement has the garage privately funded and operated, and the city will pledge $8 million in Hemisfair Tax Increment Reinvestment Zone money to pay for the utilities needed for the South Alamo Street and Civic Park improvements.
With added residential planned for the development, there’s also an increase in the number of affordable units that will be offered, from 38 to 87. Over half of those will be offered to residents who earn 65% of the Area Median Income and the rest who earn 80% of the AMI.
The developers will receive city and San Antonio Water System fee waivers only for those units, not the entire housing project as the agreement previously stated. The housing developers are Area Real Estate and Austin-based Johnson Trube.
Councilman John Courage (D9) asked why a new project bidding process wasn’t initiated once it became clear that the original deal wouldn’t work out.
The new deal is “in line with how Zachry was selected,” Houston said. “Zachry was scored based on their proposed concept and the proposed financial terms they will provide to HPARC and the amount of city incentives that the city needs to provide. … It is not in violation of the original solicitation.”
Another reason, she said, is timing. “We are trying to make sure that we can meet the timeline … for Final Four.”
The city and Zachry are still working on finalizing a parking plan for visitors and residents, Houston said. That plan may include shared parking, she said. “As people live in these units, they’re going to leave for work, and then there’ll be availability for daytime parkers.”
“People living in this area with disposable income, they bring on more retail opportunities,” she added. “[This project is] going to be one of the largest economic generators we have in downtown San Antonio.”
Iris Dimmick contributed reporting to this story.
