Development Trends Expect to Shape San Antonio Core

SAN ANTONIO—For the past 10 years, San Antonio has experienced a high level of growth and revitalization in its downtown and surrounding areas, due in part to private investment along key arterials, such as Broadway and Houston Street, and municipal policies strategically aimed at revamping downtown, particularly urban housing. These efforts have moved San Antonio’s downtown beyond its prior tourist-centric existence, according to Smita Bhakta, partner at Kruger Carson PLLC.

As the so-called decade of downtown draws to a close, there are some trends affecting commercial real estate development that will continue to shape the urban core of the city, Bhakta observes in this exclusive.

The adoption of the Midtown Area Regional Center Plan: The city recently approved an ordinance to adopt a new plan as part of the city’s comprehensive master plan which would serve as a guiding document in the redevelopment of the area north of downtown, including portions of North Broadway and areas close to downtown along Interstate 10, Interstate 35 and Highway 281.

“The plan focuses on high-density mixed-use development in this portion of the city, while conversely seeking to preserve the area’s distinct character,” Bhakta tells GlobeSt.com. “The plan aims to encourage walkable, transit-connected live, work, play developments in the area, which is not out of step with the current trend of development in this part of the city.”

The growing influence of the Historic and Design Review Commission: Downtown San Antonio has historical and cultural significance dating back centuries. During the past decade, not only the development of the remaining downtown vacant tracts and the redevelopment of numerous blighted properties, but the redevelopment and adaptive reuse of many buildings—in some cases historic buildings—has taken place.

“This trend is likely to continue, giving the Historic and Design Review Commission’s greater role and responsibility to work with developers to actually facilitate the redevelopment of blighted properties that are old but not historic, while protecting buildings of truly historic value,” Bhakta predicts.

Changing developmental incentives: The past decade’s municipal policies aimed at incentivizing downtown development clearly worked—albeit with the unintended consequence of fueling the growth of more luxury condos and apartments than expected. In light of the city’s growing affordable housing problem, the city has recently sought to recalibrate those incentives.

“The new Center City Housing Incentive Policy aims to incentivize affordable housing, which is clearly a laudable goal, and this a necessary step given the need for more affordable housing,” Bhakta observes. “It may, however, result in less money in the city’s overall budget for incentivizing other forms of development, including those commercial developments necessary to attract and retain businesses that create jobs, fuel the economy and in turn attract a young, educated workforce that wants to live, work, play in the urban core.”

Growing gentrification concerns: San Antonio’s success in its urban revitalization efforts is, however, increasing the tax burden on residents as property values continue to rise. The revitalization efforts are also fueling concerns about the gentrification of neighborhoods close to downtown. San Antonio, like most of Texas’ major metropolitan areas, is a growing city that is expected to continue to grow for the next decade.

“Development in these areas is only projected to continue, and in turn, this conflict over gentrification is only going to worsen,” Bhakta forecasts. “Moreover, many of the tools traditionally used by neighborhoods to fight gentrification will conflict with the city’s policy goals of increasing affordable housing, and it is unclear what balance will be struck regarding these conflicts.”

Opportunity Zone uncertainty: San Antonio is a city with deep, historical, economic segregation of its neighborhoods. The San Antonio metro designated 24 areas as opportunity zones under the new federal tax laws. Some of these opportunity zones cover areas in and around downtown that are already ripe for redevelopment.

“There has been some clarification in how these opportunity zones can be utilized and how to qualify for them to allow developers to utilize the tax incentives of opportunity zones to invest in these underserved areas,” Bhakta shares. “However, there is still some uncertainty on the back end of the deal and how to properly plan for assets that may need to be recapitalized later during the life of the opportunity zone fund.”

In the end, the city’s shifting priorities for developmental incentives, the growing concerns about gentrification, and the increased Historic and Design Review Commission oversight of development projects are all likely to make development take longer and cost more in the next decade than the last, Bhakta predicts. That said, the trend for continued growth and development in downtown and surrounding areas is expected to continue, especially if developers are able to find ways to utilize opportunity zones and are able to successfully navigate the changing city priorities to deliver mixed-use real estate projects with a mix of market rate and affordable housing.