AUSTIN, Texas — Plans to revamp the HealthSouth property in Downtown Austin have officially been put to a halt after officials with the City of Austin's Economic Development Department terminated the City's contract with the Aspen Heights Partners development company.
In a memo from Assistant City Manager Veronica Briseño to Mayor Kirk Watson and city council members, Briseño pointed to concerns from Aspen Heights over market conditions as one of the reasons for terminating the deal.
The other issues stemmed from the developer wanting to convert only 7% of the buildings into affordable housing instead of the 25% that was originally agreed upon.
The property has sat vacant as the City has attempted and pushed its redevelopment for nearly six years. The intended goal was to transform the property into two mixed-use towers for apartments, child care and affordable housing units in an area considered prime real estate.
The move was called "premature" by councilmembers Zo Qadri (District 9) and Natasha Madison-Harper (District 1) in a shared statement on the council's message board. The two called for an executive session to take up the issue during the council's work session on July 18 in an effort to salvage the contract and figure out why it fell apart.
"This will allow staff to provide a comprehensive briefing to Council, shedding light on the situation and enabling Council, including the four new members who weren’t on the dais during last year’s deliberations, to provide valuable input on how to move forward," the joint message from Qadri and Harper-Madison said.
However, according to City officials, there has been no response and the deal with Aspen Heights is dead.
KVUE asked the City on Friday about the request for an executive session or discussion. In a response on Monday, the City said City Council "may go into a closed session."
"For next steps, staff will reassess City priorities and conduct additional market analysis to maximize community benefits based on current market conditions," a City of Austin spokesperson told KVUE. "Staff will report back to Council within 60 days on recommendations for an expeditious process for redevelopment. Should the City choose to re-issue a competitive solicitation, the City welcomes Aspen Heights to submit a proposal responsive to that new solicitation."
Qadri and Harper-Madison also pointed to the council meeting on Sept. 29, 2022 – when the plan was approved under then-Mayor Steve Adler – and the city council had agreed to provide monthly updates with the progress of the project.
According to Qadri and Harper-Madison, the City failed to provide the desired check-ins.
Qadri wasn't available for an interview Friday, and KVUE was directed to the message board when asked for a comment from Harper-Madison.
KVUE reached out to City staff on Friday to get more clarification about the decision made over the market. An official with the Economic Development Department responded:
"The developer has recently indicated that the Term Sheet approved by Council is no longer financially feasible due to market conditions. The affordable housing reduction was one salient example. In addition to affordable housing reduction, the revised proposal changed the term of a ground lease in a way that could result in a lease term longer than 100 years, which the City will not accept. The developer proposals from May 31 and June 21 differ from the Term Sheet approved by Council on September 29, 2022, with significant increases in project density and complexity."
When asked why the City decided to end the contract – and if there was any chance of saving it – KVUE received this response:
"The decision was made this week based on the negotiating team’s recommendation after consulting with City Management."
The City of Austin said the ENA had been extended six times in order to give the City and Aspen Heights time to agree to a master development agreement.
"When it was clear that Aspen Heights could not agree to a project that conformed to the Council’s approved BAFO term sheet, there was no longer a need to extend the ENA," the City said.
KVUE obtained a letter from Aspen Heights, dated June 29, which goes into detail about the agreement made at the September 2022 meeting and how the City failed to meet its responsibilities and refused to bring negotiations to the table. You can read the full letter here.
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