Legal and Economic Updates Impacting CRE and Construction in Central Texas

by James Hicks

November 16, 2023

Griffith Davison, P.C. recently attended the 2023 Land Development Seminar organized by the Austin Bar Association’s Real Estate Section for critical legal and economic updates affecting real-estate developers and construction professionals in Central Texas.

Technical Advisory Review Panel (TARP): The Austin City Council directed the City Manager’s Office to establish a TARP, composed of City staff and industry professionals, to improve the City’s technical criteria manuals and the process for adopting and amending rules. The TARP is expected to reduce the excessive number of new rules coming up to the City Council for adoption.

Site Plan Lite: The City Council exempted up to four unit developments from the time-consuming site plan review process and has directed the City Manager to create a streamlined review process for 5-16 unit developments. Relatedly, McKinsey Consulting recommended 44 initiatives to speed up the City’s regular site plan review process (which currently takes more than a year for 78% of applications).

Home Options for Middle-income Empowerment (HOME): In December, the Austin City Council is expected to vote on the pro-housing HOME revisions to the Land Development Code to increase flexibility with respect to minimum lot size, setbacks, height restrictions, floor-to-area ratios, impervious cover limits, and occupancy limits.

Texas Regulatory Consistency Act a/k/a Death Star Bill: A new state law, HB 2127, broadly prohibits local governments from regulating agriculture, occupations, labor, finance, natural resources, property, business, or insurance. The Austin Court of Appeals will soon decide whether the law is constitutional.

Right-to-Farm Act Amendment: HB 1750 prohibits cities from regulating agricultural operations unless the regulation (1) uses the least restrictive means, and (2) is necessary to protect persons from imminent danger.

Dis-annexation Bills: HB 3053 requires cities to conduct a dis-annexation election in any area unilaterally annexed in 2015-2017. The City of Grand Prairie has challenged SB 2038, which allows landowners to petition for release from a city’s extraterritorial jurisdiction (“ETJ”).

Platting Shot Clock Amendments: HB 3699 amends the Local Government Code to allow cities to delegate plat approval to city staff, with appeal right to city council, require cities to publish a complete list of all requirements for a plat application, and prohibit cities from requiring a dedication of a future street unless it is included, funded, and approved in a city or county capital improvement plan. HB 14 allows third-party review/inspection if a city does not complete review/inspection within 15 days of a statutory deadline.

Nonconforming Use Compensation: if a city shutters a nonconforming use, such as a short-term rental, SB 929 requires the city to notify the landowner of its remedies and (1) pay the costs of stopping the use and the loss of property value, or (2) allow the use long enough for the owner to recoup that amount.

Parkland Dedication Limits: HB 1526 caps required parkland dedication at 10% of property area and caps fees in lieu of dedication based on the type of property (urban, suburban, central business district), and further requires cities to respond to requests for dedication determinations within 30 days.

Texas Water Fund: SJR 75/Proposition 6 amends the Texas Constitution to create a water fund to assist in financing water infrastructure projects in the state through grants or low-interest loans.

Developers Pinched: Market factors—including rising interest rates and construction costs, water supply issues, flagging lot supply hampered by pandemic-era investors who bought land at $3 per square foot and refuse to sell at $2 per square foot, and too many multifamily units in the pipeline—have made it hard for real-estate investors and lenders to find attractive deals.

CRE Capital Markets Recovery? Transactions volume is down precipitously amid higher borrowing costs and an uptick in capitalization rates, but CRE loan maturities may catalyze activity. Institutional investors’ target allocations to CRE continue to increase; and a surge in private wealth globally means there is capital for future investment. A recovery will likely require Fed to signal we have reached peak interest rates, stability in ten-year US treasury bonds, recession risk premium not worsening, increased appetite for larger-scale activity, and more returns to office.

Revitalizing 6th Street: Our firm’s landlord in Downtown Austin, Stream Realty, has acquired 60% of the properties on 6th Street between Brazos and I-35, the area called “Dirty 6th” in recent years due to lack of investment. The City Council has passed certain safety measures and has increased building height limits from 45 to 140 feet for Stream’s proposed multi-use and hotel projects. Stream agreed to preserve historic facades. Stream would like the City to widen sidewalks and reduce the street to three lanes, to help attract upscale restaurants, hotels, and other businesses and restore the area as a nightlife hub.

To discuss how these legal and economic updates could impact your commercial real estate or construction projects in Central Texas, contact Griffith Davison’s Austin office at (512) 686-8648, or email James directly at jhicks@griffithdavison.com.

This update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Further, this update shall not create a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult an attorney regarding the contents hereof.