Q&A: Intracorp's Brad Stein on Austin Condo Success and Market Challenges

Key Takeaway

• Intracorp's 44 East condo project in Austin sold out, leading to further developments like One Oak and Leland South Congress.
• Austin's housing market faces challenges with slowed growth and perceived oversupply, impacting financing for new rental projects.
• Despite market uncertainties, Intracorp secures funding from family offices and high-net-worth individuals for its latest projects.

Intracorp's Bold Entry into Austin

When Vancouver-based developer Intracorp decided to enter the Austin market, it did so with a bold move: launching 44 East, a 50-story condo development in the Rainey Street District. This ambitious project was surrounded by similar luxury towers in one of the city's fastest-developing neighborhoods. Despite the risks, 44 East sold out, marking a successful entry for Intracorp into Austin's competitive real estate market. The company has since expanded its footprint with additional condominium projects, including One Oak and Congress Lofts at St. Elmo. Intracorp's latest venture, Leland South Congress, aims to capitalize on the growth of another rapidly developing Austin neighborhood, pushing the city's center of gravity further south.

Navigating Austin's Housing Market

Intracorp's Texas president, Brad Stein, has been instrumental in the company's expansion into Texas. As the company prepares for its latest condo development, it faces an uncertain housing market in Austin. The city's explosive growth, driven by a population boom, rent increases, and job dynamism, has slowed in recent months. Stein acknowledges the challenges but remains optimistic about the long-term prospects. He emphasizes the importance of pro-housing policies and responsible development to address issues like affordability, transportation, and parkland. The recent zoning approval for Leland South Congress under the new DB90 classification is a testament to the city's commitment to facilitating development.

The Impact of Zoning and Market Dynamics

The introduction of the DB90 zoning classification has been a game-changer for developers like Intracorp. After the city lost multiple lawsuits on the VMU classification, DB90 was implemented within 60 days, allowing projects like Leland South Congress to receive zoning approval in just three months. This swift action by the city council has provided much-needed certainty for investors. However, the Austin market is currently experiencing a potential oversupply of rental units, leading to rent concessions and stagnant rent growth. Stein believes this is a short-term issue, with the market expected to absorb the excess supply over the next two to three years, provided population growth continues.

Financing Challenges and Opportunities

The current economic climate has made financing rental projects more challenging, with lenders tapping the brakes due to high interest rates and perceptions of market oversupply. However, the for-sale side of the market is seeing renewed interest from lenders. Intracorp has successfully secured financing for its Leland project, with a mix of family offices and high-net-worth individuals on the equity side and Michael Dell's MSD providing debt financing. This success is partly due to the strong relationships Intracorp has built with its financial partners, as evidenced by their previous collaboration on 44 East.

The Importance of Local Expertise

Intracorp's success in Austin can be attributed to its strategic decision to have a local presence. Brad Stein, who has lived in Austin for over 20 years, has been a key figure in navigating the local market and fostering relationships. The company's willingness to embrace innovative ideas and take calculated risks has paid off, as seen with the success of 44 East. The organic growth of neighborhoods like the Rainey Street District and the adaptive reuse of industrial areas like the Yard have created dynamic pockets of development that attract young, vibrant communities.

Management Quotes

• Brad Stein, Texas President of Intracorp:

  "With this current city council, we’re seeing a lot of votes go 10 to two, where two years ago it was six to five. So there definitely seems to be the political will by a supermajority of the council to put in pro-housing policies."
  "[The new zoning classification] DB90 is something we took advantage of on Leland South Congress, which received zoning approval last week. The city lost multiple lawsuits on [another zoning classification] VMU... That was enacted in February, and we received our final zoning approval in March. So we got through a zoning case in three months. I really applaud the city for that."
  "If you look at the cranes in the sky, each one of these new projects has a rental component... It’s possible that you could say this market is oversupplied... But I think that’s short term..."
  "Lenders are definitely tapping the brakes on rental deals. Still, we’re seeing lenders on the for-sale side."
  "On the condo side, we have found that private equity is sitting on the sidelines, but family offices and high net worth individuals are still seeing opportunities to invest."