la Frontera In the News

The Austin American-Statesman

May 19, 2000

Round Rock's La Frontera beckons office developers

by Janet Jacobs, American-Statesman Staff

ROUND ROCK -- Business partners Red McCombs and Bart Koontz of San Antonio are moving to take advantage of a booming market in office leasing with a project of three buildings in the La Frontera complex at FM 1325 and Interstate 35 in Round Rock. Koontz listed the proximity to Dell Computer Corp. and the communications and power options in the development as reasons why they chose to build in La Frontera.

"When you do things like this, you look for a combination of the right things," Koontz said Thursday. "It's the right park, the right park location, the right municipality, the right amenities. That's usually a good recipe for success."

La Frontera is a 328-acre development of retail, restaurants, office space, a full-service hotel and apartments at the corner of I- 35 and FM 1325 in Round Rock. The first retail sites are expected to open in July.

McCombs most recently has gotten attention for his philanthropy, including a $50 million gift to the University of Texas and $6 million to Southwestern University in Georgetown. Koontz is a real estate developer. The two became partners in 1997 to focus on developing commercial real estate. The Koontz-McCombs project will be built on 17 acres and will offer 200,000 square feet of new office space. Koontz said he did not have an estimate for the cost of the project.

It is one of two office complexes scheduled for La Frontera. The other , which will also have about 200,000 square feet of offices, is being built by Kennedy-Wilson Property Services of Austin, and will cost more than $20 million.

Both projects are being built on a speculative basis in anticipation of tenants, a form of development that left huge office buildings empty and unfinished across Texas, symbolizing the bust years of the late 1980s and early '90s.

Those years and patterns are history, according to real estate experts, who say developers and lenders are smarter this time around.

"In some senses, it's a lot more than just putting up buildings. It's more studied. There are target markets," said Terry Thompson, senior vice president with the Kucera Co., which is moving fast to buildbuilding speculative office space in Austin and elsewhere.spec office space, particularly in North Austin.

The targets are high-tech and fast-growing companies that can't wait for build-to-suit office space.

"Technical companies clearly are the leader in growth, but the other service-oriented firms are also growing like mad," said Jeff Pace with CarrAmerica Realty.

"With the high demand, it's been easy to construct an office building in the suburbs and be close to 100 percent leased before you finish," he said.

Last year, more than 2 million square feet of speculative office space was built in suburban Austin, said Charles Heimsath of real estate research company Capitol Market Research.

The northern suburbs, including Round Rock, have an office occupancy rate of 97 percent.

"It's exploding, and remarkably, we're not building enough space to accommodate the demand," Heimsath said.

Aggressive developers are working in the spec market because that's where the money is -- but the lessons from the bust years are still fresh in many of their minds. seared on their hearts -- and credit histories.

"There's still caution in the marketplace because of the memories of the mid-'80s," said Ford Alexander, a tenant representative for Colliers Oxford Commercial.

"What drove the real estate boom in the '80s was capital. Anybody could go out and borrow to build a project and they didn't look at the competition," Alexander explained.

"Now, it's driven by economics, and the underwriters, lenders and underwriting criteria are much stricter than in 1985."

Koontz-McCombs will not need to finance their La Frontera project, Koontz said.

However, Kennedy-Wilson is still looking for backing, a challenge with a speculative project in a new park.

"It's harder," said Phil Capron, president of Kennedy-Wilson. "And with interest rates rising, it definitely has a psychological impact."You may contact Janet Jacobs at jjacobs@statesman.com or 246- 0053.