Chestnut Commons

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Chestnut Commons

Austin, Texas

Project Type: Mixed Residential

Volume 38 Number 23

October–December 2008

Case Number: C038023

PROJECT TYPE

Situated in a rapidly gentrifying neighborhood in Austin, Texas, Chestnut

Commons is a transit-oriented infill community featuring 32 cottage-style residences and 32 for-sale flats above garages. This housing typology— smaller-than-average homes arranged to maximize density—has the advantage of making homeownership more affordable, with initial sales prices ranging from $149,000 to $260,000. The developers of Chestnut Commons— locally based Momark Development, LLC, and Benchmark Land Development— donate half of the project’s profits (beyond an initial 20 percent gross profit threshold) to the nonprofit Austin Community Foundation, resulting in a total contribution of over $1.1 million toward community development in the city.

LOCATION Central City

SITE SIZE 3.89 acres/1.57 hectares

LAND USES Single-Family Detached Residential, Condominiums

KEYWORDS/SPECIAL FEATURES

 For-Sale Housing  Mixed Residential  Workforce Housing

PROJECT ADDRESS

601 Miriam Avenue Austin, Texas

WEB SITE

www.austinchestnut.com

DEVELOPERS

Momark Development, LLC Austin, Texas 512-391-1789

www.momarkdevelopment.com

Benchmark Land Development Austin, Texas 512-472-7455 www.benchmarktx.net

BUILDER

Armadillo Homes San Antonio, Texas 210-662-0066

ARCHITECT

* some assembly required 512-467-2888

PLANNER

Bosse & Turner Associates Austin, Texas 512-472-7332 www.btaaustin.com

LANDSCAPE ARCHITECT

TBG Partners Austin, Texas 512-327-1011 www.tbg-inc.com

GENERAL DESCRIPTION

Mixing 32 small two-story, for-sale detached single-family houses and 32 one-bedroom flats built over garages, Chestnut Commons is a transit-oriented infill project in a diverse and gentrifying neighborhood a little over a mile (1.6 km) east of downtown Austin, Texas. Characterized by compact lots, the project features common areas: a large courtyard and a number of small, informal gathering spaces. Each of the 64 dwellings on the site has its own garage, accessed by an alley or a sidestreet. Located behind the detached houses, garages are grouped in sets of four per building. Atop each of these structures sit two one-bedroom flats. The entire 3.89-acre (1.57-ha) development is under condominium ownership, in which buyers purchase the interior spaces, but the homeowners association owns all of the outdoor space as well as the exteriors of the buildings.

BACKGROUND

Chestnut Commons is part of a larger development that was inspired by the desire of Tom Meredith—a former chief financial officer at Dell Computer—to give back to his community. Purchasing 22 acres (8.9 ha) of unused land in the at-risk neighborhood of East Austin, he envisioned a transit-oriented community that would improve the character of the existing neighborhood, thus benefiting longtime residents as well as newcomers. At the eastern edge of this property, the Martin Luther King, Jr., Capital MetroRail station is under construction as of fall 2008. Capital MetroRail’s Red Line will carry commuters 32 miles (51 km) from the suburbs into downtown Austin when it opens in March 2009.

As part of Chestnut Commons’ development process, Meredith sold four acres of the site to the Austin Community Foundation (ACF), a philanthropic nonprofit organization with a mission to improve the quality of life in Austin through funding a broad array of services including community development. The ACF then sold the four acres to regional development firms Momark Development and Benchmark Land Development in exchange for a portion of the project’s returns.

The deal called for the developers to donate half of the project’s profits, once the project had exceeded a 20 percent gross profit. As of November 2008, with only two units in Chestnut Commons left to sell, the development team has donated $1.1 million to the ACF. As of fall 2008, about $250,000 from this fund has been given to Habitat for Humanity to repair existing housing for elderly residents in the surrounding neighborhood.

To develop Chestnut Commons, Momark and Benchmark created a limited partnership. In this partnership, Benchmark brought its financial relationships and experience gained from leading the development of Plum Creek—one of the area’s first new urbanist communities—to the table. Momark’s role in the process focused on product development and marketing, as well as managing much of the site preparation and landscaping. Together, the two firms hired Armadillo Homes, a homebuilder with projects in Laredo, Austin, and San Antonio, to build and sell the residences.

THE SITE AND ITS SURROUNDINGS

Chestnut Commons is located near downtown Austin, in the rapidly changing neighborhood of East Austin, which is bordered by Lady Bird Lake (a damned segment of the Colorado River, which cleaves through the middle of Austin) to the south, Interstate 35 to the west, Airport Boulevard to the east, and 51st Street to the north. Originally a community that was occupied predominantly by lower-income African American and Latino residents, East Austin has been gaining in popularity with a whiter, more professional demographic. Ten years ago, the average house in the area was worth about $40,000 to $50,000 and the price per square foot was approximately $60 ($645.83 per sq m). As of fall 2008, prices there can exceed $300 per foot ($3,229.17 per sq m). The neighborhood’s proximity to the campus of the University of Texas and to downtown has become a major draw for homebuyers, especially as traffic worsens in the region.

As mentioned previously, Chestnut Commons is part of the larger 22-acre (8.9-ha) triangular property purchased by Meredith. The Meredith property was originally owned by the Featherlite Building Products Corporation and was used to store giant precast concrete slabs that were intended for use in large-scale construction projects. Surrounded by pre–World War II bungalows and postwar ranch houses, the property is bordered on the north by Martin Luther King Boulevard, a major east–west arterial in East Austin. Cutting diagonally across the street grid, the aforementioned Capital Metro train tracks mark the eastern property line and Miriam Avenue defines the western boundary.

While Miriam Avenue serves as the western boundary for most of the 22-acre (8.9-ha) property, at this corner of the site the property extends half a block further toward the west of Miriam between East 16th and East 14th streets (there is no East 15th Street). Chestnut Commons’ northern boundary is East 17th Street and its southern boundary is East 14th Street. The eastern edge of the project is marked by a private alley that provides access to the garages.

Surrounded by a chain link fence, the property sat unused for a long time. People would routinely cut the fence and use the weed-covered area as a dump. Because the property is located at the bottom of a hill, drainage was a challenge and the southern end of the site had a history of flooding. Large chunks of concrete, gravel, and random junk excavated from the site led the development team to believe that people added these materials to elevate the land out of the floodplain. Much grading work had to be done, the storm sewer system was channelized, an adjacent creek was cleaned up, and a blockage in the preexisting stormwater system needed to be removed.

The Chestnut Commons site was treated separately from the larger property because of the more acute drainage challenges and because of how this section interfaces with the community.

DESIGN

Chestnut Commons was designed so that most of the 32 bungalows face Miriam Avenue, while the garages and the flats above them were placed behind the houses and are accessed by alleys. Because the development team extended Miriam Avenue farther south from 16th Street to 14th Street, this section of Miriam is a private road that is owned by the homeowners association. Between 16th and 14th streets, the houses line both sides of Miriam; however, between 16th and 17th the cottages are only on the eastern side of the street. The design goal was to integrate a higher-density community within the existing community—namely, to have the “look and feel” of a single-family community with the benefits of a higher-density project.

Ranging in size from 667 to 1,394 square feet (62 to 129.5 sq m), two-story pitched-roof bungalows are clad in bold-colored HardiPlank (a durable cement fiber product that resembles wood clapboard), all with white trim. Six of the houses are arranged in a courtyard designed to be a meeting area, and the mailboxes for all 64 units are located there.

Between the houses and the garage/flats are pedestrian paths that run the length of the project. Smaller nodes along the paths allow residents to interact. Amenities such as fire pits, picnic tables, special plantings, and fountains give each of these nodes its own character. All of the nodes are intended to replace privately owned outdoor space. Because East Austin is not known for its schools, the developers assumed that there would be few children at Chestnut Commons and therefore none of these nodes is designed with children in mind.

Most of the garage buildings are paired so that the garage doors face each other. On the opposite sides of these structures are pedestrian entrances and more landscaped areas.

Chris Allen, the primary architect of the locally based firm called *some assembly required, designed Chestnut Commons from what the development team describes as a three-dimensional perspective. Because much of the Austin-area real estate market is composed of lower-density, single-family homes, it was important for the development team to have a designer who could think beyond the suburban tract house model and plan for the challenges of constructing buildings that would be so close to each other. Based on experience gained from building MacMora Cottages—Momark’s first foray into developing cottage housing—the development team learned that private yard space is a critical component. When designing MacMora, it was assumed that people would be willing to give up personal outdoor space in favor of communal courtyard space. However, the residences on the courtyard were harder to sell than houses with backyards. Unable to add backyards to the units because of design constraints, the Chestnut Commons team fenced in the frontyards instead.

To compensate for small interior spaces, the development team turned to the ideas discussed by architect Sarah Susanka in her book The Not So Big House. Interiors include small touches such as bay windows with built-in seating, carefully located storage, and open floor plans to allow for flexible use of kitchen, dining, and living areas.

DEVELOPMENT PROCESS AND APPROVALS

The concept for Chestnut Commons started with Tom Meredith’s vision for his 22-acre (8.9-ha) property. Meredith assembled a team of developers and designers to brainstorm ideas. One of his chief goals was that the project be sensitive to the character and residents of the neighborhood. As part of this visioning process, Meredith called on Terry Mitchell for advice.

Mitchell’s projects are characterized by smaller-than-average detached houses arranged to maximize density by minimizing frontyards and backyards. This type of housing makes single-family homeownership more affordable to those who would otherwise be limited to multifamily homes.

After talking with Mitchell, Meredith realized that a cottage housing project would be the best way to deal with the tricky area of the property at the southwest corner that bordered the single-family houses of the adjacent neighborhood. Ownership of the four-acre site was then transferred to the ACF, which, as mentioned earlier, sold it to Momark and Benchmark in exchange for a portion of the profits.

However, according to the development team, an unwritten rule in Austin dictates that developers must consult with the neighborhood before proceeding. The team held many community meetings in which it communicated its vision for the property, then revised the vision based on input from the neighborhood’s residents and stakeholders. After attaining buy-in to the project from the community, the team submitted the Chestnut Commons site plan to a commercial review process. In addition, building permits were required for each structure. Although the land was already zoned for mixed use, the approvals process took longer than expected. Chestnut Commons was unlike other projects in the city and the various permitting agencies had a lot of questions. The biggest issues were with the transportation and fire departments. Because the short stretch of Miriam Avenue between 16th and 14th streets is privately owned, the fire department prohibited parking on both sides of the street so that fire engines could have easy access to the houses. However, Miriam Avenue does not narrow substantially as it transitions from being a public street to a private street; in fact, the width of the private portion of Miriam Avenue would permit parking on both sides of the street, if it were a public street.

To keep from having to revise the site plan, while allowing buyers a choice in housing types, the building footprint for each house—regardless of layout—is the same. If the different floor plans occupied different footprints, a site plan revision would have to be submitted for review for each house to be constructed.

Another important element in the approvals process was timing. Certificates of occupancy for each house were contingent upon completion of that house’s garage. Therefore, the garages and flats had to be completed so that the houses could be occupied.

Austin’s S.M.A.R.T. (Safe, Mixed-income, Accessible, Reasonably-priced, Transit-oriented) Housing program provides fee waivers and expedited permit reviews in exchange for projects that meet specific requirements, including provision of housing for those who earn up to 80 percent of the area median income (AMI). Although Chestnut Commons may have qualified, the development team chose not to participate. The team found that it was time-consuming and costly to recruit buyers specifically from that income group. In addition, during construction there was a nationwide explosion in the cost of materials, which further strained their budget. The team decided instead to upgrade the product and charge more per unit so that it could spend more money on landscaping and other design touches required by the market-rate buyer. Also, this would increase the return on investment for the project, and therefore augment the amount donated to the ACF.

The development team also decided against participating in a Federal Housing Administration financing program. The team felt that its time was better spent focusing on other aspects of the development process rather than meeting the qualifications of the program, especially since demand for Chestnut Commons’ units was high. So far, sales in the project have been unaffected by the national difficulties with obtaining credit that occurred during the late summer and fall of 2008. However, for future projects, due to the tightening of credit, the development team believes it must do what it can to remove barriers to financing for qualified buyers.

FINANCING

The financing for Chestnut Commons was simple: Benchmark and Momark provided 20 percent of the equity in exchange for a loan for infrastructure—which covered all the necessary roads, utilities, stormwater management, and landscaping. Armadillo was responsible for providing the capital to fund the vertical development—the buildings.

The construction loan was furnished by Texas-based Plains Capital Bank and the underwriting criteria for the loans were conventional: they were based on appraisals and on the financial strength of the borrowers (Benchmark and Momark). The interest rate for the loan was a standard prime rate plus 1 percent. Although no presales were required, the development team already had a couple of signed contracts for units when the financing was secured.

Chestnut Commons was considered a low-risk project because of its low price points. It was also deemed to be less risky than multifamily condominium projects with units available for similar prices because the development of its 64 units was phased. Rather than have all 64 units become available at the same time, as would happen in a typical single-building condo project, each of Chestnut Commons’ units could be constructed according to demand.

MARKETING

Early on in the development of Chestnut Commons, two main demographics were identified: young urban dwellers who were attracted to the burgeoning arts scene in East Austin, and empty nesters who wanted to downsize, but who still preferred single-family houses.

The results of a market analysis conducted before planning for Chestnut Commons had started indicated that there were over 100,000 workers in the downtown area and that most of them were employed with the university or the state or municipal government. These data further guided marketing efforts. This demographic varied greatly from other real estate projects in the Austin area that targeted the higher-paid high-tech employee. The targeted demographic for Chestnut Commons was one for which the only other choice for intown living was multifamily homes.

Based on its knowledge of its targeted demographics, the development team designed the project to meet their needs. A bold and eclectic color scheme was chosen to avoid a sense of conformity found in more suburban housing projects. The team rightly surmised that a slightly unconventional aesthetic would appeal to a young, urbane crowd.

With the intention of appealing to budget-conscious buyers, the model units for the one-bedroom flats were furnished with housewares from Target’s online store at a cost of $3,000. Buyers were able to replicate the model units in their own homes, and some did. Units with first-floor master suites were designed to appeal to empty nesters; however, people in this age group were not as attracted to the project as expected. The development team speculates that it was harder for longtime Austin residents to shake the negative connotations of East Austin.

The marketing campaign for the project—which was conducted by a Generation X–era professor of marketing at UT Austin and the fifth buyer at Chestnut Commons—predominantly featured the project’s Web site (www.austinchestnut.com). Print ads and Google ads sent people to the site where they could learn about Chestnut Commons. However, because it did not study how people found the Web site, the team is uncertain of what techniques were most effective.

Print advertisements were run in both Austin’s alternative weekly paper, the Austin Chronicle, and the Sunday issue of its daily paper, the Austin American-Statesman. Chronicle readers are mainly the young urban demographic, while empty nesters more typically read the daily paper.

Ads were also posted in Austin Tidbits (http://austin.gotidbits.com), a Web site aimed at young women in the Austin area. In addition, there were some direct-mail campaigns that were targeted to urban apartment dwellers. Word of mouth generated through the development team’s community involvement efforts and the project’s charitable giving also attracted many people.

The development team’s efforts to attract a young, professional urbane crowd were largely successful. The main buyer demographic for flats was single women in their 20s and 30s, with single men in their early 20s being the second most likely purchasers for these units. Buyers for the detached units predominantly were in their 30s and 40s. This group comprised university workers (especially professors), real estate professionals, and a mix of other professions that includes two chefs, a composer, a radio DJ, and an air traffic controller.

MANAGEMENT

As mentioned previously, a homeowners association owns and manages the exterior of the project. Fees are based on square footage and range from $125 to $140 per month. Utilities are separate. Although investors were not discouraged from buying units, contracts were left flexible to account for the highly mobile lifestyle of many buyers, some of whom travel for long periods of time and need to sublease their units.

EXPERIENCE GAINED

Chestnut Commons has been a success. It exceeded its pro forma expectations and has won the Austin Business Journal Redevelopment of the Year Award and was a finalist for a 2008 Envision Central Texas Community Stewardship award. Even so, the development team notes that its biggest mistake was not anticipating the limited appeal of the one-bedroom flats. Many buyers were looking for larger units than the flats yet smaller than the detached units. Bigger bedrooms, one-bedroom units with dens, and more flex space may have filled this gap.

The experience developing Chestnut Commons reaffirmed the following lessons for the development team:

 Know your target market. Although their funds are limited, young urban entry-level professionals are very interested in well-designed intown housing. When developers know what motivates this demographic and are able to provide what they demand at affordable price points, projects like Chestnut Commons can be very successful.  Find a balance between communal and private outdoor space. Outdoor space is essential. Building at high densities can mean sacrificing some outdoor space; however, buyers want both small private outdoor spaces for personal use and larger communal spaces for social gatherings.  Assemble a top-notch team. When all team members understand the concepts and techniques required to build at higher densities, the development process flows much more smoothly and unforeseen problems are better able to be solved more efficiently and effectively.

PROJECT DATA LAND USE INFORMATION Site area (acres/hectares): 3.89/1.57 Percentage complete: 100 Gross density (units per acre/hectare): 16.5/40.8 Number of off-street parking spaces: 64 (one per each unit)

LAND USE PLAN Use Area (Acres/Hectares) Percentage of Site Buildings 1/0.405 26 Streets/surface parking 1.1/0.445 28 Landscaping/open space 1.78/0.72 46 Total 3.89/1.57 100

RESIDENTIAL INFORMATION Unit Type Number of Units Area (Square Feet/Square Meters) Number Sold Initial Sales Prices Flat 32 667/62 30 $149,900 Houses 32 1,231–1,394/114.4–129.5 32 $219,000–$260,000

DEVELOPMENT COST INFORMATION Operations Costs: $759,821 Land: $472,832 Financing and interest: $140,000 Land closing fees: $31,989 Property taxes: $30,000 Marketing: $85,000

Infrastructure Costs: $1,634,300 Water: $186,336 Wastewater: $137,684 Storm sewer/drainage: $420,198 Streets: $342,865 Erosion controls: $8,344 Fill: $4,330 Electric: $83,871 Gas: $23,259 Mailboxes: $6,300 Landscaping/signage: $421,113

Soft Costs: $488,528 Land planning: $2,882 Engineering: $115,955 Final plat fees: $12,000 Final plat recordation fees: $591 Site plan fees: $31,000 Phasing fee: $5,760 Park fees: $11,840 Streetlight fees: $40,654 Electric design fee: $9,473 Gas design: $3,364 Gas relocation: $2,880 Fiscal: $65,200 Soils test: $2,600 Legal: $55,000 Landscape design fees: $32,000 Environmental: $20,810 Stormwater pollution prevention plan: $3,900 Geotech: $15,000 Noise study: $3,500 Condominium exhibit surveys: $20,000 Cottage architect: $23,546 Interior finish-out designer: $8,974 Miscellaneous: $1,599

Construction Costs: $4,155,060

Charitable Donation: $1,100,000

Contingency: $172,411

Total Development Cost: $9,058,874

DEVELOPMENT SCHEDULE Planning started: 2005 Site purchased: October 2006 Construction started: October 2006 Sales started: April 2007 Project completed: September 2008

DRIVING DIRECTIONS

From Austin-Bergstrom International Airport: Take Bastrop Highway (Texas State Highway 71) heading west, then exit onto Interstate 183 heading north into Austin. After crossing the Colorado River, take the Airport Boulevard/Texas-111 exit on the left toward First, Fifth, and Seventh streets. Keep right at the fork to continue toward Airport Boulevard/Texas-111 Loop North. Continue along Airport Boulevard for about 2.7 miles (4.3 km), then turn left onto Martin Luther King, Jr., Boulevard. About half a mile (0.8 km) later, make a left onto Miriam Avenue. The project starts at the intersection of Miriam Avenue and 17th Street.

Driving time: About 15 minutes in nonpeak traffic.

Jason Scully, report author and editor, Development Case Studies David James Rose, copy editor Joanne Nanez, online production manager Ted Thoerig, editorial associate

This Development Case Study is intended to serve as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project’s development team and constitute a report on, not an endorsement of, the project by ULI–the Urban Land Institute.

Copyright © 2008 by ULI–the Urban Land Institute 1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington, D.C. 20007-5201

Comprising 32 units of detached single-family cottages and 32 for-sale flats, Chestnut Commons is a high-density condominium project in the rapidly changing East Austin neighborhood of Austin, Texas.

The development is able to achieve a high density through smaller-than-average homes and by sacrificing personal open space for communal spaces that are shared by all residents.

The flats and garages share the same structures, with each comprising two dwellings placed above four garages. Chestnut Commons contains 64 garages-one for each unit.

The project's high density made it possible for the development team to reduce housing prices, thereby allowing many buyers to afford newly constructed single-family homes closer to downtown than would otherwise be possible.

As of November 2008, the development team has donated over $1.1 million (which is half of the project's profits beyond an initial 20 percent gross profit threshold) to the Austin Community Foundation, a locally based nonprofit organization.

Chestnut Commons site plan.