Four new scenarios for the redevelopment of the city's HealthSouth site, detailed in a January 31 memo from city housing director Mandy DeMayo to Austin City Council members, are now on the table.

The memo came in response to a September council resolution directing the city manager to explore new options for redeveloping the former site of the HealthSouth facility at 1215 Red River Street and an adjacent garage at 606 East 12th Street. The council passed the resolution after yearslong negotiations with Aspen Heights Partners sputtered out, in part over the amount of affordable housing to be provided.

The memo details the analysis of four development scenarios by Economic and Planning Systems, which was hired to evaluate ways to balance affordability, subsidies, density, and a mix of uses on the site:

Scenario #1 - “Hybrid” provides the most affordable apartments on-site at 178 units yet the lowest number of overall units and revenue to the City over the ground-lease term. In this scenario, a 100% affordable housing building would be constructed on one of the two sites and a market-rate housing building on the other site. The on-site affordable units would come at an estimated cost of $17 million in direct City subsidy in addition to a no-cost land dedication and a property tax exemption. They would also rely on additional public subsidies from sources other than the City, such as Low-Income Housing Tax Credits. For context on the city-wide need for City subsidy on affordable housing projects, the latest second quarter of Fiscal Year 2024 (FY 24) round of funding applications for the rental housing development assistance program totaled $105 million in requests in gap financing which is roughly twice the amount of gap financing available to award for the remainder of FY 24. The market-rate building in the “Hybrid” scenario could generate ground lease and property tax revenues, leading to an overall net present value (NPV) of $51 million in net City revenue, which could leverage another 267 affordable units off-site in future developments, bringing the total yield to 445 affordable units.

Scenario #2 - “Downtown Density Bonus” explores maximizing entitlements in exchange for fee-in-lieu and/or on-site affordable units. Following the “Downtown Density Bonus” entitlements would potentially generate $13 million in fees and an NPV of City revenue over the ground-lease term of more than $300 million, which could be leveraged to support an estimated 1,589 total affordable units off-site in future developments.

Scenario #3 - “Rainey District Density Bonus” also explores maximizing entitlements in exchange for feein-lieu and/or on-site affordable units. Entitlements would potentially produce a mix of 93 on-site affordable units delivered concurrently with market-rate apartments, plus an NPV of City revenue of $237 million, which could leverage an estimated 1,237 off-site affordable units delivered after the development of the site, for a total yield of affordable housing 1,331 units.

Scenario #4 - “Payment in Lieu of Taxes (PILOT),” Council calls for the City to maximize market-rate development on-site to support affordable housing and other community benefits off-site. While Scenario #4 provides no on-site affordable units, it maximizes revenues to the City through the ground lease and property taxes, estimated to have an NPV of up to $330 million over the ground-lease term to support community benefits off-site. If these funds are used solely to support the development of affordable units off-site, more than 1,700 affordable units for people earning less than 60 percent MFI could be built in the decades following the completion of the development. The scenario analysis demonstrates different opportunities to leverage the City’s land assets to produce affordable housing and revenues. Staff will schedule a briefing for the Council to discuss these findings for Council direction on the next steps. Background Through a series of acquisitions from 1952 to 1976, the City purchased the site at 1215 Red River. In 1988, the City offered the land to Brackenridge Hospital to attract Rehab Hospital Services Corporation (RHSC), a physical rehabilitation provider. RHSC executed a ground lease with the City through February 28, 2063, and constructed the four-story facility, which opened in 1990. RHSC assigned the ground lease in 1995 to HealthSouth, which developed a parking garage with 62 spaces at 606 East 12th Street to serve the facility. In 2016, HealthSouth closed this facility and sold to the City its leasehold interests as tenant and title to the parking garage on February 28, 2017. City Council directed the release of RFP 5500 SMW3002 for the Redevelopment of the sites on November 18, 2019. Following the termination of negotiations with the selected developer on June 29, 2023, City Council Resolution No. 20230921-101 directed staff to evaluate four potential redevelopment scenarios for the former HealthSouth site to determine a path forward for future development. On September 14, 2023, the Council approved a contract for the structural demolition and proper disposal of site improvements. The demolition process, which is underway, will expedite redevelopment options and eliminate the annual maintenance cost of the unusable facility.