Lionstone JV Buys Eight Tracts at Lantana with Capacity for 1.1 MSF of Office Space

William H. Armstrong, CEO of Stratus Properties Inc.

By Gail Kalinoski, Contributing Editor

More than 1.1 million square feet of office space could be built on eight undeveloped land tracts totaling 154 acres in an Austin, Texas, mixed-use development that Stratus Properties Inc. has sold to a subsidiary of The Lionstone Group, Lincoln Property Group and Greenfield Properties for $15.8 million in cash.

Since it purchased the 738 acres in January 1994 for $4.1 million, the Austin-based residential and commercial development company has sold properties at the Lantana site for an aggregated sales price of about $100 million and with an aggregate sales cost of approximately $46.1 million.  Earlier this year, Stratus sold 7500 Rialto Office Park, a 29-acre Lantana site with two office buildings totaling 150,000 square feet of space to Lincoln Properties and Greenfield Partners for $27 million.

Stratus still owns three undeveloped commercial sites, totaling 60 acres, at Lantana that have entitlements for about 325,000 square feet of retail space and 230,000 square feet for office development.  The company plans to develop the tract with 325,000 square feet of retail space itself as a mixed-used project. It has a second tract under contract that has entitlements for 70,000 square feet of office space. Stratus plans to hold onto the third site on which 160,000 square feet of offices could be built either for future sale or development. The remaining 45 acres on the site were used for infrastructure, including streets, and other public uses.

“The Austin real estate market is showing signs of significant improvement and we are optimistic about our ongoing and potential development projects,” William H. Armstrong, Stratus chairman of the board, CEO and president, said earlier this month when the publicly-held firm released its second-quarter 2012 filing to the U.S. Securities and Exchange Commission.

Capitol Market Research noted in its 2011 year-end summary of the Austin office market that it was “regaining strength as leasing activity has picked up in the CBD and most suburban markets.” The report stated that office leasing occupancy had ticked up by 3.3 percent in the second half of 2011. While rents had been flat in 2011, Capitol Market Research said it expected office rents to increase this year as the occupancy rates continued to rise.

Stratus has developed several other large projects in the area, including the W Austin Hotel & Residences in downtown Austin that it built for about $300 million through a joint venture with Canyon-Johnson Urban Fund II, L.P. In the SEC filing, Stratus noted that most of the condo units at the W were finished and 100 of the 159 units had been sold for $107.4 million. As of July 31, seven more were under contract. The 251-room hotel is being managed by Starwood Hotels & Resorts Worldwide Inc. and had REVPAR of $225 during second quarter and $232 for the first six months of 2012, up from $182 during the second quarter of 2011 and $190 for the first half of that year.

Construction is ongoing at another Stratus project – the 92,473-square-foot Parkside Village mixed-use center in the Circle C master-planned community in southwest Austin. Parkside Village is expected to be completed by the end of the year. As of June 30, occupancy was 66 percent, according to the development company. The Alamo Drafthouse, a 33,650-square-foot movie theater and restaurant is already open. Other parts of the project include a 13,890-square-foot medical clinic and five retail buildings ranging from 5,000 square feet to a nearly 15,000-square-foot building.