Timeline, priorities emerge for next shot at HealthSouth redevelopment

As they consider how the vacant former HealthSouth complex might be transformed, leaders at Austin City Hall are establishing priorities for the downtown site and looking to a federal tax credit program for help.

Austin City Council on Sept. 21 approved a plan to develop the property in phases, subdividing the site to include a structure strictly dedicated to affordable housing that could be partially financed with federal low-income housing tax credits. Those allow developers to offset a portion of their federal taxes in exchange for the production or preservation of affordable rental housing.

The move sheds light on what the city expects from prospective redevelopment partners, after a previous deal to erect two apartments towers on the land near Red River and 12th streets fell through.

“Our decision was based on longstanding goals for diversity in the eastern portion of downtown,” said Council Member Zohaib Qadri, who represents District 9, which includes downtown and the HealthSouth site. “I want a downtown where our service workers can work and live. I believe in a downtown that works for everyone. I am committed to that vision.”

The site in question is the former home of a HealthSouth rehabilitation hospital, which closed in 2016, at 1215 Red River St., as well as an adjacent parking garage at 606 E. 12th St. It’s seen as a prime redevelopment opportunity. The real estate is owned by the city of Austin, which wants to see something built that benefits the community.

Previously, local developer Aspen Heights Partners LP pitched a vision for two high-rises on the site. Plans called for more than 900 new apartments, but the deal broke down based on a disagreement over the number of affordable units in the project.

That has left the site’s future in limbo. Combined, the two properties are valued at more than $28 million by the Travis Central Appraisal District.

Aspen Heights proposal for HealthSouth

Aspen Heights Partners had proposed to develop two apartment towers on the former HealthSouth property.

Aspen Heights Partners

This week’s action provided a clearer timeline of next steps.

As outlined in the plan approved Sept. 21 by Council, the Austin Housing and Finance Corp. will issue a solicitation in early 2024 for a portion of the property at 1215 Red River, which is restricted in height by a capitol view corridor, for the development of affordable housing through the low-income housing tax credit program.

In preparation, staffers will continue with additional due diligence, including a site-specific yield analysis, and then draft and refine a request for qualifications.

For context on what might be built, local projects that have received federal tax credits include the Apartments at Tech Ridge, Wildhorse Flats and Cascades at Onion Creek.

Meanwhile, Austin will continue to hold the second parcel at 606 E. 12th St. while monitoring market conditions. As the parcel is not subject to a capitol view corridor, it could be developed more densely into a mix of uses.

As part of this process, Council has reiterated its commitment to a goal of creating new downtown housing for those making up to 60% of the median family income level. MFI for a family of four in Austin is $110,300, while 60% MFI is $66,180.

The Council-approved plan also calls on city staffers to offer a detailed on-site proposal and alternative comparison by January 2024, to explore the feasibility and possible community benefits of uses including commercial, child care and arts/community space.

Brackenridge demolition HealthSouth 2021 1963

The former HealthSouth rehab hospital, the center white building, is adjacent to the old Brackenridge hospital site. This photo was from the latter’s demolition in December 2021.

Arnold Wells/ABJ

The collapse of the Aspen Heights deal led Council to reconsider its options, leading to an analysis under Assistant City Manager Veronica Briseño that served as the basis of the new resolution.

Key findings in the analysis included the observations that there are more than 3,000 multifamily units under construction downtown and that the number of multifamily units has grown 30% since the fourth quarter of 2019

In contrast to that growth, there is scant affordable housing downtown. The vast majority of affordable units in the area are the result of density bonus programs that yield a small percentage of modestly affordable housing in exchange for primarily market-rate units.

The assistant city manager’s review included the completion of a public survey that found 75% approval of prioritizing affordable housing, with a preference given to those working in hospitality, health care and service industries. The survey had more than 400 participants.

On Sept. 14, Council approved a $471,615 contract with AAR Inc. for demolition and disposal of what remains on the site. Both the four-story rehab hospital and two-tiered parking garage will be knocked down.


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