Pearlstone Partners CEO Robert Lee, Principal Emily Lee and President Bill Knauss stand outside Pearlstone's Parkside at Mueller development. The firm is seeking capital partners for three new condo projects it hopes to break ground on in the coming years. ARNOLD WELLS / ABJ

Austin Business Journal writes, "amid a year of muted activity for commercial real estate development, Pearlstone Partners LLC is betting big on the continued allure of Austin — it has three new projects up its sleeve that could total about $700 million in construction costs. That's on top of Robert Lee and his team forging ahead on three under-construction projects expected to deliver from early 2024 through 2025.

The Austin-based company just unveiled details on three multifamily communities planned to rise on prime sites, spread from Rainey Street to the northwest side of the Central Business District. All three are still in the investment phase, meaning they may not deliver for a few years.

Demand for housing has slowed across the board in the Austin metro amid higher interest rates. But the Texas capital is still a desirable city and the downtown market can withstand "a little bit of a slowdown," said Chris Zaiontz, Pearlstone’s senior vice president of real estate. In fact, we're pretty much in a state of normalcy, according to Austin Board of Realtors, and real estate experts of all stripes have said this city can't afford to slow down on housing projects.

Pearlstone believes the market will pick back up over the next 12 to 24 months, according to Zaiontz. Laying the groundwork now for more housing and being in a spot to deliver downtown units when that happens puts the firm in position "to be rewarded in the market," Zaiontz said.

New projects

Pearlstone is seeking capital partners for the three new projects: the three-building Pressler, with 247 residential units; 62 East, a skyscraper with 215 luxury condos; and 14th & Lavaca, a condo tower with 250 units. That means a combined total of more than 700 units being added within about 5 miles of each other.

The Pressler would be just west of downtown at 300 Pressler St., nestled between Cesar Chavez Street and businesses along West Fifth Street, a stone's throw from Lady Bird Lake. In addition to residences, it would have some commercial space. It could total about 302,000 square feet. Pearlstone expects to break ground in early 2024 and complete construction around the second quarter of 2026.

62 East would rise at 62 East Ave., one of the few remaining development sites in the Rainey Street district, which has likely changed more than any part of downtown in the past decade-plus — what was once a quiet residential street transformed into a nightlife hot spot and is now a haven for high-rises.

An exact height is unknown but plans call for 62 East to rise roughly 57 floors. That could make it one of the taller buildings off Rainey: the still new 44 East Ave condo tower currently holds the height title at 50 floors and 573 feet. However, construction is underway on Waterline at Red River Street and Rainey Street, which will be the tallest building in Texas at 1,022 feet and 74 floors. Meanwhile, the Modern Austin Residences condo tower is expected to rise 55 stories.

Groundbreaking for 62 East is expected to take place in the first half of 2024, and Pearlstone expects to deliver the project in 2027.

As one would expect from the name, 14th & Lavaca would rise at the southwest corner of 14th and Lavaca streets, in place of a shuttered automotive shop. It's a somewhat neglected corner of downtown that has seen a wave of development in recent years, from the SXSW Center to The Linden condo tower that's nearing the end of construction.

14th & Lavaca is planned to rise 32 floors and could have a hotel element — Pearlstone is searching for a hotel partner, according to an announcement.

Under construction

First, Pearlstone is wrapping up construction on projects that should add hundreds of new condos to the city in 2024 and 2025.

The first expected to be completed is Parkside at Mueller, in the Mueller neighborhood north of downtown.

That project, located at 1808 Aldrich St., is expected to be delivered in the first quarter of 2024, and its 200 condos are already sold out. The 225,000-square-foot Parkside at Mueller will also have eight ground-floor commercial spaces ranging in size from 2,000 to 3,500 square feet available for purchase, according to previous Austin Business Journal reporting. A 5,000-square-foot retail space will also be available for lease.

Just up the street from where Pearlstone plans to build 62 East, the Vesper condo building is expected to be delivered at 84 East Ave. in the second quarter of 2024. The 41-story, 275,570-square-foot condo tower's 284 luxury residences are 60% sold and there are one- and two-bedroom condos available as well as penthouses. Floor plans range from 697 to 1,773 square feet and prices range from $540,000 to more than $1 million.

Finally, Pearlstone aims to deliver Montage South Lamar at 2323 S. Lamar Blvd. in the coming years. It is a 167,000-square-foot condo project with 6,000 square feet of commercial space on the ground floor. The four-story Montage will have studio, one- and two-bedroom floor plans.

Montage isn’t expected to be delivered until the second quarter of 2025, and sales are expected to launch later this month. Prices will range from $530,000 to more than $1 million.

Pearlstone strategies

Picking sites in highly desirable and resilient areas, from downtown to Mueller, is a big part of Pearlstone’s development strategy. The company is "meticulous" about site selection, Zaiontz said.

"We look at a lot of sites to narrow down to a very short list, and from that short list we normally only move forward with one or two sites per year," he said. "It’s got to be just right, especially for the condominium asset type."

Renters will often sacrifice their perfect location in exchange for lower rents or better amenities, he said, while condo buyers are making longer-term investments where location is more important.

"That few-block difference in location can mean all the difference in the world on [buyers] actually moving forward with purchasing," Zaiontz said.

And Pearlstone's focus on condos instead of apartments is "a competitive advantage," he said.

While Pearlstone doesn’t develop large-scale affordable housing projects, "almost all of our projects do have an affordability component" as part of the entitlement process, Zaiontz said. Building in the Rainey Street district, for example, requires development of on-site affordable units.

The city of Austin has programs like Affordability Unlocked that allow developers to build with more density in exchange for allocating a certain number of units as affordable or paying a fee in lieu. While Pearlstone has participated in that program in the past, the added density for mid-rise projects — raising the height from 60 to 90 feet, for example — doesn’t make sense from a cost-benefit standpoint, Zaiontz said.

"On the for-sale side, with where construction costs and interest rates are today, we just can't make those numbers pencil in a way that makes sense for the developer to opt into those programs for something more like mid-rise sites," he said.

Under a for-sale model, for every affordable unit Pearlstone builds, the project takes a loss, Zaiontz said, and needs to charge more for non-affordable units in order to make up for the loss.

Pearlstone, founded by CEO Lee, reported 2022 revenue of nearly $207 million."


Source: Austin Business Journal 

Written by: Cody Baird

Published: September 12, 2023

Posted by Grossman & Jones Group on


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