48 East Ave. Embraces Short-Term Rentals Rather Than Restricting

AUSTIN, TX—Not only is a Rainey District property setting a high bar for its construction loan amount, but also as one that is encouraging unit owners to rent out their units. An $87.9 million 75% loan to cost nonrecourse construction loan was recently obtained for 48 East Avenue, a 249-unit 33-story project soon to be underway.

The construction loan was provided by a private REIT that creates long-term relationships by originating, servicing and managing long- and short-term fixed-rate loans through maturity. The loan will enable the project to commence construction by the end of this month.

The sponsor acquired the 18,000-square-foot parcel in 2015. In addition to arranging the construction loan, Highland Realty Capital was involved in sourcing a development partner to venture on the $120 million project after the sponsor received its development approvals in late 2018.

When the first 249 units open at 48 East Avenue in 2021, owners will be encouraged to rent out units through the Natiivo platform powered by AirBnb. This embracing of the short-term rental concept is a departure from the norm which usually heavily restricts the practice in many developments.

Natiivo, a combination of hotel and condo development, is behind the development. Austin real estate firm Pearlstone Partners and Miami-based Newgard Group are co-developing the property.

Owners can choose to list independently or with Natiivo management with a shared revenue agreement. Natiivo buildings will carry hotel licenses rather than requiring individual owners to obtain short-term rental licenses. Natiivo is part of Airbnb’s effort to boost offerings, which is resulting in an industry-wide blurring of residential, hospitality and even office spaces.

The buildings will include co-working spaces along with hospitality-quality food and beverage programs. Units can be purchased furnished, and may feature an extra closet to store personal belongings and digital locks for keyless entry.

Purchase prices will range from $300,000 to $1.2 million.

48 East Avenue will accommodate young professionals and families interested in owning real estate in downtown Austin. The property is located in a desirable area located between the Rainey Street entertainment district and Lady Bird Lake. This is the latest development in the Rainey District which has had significant transaction and development activity in the past few years.

“Austin is on fire downtown. It is a highly desirable area near hotels and the convention center,” Mike Guterman, principal, Highland Realty Capital, tells GlobeSt.com. “The transaction also highlights the benefit of additional institutional investors, usually more prominent on the coasts, whereas Austin is now on the list. And, the 75% nonrecourse loan shows further confidence in Austin.”

Commercial real estate investors ranked Austin as a top target among US metros for property investment in CBRE’s 2019 Americas Investor Intentions Survey. Austin was ranked number 11 by US investors as attractive for property investment.

The survey, which covers all asset types, found that in 2019, more investors are prioritizing secondary markets that can offer greater potential for both equity and income growth. Investor interest in secondary assets increased for the fifth consecutive year (33%) to gain significant ground on value-add (37%) as the most preferred strategy.

Industrial and logistics is still the preferred property type, cited by 39% of investors as the most attractive for investment in 2019. However, multifamily closely followed in second place, with 37% of investors naming it as the next most attractive property type, up from 20% in 2018.

This is the second Austin transaction for Highland Realty Capital and the sponsor, after having secured a land loan/construction loan for Axiom East, an upcoming 54-unit development at 7th and Webberville in the East Interstate 35 corridor.