Data pointing to new life in city's commercial economy

There is no official signal for when an economic recession ends and recovery begins. Church bells do not ring, town criers do not take to the streets and public service announcements are not released to mark the moment the economy is deemed healthy again.

In Round Rock, however, tangible evidence indicates the city's commercial economy is in the midst of a massive rebound from the past several years of relatively modest and occasionally stagnant growth.

"I think we are seeing a trend," Round Rock City Manager Steve Norwood said. "Just here in the last six months or so, you are really starting to see things pick up."

The evidence is not just anecdotal. Norwood's office collects monthly reports from the city's Planning and Development Review Department. According to the city's data, during the first half of the 2013 fiscal year, which began in October, the city reviewed building permits for more than $77 million worth of commercial developments—nearly a tenfold increase versus the same period in 2012.

The number of developments has also increased, indicating the new construction is being spread out and does not only represent a few high-dollar projects. In fiscal year 2013, for example, 28 commercial permits have been issued, compared with eight during the first half of fiscal year 2012.

"We are definitely seeing an increase. There is no doubt about it," said Brad Wiseman, Round Rock Planning and Development Services director. "Just with permits, applications and calls, we have definitely seen an uptick."

Rising tide

The volume of an area's new commercial activity is often used as an indicator of interest in local investment, the willingness of banks to finance loans and job creation, according to leaders in the local banking and development industries.

"Being in the land business, we are kind of at the top of the food chain when it comes to these economic trends," said Joe Duncan, owner of Duncan Commercial, a land brokerage company that does business throughout the Austin metropolitan statistical area. "When we are doing well, it's indicative of when good things are coming.

"We are seeing increased activity and increased growth in Round Rock ... in just about every sector—apartments, residential, retail, suburban offices and job creation."

One of the unique aspects of Round Rock's business growth strategy is the partnership of its chamber of commerce with the city's economic development department. The standard practice in most communities is having the groups operate independently, with the former managing existing business retention and development, and the latter overseeing recruitment of new companies. Round Rock's Chamber of Commerce/Economic Development Partnership, however, manages both concurrently, and because it operates through both city and private funding, allows for a nontraditional alignment of public and private interests.

"Round Rock is unique because they believe a rising tide lifts all of the boats," said Ben White, vice president for economic development for the Chamber of Commerce/Economic Development Partnership. "We have become a much more proactive organization in the last year and a half."

Among the new commercial building permits issued by the city in the past six months are a condominium complex, two exercise studios, a La-Z-Boy furniture store, three quick-serve restaurants including In-N-Out Burger, two convenience stores, two children's day care centers, four medical-related facilities and a bank.

Perhaps the most visible new development for Round Rock is the construction of a new H-E-B Plus on University Boulevard. According to city documents, the estimated cost to build the grocery store, combined with an H-E-B-owned car wash and gas station, is just more than $11 million. The site—which will also include additional space for unannounced retailers—is valued at more than $3.7 million and will combine with H-E-B to encompass Phase 2 of the University Commons shopping center.

The new shopping center will add approximately 180,000 square feet of retail space to Round Rock and create more than 300 jobs when it opens this fall, according to an H-E-B news release.

Steve Stapp, president and CEO of R Bank, which is owned and operated out of Round Rock, said his bank has noticed a recent increase in loan activity for private business construction. Stapp said R Bank has issued a total of approximately $70 million in local commercial loans in Round Rock.

"Over the past three to four years because of the economy ... there were a lot of people sitting on the sidelines," Stapp said. "I think they have finally decided to get back in the game and do some things."

'The other foot dropping'

Although the recent reports indicate significant progress for Round Rock's business market, it may be too early to say the area has fully recovered to its prerecession form. The ultimate indicator of a full economic rebound will be the return of speculative construction, in which developers and banks are willing to fund projects without secured tenants for the buildings, according to local real estate and banking managers.

"Most of the development that I am seeing is [tenant-secured] users moving to town," said Russ Boles, a broker for Summit Commercial, which specializes in Williamson County commercial real estate transactions. "That is good business and really positive—but what we aren't seeing is the developers and investors come in ... because the lending markets are still tight.

"That is the other foot dropping—when we see the developers show back up, [then] I think we will be a lot closer to being back."

Boles said the recent national recession still has lenders and wealthy investors feeling apprehensive about financing speculative projects with large price tags. A prime example of what can go wrong with speculative construction is the formerly named Frontera Vista office buildings, whose 278,650 square feet of Class A office space sat vacant for nearly two years before Emerson purchased the property in 2011.

"They had those buildings built just as the bust hit," Boles said. "I have the sincere belief that if we had more buildings like that on the ground now, Round Rock would have more opportunities for businesses moving in."

Michael Doss, Round Rock market president for Texas-based Independent Bank, which has issued approximately $100 million worth of commercial loans in Round Rock, said his bank remains cautious about approving loans for speculative projects.

"When there is a lot of speculative building out there, that is indicative that the confidence levels are high," Doss said. "It takes a lot of deep pockets to support projects like that. It has to be the right situation where it's not going to be vacant for very long. I don't think we are at a point [now] where we can guarantee it is going to be filled."

Boles said he is hopeful the rising momentum in commercial construction will translate into future developments like Frontera Vista.

"The stock market looks good, but that doesn't relate to real estate confidence," he said. "Now we are seeing energy building every month. I think that leads us to the confidence where the speculative developers come back in and figure out how they can get their loans and do it."