Round Rock officials say new developments point to recovery

Round Rock is logging its second straight year of strong commercial development as shown by 29 new commercial building permits submitted to the city through the first half of the 2013-14 fiscal year. Local experts are seeing the trend as reason enough to call the recession, which still lingers in other areas of the country, a closed chapter in the city's history.

The number of building permits is a prime indicator of economic health for a city, and Round Rock's Planning and Development Services Department reviewed a steady stream of them between October and March.

The city reviewed 29 new commercial permits worth about $77.8 million in the first half of the 2014 fiscal year, according to city records.

Round Rock approved 28 new commercial permits worth about $77 million in the first half of the 2013 fiscal year, though a single Round Rock ISD project in that time period was valued at $34 million. Overall that was a nearly tenfold increase compared with the value of commercial permits approved in the same time period in fiscal year 2012.

Johnnie Mikeska, regional president of Eagle Bank, which makes commercial loans in and around Round Rock, said he has not seen such a combination of strong demand and limited supply in the local real estate market during his 12 years working in the area.

Commercial development is a seed of prosperity for a community, and construction from development brings jobs, he said. For every building being constructed, there is a business likely to occupy the space and hire people, Mikeska said.

The commercial development in Round Rock "represents a great deal of money being spent and invested in our community," Mikeska said.

"We will all develop wealth out of this trend, from one end of the spectrum to the other," he said.

Steady gains

Brad Wiseman, director of the Round Rock Planning Department, said his department is reviewing a healthy number of permits and an "equitable distribution" of different types of businesses applying for permits.

In the first half of the 2014 fiscal year—October 2013 to March 2014—the city reviewed permits for new townhomes and condominiums, a Karma Car Wash, an Eagle Bank branch, a Lockard Medical building, a CST Corner Store, several parking lots and a new South University campus, among other projects.

Bass Pro Shops, a major fishing and outdoors outfitter, applied for the most valuable commercial permit, which was worth $13 million, according to city documents. Bass Pro will build an Outdoor World location alongside the Round Rock Premium Outlets near the intersection of I-35 and University Boulevard.

The 104,000-square-foot business could help bring in $400 million in taxable sales in its first decade of operation, both inside the store and from nearby businesses, which equals about $5 million in tax revenue for Round Rock, according to the city.

Bass Pro Shops furthers the city's status as a retail destination, said Ben White, vice president of economic development for the Round Rock Chamber of Commerce and Economic Development Partnership.

Locally, all signs point to the recession being over, White said.

"Our pipeline for new projects is pretty full. We feel very good about the present and the future going forward," White said. "Our unemployment [rate] is 4.1 percent. That is low."

Russ Boles, a commercial real estate broker with Round Rock-based Summit Commercial, said there is more good news for the city when one considers the extended timeline involved in the purchase and development of commercial property. The permits the city is receiving now grew out of the interest of businesses in the area from last year, he said.

"The building permits you are seeing today were born 12 months ago; I think the positive part is that I'm seeing more interest today than I did last year," Boles said. "Hopefully we are birthing more commercial permits a year from now than we are seeing today."

Boles also said he is seeing a steadier interest in commercial development now compared with spottier, up-and-down interest in 2013.

Two issues still hindering the commercial development process are tight lending regulations and the high cost of construction, a result of fewer constructors operating in the area, Boles said.

Mike Doss, Williamson County president of Independent Bank, said lending regulations have increased since the financial crisis, but he likened regulations and the lending environment to a pendulum swinging.

Four or five years ago the bank examiners that periodically check into banks' loans and balance sheets were scrutinizing everything, Doss said. Now the pendulum is swinging back; the markets are healthier, many banks want to lend and the examiners are "loosening up a little bit," he said.

Doss added the lending market may not need to return to the pre-recession levels of 2007 to be healthy, and the banking industry learned valuable lessons through the financial crisis.

Another indicator of economic growth that has been largely absent in downtown Round Rock in recent years is speculative building. That could be changing, Boles said.

Speculative building is on the riskier side of the development spectrum. It involves the building of a space without secured tenants.

"What I'm seeing a little more this year are developers looking to do speculative building," Boles said. "Last year there was really none that I saw."

And that is a positive sign for the economy, Doss said.

"When developers start wanting to do spec deals and banks are willing to do a deal like that, then that is a sign that the market has returned," Doss said.

Ready for risk

Nelson Nagle said he is one of the few area developers striking into the speculative commercial real estate market.

Nagle invests in real estate and is the managing partner of Four Eleven Partners LLC, which is developing a speculative three-story Class A office building at 411 W. Main St.

Nagle said he hasn't seen a speculative build in downtown Round Rock since 2009 when he built Harris Center at 109 Harris St.

Despite the risk, Nagle said he is confident about the prospect of filling the future 26,500-square-foot "boutique" building.

One thing propping up Nagle's confidence in the project is the city's improvements in the downtown area, he said. The city repaired the streets and sidewalks on which the spec building will sit. The development group plans to break ground on the office in August and finish in September 2015.

Nagle said the commercial market in Round Rock is booming, and his leasing business has received three to four times as many inquiries about available space this year versus the previous years.

"All those factors together tell us it is the right time, it is the right place and we are going to do it," Nagle said.