Stratus Properties Profile
Stratus Properties Inc. operates as a diversified real estate company.
The company is engaged primarily in the acquisition, entitlement, development, management, leasing and sale of multi-family and single-family residential real estate properties and commercial properties in the Austin, Texas area and other select, fast-growing markets in Texas.
The company generates revenues and cash flows primarily from the sale of its developed and undeveloped properties and the lease of its retail, mixed-use and multi-family properties. Developed property sales can include an individual tract of land that has been developed and permitted for residential use, a developed lot with a residence already built on the lot or a property that has been developed for lease. In addition to its developed and leased properties, the company has a development portfolio that consists of approximately 1,600 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use. The company may sell properties under development, undeveloped properties or leased properties if opportunities arise that will maximize overall asset value as part of its business strategy.
The company’s leasing operations primarily involve the lease of space at retail and mixed-use properties that it developed, and the lease of residences in multi-family properties that the company developed. Tenants in its retail and mixed-use properties are diverse and include grocery stores, restaurants, healthcare services, fitness centers, a movie theater, and other retail products and services.
On May 31, 2022, the company completed the sale of Block 21 to Ryman Hospitality Properties, Inc. (Ryman).
Segments
The company operates through two segments, Real Estate Operations and Leasing Operations.
Real Estate Operations
The company’s Real Estate Operations segment is consisted of its operations with respect to its properties under various stages of development: developed for sale, under development and available for development. As part of the company’s real estate operations, the company acquires, entitles, develops and sells properties, focused on the Austin, Texas area and other select, fast-growing markets in Texas. The focus of the company’s real estate operations is developing multi-family and single-family residential properties and residential-centric mixed-use properties. The company may sell or lease the real estate it develops, depending on market conditions. Real estate that the company develops and then leases becomes part of its Leasing Operations.
The company develops properties on its own and also through joint ventures in which the company partners with third-party equity investors, serves as general partner, receives fees for development and asset management and may receive a preferred return after negotiated returns are reached. The company may develop projects on land it has owned for many years, such as in Barton Creek in Austin, Texas, or on land that the company purchases to develops in the near future, such as The Saint George and The Annie B projects. The company may enter into land purchase contracts in which it obtains the right, but not the obligation, to buy land at an agreed-upon price within a specified period of time.
The company engages and manages third-party general contractors to construct its projects typically on a fixed-price basis. The company’s employees oversee extensive work done by individuals and companies it engages as consultants for services, including site selection, obtaining entitlements, architecture, engineering, landscaping and land preservation, design, sustainability, and developing and implementing marketing and sales plans.
Real estate under development as of December 31, 2022 included two multi-family properties under construction in Austin, Texas: The Saint June, a 182-unit luxury garden-style project within the Amarra development, and The Saint George, a 316-unit luxury wrap-style project. These properties are expected to be reclassified into the Leasing Operations segment upon their completion, which is expected in third-quarter 2023 for The Saint June and mid-2024 for The Saint George.
The development potential of the company’s undeveloped acreage as of December 31, 2022 also included one retail pad site at Kingwood Place; approximately 13 acres planned for up to seven retail pad sites at Magnolia Place; and four retail pad sites at Jones Crossing.
Leasing Operations
The company’s Leasing Operations segment primarily involves the lease of space at retail and mixed-use properties that the company developed and the lease of residences in multi-family projects that it developed. The company engages third-party leasing and property management companies to manage its leased operations. Tenants in its retail and mixed-use projects are diverse and include grocery stores, restaurants, healthcare services, fitness centers, a movie theater and other retail products and services.
The company’s principal properties in its Leasing Operations segment as of December 31, 2022 consisted of a 154,117-square-foot retail property representing the first phase of Jones Crossing; a 151,855-square-foot mixed-use project at Kingwood Place; a 99,379-square-foot mixed-use development representing the first phase of Lantana Place; a 44,493-square-foot retail complex at West Killeen Market; and a 18,582-square-foot retail property representing the first phase of Magnolia Place.
Properties
The company’s properties are primarily located in the Austin, Texas area, but include properties in other select markets in Texas. Substantially all of its properties are encumbered pursuant to the terms of its debt agreements. The company’s Austin-area properties include the following:
Barton Creek
The company has several properties that are located in the Barton Creek community, which is a 4,000-acre upscale community located southwest of downtown Austin.
Amarra Drive: Amarra Drive is a subdivision featuring lots ranging from one to over five acres.
In 2015, the company completed the development of the Amarra Drive Phase III subdivision, which consists of 64 lots on 166 acres. In 2021, the company sold three lots. As of December 31, 2022, two developed Phase III lots remained unsold.
Amarra Multi-family and Commercial: The company also has multi-family and commercial lots in the Amarra development of Barton Creek. The Amarra Villas and The Saint June are being developed on two of these multi-family lots. During 2021, the company sold a five-acre multi-family tract of land, and during 2022, the company sold a six-acre multi-family tract of land. As of December 31, 2022, the company had one remaining undeveloped multi-family lot of approximately 11 acres and one undeveloped 22-acre commercial lot.
Amarra Villas: The Villas at Amarra Drive (Amarra Villas) is a 20-unit project within the Amarra development. The homes average approximately 4,400 square feet and are being marketed as ‘lock and leave’ properties, with golf course access and cart garages. The company completed construction and sale of the first seven homes between 2017 and 2019. The company began construction on the next two Amarra Villas homes in first-quarter 2020, one of which was completed and sold in second-quarter 2022. In 2021, the company began construction of one additional home and in 2022, the company began construction on the remaining ten homes. In fourth-quarter 2022, the company completed and sold one home for $3.6 million. In March 2023, the company completed and sold of one home for $2.5 million. Construction on the last ten units continues to progress, and as of March 27, 2023, one home was under contract to sell and nine homes remain available for sale.
The Saint June: In third-quarter 2021, the company began construction on The Saint June, a 182-unit luxury garden-style multi-family project within the Amarra development. The Saint June is being built on approximately 36 acres and is consisted of multiple buildings featuring one, two and three bedroom units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive green space. The project is expected to be completed in third-quarter 2023. The company owns this project through a limited partnership with a third-party equity investor.
Holden Hills: The company’s final large residential development within the Barton Creek community, Holden Hills, consists of 495 acres and the community is designed to feature 475 unique residences to be developed in two phases with a focus on health and wellness, sustainability and energy conservation. Phases I and II of the Holden Hills development plan encompass the development of the home sites. Phase I is expected to consist of 337 luxury residence sites to be developed in nine distinct communities or ‘pods,’ and 12 single-family platted home sites or ‘estate lots,’ and includes related amenities and infrastructure. Phase I also includes the Tecoma Improvements. Phase II is expected to consist of 63 luxury residence sites to be developed in five distinct communities or ‘pods,’ and 63 single-family platted home sites or ‘estate lots,’ and includes related amenities and infrastructure. The luxury residences are expected to range in size from 2,000 square feet to 4,600 square feet. The estate lots are expected to range in size from 0.9 acres to 2.7 acres.
The company entered into a limited partnership agreement with a third-party investor for this project in January 2023 (the Holden Hills partnership) and in February 2023 obtained construction financing for Phase I of the project and commenced infrastructure construction. The company expects to complete site work for Phase I, including the construction of road, utility, drainage and other required infrastructure in late 2024. Accordingly, its projections anticipate that the company could start building homes and/or selling home sites in late 2024 or 2025. The company may sell the developed pods and estate lots, or may elect to build and sell, or build and lease, homes on some or all of the pods and estate lots, depending on financing and market conditions. Pods and estate lots may also be acquired from the Holden Hills partnership by a limited partner for further development under procedures approved by the partners.
The company entered into a development agreement with the Holden Hills partnership (Development Agreement) that provides that, as part of Phase I, the Holden Hills partnership will construct certain street, drainage, water, sidewalk, electric and gas improvements in order to extend the Tecoma Circle roadway on Section N land owned by Stratus from its current terminus to Southwest Parkway (the Tecoma Improvements). The Tecoma Improvements will enable access and provide utilities necessary for the development of both Holden Hills and Section N.
Section N: Section N is Stratus’ wholly-owned approximately 570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek community, adjacent to Holden Hills. Using an entitlement strategy similar to that used for Holden Hills, the company continues to progress the development plans for Section N. The company is designing a dense, mid-rise, mixed-use project, with extensive multi-family and retail components, coupled with limited office, entertainment and hospitality uses, surrounded by an extensive greenspace amenity, which is expected to result in a significant increase in development density, as compared to its prior plans.
Circle C Community
The Circle C community is a master-planned community located in Austin, Texas. In 2002, the city of Austin granted final approval of a development agreement (the Circle C settlement), which firmly established all essential municipal development regulations applicable to the company’s Circle C properties until 2032.
The company is developing the Circle C community based on the entitlements secured in the Circle C settlement. The Circle C settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830 single-family residential lots. As of December 31, 2022, the company’s Circle C community had remaining entitlements for 660,985 square feet of commercial space and 56 multi-family units.
Lantana
Lantana is a community south of Barton Creek in Austin. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out as permitted under the company’s existing entitlements. In addition to Lantana Place, it has remaining entitlements for 160,000 square feet of commercial use on five acres in the Lantana community.
Lantana Place
Lantana Place is a partially developed, mixed-use development project within the Lantana community. The company completed construction of the 99,379-square-foot first phase of Lantana Place in 2018. As of December 31, 2022, the company had signed leases for approximately 90 percent of the retail space, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott, which opened in November 2021.
The company has remaining entitlements at Lantana Place for 306 multi-family units on approximately 12 acres.
The Annie B
In September 2021, the company announced plans for The Annie B, a proposed luxury high-rise rental project in downtown Austin. Based on preliminary plans, The Annie B would be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 316 luxury multi-family units for lease. The project includes the historic AO Watson house, which will be renovated and expanded to offer amenities that may include a restaurant, pool and garden, while preserving the property’s historic and architectural features. The company closed the land purchase in September 2021. The company continues to work to finalize its development plans with an intention of beginning construction in late 2023 or 2024, subject to obtaining financing and other market conditions. The company owns this project through a limited partnership with third-party equity investors.
The Saint George
In third-quarter 2022, the company began construction on The Saint George, a 316-unit luxury wrap-style multi-family project in north central Austin. The Saint George is being built on approximately four acres and is consisted of studio, one and two bedroom units for lease and an attached parking garage. The company purchased the land and entered into third-party equity financing for the project in December 2021. The company entered into a construction loan for the project in July 2022 and began construction in third-quarter 2022. The company expects to achieve substantial completion by mid-2024. The company owns this project through a limited partnership with a third-party equity investor.
Lakeway
The company owns approximately 35 acres of undeveloped property in Lakeway, Texas located in the greater Austin area, which is zoned for multi-family use.
The company’s other Texas properties include:
Magnolia Place
In August 2021, the company began construction on the first phase of development of Magnolia Place, its H-E-B, L.P (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas. The development concept plan for Magnolia Place consists of up to four retail buildings totaling approximately 34,000 square feet, up to nine retail pad sites on approximately 16 acres to be sold or ground leased, and a combination of residential uses, including single-family (approximately 124 lots) and multi-family (a maximum of 875 units). The first phase of development consists of two retail buildings totaling 18,582 square feet, all pad sites, and the road, utility and drainage infrastructure necessary to support the entire development. Infrastructure construction was substantially completed in second-quarter 2022, with the exception of certain water supply upgrades and a storm water drainage pond, which are expected to be completed by the end of 2023. In third-quarter 2022, the company substantially completed construction on the first phase of development and the two retail buildings were turned over to its retail tenants to begin their finish-out process. During second-quarter 2022, the company sold one retail pad site for $2.3 million and sold another retail pad site in third-quarter 2022 for $1.1 million. In third-quarter 2022, the company also sold 28 acres of undeveloped single-family residential land for $3.2 million, leaving approximately 77 acres of undeveloped land in the development, entitled for approximately 15,000 square feet of retail space, a maximum of 875 multi-family units and up to seven retail pad sites. In October 2022, Stratus entered into a contract to sell approximately 11 acres planned for 275 multi-family units for $4.3 million, which is expected to close by the end of 2023. H-E-B completed construction and opened its 95,000-square-foot grocery store on an adjoining 18-acre site in fourth-quarter 2022.
Jones Crossing
In 2017, the company entered into a 99-year ground lease pursuant to which it has leased a 72-acre tract of land in College Station, Texas, for Jones Crossing, an H-E-B-anchored, mixed-use project. Construction of the first phase of the retail component of the Jones Crossing project was completed in 2018, consisting of 154,117 square feet. The H-E-B grocery store opened in September 2018, and, as of December 31, 2022, the company had signed leases for substantially all of the retail space, including the H-E-B grocery store. As of December 31, 2022, the company had approximately 23 undeveloped commercial acres with estimated development potential of approximately 104,750 square feet of commercial space and four retail pad sites. The company continues to evaluate options for the 21-acre multi-family component of this project.
Kingwood Place
In 2018, the company purchased a 54-acre tract of land in Kingwood, Texas (in the greater Houston area) to be developed as Kingwood Place, an H-E-B-anchored, mixed-use development project. The Kingwood Place project includes 151,855 square feet of retail lease space, anchored by a 103,000-square-foot H-E-B grocery store, and five pad sites. Construction of two retail buildings, totaling approximately 41,000 square feet, was completed in August 2019, and the H-E-B grocery store opened in November 2019. An 8,000-square-foot retail building was completed in June 2020. The company has signed ground leases on four retail pad sites and one retail pad site remains available for lease. As of December 31, 2022, the company had signed leases for approximately 96 percent of the retail space, including the H-E-B grocery store. The company owns this project through a limited partnership with third-party equity investors.
In October 2022, the company closed on the sale of a 10-acre multi-family tract of land at Kingwood Place for $5.5 million. In connection with the sale, the company made a $5.0 million principal payment on the Kingwood Place construction loan.
West Killeen Market
In 2015, the company acquired approximately 21 acres in Killeen, Texas, to develop the West Killeen Market project, an H-E-B shadow-anchored retail project and sold 11 acres to H-E-B. The project encompasses 44,493 square feet of commercial space and three pad sites adjacent to a 90,000 square-foot H-E-B grocery store. Construction at West Killeen Market was completed and the H-E-B grocery store opened in 2017. As of December 31, 2022, the company had signed leases for approximately 74 percent of the retail space at West Killeen Market. During 2021, the company sold a retail pad site for $0.8 million. During third-quarter 2022, the company sold the last remaining retail pad site for $1.0 million.
New Caney
In 2018, the company purchased a 38-acre tract of land, in partnership with H-E-B, in New Caney, Texas, originally planned for the future development of an H-E-B-anchored, mixed-use project. Subject to completion of development plans, the company expects the New Caney project will include restaurants and retail services, totaling approximately 145,000 square feet, five pad sites and a 10-acre multi-family parcel planned for approximately 275 multi-family units. The company finalized the lease for the H-E-B grocery store in March 2019, and upon execution of this lease, the company acquired H-E-B’s interests in the partnership for approximately $5 million. Due to changes in H-E-B’s development timeline, the H-E-B lease was terminated in fourth-quarter 2022. The company is working with another prospective retail anchor and does not plan to commence construction of the New Caney project prior to 2024.
The company anticipates seeking additional debt to finance the development of Phase II of Holden Hills. The company is also pursuing other development projects. These potential development projects and projects in its pipeline could require extensive additional permitting and will be dependent on market conditions and financing.
History
Stratus Properties Inc. was founded in 1992. The company was incorporated under the laws of Delaware in 1992.
