Austin Business Journal

Rainey Street's transformation continues amid flood of new development

By Marissa Luck

Fifty years ago, Jesse Alba moved into a small one-bedroom home at the end of Rainey Street. It was a quiet, tree-lined neighborhood mostly filled with working-class Hispanic families. Chickens roamed around the neighbor’s yard and kids would walk to the lake to catch minnows. Alba and his former wife raised his six children there, in the house that has been in his family for three generations.

Now when Alba, 71, looks out from his front yard he can see a skyscraper stretching for the heavens. A steady hum of hammers banging and bulldozers beeping is ever pervasive. At night, the roar of crowds crossing the street from one bar to another often keeps him awake into the early morning hours.

Over the last five decades, Alba has watched Rainey Street turn from a sleepy residential neighborhood with boarded-up homes to a popular nightlife district studded with trendy bars and luxury apartments  And there’s no reason to think the changes will end.

Austin’s Rainey Street — centered on the eponymous thoroughfare, pictured looking south — has changed more than any other Central Texas neighborhood in the past decade. ~ABJ Staff

Austin’s Rainey Street — centered on the eponymous thoroughfare, pictured looking south — has changed more than any other Central Texas neighborhood in the past decade. ~ABJ Staff

Development on the street is far from mature. There are about 2,750 new residential units planned for the Rainey Street area. Some 1.55 million square feet of office construction is planned or already in the works, while 2,000 hotel rooms were recently delivered or are on the drawing board. Rooftops and office towers will be followed by more daytime restaurants and retail, Rainey street experts say. 

That means the district known for its nightlife will evolve into a daytime destination, too. 

“Inevitable is the word. [The change], it’s going to happen regardless, so what are you going to do?” Alba said, eyebrows raised over wire-framed glasses. “They’re not going to stop. Like my cousin said, this is no longer a neighborhood.”

Indeed, this is downtown Austin — its farthest-most niche on the southeast side. Rainey proponents say the charm of the bungalow bar street won’t disappear. Instead, it will simply be surrounded by busier, denser developments.

And for all the change that Rainey Street has already seen, its transformation into a bar district only began nine years ago when Bridget Dunlap opened Lustre Pearl in 2009. The district is only about a decade into its evolution, Rainey Street observers say.

“For a hundred years Rainey Street was the same thing — it was residential neighborhood — and then starting about 10 years ago it began to change and since that time it's never stopped changing,” said Ben Siegel, co-president of the Rainey Business Coalition and owner of Banger’s Sausage House and Beer Garden.

“What Rainey Street is ultimately going to be is not going to be defined for probably another 10 years.”

Balancing bungalows, bars and building high    

Four years ago, C.J. Sackman and his grandfather flew down to the Texas capital to scout out properties for a multimillion investment. Their family-owned business, Sackman Enterprises Inc., had built a brand of restoring historic brownstone buildings in Manhattan. Rising New York property values and a desire to expand the brand outside of the northeast pushed the company to look south and eventually land on Austin. 

At the time, Sackman was in his mid-20s and attracted to Austin’s allure as a vibrant, young city. 

But it didn’t take much market research to realize the potential of red-hot population growth and cheap land prices — cheap relative to the East and West coasts, that is.

Within a short walk from downtown, Sackman and his grandfather discovered Rainey Street. They were enamored by the picturesque, tree-lined street with turn-of-the-century structures and views of the water.

“Being from out of town, we had a very objective view of Rainey. We just saw a unique character [in the street] with the best views in the city right next to hike-and-bike trails, and we saw everything [development-wise]  moving east,” said Sackman, now 30.

It took just two weeks to identify the property that would one day become a 34-story condo tower and mixed-use project called 70 Rainey. Sackman Enterprises purchased several of the lots from local developers Riverside Resoucres and JMI Realty starting in 2014.

At the time JMI Realty principal Taylor Vreeland, who developed the nearby Hotel Van Zandt, lived in one of the bungalows with his wife.

“Part of the reason we would sell to Sackman is that he made a soft commitment to try to preserve the houses. That was important for us as a seller because we like the character and the charm of Rainey,” said Vreeland, who went on to live on Rainey Street in a new condo for another few years. 

Sackman said his family’s work preserving the character of brownstone homes in New York could translate into Rainey street.

“Given all of our work on the Upper West sides and brownstones, neighborhoods are something we understand. There are different feels to individual neighborhoods and we've just grown up in the business understanding that and also responding to that,” Sackman said. 

Sackman is acutely aware of aesthetics. He carries around a black Moleskin notebook and lights up when he rattles off facts about the history of Rainey Street. 

He spent hours poring over plans with Page, his architects, to ensure that 70 Rainey did not look like a foreign object plopped on the street.

“It's not like we build a bungalow or make it look like a bungalow. We are a 34-story building, so what do we do? And it came down to the fact that the unique feature of Rainey Street is truly the tree-lined kind of canopy over the street with the hike and bike trail and what's happening with Waller Creek,” he said. 

Ultimately they focused on covering the parking garage podium with lush greenery to blend into the tree-lined canopy of the street. The underside of the tower and restaurant will be made with wood to mirror the wood look of the houses. And the two houses that were on the property will remain, except they have been converted into office space and a gallery showroom for 70 Rainey. 

Construction on the 70 Rainey condo tower is progressing and Sackman expects the luxury residential condo tower to be complete by the end of the year. That will bring 164 additional residential units to Rainey Street, which already has about 945 existing units, according to Sackman.

The next big thing: Office space

Sackman’s plans don’t stop at 70 Rainey. The developer has quietly been working on a 70,000-square-foot, nine-story office space to be built behind two converted bungalows in the lots next door. The area is currently  occupied by food trucks and Sackman’s converted bungalow offices. Already he is going through a traffic impact analysis with the city on his plans for a mixed-use office development, he said.

The project — dubbed “Rainey Market” for now — would be built behind the bungalows to preserve the old structures, he said. The office building will have a European barn style which he hopes will complement the bungalows. In front of the office structure he envisions a couple of restaurants and perhaps an open-air market. He’s still looking for restaurant partners for both his developments.

Meanwhile, several other office and residential developments are in the pipeline that, when combined with the Rainey Market, will redefine the character of the street. 

Like Sackman, a few savvy Rainey observers are putting their bets on office space and daytime retail as the next major evolution for the historic district. 

“The apartments are already there, the condos are there already, what’s not there is an employment base and an area where people can office,” said John Barksdale, senior vice president of CBRE Group Inc. in Austin. “People that live on Rainey Street don’t have the opportunity to work on Rainey Street.”

Barksdale and Mark Emerick of CBRE are looking to change that. They’re working with the investment firm World Class Capital Group on an effort to redevelop an old county building at 56 East Avenue into a modern, high-tech office space. In the short term, plans are to make some improvements to the existing low-rise building, then lease it out to a tenant for a maximum of three years, Emerick said.

Eventually, World Class Capital wants to redevelop 56 East with 400,000 square feet of office space, although density bonuses could lift that number to 700,00 square feet, Emerick said.

At the other end of Rainey Street, World Class Capital also bought the IHOP property at East Cesar Chavez last year. Apparently the company is eyeing more office and retail there, but World Class officials couldn't be reached for comment.

And eventually another 300,000 square feet of office could sprout up in one of three high rises on land owned by New York-based McCourt Global at the corner of Red River Street and East Cesar Chavez Street. 

Combining all the projects proposed or under development, there is about 1.55 million square feet of office space planned or under construction in the Rainey Street District, according to a 2017 analysis from Big Red Dog Engineering and Consulting. That’s roughly the equivalent of adding three Frost Bank Towers to the neighborhood. 

More hotel and office workers in the area will mean more people looking for breakfast, lunch, coffee breaks and happy hours, Barksdale notes. 

Beyond beer and cocktails

To Britt Morrison — senior vice president of Weitzman, which specializes in retail and restaurant leases — daytime restaurant options is a “huge piece of the puzzle” that's missing.

“At any given time you have 21 meals a week. Rainey Street has 5 to 7 meals covered — between Friday, Saturday and Sunday. What they struggle with is what is do with those other 14 meals a day. That Monday-through-Friday crowd is lacking. It will take the right restaurant and the right office space to get there,” Morrison said.

Morrison likens Rainey Street to a young Second Street. It took the opening of the new Google tower at 500 West Second Street and the Northshore luxury apartments before more restaurants sprung up there.

Along with restaurant will come more retail opportunities.

Royal Blue Grocery is the only grocery store with a Rainey Street address, but the potential for thousands of additional residents in the area will demand more options, said Robert Knight of Knight Real Estate Company. Knight was instrumental in Rainey Street’s transition from residential zoning to Central Business District zoning. He believes there’s potential for a medium-scale grocery operation in the area — think Trader Joe's or 365 by Whole Foods — and he sees more restaurants and cafés coming online, too.

Banger’s owner Ben Siegel is banking on Rainey’s daytime transformation.

Several years ago, the restaurant tried to open for lunch seven days week, but temporarily truncated the lunch business to the weekend because there wasn’t enough foot traffic. 

After the opening of the Hotel Van Zandt, and now the Fairmont Hotel, Siegel said he has a steady stream of lunch eaters and he’s once again serving up lunch daily. But he sees “plenty of room for growth.”  

That’s why he’s invested $7 million into a major expansion of Banger’s. The wood siding of the three-story, house-like structure already is rising over Rainey Street. The 15,0000-square-foot building will house an on-site meat packing and ham curing facility, a smokehouse and walk-in beer cellar. Once the expansion is complete in May, Siegel said he’ll have enough room to host events with 2,000 people.

Like everything around it, Banger’s is a blend of old and new. A 1920s-era bungalow was converted into a wood-paneled office for Siegel and a few employees. Next door, one bungalow was torn down but replaced with a beer and sausage hall modeled after a 1930s craftsman style home.

What about its cool vibe?

While locals lament the loss of bars and bungalows on the street, Siegel points out there are more bars today then there ever have been in the history of the district. 

He criticizes some early condo developers such as Millennium and SkyHouse, who he argues “took no consideration to the place that they are or the city that they're in” when building high-rises. But there are also significant landowners more cognizant of the character of the place, such as Sackman and developer Jesse Lunsford of Rainey Ventures, he said.

“You have different kinds of developers in this town. There are guys that develop strictly with a focus on making money and then there are guys that understand that as you build things you're contributing to the fabric of the city,” he said. 

Siegel is an owner-user of the property — something unique for the bars in the area, said Dale Glover of Rainey Co. Along with bar maven Bridget Dunlap and developer Perry Lorenz, Glover was key play in turning Rainey Street into the entertainment district it is today. 

Glover pointed out that any high-rise developer would need two to three contiguous lots. Yet fragmented land ownership could prevent that, many Rainey Street experts noted.

"It's going to be very difficult to string those properties together," Siegel said. "You not only have multiple landowners but you have multiple lease holders that are all on different schedules that are operating businesses inside of those houses.”

And any developer would have to pay handsomely to convince a bar owner to sell. Rainey Street’s bars routinely rank in the top 10 establishments for liquor sales in the city of Austin. Between 9:30 p.m to 2:30 a.m. on  Friday nights, at least one pedestrian crosses the Rainey-Davis intersection every three seconds, according to a 2017 study from Big Red Dog Engineering and Consulting.

Sackman said he scoured the street for development opportunities while hunting for a property. 

“With how well the bars are doing on Rainey Street, for a developer like me to accumulate contiguous lots… it doesn’t underwrite. To buy these operators out at the numbers they're making, it doesn't make sense,” Sackman said. 

Staying on Rainey 

For the remaining homeowners on Rainey, there may never be a number that makes sense either. 

Over the years, Alba has dealt with flooding from nearby construction zones and drunken drivers crashing into his parked truck. At least once a month a real estate agent or developer knocks on his door offering to buy his home — well, more exactly, to buy the 3,375 square feet of land on which it sits. The county currently values Alba's 0.0775-acre lot at $353,989 — though land and homes routinely sell for far above the appraised value.He’s gotten offers that were laughably low and multimillion dollar ones too. But so far he’s said no to all. 

The property itself now is split between himself and his six children — who all want something different for the property. And because he's over 65, he receives a tax exemption that keeps the property taxes level. If one of his children were to inherit it, the taxes would immediately shoot up — a fine incentive for many landowners to sell.

When bars started cropping up on Rainey, most of his neighbors sold out because they couldn’t afford the rising property taxes or because they were convinced they could make big bucks from hungry developers, he said.

“Everybody thought they were going to become millionaires,” Alba recalled. 

They did not become millionaires. Some sold for a few hundred thousand. 

For now, Alba is content to stay in his humble two-bedroom home. In the living room, he’s got boxes of old photos and an intricate family tree that stirs his memories about all the people who have passed through the structure — like his grandpa, the antique shop owner, or his uncle who earned a purple heart in the military. 

“This is something that that has been in our family,” Alba said. For now, “I have a house to come home to.” And that’s more valuable than a big paycheck.