Austin officials are taking it upon themselves to rebuild an old downtown hospital after an agreement with Aspen Heights Partners expired.

Austin City Council will discuss the future of the city-owned HealthSouth Rehabilitation Hospital site at 1215 Red River and 606 East 12th Street at its July 20 meeting, where council members can vote on a resolution to finalize development plans, Austin Business Magazine report.

The proposed resolution would give city staff approximately 60 days to prepare a “comprehensive report” on the viability of the downtown project. The city needs to lock in its next steps, possibly having the Austin Economic Development Corporation or the Austin Housing Finance Corporation lead the rebuilding efforts.

Aspen Heights, an Austin company led by Greg Henry, was set to take over the site, but its negotiating agreement with the city expired at the end of June and officials were ready to move forward .

Aspen’s proposal includes two apartment buildings totaling 921 units, about 25 percent of which would remain low-income housing. Affordable housing was later reduced to 7% as market conditions deteriorated.

Hexah Chief Executive Fayez Kazi said Aspen was trying to keep the project financially viable, but its proposal was marred by an expected sudden increase in costs. Hexah’s company worked with Aspen Heights on the HealthSouth financial model.

“Changing financial markets have pushed the tight model to the brink of being unviable,” Qazi told the media. “Aspen Heights tried to make it work under worse capital markets than during the initial proposal period, but ended up not in a manner or time frame appropriate to the city.”

— Quinn Donoghue

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