Rathgeber sells Headwaters site

But he says Masonwood will follow original plans for 1,000 acres of natural area.

By Shonda Novak
AMERICAN-STATESMAN STAFF
Tuesday, July 22, 2008

Local developer Dick Rathgeber has sold Headwaters at Barton Creek, a planned 1,000-lot subdivision three miles east of Dripping Springs, to Austin-based Masonwood Communities.

Masonwood, which develops master-planned residential and mixed-use communities, is buying 1,031 of the original 1,365 acres of environmentally sensitive land that Rathgeber purchased in 2004 for Headwaters.

Masonwood intends to develop the subdivision, with homes priced from $250,000, under plans the City of Dripping Springs approved under Rathgeber’s ownership.

Masonwood CEO Jim Meredith estimates his company will develop the project over about eight years. Market conditions will dictate when work starts, Meredith said, but he doesn’t expect that for another year or two.

Rathgeber will retain control of 300 acres to donate to the Austin Community Foundation for parkland. Rathgeber sold the other 34 acres four years ago to former Texas Attorney General John Hill, who died last year. Meredith said Masonwood plans to keep 700 acres as open space, and possibly create hike-and-bike trails.

The Rathgeber and Masonwood acreage reserved for parkland would be about three times the size of Zilker Park, in keeping with Rathgeber’s original plans.

“It’s a gorgeous piece of property,” Meredith said, with large oaks, cedar elms and Barton Creek’s headwaters. “We think Austin … is one of the best places to develop master-planned communities.”

Although the housing market “is very soft right now,” he said, “we believe that with the expansion of U.S. 290 and the growth of Dripping Springs, that area is going to continue to grow.”

Rathgeber and Meredith wouldn’t disclose Headwaters’ purchase price. However, Rathgeber said it ultimately will be slightly lower than the recent appraised value of $20,750,000.

An undisclosed portion of the sale price is cash, which Masonwood paid Friday, Rathgeber said. Rathgeber said he will receive the balance from the sale of bonds through a municipal utility district that has been created to pay for a sewer treatment plant, water and sewer lines, drainage and other infrastructure as the project is developed.

Rathgeber, who turned 75 this year and has been marketing the project for several months, said his decision to sell boiled down to this: “At this time in my life, I’ve become risk-averse.”

Rising development costs were a major factor in his decision to sell, he said. In the four years since he bought Headwaters, formerly Hazy Hills Ranch, those costs have doubled, he said.

He estimates that putting in roads and water and sewer lines would have cost $25 million to $30 million in 2004; today those costs have soared to $50 million to $60 million, largely because of the rising price of oil.

Higher costs associated with developing the environmentally sensitive land also contributed to his decision, he said.

Rathgeber said the sale “represents a belief” that Central Texas will be a healthy housing market long-term, even though builders have dramatically scaled back new-home production during the national housing slump that is reverberating locally.

“A very limited number of new lots are being produced,” Rathgeber said. “Residential developers are starting to see there’s going to be a lot shortage, and are getting positioned to go with an upper-scale development.”

Mark Sprague, the Austin partner of housing forecaster Residential Strategies Inc., said he’s excited about the prospect of another master-planned community in the area, which is already home to at least two that could be sold out by the time Headwaters breaks ground. He said a new subdivision would present opportunities for home builders.

But he sounded a note of caution because of what he said is an oversupply of lots - a four- to five-year supply - ready to be built on. Although most of those are larger lots, Sprague said, volume builders could buy some of them and build more houses, adding to the glut.

However, he noted that Headwaters’ hundreds of acres of parkland will add to its appeal.

Meredith acknowledged that “there is some inventory out there we need to go through,” but with the improvement that’s expected in the capital markets next year, where lending has been dramatically constrained, “it’ll be a better opportunity to sell to the builders we’re talking to.”

“There’s no question that there is going to be demand for Austin, now and in the future,” Meredith said. “I definitely don’t think Austin’s going to fall off into the Gulf.”

When Rathgeber announced Headwaters in 2004, he said, “It’s not every day you have the chance to create a park three times the size of Zilker. That’s a pretty good legacy, whether you make money or not.”

Rathgeber said he doesn’t regret selling, because “I know Mr. Meredith will develop it properly.”

snovak@statesman.com; 445-3856

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