July 10, 2018
(Austin) – On Tuesday, the Central Health Board of Managers will consider approving a lease for a portion of its Downtown Campus – formerly the Brackenridge Campus – with a local limited partnership called the 2033 LP.
If approved, the first year of the lease could generate for Central Health up to $6.6 million in upfront payments including $1.425 million in rental income to help fund health care services in Travis County, including underserved areas to the east.
The 2033 LP was established by The University of Texas (UT) alumnus Sandy Gottesman for the benefit of UT Austin and Dell Medical School at UT Austin, at no economic gain or profit for itself. The LP will serve as UT’s development partner in utilizing the Downtown Campus redevelopment to support Dell Medical School’s clinical and research operations. The 2033 LP plans to lease approximately 2.6 acres of the 14.3-acre Downtown Campus and then sublease it to UT, once the two entities reach a final agreement. Over 99 years, the ground lease will generate approximately $450 million for Central Health (in today’s dollars the amount would exceed $55 million).
“The primary purpose of redeveloping the Downtown Campus is to generate revenue to pay for health care in ways that are consistent with Central Health’s mission,” said Dr. Guadalupe Zamora, a long-time Austin physician and Central Health Board Chairperson. “As our population grows, so does the demand for health care. A long-term ground lease with the 2033 LP that could begin paying Central Health within six months makes sense for taxpayers, and more importantly the patients we serve.”
Central Health will present the agreement for Travis County Commissioners Court approval Tuesday, July 10, and before a special-called Central Health Board of Managers meeting at 5:30 p.m. that same day.
The Proposed Ground Lease
Under the proposal the 2033 LP would lease two of the campus’ six blocks – Block 164 and portions of Block 167 – from Central Health for 99 years.
- Block 167 includes the north wing of the former University Medical Center Brackenridge (UMCB) hospital building, adjacent to the main hospital tower. While the tower’s future is undecided, the remaining buildings will be demolished and redeveloped.
- Block 164 would be redeveloped to create state-of-the-art office facilities for Dell Medical School and other mission-aligned, strategic alliances for medical research and innovations. Block 164 currently houses a medical office building that will be vacated by year’s end. The development will include opportunities for mixed use, retail and commercial space that could generate additional revenue to support UT’s health care missions.
- In addition to paying for demolition costs, the 2033 LP will pre-pay three-years rent to Central Health for Block 164. Depending on what Central Health decides to do with the former hospital tower, the 2033 LP could make additional pre-payments on Block 167 to fund building demolition costs. In addition to annual escalations, rent will be reset every 15 years to assure Central Health captures fair market value for the property.
“This is Phase 1 of a long-term redevelopment process,” Central Health President and CEO Mike Geeslin said. “This approach gives stable, near-term cash flow for Central Health’s mission – providing access to health care – and allows our board of managers flexibility in planning the next phases of the Downtown Campus redevelopment. This phase of the redevelopment supports the guiding principles of Central Health’s Brackenridge Campus Master Plan – Mission, Stewardship, and Partnership – adopted by our Board at the beginning of this process.”
Project standards governing the redevelopment of the Downtown Campus reflect the goals and values resulting from the robust community engagement process, through which Central Health worked with the public to reimagine potential uses and design of the property.
“UT is excited to extend our collaborations with Central Heath, or its designee, to transform the Downtown Campus into a destination for innovative clinical care, health care research and medical operations,” said Gregory L. Fenves, president of The University of Texas at Austin. “Redeveloping the site enables our university to continue revolutionizing health care for the people of Central Texas through a mission-aligned partnership between Dell Medical School and Central Health.”
Downtown Campus History
For more than a century, the City of Austin provided safety net hospital care at Brackenridge Hospital on the former Brackenridge Campus, located at 15th Street and Interstate 35. In 1995, the City began leasing Brackenridge Hospital to Seton Healthcare Family. When voters created Central Health in 2004, Central Health received from the City the title to the entire Downtown Campus including Brackenridge Hospital, later renamed University Medical Center Brackenridge (UMCB). Seton continued running the hospital while leasing the building from Central Health for about $30 million a year.
In 2017 Seton vacated UMCB and moved operations across the street to its new hospital, Dell Seton Medical Center at UT. This new hospital, which isn’t funded by local tax dollars, continues to serve as a level one trauma center and to serve people with low income or who are uninsured. With Seton’s hospital facility lease payments coming to an end, the Central Health Board of Managers began setting aside reserve funds. Meanwhile Central Health launched a community engagement process to help plan for the future of the Downtown Campus. While the community said its first priority was generating revenue for health care, residents also told Central Health they envisioned a mixed-use development with a focus on medical and health innovation, job growth, retail and more at the heart of what is now the Capital City Innovation District. The development will be a walkable, sustainably built project, featuring access to the Waller Creek Park.