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Lack of utilities poses problems for developers

Aug. 9, 2011 at 3:09 a.m.
Updated Aug. 10, 2011 at 3:10 a.m.

A construction crew pours a concrete  driveway of a home under construction at Terra Vista, a planned neighborhood on Victoria's north side. Developers say the availability of nearby infrastructure made this project possible.

REIMBURSING DEVELOPERS

While the city does not reimburse developers who extend off-site utilities to their project, it does pay the difference if companies install oversized utilities.

Oversized utilities cost more than simple adequate utilities, and allow for others to tie into the system in the future.

Some commercial contractors and residential developers say Victoria faces a problem.

Much of the city's vacant land lacks adequate sewer or water lines, or both. The steep costs to install this infrastructure has and will stymie many new small- and mid-scale projects, developers say.

While this reality is not unique to Victoria, it has, perhaps, a special significance. As the city emerges from a long period of lackluster growth, hiccups of this sort could slow newfound momentum.

"It has always been a problem, and I don't think it's going to change," Steve Klein, a South Texas residential developer, said. "It doesn't matter who wants to develop, you need adequate water and sewer at the property. Utility construction is extremely expensive."

Klein is developing Terra Vista, a master-planned neighborhood on the city's north side. The economics of this project worked for him because the city extended an oversized water and sewer line down Mallette Drive to service a new school.

Without that infrastructure nearby, Klein would have canceled the neighborhood, he said.

Many small- and mid-sized businesses cannot afford to plow hundreds of thousands of dollars into underground utilities. Even bigger companies hesitate to develop when facing such costs.

Frost Insurance Agency, which is part of a bigger company with 100 Texas locations, built in 2005 a new office in Victoria. Traffic counts lured the company to north Main Street.

But before the company even poured the foundation, it paid $300,000 to extend water and sewer lines from Loop 463 and to add street access.

"Not every client is willing or able to foot that kind of bill up front," said Kevin Krueger of Krueger Construction, the contractor for this project. "I think we're behind the eight ball if we really start to grow."

Almost 40 percent of land within city limits is undeveloped, according to the 2007 Victoria Land Development Study, the most up-to-date information. While much of that land is in the floodplain, other development hurdles exist.

Some vacant properties have sewer lines but no water and vice versa; some have neither; some have both utilities, but the lines are inadequately sized; other developable tracts are not for sale by the owners.

"Every vacant lot, each part of town, is different," John Kaminski, the city's director of development services, said.

During the past 10-plus years, the city spent millions of dollars extending infrastructure following land annexations - a requirement of law. For example, infrastructure now exists in these areas annexed by the city:

n The north side of Loop 463 between the Victoria Mall and Salem Road.

n The west side of U.S. Highway 87, north of the loop.

n The Ball Airport site, the setting for Klein's new neighborhood.

The city annexes property that presents feasible growth and so new development will adhere to its standards for buildings, landscaping and parking, Kaminski said.

While many areas on the city's outskirts now have infrastructure, most of the vacant in-fill areas lack it. Much of that land was annexed between 1980 and 1989, before law required utilities extensions.

With limited capital improvement dollars, and much of it earmarked for street repairs, upgrading existing property becomes tough.

"The reality is there's only so much money to go around," Kaminski said. "I don't think we're at a risk of losing development yet. If there's a great enough demand - whether it's for housing or other business - the market will dictate growth."

Tom Schmidt at Urban Engineering, a Victoria civil engineering firm, said cities across the country share these same problems.

If developers wait long enough, cities will often extend utilities to their project - but it's never guaranteed and always at the city's pace, Schmidt said.

To help ease the costs and to level the playing field, Krueger suggests the city should create a fund to which all developers contribute. Money in it would helps to pay for future utility extensions. As it is, the first company to develop a property incurs all the costs and those that follow nearby can tie into the utilities without contributing anything.

Justin MacDonald said that if the city works with developers, the sky here is the limit. MacDonald is executive vice president of Kerrville's MacDonald and Associates, developer and manager of Victoria Point Royale Apartments, a 120-unit John Stockbauer Drive apartment complex under construction.

The investors built there because the property boasts all utilities.

"If the city provides that kind of experience to other developers, I would say Victoria can handle any reasonable amount of growth," MacDonald said. "I can say we've had a great experience."

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