Mr. Cavanaugh owned an automobile salvage business on the banks of Bull Creek which is within the Drinking Water Protection Zone. Mr. Cavanaugh sought help from the City of Austin in closing that business, cleaning up the property and redeveloping it in a neighborhood friendly and environmentally responsible way. The City of Austin worked with Mr. Cavenaugh and awarded him these Transferable Development Rights to offset the cost of performing a “Voluntary Clean Up” with the TCEQ and redevelop his auto salvage business into a self storage facility.

Click to view a copy of the Agreement between the City of Austin and Mr. Cavanaugh and a letter fromAustin’s Chief Environmental Officer Chuck Lesniak, acknowledging Mr. Cavanaugh’s fulfillment of the requirements of the Agreement and granting Mr. Cavanaugh the right to sell 229,944 SQFT of Transferable Development Rights in designated watersheds within the City of Austin’s jurisdiction.

To determine whether your property is within the City of Austin’s jurisdiction, please view the following map:

http://www.austintexas.gov/GIS/JurisdictionsWebMap/

These tools may help your research as you determine what is required to develop your property.

Determine the name of the watershed the property address is located within here: City of Austin Watershed Location Tool  

The City of Austin’s “Find My Drainage Charge” tool can help visualize impervious cover: City of Austin’s “Find My Drainage Charge” tool 

Determine the name of the watershed the property address is located within here: City of Austin Watershed Location Tool  

Find your Regulation Area in the Watershed Regulation Area Map here: City of Austin Watershed Regulation Area Map

The TDRs may only be transferred into three Watershed Regulation Areas. They are Water Supply Rural, Water Supply Suburban, and Suburban which has two sub categories, within the city limits and in the ETJ. 

Use the map on the City of Austin’s website to view the Jollyville Salamander Habitat Drainage Areas here:

Jollyville Salamander Drainage Areas Map

The purple shaded areas designate Jollyville Salamander Drainage areas which drain into Salamander habit.  These areas cannot accept TDRs.

Use the tool on the City of Austin’s website to research violations here:     

Austin Code & Violation Tool

The owner should know if these Entitlements exist. Confirm the owner’s answer with the City’s records here:

Property Permit Search Tool

search for:

BA – Board of Adjusters (means there is a variance on the property

PR- Plan Review

SP- Site plan

or email Leaneheldensels@austintexas.gov 

If you run into difficulty contact the Development Assistance Center (DAC):

Impervious Cover is a formula which is the amount of Net Site square feet multiplied by the Max Percentage of Impervious Cover in the site’s specific Watershed Regulation Area.  

The first step is to determine how net is calculated. The City of Austin has developed an excellent video/discussion of these topics found on their website. It take only about thirty minutes to go through this lesson. You will find it very interesting and may want to revisit it many times. An astute developer who hires professionals to make this calculation would be well advised to invest time to learn about the calculation of Impervious Cover. It will give him a background to evaluate properties as to whether they are worth pursuing. Please see a link to that information here:

Watershed Protection Ordinance  “What is Impervious Cover?”

Max Percentage comes from information found in two links on the City of Austin’s Website titled Watershed Protection Ordinance. They are the Watershed Regulation Area Map and the Watershed Protection Ordinance Regulations Summary Table. It is important that you take the time to familiarize yourself with these two links.

LINK: Watershed Regulation Area Map

• The COA identifies six Watershed Regulation Areas on the map. The map shows those six areas listed in the bottom right corner of the map.
• In order to distinguish between the different Watershed Regulation Areas, each area on the map is colored differently. There are six different colors.
• The name of the Watershed where the property is located was determined in the candidate determination process. When you find that Watershed on the map you know the corresponding Watershed Regulation Area.
• You will find that some watersheds overlap more than one Watershed Regulation Area. If your property is near that border between Watershed Regulation Areas it might be necessary to look at more detailed maps or go to Google PRO and use their measuring tools to determine into which area the property is actually located.

LINK: Watershed Protection Ordinance Regulations Summary Table

• The table contains information in six columns which relate to six Watershed Regulation Areas. The colors of the map and the table correspond with one another.
• The table divides the areas into two zones,  the Desired Development Zone and the Drinking water Protection Zone.
• The ungenerous Max Percentages Impervious Cover allowed in the Drinking Water Protection Zone reflects the city’s desire to protect water quality in the areas where Austin gets its water supply.
• There are Max Percentages of Impervious Cover in the Suburban Area which is in the desired development zone, to limit overbuilding and ensure quality of life.
• Disregard the Urban Area and Barton Springs Zone Area. TDR’s cannot be transferred to these areas.
• In the far left column titled Regulatory Category find the title Impervious Cover (IC).
• Go to row titled Commercial Max Percent. See the Max Percentage of Impervious Cover for Commercial Development.

The City of Austin has identified three Watershed Regulation Areas that may receive TDR’s.  They are the Suburban Area is divided by Inside and Outside City Limits, the Water Supply Rural Area and the Water Supply Suburban Area. 

The Urban Area and the Barton Springs Zone may not receive these TDR’s. Adjacent to each area is the Max Percentage of Impervious Cover that may be developed as Commercial on the Net Site found in the Watershed Protection Ordinance Regulations Summary Table.

The Multifamily and Single Family Max Percentages of Impervious Cover are adjacent to the commercial Max Percentages and the method of calculation is the same. Two of these areas, Water Supply Rural and Water Supply Suburban in the Drinking Water Protection Zone, contain some of the most valuable real estate and yet they have very ungenerous allowances for Max Percentage Impervious Cover.

Buyers of TDR’s in these areas can potentially create the most value with the purchase of TDR’s, however most all properties can increase value through increased impervious cover.

Potential buyers may risk missing an opportunity to create value if they do not purchase TDR’s that would allow them to increase the scale of their developments. Past trends in Austin have been to increase development restrictions which means less “usable area” and less value.

Our surveys indicate that the cost of a square foot of additional impervious cover rights for well located properties in the Austin market well exceeds $40 per square foot.

Call for pricing. We will offer you a price per square foot that you can leverage into a Windfall Gain! Any transactions in the accepted watershed markets can add huge value to your property.

Contact Roy Cavanaugh at 512-497-7691

It might be helpful to review some of the terms included in this document explaining transferable development rights: 

https://www.smartgrowthamerica.org/app/legacy/documents/transfer-development-rights-policy-toolkit.pdf

Transferable Development Rights are commonly referred to as TDR’s.  They are also referred to as Impervious Cover Rights or I.C. Credits.  They are sold by the square foot and are priced accordingly.

Properties have two important characteristics that determine their value.  One is “location” and the other is the “bundle of rights” to which the purchaser is entitled to exercise when the property is developed.  Those rights control such things as use, height, access, set-backs, city services and views, as well as environmental restrictions involving water quality, endangered species, slopes, and impervious cover.  Impervious Cover Rights heavily impact real estate value because they limit the size of the foot print of the development.  The bigger foot print correlates to higher value.

Arguably the most relevant number to focus on is the cost of each square foot of impervious cover allowable on a given site.  That number is the price or fair market value of the property divided by the number of allowable square feet of impervious cover on the property.  This number offers a potential purchaser a benchmark from which to value the purchase of additional impervious cover.

A buyer willing to pay $300,000 for a property with the right to develop 10,000 square feet of the site would justifiably be willing to pay the same price or $30 per foot, for more impervious cover rights.  An even higher price would be justified if the development of the property required using a significant portion of the property for non-income producing activity. 

For example.  A hotel site would have to use up impervious cover rights for offices, restrooms, utilities, stairs, elevators, ADA ramps, lobbies, parking areas, driveways, sidewalks, fire lanes and dumpsters.  Areas such as these do not correlate with income.  The number of rooms, on the other hand, does correlate with income.  Therefore, the average income of every incremental square foot of impervious cover transferred would be more than the average income from each square foot of impervious cover before a transfer because the incremental impervious cover acquired by purchasing TDR’s would permit the construction of more rooms.  That would result in a larger proportional increase in the income stream from the property from the addition of more of impervious cover to the site.  

The proof is in a comparison of the projected average income per cubic foot of impervious cover before and after the transfer.

Once a property is determined to be a candidate for TDRs, the developer and his Civil Engineer should determine the Net Site area and the value of the amount of increased development with TDR’s. The developer should move quickly to complete the purchase of TDR’s and start development.

The process of purchasing TDR’s is as follows:

• The developer files a development application with the City of Austin.
• Enter into an Escrow Agreement for the sale of TDR’s between the TDR Buyer/Developer and TDR Seller.
• The TDR Buyer then deposits the agreed upon sales price with Heritage Title represented by the Escrow Agent John Bruce. The Escrow Agreement instructs the Escrow Agent to withhold the release of funds to the TDR Seller until he receives a properly signed Transfer Notice from the Director of The City of Austin’s Development Services Department. These documents can be viewed at the links below.

Please see link – Escrow Agreement

Please see link – Transfer Notice

• The TDR Seller’s attorney then prepares a Transfer Notice identifying the TDR Buyer’s property and the quantity of TDR’s to be transferred.
• The Transfer Notice is then delivered to the Director of The City of Austin’s Development Services Department for his signature of approval.
• Upon the Director’s approval, the City subtracts from the TDR Seller’s TDR account with the COA, the agreed upon number of TDR’s and records that same amount of TDR’s as transferred to the buyer in the COA’s record of transfers.
• The City’s Real Estate Attorney then returns prepares a Restrictive Covenant that transfers the TDR’s to the buyer’s property and gives this document to the seller. Please refer to the example Restrictive Covenant Below.
• The TDR Seller then delivers the Restrictive Covenant to the Escrow Agent.
• The Escrow Agent then records the Restrictive Covenant with the agreed upon quantity of Transferred Development Rights, denominated in square feet, to the TDR Buyer’s property deed records.
• The Escrow Agent then releases to the TDR Seller the funds for the TDR purchase held in Escrow.

• Please see link: Example Restrictive Covenant

Step One
The Civil Engineer computes the “Net Site Area” and determines the Environmental Limitation on impervious cover that can be developed on a site. The percentage is determined by the Watershed Regulation Area that the site falls into and to whether a site falls inside or outside an Aquifer Recharge Zone.  For example, the site is located in the Watershed Regulation Area Suburban and above an Aquifer Recharge Zone. That limitation would be 60% for example. These Credits allow a Buyer to increase the Impervious Cover Limitation by 10% of the “Net Site” In this example the purchase of additional credits allows the developer to increase the development from 60% to 70% of the “Net Site” which in this example is a 16 2/3% increase. The developer then computes the increase in Development Yield and compares it to the Development Yield of the Site without the credits.  Alternately, the Buyer can compare the cost of each additional SQFT of Impervious Cover Credit to the average cost paid per foot for the Impervious Cover on the site without the credits. If the Development Yield and/or relative cost compares favorably, he would be well advised to proceed with the purchase of additional Impervious Cover. 

Step Two
The Buyer instructs the Civil Engineer to prepare a Site Plan or a Final Plat Subdivision including the Credits in the Impervious Cover proposed for Development. These are the two types of Development Applications required by the City to purchase the credits. 

Step Three
The Buyer and Seller enter into an Escrow Agreement for the sale of the Credits.  The Seller’s Attorney prepares the Escrow Agreement after consulting with the Buyer’s Attorney.

Step Four
The Seller’s Attorney prepares Transfer Notice which contains the number of square feet to be transferred and the Buyer’s property description required by the Title Company and forwards it to the Chief Environmental Officer and the Director of Development for the City. They examine the Site Plan or Final Plat Subdivision to determine it is compliance with the Agreement made law by the Ordinance. If it complies with the qualifications and limitations, they both approve it and forward it to the City’s lead Real Estate Attorney.  

The Seller’s Attorney also prepares the Restrictive Covenant which also contains the number of square feet to be transferred and the Buyer’s property description required by the Title Company.  He then forwards the Restrictive Covenant to the City’s lead Real Estate Attorney who withholds the approval until receipt of the approved Transfer Notice.

Step Five
Upon receipt of the approved Transfer Notice the lead Real Estate Attorney at the City signs the Restrictive Covenant which indicates the approval of transfer of the Credits from the balance of my Credits to the designated property in the Transfer Notice. The Restricted Covenant is then delivered to the Title Company.

Step Six
The Title Company records the Restrictive Covenant on the Buyer’s Property. He then contacts the Buyer for verbal approval of the payment to the Seller in accordance with the Escrow Agreement. The Buyer now confident the property has the additional credits purchased and recorded on his deed records approves the release of Escrow funds to the Seller. The Escrow agent releases the Escrow funds to the Seller.

Step Seven
The Site Plan is approved with the inclusion of the additional impervious cover.

This website is for informational purposes only. 

The information here is intended to give you an overview of what TDRs are, how they can be valuable in your property development projects and provide some useful tools with which you can conduct your own research. It does not represent legal or financial advice.

I put forth my best effort to draft a document that potential buyers could read and quickly understand. To avoid potential legal problems, I expressly do not warrant this information. A decision to buy TDRs should be made in consultation with your legal, tax/accounting, entitlement experts and civil engineers.

Yes, recently a substantial sale of these TDRs was made in connection with the sale of a very large office complex.

The new owners had a very large staff and parking was inadequate. The sale of the property was contingent upon the acquisition of the TDRs. The sale of the office complex and the sale of TDRs were done simultaneously at the same title company.

The TDRs provided a footprint that allowed for the construction of a two story parking garage that parked 62 cars. This is a good example of the leverage that can be gained with the purchase of TDRs.

I cannot offer you legal or financial advice, but I can give you a valuable tip! Don’t be one of the guys who one day says, “I wish I had the foresight back in 2020 to buy Impervious Cover Credits when I had the chance, because today my property would be worth much more.”

TDRs can be extremely valuable, and can completely transform the potential of a property by offering options that would not otherwise be possible.

Consult with your legal and financial experts to see if purchasing TDRs would be a wise decision for you.

Please contact Roy Cavanaugh at 512-497-7691 

To discuss the purchase of TDRs in the City of Austin, please contact:

Roy Cavanaugh

512-497-7691

cephus1947@gmail.com

These rights/credits are real estate assets and therefore capital assets. They may be utilized in a 1031 exchange. Some buyers will find this very beneficial.

Please see link – IRS Rules That Development Rights are Real Property for Like-Kind Exchange Purposes

Please see link – Texas 1031 Exchange Basics