Austin tech sector bristles at city’s regulatory changes

This article was written by Lori Hawkins and Lilly Rockwell and appeared in the Austin American-Statesman.

Austin tech sector bristles at city’s regulatory changes

Could the Austin City Council’s recent moves to regulate “sharing economy” companies put a freeze on Austin innovation and outside investment?

That question is being debated by entrepreneurs and venture capitalists, some of whom say that by restricting ride-hailing services Uber and Lyft and short-term rentals, the city is sending a negative message about its commitment to the tech startup community.

The dialogue got more heated when Mike Maples, a Silicon Valley venture capitalist with longtime ties to Austin, weighed in on Twitter recently that his firm would no longer invest in on-demand companies in Austin because local government is “too hostile.”

That provoked an outcry by startup founders that Austin was in danger of driving away early-stage investment dollars that already are hard to come by.

“The City Council is telling the entrepreneurial community that if you would like to innovate and potentially disrupt an existing industry, you should do it elsewhere,” said Richard Bagdonas, a serial entrepreneur and founder of medical software company MI7.

Supporters of these regulations argue that the City Council isn’t trying to hurt the tech community but is enacting rules to promote safety, in the case of ride-hailing companies, and to preserve the residential character of neighborhoods. And Austin isn’t alone in passing these sorts of regulations — many American cities and states are grappling with how to regulate sharing economy companies.

“A lot of what we’re dealing with now is the right role for government at the intersection of government and the sharing economy businesses,” said Mayor Steve Adler, who voted for both regulations after he couldn’t get enough votes to pass less-stringent versions.

“This city cannot and should not abdicate its role to help ensure safety in the community,” he said. “But how it does that is something that needs to innovate and evolve.”

A problematic investment

Maples, founder of venture firm Floodgate, which has backed a number of Austin startups, said in late February that his decision to step out of the Austin market is based on risk factors.

“Startups are impossible to begin with, and if I’m going to invest in one, I have enough uncertainty without worrying about what the government’s going to do,” Maples said. “If I invest in a company that has high consumer appeal and could end up facing regulatory issues, that becomes a problematic investment.”

The discussion centers around two closely watched Austin City Council votes. Council members voted 9-2 last month to limit certain types of short-term rentals listed by companies like Austin-based HomeAway and Airbnb. This meant that all “Type 2” short-term rental owners, which is the type of rental where the owner doesn’t live on-site, will be banned in residential areas by April 1, 2022.

That followed another 9-2 vote in which council members decided that Lyft, Uber and other ride-hailing companies must require their drivers to complete fingerprint-based background checks, a requirement that the ride-hailing companies aggressively lobbied against. (Voters will get a chance to weigh in on these regulations in May, when an ordinance drafted by the ride-hailing companies is on the ballot.)

It was this decision in particular that generated a backlash against City Council Member Ann Kitchen, one of the main architects of the proposal.

A group called Austin4All attempted to force a recall vote on Kitchen by filing a petition with the city clerk. But on Friday the clerk rejected that petition due to a paperwork omission. The biggest backer of the anti-Kitchen effort was Joe Liemandt, founder of software company Trilogy. He contributed $20,000 to Austin4All.

Austin economist Brian Kelsey said Austin is one of a number of tech regions facing collisions between companies developing disruptive technology and those charged with regulating it.

“Public policy is always going to be playing catch up with technological innovation,” Kelsey said. “That’s true at the federal level and especially true at the local level. But when we have questions of public safety or how we tackle land use and neighborhood planning, of course the city government has to step in and take a position. “

According to research done by city of Austin staffers, at least five other major U.S. cities, including Houston, conduct the background checks for ride-hailing drivers rather than letting the companies conduct their own background checks. And in other U.S. cities, such as New York, short-term rentals for under 30 days are forbidden.

A slap in the face?

For HomeAway co-founder and CEO Brian Sharples, the clampdown on short-term rentals feels personal.

“I’m not sure it was intended to be a slap in the face of HomeAway, but it’s a little embarrassing for us to essentially have our prime product be illegal in the town in which we operate,” Sharples said.

Launched in 2005, HomeAway has built a network of websites with more than 1 million vacation home listings in almost 200 countries, making it the world’s leading platform for online vacation rentals.

The company, which was acquired by online travel giant Expedia in December for $3.9 billion in cash and stock, has 1,300 employees in Austin.

Sharples said Austin needs to decide whether it wants to be welcoming to startups that are using technology to build new kinds of businesses.

“It does send a signal to some entrepreneurs that maybe the city isn’t the friendliest to innovation and change,” Sharples said. “City Councils will come and go, and opinions will change. Unfortunately, the actions of a small group do reflect on the impressions that people outside the city have.”

Austin entrepreneur Dan Graham said it also matters what message the city is sending investors.

“One of our biggest challenges as a city is convincing venture capitalists to invest more dollars here,” said Graham, founder and CEO of BuildASign. “The availability of capital is what encourages entrepreneurs to start businesses, and it encourages the entrepreneurs we have to stay in Austin.”

Political consequences

The Maples tweet did not go unnoticed at Austin City Hall. Adler downplayed the comment as just one man’s opinion, pointing to a recent quote from Dallas billionaire Mark Cuban as evidence of investor support for Austin.

“Every startup stands on its own merits,” Cuban told CultureMap Austin. “As long as the rules apply to all competitors, then it would depend on the economics of each deal.”

Adler said Maples’ comments don’t change the “fundamentals” of Austin being an innovative city “where good ideas become real.”

“Most investors like Mark Cuban know that Austin is still vibrant and our investment community is growing,” Adler said.

Kelsey said it’s important to note that the entire tech community is not aligned in the belief that the city’s position is harmful. “There are some companies here that could stand to benefit from whichever direction the city decides to go on the sharing economy,” he said.

But for Austin City Council Member Ellen Troxclair, who voted against both regulations that the tech community is unhappy about, Maples’ message was exactly what she feared.

“To me it was really a display of how over-regulation has a tangible economic impact,” Troxclair said. “One of the reasons, clearly, that Austin has been so successful is because of our image as this innovative forward-thinking city, and yet the city is making decisions that are going to negatively impact entrepreneurs and the tech community.”

The Kitchen recall effort has raised the question of what the political consequences could be for the current council members. There are about 100,000 people employed in the tech community in Austin.

Local Democratic political strategist David Butts — who has worked on the campaigns of Adler and other City Council members — said there’s no doubt that the council’s votes on ride-hailing and short-term rentals will have an influence in the 2016 council elections. He said some incumbent council members who voted for the new regulations could face opponents who will campaign on the opposite side of this issue.

Butts says he wants to frame the discussion around the attempted “corporate takeover” of the Austin City Council and the effort to “undo what are reasonable laws for the public’s interest to benefit a profit margin for a multibillion-dollar corporation.”

In particular, Butts said he is concerned about the May vote on the ride-hailing ordinance. He helped set up a political action committee to fight it.

“(Uber and Lyft) have enough money to be successful,” he said, and are skilled at building political support among their users.

“Can Austin resist that?” he said. “We’ll find out.”

Austin’s job growth boomed in 2015, despite state’s energy sector woes

This article was written by Dan Zehr and appeared in the Austin American-Statesman.

Austin’s job growth boomed in 2015, despite state’s energy sector woes

The first of the annual revisions to 2015 Texas workforce data made two things abundantly clear — that depressed energy prices hammered the state’s oil and gas workforce last year, and that Austin keeps barreling through the statewide headwinds.

Revised data released Friday by the Texas Workforce Commission showed that Austin-area employers added 9,600 more jobs than initially reported, even as energy-heavy regions suffered sharp downward revisions to their 2015 payroll figures.

All told, employers in the Austin metro area added 44,500 jobs last year, a 4.7 percent increase, according to the commission’s revised data.

Preliminary data released earlier this year suggested local employers had expanded payrolls by 3.8 percent — a remarkable enough rate in a year when many observers expected local job growth to moderate.

Rather than cooling, though, the revised data showed Central Texas payrolls expanded faster in 2015 than in the prior two years.

“That is incredible,” said Brian Kelsey, founder of Civic Analytics, an Austin-based economic development firm. “It goes to show Austin’s economic resilience in the face of strong headwinds emanating from the rest of Texas.”

The revisions to last year’s data almost made the typical January workforce chill an afterthought. As usual, the Austin metro unemployment rate ticked higher in the first month of the year, to 3.2 percent from 3.0 percent in December, the commission said.

Local employers slashed 13,000 jobs during the month, a drop of 1.3 percent, according to commission data. In fact, the commission reported only three industry sectors that added jobs in January — federal government, state government and credit intermediation and related services firms.

However, even those payroll cuts were lighter than the typical January contraction, according to commission data.

“Of course a loss of 13,000 jobs could be alarming, but we know that is the trend in January,” said Tiffany Daniels, director or communications and employer engagement at Workforce Solutions–Capital Area Workforce Board. “Seasonal hiring, contract end dates and the start of new fiscal years can all affect job creation.”

Daniels said the board saw no major layoffs during January, and the “exceptional” annual job growth rate left her “more than encouraged.” The numbers explain more about the time of year than about the health of the Central Texas labor market, she said.

In fact, after adjusting for seasonal workforce trends, Austin’s unemployment rate dropped. The commission doesn’t immediately make adjustment to its local data, but calculations by the Federal Reserve Bank of Dallas put Austin’s seasonally adjusted jobless rate at 3.2 percent in January, down from 3.3 percent in December.

Statewide, the seasonally adjusted unemployment rate ticked down to 4.5 percent from 4.6 percent in December, the commission said. The national jobless rate fell to 4.9 percent from 5.0 percent.

On Friday, the U.S. Bureau of Labor Statistics also reported U.S. employment data for February. The nation’s seasonally adjusted unemployment rate held steady at 4.9 percent last month.

One of the few potential hitches in Austin’s workforce data appeared in the professional, scientific and technical services sector. Those firms, which employ many of Austin’s high-tech and white-collar workers, cut 2,400 jobs during the month, an unusually large number for a January, according to the workforce commission.

While month-to-month data can fluctuate widely, especially at the local level, the chill fit somewhat with a more cautious trend around Austin tech, said Cory Kruse, president of Novotus, a locally based staffing firm.

“I’ve seen at least in the last quarter – coming out of the holiday quarter – I’ve seen folks kind of holding off on tech hiring, at least from some of the bigger folks,” Kruse said.

What has increased, he said, is contract work. With some uncertainty about the statewide, national and global economies, companies are looking hire flex workers rather than full-time. But many workers have also moved toward contract gigs, as well.

“Someone will have one or two different jobs, more flexible,” he said, “and we’re seeing that more than two years ago when people were really hunkered down.”

The high-tech industry’s pauses and that preference for contingency staffing ebb and flow. With several large companies already hiring, like Apple, or getting ready for large expansions, like Oracle, tech hiring probably won’t stay static for long, Kruse said.

Either way, it seems less likely that the local job market will suffer any significant pain from the state’s depressed energy sector. The commission’s revisions pushed Austin’s job-creation rates higher, even as its adjustments revealed an even harsher fallout for oil and gas jobs and the regions where they’re concentrated.

According to the commission’s initial estimates, firms in the oil-and-gas extraction and mining-support industries cut 38,600 jobs across Texas in 2015. That figured ballooned to 57,700 job cuts in the revised data released Friday.

Energy-heavy Houston saw a slight upward revision, thanks to the industrial diversity that comes with such a large metro area. The heavy oil-and-gas presence in Midland and Odessa, on the other hand, left both areas with sharp downward revisions.

Midland’s total job count dropped 9.8 percent after the commission’s revisions. Odessa’s fell 12.5 percent.

Austin sees another year of record new car sales

This article was written by Claudia Grisales and appeared in the Austin American-Statesman.

Austin sees another year of record new car sales

The good times continue for Austin-area auto dealers.

For the fourth consecutive year, Central Texas dealers posted record sales of new vehicles in 2015.

Dealers sold 133,428 new cars, trucks, vans and SUVs last year, according to data from Dallas-based Freeman Auto Report, which tracks new auto registrations in Travis, Williamson, Hays, Bastrop, Burnet, Blanco and Caldwell counties.

The 2015 sales total is up 84.6 percent from 2009, the region’s low point during the recession.

And while new auto sales on an annual growth basis slowed to 2.6 percent — down from double-digit increases just a few years ago — the figures are just the latest reminder that Austin’s economic engine is still running strong.

“Economic growth and low unemployment in Austin are positively impacting wages… and over the past couple of years we’ve seen an unprecedented net inflow of wealth from people moving here from other states,” said Austin economist Brian Kelsey, founder and principal at economic research firm Civic Analytics. And “interest rates are still low. All of these factors are likely contributing to new auto sales volumes.”

Sales of new vehicles are a key indicator of an area’s consumer confidence, as purchases of big-ticket items such as a new car tend to indicate consumers aren’t worried about their job status or economic stability.

The 2015 numbers reflect the region’s highest sales figure for the industry since the Freeman Auto Group began tracking the data in the mid 1990s. The recent series of annual sales records began in 2012, when auto sales reached 105,440, and have climbed steadily since.

“Pinch me, we are lucky to be in Austin,” Vicki Roberts, dealer principal for Lexus of Austin, which also opened Lexus of Lakeway last year, said of the sector’s gains.

Still, it’s possible that the new car sales trends could be heading for a plateau, some industry experts have warned.

In Austin, this year’s new car sales annual growth rate saw its smallest increase in nearly a decade at 2.6 percent, below dramatic gains of 14 percent to 15 percent seen from 2011 to 2013. In 2014, the rate was 7.8 percent.

Roberts said it may challenging for the industry to see gains of 8 percent or more this year, but Lexus remains confident in the Austin market.

“We are still bullish. We like the market,” Roberts said.

There are still signs that dealerships are confident in the Austin market. Last month, the Cavender Auto Family announced plans to open Toyota of Cedar Park in 2017 along the U.S. 183-A tollway.

Experts say that a fourth straight year of record sales signal the industry continues to be fueled by strong population growth, lower gasoline prices and a healthy local economy.

This month, for example, average gasoline prices continued to fall, dropping to below $1.50 in some Austin locations, driven by a continued dramatic slide in global crude prices.

And last year, Austin’s job growth grew 3.8 percent — ahead of the same rate a year earlier — despite headwinds such as lower oil prices and other economic challenges. And the region’s housing market ended 2015 still among the hottest in the nation with record home sales for the fifth straight year.

Kelsey said the latest gains could also reflect other boosts to the local economy.

For example, it took 15 years, but inflation-adjusted average wages in Austin are now back up to pre-recession levels, playing a key role in the local economy, Kelsey suggests. And now Austin is a top destination for new residents, also fueling the gains in jobs, housing and auto sales.

“In fact, Austin now ranks among the top places in the country for net inflow of wealth from movers, right up there with high-income retirement areas in Florida, as well as Phoenix,” Kelsey said.

The latest report also signals the economy continues to show improvements since its recession days.

New car sales in the region reached 100,090 in 2007 before falling 18 percent to 72,277 in 2009. But the sector began to see a turnaround by 2010, with new car sales increasing 2.6 percent or more since.

In 2015, Austin-area auto dealers saw an up and down year in terms of monthly gains or declines, starting out the year on a sluggish note with a 6 percent decline before posting a series of gains late Spring into the summer. By the fall, dealers saw the up and down pattern return, but ended the year on a positive note with monthly gains in the final three months of the year.

Greg Kimball, general manager at Town North Nissan, said he suspected 2015 would be a strong year for the region. His dealership on Research Boulevard near MoPac Boulevard (Route 1) saw brisk traffic last year, with a record-breaking December to top off a busy year.

Kimball agrees that the economy, population gains and lower gasoline prices made a difference in the year’s new car sales growth. Also, manufacturer incentives made a difference, he added.

This, as the Federal Reserve in December raised its benchmark interest rate for the first time in nearly a decade.

“We didn’t really see much of a backlash,” Kimball said.

And he suspects Austin could see more good news on the new car sales front this year.

“Last year was great,” Kimball said. And “This past year wasn’t a let down for us. As for 2016, I don’t see any reason it would be any different.”

Overall for 2015, the top seller in the Austin area for new vehicles was Ford, which saw 19,302 sales of cars, trucks and sport-utility vehicles, according to the Freeman Auto Report.

Ford was followed by Chevrolet, which saw 16,753 sales, and Toyota with 14,982. Nissan posted the next top sales figure with 11,851, followed by Honda, Hyundai and Jeep, which all posted 6,000 to 12,000 in sales each last year.

Experts: Austin’s economy won’t falter in 2016

This article was written by Dan Zehr and appeared in the Austin-American Statesman.

Experts: Austin’s economy won’t falter in 2016

The economic seas all around Austin look a little choppy these days, but it should remain smooth sailing for the metro area this year.

Low oil prices and a strong U.S. dollar cooled the Texas economy’s growth in 2015, and likely will do so throughout much of 2016, according to most forecasts.

In the midst of that, though, Austin keeps chugging along, with only a little slowing at the edges of this fast-growing region.

Given the pace of its ongoing expansion and the size it has attained, the metro economy probably will moderate no matter the effect of oil prices, said Brian Kelsey, principal of Civic Analytics, an Austin-based economic consulting firm.

“Unless we’re talking about the NFL, as things get larger, they tend to slow down,” Kelsey said. “Austin is the 11th largest city in the country now, and while we have a long way to go to catch some of the expensive coastal cities we tend to use as benchmarks, prices are becoming more of a factor in Austin’s competitive advantage relative to peer markets.”

The sustained low energy prices that forced layoffs across many parts of the state in 2015 could weigh on Austin’s growth, especially if tax collections suffer and state government payrolls are pared.

Statewide, small and midsize exploration and oilfield services firms have felt the squeeze, and most forecasts expect a wave of consolidation to sweep through the industry.

Those tighter conditions have seeped into Austin as well. FieldPoint Petroleum Corp. recently said Citibank cuts its borrowing base in half. Parsley Energy announced it had sold off almost $40 million of assets. And Forestar saw its credit rating slashed by Moody’s, in part because of its energy holdings.

“With oil prices at multi-year lows,” the rating agency said, “we expect the company’s metrics will remain under pressure in the next 12-18 months.”

The same outlook holds true for the Texas economy. At a recent Austin Chamber of Commerce economic forecast luncheon, Texas Comptroller Glenn Hegar said the state is not like the 1980s, when an oil and real estate crash sent the state economy into recession. It’s more like the 1990s, he said, when a drop in oil prices merely slowed Texas growth.

Will Texas outpace U.S. economy over the next few years? It’ll be tight, Hegar said, but the state economy well positioned to accelerate as the energy sector rebounds.

“Yeah, we have a litany of issues,” he said, “but it’s better to have that litany of issues here, in this state, than other states.”

The economic research team at BBVA Compass agreed, saying the state will stave off recession in 2016 and return to its potential in 2017.

“Ultimately, short term factors will inevitably fade, again bringing to the forefront Texas’ true value as a global leader in growth and innovation,” Boyd Nash-Stacey, the banks senior economist, said in a release.

Meanwhile, Austin itself should continue to provide a solid push for the broader state acceleration. The energy sector’s impact on Central Texas – while notable – should have only a marginal impact on region’s economy as a whole.

The strength of the U.S. dollar, which might rise further now that the Federal Reserve has started nudging up its rate targets, might curb area exports and local tourism spending. A strong dollar makes U.S. products and travel more expensive for people overseas.

Austin isn’t immune to those macroeconomic factors, of course, but its growth engine powered through them in 2015 and is poised to do so again in the coming year.

Austin and Texas continue to attract some of the highest rates of job interest from workers outside the state, said Daniel Culbertson, economic research analyst at The region and state also get a lot of searches from workers outside U.S., he said at the Chamber event.

It helps that Austin remains more affordable than the tech-driven markets on the coasts, Kelsey said.

“But rising residential and commercial prices in Austin are starting to level the field a bit,” he said, “and companies and economic developers in markets like Raleigh-Durham are well aware of that fact.”

More changes for tech sector

Last year saw some of Austin’s largest public companies – Freescale Semiconductor, HomeAway and SolarWinds – acquired by bigger players.

Experts say more Austin companies, both big and small, will likely be snapped up in 2016, including those that might have once considered an initial public offering.

“You’re going to see more acquisitions and fewer IPOs because the IPO bar is getting higher and higher,” said Kirk Walden, an adjunct business professor at Texas State University and principal of Austin-based Walden Consulting. “That’s not specific to Austin, it’s the general trend. For startups, it shortens the time for payoff. For the buyer, it makes more sense to acquire something that try to create it or compete with it.”

Meanwhile, venture capital is expected to continue to flow to Central Texas companies, thanks to the region’s strength in hot investment areas including cloud computing, mobile technology, cyber security and e-commerce.

Experts expect 2016 to stay on pace with last year. During the first three quarters of 2015, 82 deals raised $628 million, compared with 615 million raised by 114 deals in all of 2014.

“Austin is on the national stage for innovation, and investors are coming here to do deals,” Walden said. “For startups, that means more options to choose from when looking for financing.”

Also in 2016, look for more out-of-state software companies to development development offices here to leverage the region’s software industry workforce. In 2015, Apple Inc. continued to push ahead with its 38-acre campus in northwest Austin, while Oracle Corp., the world’s second-largest software company, announced plans to build a new corporate campus on 27 acres overlooking Lady Bird Lake.

“For California companies, Austin has just what they need: A skilled technology workforce and a lower cost of living,” Walden said. “We’ll see more companies following the lead of Google, Facebook and the others. If you’re growing and you’re hiring, this is a good place for you to be.”

—Lori Hawkins

Outlook strong for housing market

In 2016, things are shaping up for another strong year for Central Texas’ housing market, industry experts predict, if job and population growth continue as anticipated.

Austin ranks fourth among Trulia’s top 10 markets with the strongest potential for growth this year, thanks to the area’s employment growth, population growth and its share of millennials.

“As millennials become a greater force in our housing market, builders are challenged with providing homes that meet the needs of this growing demographic,” said Eldon Rude, a housing market consultant who is principal of 360 Real Estate Analytics. “In Austin that means trying to identify urban locations where home construction is still feasible at prices that millennials can afford.” expects single-family home sales in the Austin metro area to climb by 10 percent over last year, and the median price to increase by 5 percent.

In recent years, Central Texas’ sharply rising home prices in the metro stemmed from housing supply lagging demand – not the speculative home buying that bubble markets like California and Florida saw during the past decade, Rude said.

“Much of the growth in the new home market in 2015 has been in the lower price ranges,” Rude said. “With apartment rents in the region continuing to increase — average citywide rents are up 40 percent in the last five years — I expect this segment of the market to continue to be strong in 2016.”

Families looking for homes in close-in locations in 2016 will continue to pay more for existing homes, as little new supply is added in these areas, said Charles Heimsath, a local real estate consultant. “Some relief from the increasing prices can be found in new, smaller units in higher density developments in the central city.”

Jim Gaines, chief economist with the Real Estate Center at Texas A&M University, said the pace of growth in the housing market, locally and across other major Texas metros, could slow some due to the energy decline, with Houston expected to be most affected and the Austin and Dallas metros the least. But nevertheless, “a slowdown will result,”Gaines predicts.

— Shonda Novak

Retail scene should stay hot

Austin’s retail scene was red hot in 2015 and shows no signs of slowing down in 2016, local developers say.

Many of the new additions on the way are at The Domain in North Austin, including Nordstrom and Restoration Hardware, as well as the 100,000-square-foot Rock Rose development featuring a mix of mostly local shops, bars and restaurants.

Nearby at the Gateway Shopping Center, Off 5th, Saks Fifth Avenue’s discount outlet, has leased space.

“We expect 2016 to be more of the same for the Austin market,” said Britt Morrison, senior vice president for the Weitzman Group, a commercial real estate firm. “By that, I mean a tight market for space and limited new construction. The new space for 2016, though, will outpace 2015, because rents are reaching a level that will justify development costs and the demand from anchors and junior anchors.”

Outside of The Domain area, other hot spots, according to Morrison, include South Congress Avenue, downtown Austin and many suburban areas.

“We’ll see new space come online in Lakeway, Leander, Cedar Park and others,” Morrison said. “The city of Pflugerville has been one of the biggest beneficiaries thanks to Texas 130, and it remains one of the hottest young markets.”

Restaurants, in particular, are on the hunt for space to expand, Morrison said. Several new-to-Austin salad chains, for instance, have said they’re looking to gobble up more than 20 storefronts throughout the region.

“We’re seeing a lot of growth from local concepts, like Hopdoddy, which recently leased a prime site at The Triangle,” he said. “Other growing local concepts include P. Terry’s, Verts, Torchy’s, Chi’lantro and Sway. Some out-of-state concepts are entering the market, too, like high-profile Shake Shack, but many of these are from small chains such as Voodoo Doughnut, Eureka and Fox Restaurant Concepts.

“The local chef-driven concepts have been huge in areas such as East Austin and Airport Boulevard, and restaurants continue to march northward along Burnet Road. The stretch between West 45th Street and Anderson Lane has quickly established itself as one of the major restaurant and bar destination centers in Austin.”

—Gary Dinges

Whole Foods points to better 2016

Austin-based Whole Foods Market ran up against a challenging year in 2015, but 2016 will be different, company executives say.

Whole Foods, in the midst of revamping its brand to battle a growing army of competitors, will be focused on a nine-point turnaround plan this year.

The plan ranges from launching a new chain of smaller, value-focused stores, 365 by Whole Foods Market, to cutting costs, lowering prices and boosting marketing to communicate a new message.

“I think the biggest thing that is going to happen for Whole Foods is the nine-points” plan, co-founder and co-CEO John Mackey told the American-Statesman recently.

Whole Foods is one of Austin’s highest-profile companies, with 91,000 employees for 434 stores worldwide and about 2,500 employees located in Central Texas.

One of the retailer’s major initiatives this year will be the new 365 stores, with a first location slated for the Los Angeles suburb of Silver Lake in the first half of 2016. So far, the retailer has signed off on eight new 365 stores, including a Cedar Park location slated for 2017.

The 25,000 to 35,000 square foot stores with compete directly with the likes of Trader Joe’s, Sprouts and other smaller format, value focused brands.

Mackey said Whole Foods looked at their competitors and took the “best of Whole Foods, best of Trader Joe’s, best of Sprouts — the best of everybody that we have seen out there.”

“There’s not going to be any expensive items in those stores,” Mackey said. “Truthfully, that’s one of Trader Joe’s secrets, they just curate there product mix well. …That’s not rocket science, we can do that.”

— Claudia Grisales

2015: Big deals and strong job growth

This article was written by Staff and appeared in the Austin-American Statesman.

2015: Big deals and strong job growth

The job growth kept coming.

The housing housing market stayed hot.

And the technology and software sector came through with some of the biggest merger and acquisition deals in Central Texas history.

Yes, 2015 was anything but boring for the Central Texas economy.

Here’s a look back at some of the biggest stories from the year that was:

Austin’s job market keeps humming

A year ago, as prognosticators put forth their predictions for the Austin economy, most indications hinted at a moderate 2015.

Last year’s job growth had started to ease in the fall and, while no one expected the Central Texas economy to slow dramatically, it seemed reasonable to expect a breather after a couple years of sizzling growth.

But Austin does not care much for moderation.

Despite a depressed energy sector that slowed economic expansion statewide, the metro-area economy re-accelerated in 2014 and remained among the most-vibrant regions in the country.

Thousands more people migrated to Central Texas during 2015, pushing the metro-area population to the 2 million mark. Housing sales and real estate prices continued to set record highs. And local employers kept adding enough jobs to absorb all the new folks calling Central Texas home.

In fact, regional payroll growth shook off any suggestion of moderation for 2015. According to seasonally adjusted data from the Texas Workforce Commission, metro-area employers added 34,000 jobs in the first 11 months of the year — already 5,600 more new positions than in 2014 with December numbers yet to come.

If this month doesn’t deviate too far from the usual, Central Texas payroll growth will easily outpace 2014 rates. It eased to 3.2 percent last year; this year, it might tick back over 4 percent again.

Through the first 10 months of the year, local employers added jobs at an annual rate of 3.0 to 3.5 percent after seasonal adjustments, according to calculations by Brian Kelsey, founder of Civic Analytics. In the local tech sector, employment increases were on a 3 percent annual pace, Kelsey said, a bit slower than in 2014 but well above Texas rates and in line with national performance.

Yet for all its robust workforce and population growth, Austin still sits in the middle of Texas. The local economy couldn’t completely avoid the bull-rush of lower oil prices and a stronger U.S. dollar — a combination that slowed statewide growth.

Much like last year, the expansion of the metro-area economy appeared to ease toward at the end of the summer, according to a Federal Reserve Bank of Dallas snapshot of the Austin metro economy.

The Dallas Fed’s latest Austin Business-Cycle Index still rose at a 7.1 percent annualized rate in October, but that had dropped from a peak of 10.1 percent in January – and down to its lowest point in four years.

“While this pace is the slowest since 2011,” the report said, “it is above the 5.2 percent average over the past 30 years.”

The report blamed the deceleration on a recent uptick in the local unemployment rate and more moderate job growth, especially in the leisure and health care sectors. Yet even that somewhat cautionary report included hints of Austin’s aversion to economic moderation.

In October, job growth “accelerated to a brisk 5 percent annualized rate,” the report said, “more than double the state growth rate.”

A year of big deals

Seeing Austin-area companies involved in multi-billion dollar buyouts is a pretty rare occurrence — but 2015 brought no fewer than four of those megadeals.

The biggest of all was Dell Inc.’s mammoth $67 billion bid to take over EMC Corp., which would be the biggest IT deal in history if it is completed.

Dell Inc. announced in October that it planned to buy to buy data storage giant EMC, a move that would turn Dell Inc. into a “behemoth” in the technology industry, analysts say.

For years, Dell Inc. has been working to transition from being a PC maker into a wide-ranging, full-service technology company. The EMC acquisition would help transform Dell into a major player in the data storage market.

The deal, which was approved by EMC’s board, is targeted to close in the second or third quarter of Dell’s fiscal year ending Feb. 3, 2017. But it still faces hurdles, including approval from EMC shareholders and, reportedly, problems dealing with the debt load the deal would create.

The EMC deal is expected to create as much as $49 billion in debt for Dell Inc., and Dell Inc. is looking to divest as much as $10 billion in assets to reduce that debt load, according to reports from the Wall Street Journal and other media outlets. Dell Inc. is also seeking a buyer for its Perot Systems technology-services unit that it acquired for $3.9 billion in 2009, according to various reports.

Dell Inc. executives have not commented on any of those reports, but the company revealed last week via securities filings that it plans to take its cybersecurity business unit SecureWorks public. Industry analysts said that could be a step toward helping clear the way for the EMC deal.

Another giant tech deal in 2015 was Austin-based Freescale Semiconductor’s $11.9 billion sale to NXP Semiconductors. The deal values the combined company at more than $40 billion and created an industry leader in the automobile and industrial semiconductor markets.

John Dixon, director of corporate marketing for NXP Semiconductors, said that while the Freescale brand is going away, the company’s operations in Austin — where Freescale had about 5,000 employees — will have a major role in the new combined company.

“My belief is that Austin is going to be a hugely important part of the new company,” Dixon said.

Online vacation rentals HomeAway, which had been one of Austin’s most high-profile public companies, was also sold in 2015, being snapped up by online travel giant Expedia Inc. for $3.9 billion in cash and stock.

HomeAway has more than 1,900 employees worldwide, including 1,086 in Austin. HomeAway CEO Brian Sharples has said the company will keep its operations in Central Texas and likely expand here.

Also in 2015, Austin software maker SolarWinds Inc. agreed to be sold to two investment firms in a $4.5 billion deal that will take the company private.

The offer by Silver Lake Partners and Thoma Bravo LLC is for $60.10 per share of SolarWinds’ stock. The deal is expected to close in the first quarter of next year, company officials have said.

Housing market on record pace

Central Texas’s sizzling housing market didn’t take a break in 2015, staying on pace a record year for home sales.

This year, 26,683 homes have been sold through November in the metro area, according to date from the Austin Board of Realtors. The Austin area set a record last year with 27,794 home sales, according to revised figures from the board. The board’s latest report shows 1,965 pending sales in the pipeline to close, putting 2015 on track to surpass last year’s total.

“While home sales typically slow each fall, housing demand has remained strong far past the typical peak selling season. This demand stems from strong employment and our area’s high growth rate — factors that help create a stable housing market,” Barb Cooper, president of the Austin Board of Realtors, said during the fall.

The area’s median sales price also set a record in November at $270,000 — a 10.2 percent increase in the median over the prior November’s $245,000 median sales price.

Even with the Federal Reserve’s recent decision to raise interest rates, mortgage rates “are still among the lowest they have ever been, and we do not anticipate a significant impact on the Austin-area housing market,” said Mark Sprague, a housing market analyst with Independence Title Company.

Austin’s evolving skyline

The past year also ushered in another high-rise building boom in Austin, with a flock of new skyscrapers bursting on the scene, either in the planning stage or actually being built.

Building by building, the wave of skyscraper construction is altering the city’s visual identity yet again.

One of the city’s most talked-about new towers is The Independent, a proposed 58-story condominium high-rise with a stacked design that has earned it the nickname the “Jenga Tower.” The tower would rise 685 feet on downtown’s southwestern edge, eclipsing the Austonian condominium high-rise in downtown Austin by two feet and two stories. It would also be the largest residential tower west of the Mississippi River, according to its developers.

Among the other new editions to Austin’s skyline — some in the planning stages, some even recently completed — are: Waller Park Place, a 50-plus story mixed-use tower at Cesar Chavez and Red River streets; the Fairmont, a 37-story, 1,000-plus room hotel at 101 Red River St.; Fifth & West Residences, a 39-story condo tower at 501 West Ave.; and The Bowie, a 36-story apartment tower at 311 Bowie St.

Doug Manchester, president of the company developing the Fairmont Austin hotel downtown, said Austin’s skyline is shaping up to be one of the most distinctive in the nation.

“It’s fascinating how our skyline has grown within the past 10 years and will continue to grow in the next 10 years to include many other unique and iconic towers — all of which I’m convinced will elevate Austin as a top 10 most admired metropolitan skyline,” Manchester said.

Up-and-down year for Whole Foods

Austin-based Whole Foods Market has long been hailed as a success story, and a darling of Wall Street, for its steady sales growth and consistent earnings performances.

But in 2015, the organic foods giant faced increased media scrutiny and posted a series of earnings reports that disappointed Wall Street analysts. One of the low points of the year came in July, when Whole Foods executives admitted the company overcharged some New York customers, following accusations from New York regulators.

“It was a challenging year for us for sure,” Whole Foods co-CEO John Mackey told the American-Statesman recently.

Mackey and other Whole Foods leaders say they have implemented a nine-point plan to improve the company’s performance, including cutting costs and creating a “crisis team” to more quickly address issues that pop up.

“We have to differentiate ourselves, we have to improve ourselves, we have to be more relevant on price,” Mackey said.

A slow year for IPOs

When it comes to Austin companies going public, 2015 was a slow year.

Only three Austin-based companies filed for IPOs in 2015:

*Medical research company Mirna Therapeutics, which raised $44 million with an intial stock offering in October. The company is developing treatments for cancer and other diseases using micro­RNA, molecules that play crucial regulatory roles in cells.

*XBiotech, an emerging developer of cancer-fighting drugs, raised $76 million in an April IPO.

*Amplify Snack Brands, which makes health-conscious popcorn and tortilla chips, raised $235 million in August.

Also, software maker Atlassian — which is based in Australia but has a significant and growing presence in Austin — raised $462 million in an initial public offering in December. The company priced its IPO at $21 per share, above its expected price range of $19 to $20.

Are Millennial ‘Stealth Dorms’ Ruining Texas Cities?

Kriston Capps at CityLab reports on the occupancy limits debate in Austin and Fort Worth: Are Millennial ‘Stealth Dorms’ Ruining Texas Cities? Capps cited our pro-bono study, working with the Austin Board of REALTORS and others, on the relationship between occupancy limits and housing affordability in Austin, which, of course, boiled down to the need for better data and more thorough, objective analysis before anything could be said for certain.

Hopefully city leaders and interest groups will be more open to that possibility when the moratorium expires and it’s time to take another look at this issue and realize that potential impacts extend far beyond student housing.

High-Occ Map Zoomed_Revised2

Expedia deal sends HomeAway stock soaring

This story was written by Lori Hawkins and appeared in the Austin-American Statesman.

Expedia deal sends HomeAway stock soaring

A day after agreeing to be acquired by online travel site Expedia, Austin-based HomeAway saw its shares soar amid speculation that a competitor such as Priceline could make a counter offer.

Expedia on Wednesday said it would pay $3.9 billion in cash and stock for HomeAway, which is the leading player in the online vacation rental industry.

Shares of HomeAway surged as much as 27 percent in trading on Thursday, closing up $8.11, or 25.3 percent, at $40.15.

Expedia said it would pay $38.31 a share for HomeAway, a 20 percent premium over HomeAway’s price before the deal was announced.

But with HomeAway’s stock surpassing the offer, analysts said a competing bid was a possibility. Cowen & Co.’s Kevin Kopelman said such a move by online travel rival Priceline or home-sharing company Airbnb was “not out of the question.”

Deutsche Bank analysts said that the buyout price seems low, particularly as HomeAway changes its fee structure. HomeAway makes most of its revenue by charging property owners to list on sites right now, but the company said that it will start charging travelers for booking locations, similar to Airbnb’s model.

Founded in 2005, HomeAway has built a network of websites that have more than a million paid listings in nearly 200 countries. Expedia, based in Bellevue, Wash., lets customers book flights and hotel rooms through its website and apps. The HomeAway deal would give it a major presence in the fast-growing alternative lodging market.

Regardless of whether more bidders jump in, a deal is all but certain, which means Austin will lose another well-regarded publicly traded company.

The agreement marks the third multibillion-dollar deal for an Austin-based company this year, joining the $11.8 billion acquisition of Freescale Semiconductor and the recently announced $4.5 billion private equity buyout of SolarWinds Inc.

HomeAway CEO Brian Sharples said the company, which has more than 1,900 employees worldwide, including 1,086 in Austin, will keep its operations in Central Texas and likely expand here.

“In Austin, I don’t think there is going to be much of a change,” Sharples said in an interview with the American-Statesman. “As a combined company we’ll probably be able to grow even faster.”

But there are still unknowns, Austin economist Brian Kelsey said.

“From an economic development standpoint, there’s always a bit of uncertainty and nervousness when a major local employer is acquired by an out-of-market company,” Kelsey said. “Maybe less so in this case, compared to something like consolidation in the semiconductor industry, but I’m sure there’s still some uncertainty among economic developers and employees at HomeAway.

“Anytime you see a deal like this you also wonder about impacts on entrepreneurship – i.e. will it encourage anybody with newly available capital to jump off and start a new venture after the dust settles? We’ll have to wait and see what the ripple effect is on the local economy.”

While being acquired by a larger player can be a financial home run for a company and its shareholders, it’s not always the most beneficial outcome for a community, said Bob Smith, principal at Bridgepoint Consulting, which works with technology companies.

“It’s a double-edged sword,” Smith said. “It’s disheartening to lose another high profile corporate headquarters in Austin. But it will also be very good financially for some employees. Hopefully you’ll have people who will use that to go fund some new startups or branch out and start up some of their own companies.”

Austin’s takes different tack on hiring tech talent

This story was written by Lori Hawkins and appeared in the Austin-American Statesman. It mentions a study that Civic Analytics completed for the Austin Technology Council on workforce availability in the tech sector.

A recent study by the Austin Technology Council underscored the hiring mindset held by many local tech companies.

Although 70 percent of those surveyed said they were having difficulties filling technical positions, 42 percent said they require applicants to have at least five years of work experience to even get consideration.

Only 12 percent of respondents said they hire recent college graduates or don’t require previous work experience.

At, company leaders are taking a different tack. The Internet job search company is focused on hiring engineering students directly out of college and providing extensive training to prepare them for their first job.

Indeed, which has grown to 500 employees in Austin, is one of the region’s fastest-growing Internet companies

Indeed has grown from 90 employees in Austin four years ago to more than 500 today. The company, which has been one of the more aggressive recruiters of engineering talent, is also hiring experienced developers.

This year, the company hired 54 graduates from 25 schools, including University of Texas, Carnegie Mellon University, Rice University, Georgia Tech, University of Illinois at Urbana-Champaign and MIT.

The new recruits have spent the past 12 weeks at Indeed’s offices in Northwest Austin, where they learned about the company, got to know company executives and broke into teams to come up with new Indeed products that they’ll pitch at an upcoming Shark Tank-style competition.

“There’s a huge benefit to bringing in people who don’t have experience,” said Chris Hyams, Indeed senior vice president of product. “Sometimes as companies get bigger they fall down in terms of new innovation. When you bring in people who are fresh out of college they are unburdened by the experience of what can’t work, and they are full of creativity about approaching problems from a new way that we might not have thought about.”

Indeed’s website aggregates job listings from thousands of websites, including job boards, newspapers, associations and company career pages. Job seekers search for listings on Indeed’s home page and can post their resumes for recruiters. The website, which is available in 55 countries and 28 languages, has 180 million monthly unique visitors worldwide.

In January, Indeed will move into a new 220,000-square-foot space at the Champion Office Park on North Capital of Texas Highway (Loop 360). The new offices can accommodate 1,500 employees, and Hyams said Indeed plans to fill them.

Founded in 2004, Indeed was acquired by Japan’s largest recruitment firm, Recruit Co., in 2012 for an undisclosed price. Under the deal, Indeed retained its name and operates an independent unit of Recruit.

According to financial reports filed by Recruit, Indeed posted revenue of $453 million in fiscal 2014, up 71 percent from the year before.

In addition to its Austin office, Indeed has operations in Seattle, San Francisco and Tokyo, and college hires have the option of working at those offices.

This year’s recruits spent the summer creating new apps and websites that could eventually become part of Indeed’s offerings. The teams developed 11 products, including a site that lets people post and respond to one-time job listings, such as language translation or logo design; and another that helps workers map out new career paths based on their work experience.

Shumeng Gu, who graduated from University of North Carolina at Chapel Hill in May, said she chose Indeed over other job offers because the company gives new hires big responsibilities.

“If you go to Facebook or another big company, you will likely spend your time just fixing bugs. At Indeed, you have ownership over what you’re working on,” Gu said. “The first week I got hired I put code into production, which is almost unheard of for someone at my level.”

Although it costs more to hire and train new workers, building your own talent has advantages, Hyams said.

“In Austin, we’re all trying to hire those same people with three to five years experience,” he said. “We decided this is a long-term plan for us, it’s not a short-term gain. We want to have sustainable growth, and the best way to get people with three years experience is to hire them at zero years experience. We now have a bunch of people with three years experience that we hired three years ago. Soon we’re going to have 54 more.”

Among Austin transplants, Florida is the new California

This story was written by Marty Toohey and appeared in the Austin American-Statesman on 09/05/15.

Among Austin transplants, Florida is the new California

“Californian” has for years been Austin’s shorthand for someone, usually of means, who moves here from another part of the country. But no more. Florida is the new California.

Here are five things to know about the newest migration pattern:

1. Nearly twice as many Floridians moved to Travis County in 2012-13 as did Californians. The Sunshine State sent 13,347 transplants here versus 7,959 from the Golden State,according to Internal Revenue Service data and further analysis by Austin economist Brian Kelsey. That ratio held for 2011-12 as well.

2. When you calculate net migration between Travis County and other states (people coming here minus people going there), Florida still remains the top feeder with 9,695 net arrivals. But New York (4,416 net arrivals) slipped past California (4,278) for the No. 2 spot. This trend held in 2011-12 as well.

3. Think it’s California tech money pushing up earnings? Floridians brought higher gross-adjusted incomes ($128,509 per household) than did Californians ($98,979) in 2012-13, according to the IRS data.

4. It’s not clear whether the Florida influx, which only surpassed California in the two most recent years of data, is a long-term pattern, Kelsey said. The IRS changed its methodology starting with the 2011-12 data by including late filers who previously weren’t counted and by better tracking people as they shift from a dependent to filing their own tax return, for instance.

5. Texans still by far make up the most people moving in and out of Travis County. But there’s a consolation prize for California: It remains the top out-of-state destination for people moving out of Travis County, edging out Florida in 2012-13 by 29 people.


Blame Florida? The Sunshine State Sends More Transplants to Austin Than California or NY

This story was written by Mose Buchele and appeared on KUT on 08/27/15.

Blame Florida? The Sunshine State Sends More Transplants to Austin Than California or NY

Sure, Austin revels in its youthful reputation, but a lot of the people coming here are probably not fresh-out-of-college looking to form a band or a startup.

A new look at income migration from the IRS shows that newly-arrived Austinites aren’t as young as previously thought. What’s more, the highest concentration of transplants isn’t from either of the tried-and-true drivers of Austin population growth, New York and California. They’re from Florida.

“There’s been some speculation lately that more and more retirees are picking Austin and this data certainly implies that that could be the case,” says Brian Kelsey with Civic Analytics, an Austin-based economic research firm.

The recently-released data tracks where people file their tax returns from one year to the next. He says people that are moving to Travis County are bringing a lot of money with them. In fact, the most recent 2012-2013 data show newly-arrived income in Travis County totaled about $2.3 billion dollars. Kelsey says that means many newcomers are probably older, maybe even retirees.

“If you look around the country at the counties that receive the most higher net worth people. It’s usually those destination retirement counties in Florida and Phoenix,” Kelsey says.

That brings us to the whole “California” thing. People are used to thinking California transplants were driving growth in Austin. Actually, Kelsey says, California’s in third place. New York is in second. The data puts Florida is in first place, for which, Kelsey says, there are a couple of reasons.

“Now we’re seeing Florida kind of coming out of nowhere. That could be something in the methodology that changed, where there was historically an undercount [of people] from Florida and that’s been corrected, or it could be that migration is actually increasing,” he says.

Kelsey says one thing’s for sure: People moving here with higher household incomes than the local average are able to pay more for things. That contributes to the local affordability issues we hear so much about.

“You’re going to see that show up in rents, you’re going to see that show up in housing costs,” he says. “And, just generally, it’s going to affect the aggregate amount of income in Austin for everything from discretionary money spent at restaurants to housing costs.”

Kelsey says the IRS plans to release more recent 2013-2014 data before the end of the summer.