Fifteen years ago, the Pearl was an unlikely prospect for redevelopment. The deserted brewery was prone to flooding and next to an overgrown stretch of the San Antonio River with homeless encampments. Walmart considered it for a distribution center.

Its transformation into a prosperous urban community is a source of hope and pride for local builders and politicians — proof that derelict parts of San Antonio can have a second life.

But all the growth that’s taken place at the Pearl, and along the adjacent Broadway corridor and River North area of downtown, didn’t occur on its own. It has been helped along by about $42 million worth of property tax breaks, cash grants, fee waivers and forgivable loans from the city with another $3.1 million from the county, according to data obtained through open records requests.

Developers say they still need taxpayer help to build around the Pearl to make up for the high costs of land, construction and infrastructure repairs. But many local politicians are asking whether it’s time to cut off the funding, now that the area is home to San Antonio’s most expensive apartments and developers are flooding the area with plans for new homes and office buildings.

“How do we know when to stop helping?” District 6 City Councilman Greg Brockhouse said in an interview. “That’s what infuriates people about the Broadway corridor. It’s just, enough already! Regular humans can’t live over there. The regular San Antonian can’t enjoy dinner at the Pearl. They can get an appetizer at Southerleigh, but that’s about it.”

Last month, Brockhouse and Bexar County Commissioner Kevin Wolff asked for reevaluations of city and county’s incentive programs. Their concern is that too many incentives are used around the Pearl at the expense of neighborhoods that need them more. Their requests came after officials approved a controversial $8.4 million package to San Antonio credit union Credit Human to move its headquarters from the North Side into a 10-story office tower at the Pearl.

Stricter guidelines

Brockhouse and Wolff say the city and county should come up with stricter guidelines to determine when to stop incentivizing growth in neighborhoods like the Pearl — for example, by excluding areas that reach certain levels of rental costs. Two other county commissioners, Tommy Calvert and Paul Elizondo, say they want to shift the focus of the county’s incentives policy onto low-income areas.

“I want to save incentives for neglected areas of town where development has gone wanting,” Elizondo said. “For years, we’ve been wanting to have those incentives in the south and also on the west and east sides of our community.”

In the meantime, the city and nonprofit Centro San Antonio plan to reevaluate the city’s development incentives early next year, Assistant City Manager Lori Houston said in an email. Depending on feedback from the community, the policies could be modified to incentivize affordable housing, she said. Incentives could also be used to promote growth in the 13 regional centers identified in the city’s SA Tomorrow plan adopted last year.

Builders say the Pearl area isn’t ready to function without incentives. Because of high land and construction costs, development projects are not yet profitable without government help, said Bill Shown, the director of development for Silver Ventures, which built the Pearl.

For example, Silver Ventures will have to build an underground parking garage, at a cost of about $30,000 a space, for a 223-unit apartment complex it plans to construct at the crossing of Interstate 35 and U.S. 281, Shown said. A suburban developer could build a surface lot at a much cheaper price, he said.

Infrastructure costs

Another purpose of incentives is to help urban developers recoup the cost of putting infrastructure in place for their projects, such as burying power lines and improving sidewalks, developers say. To be sure, suburban builders also often pay for infrastructure improvements.

All San Antonians benefit when local government encourages growth in urban areas, Shown and other downtown advocates say. They argue that a vibrant urban core helps the city’s economy by attracting new companies and well-educated young employees, and that San Antonio needs to compete with other cities that are building up their downtowns.

On top of that, urban growth strengthens the local tax base, preventing San Antonio from becoming a hollowed-out city like Detroit, Shown said. The Pearl’s property tax bill was $144,000 in 2003, the year after it was bought by Silver Ventures, he said. This year, it was $6.7 million, with the city refunding $783,000 of that because of incentive deals, he said.

Shown said he can’t predict when incentives will no longer be necessary for the Pearl’s growth. It depends on how construction costs and rents change in the future, he said.

“The point at which incentives are no longer necessary is when we reach the pinnacle of our aspirations,” he said. “When we’ve reached everything we aspire to as a community, then we can stop working together as a community.”

Growth in the urban core

There’s no doubt that the Pearl has been a huge success in the 15 years since local billionaire Christopher “Kit” Goldsbury targeted it for redevelopment.

The brewery, formerly a textbook example of urban blight, has become a popular tourist destination, with many of San Antonio’s top-rated restaurants. It is home to Hotel Emma, one of the city’s top hotels, and the Cellars, the area’s most luxurious apartment complex. This fall, the American Planning Association named it one of five “great neighborhoods” in the U.S., and the Urban Land Institute honored it through its Global Awards for Excellence program.

The Pearl’s apartment market is booming. Nine major complexes with 1,821 living units have been built within a half-mile of the community since 2011, according to data from analytic firm Austin Investor Interests, and another is on the way. The area’s average rent is $2.08 a square foot, well above the local market’s overall average of $1.13.

Most of the complexes are almost full with occupancy rates at or above 90 percent, the data show. The only exceptions are three that were built this year, including Cellars, San Antonio’s most expensive complex with an average rent of $3.07 a square foot. It’s 76 percent full and was opened just six months ago.

The Pearl’s office market hasn’t taken off like its apartment market has, but it’s slated to grow fast with the arrival of Credit Human. It is hampered by high construction and land costs, but benefits from being right next to downtown and to the juncture of U.S. 281 and Interstate 35, said Larry Mendez, an executive with Transwestern, a commercial real estate firm.

“That’s a very strong market, in general,” he said. “It’s very close to the CEO housing in Terrell Hills, Olmos Park, Alamo Heights.”

Soaring rents

The two office buildings owned by Silver Ventures at the Pearl, with 256,000 square feet of office space, are 100 percent occupied, according to Transwestern. The asking rate for office space within a half-mile of the Pearl has soared by 56 percent over the last five years, from about $16.12 a square foot in 2012 to $25.18 this year.

Ernest Brown, an investment broker with Rohde, Ottmers & Siegel Realty Services, believes that the city and county were justified in offering incentives to Credit Human. The company will bring hundreds of employees to the Pearl who will occupy nearby housing and support retail shops, he said. All of that will foster growth downtown.

But The Pearl is almost mature enough to go without incentives, he said. Downtown itself is another story — it still lags behind when it comes to job creation and restaurants that are friendly to locals rather than tourists, he said.

“The Pearl, after this, has probably reached its turning point. Downtown hasn’t gotten there yet,” Brown said.

Downtown’s office market has strengthened in recent years, with its vacancy rate falling from 27.4 percent in the third quarter of 2014 to 16.8 percent during the same time this year, according to Transwestern. The average rent rose from $19.20 a square foot to $21.10 over that time. Companies such as USAA have been picking up more office space downtown, and projects are in the works that would add 1.4 million square feet of space to the district, including new headquarters for Frost Bank and CPS Energy.

The district’s apartment market is also growing, but not at the pace of the Pearl’s. The number of apartments downtown increased 30 percent between the end of 2014 and the third quarter of his year, from 2,749 to 3,575, according to Austin Investor Interests. The average rent rose by 7.1 percent to $1.65 a square foot during that time.

Many new apartment complexes are planned downtown, promising to bring another 2,253 units to the market. One local developer even says he plans to rent apartments for more than $4 a square foot — unheard-of in San Antonio — at a new complex on the River Walk.

Policy shift

If Brockhouse and Wolff are successful in their calls for change, it could mark the most significant shift in the city and county’s incentive policies since former Mayor Julián Castro declared the “Decade of Downtown” in 2011.

Castro’s initiative led to the creation of two city incentive programs. One of them, the Inner City Reinvestment and Infill Policy, encourages development in low-income and undeveloped neighborhoods through waivers of SAWS and city fees. The other, the Center City Housing and Incentive Policy, promotes the construction of housing in the urban core with property tax rebates and construction loans that developers don’t have to pay back if they meet certain conditions.

In the last six years, developments making use of CCHIP program have created roughly 2,426 apartment units, with another 3,016 units planned or under construction, according to an analysis of city records. Overall, the city has awarded nearly $140 million in development incentives through CCHIP, ICRIP and otherwise.

Bexar County has been offering tax abatements for multifamily developments in the urban core since the mid-2000s. Developers have received about $8.4 million overall, according to data received through an open records request.

Broadway corridor

The Pearl, the Broadway corridor and River North have received nearly a third of the city and county’s development incentives this decade, records show. About $42 million, or 30 percent, of the total $140 million in city incentives have gone to those areas. From the county, the neighborhoods received $3.1 million of the total $8.4 million.

Another $38.7 million, or 28 percent, of the city incentives went to downtown itself, excluding River North, the records show. Forty-two percent of the county’s total, or $3.5 million, went to downtown.

Brockhouse said he wants to eliminate the boundaries of ICRIP, making all of San Antonio eligible for development incentives. The city also should make greater use of fee waivers through SAWS, CPS Energy and its Development Services Department to encourage growth, he said.

At the same time, city officials should reevaluate which areas of the city are in extra need of development and give them a priority for incentives, he said. The reform would fit into recent talk of distributing city resources through an “equity lens,” he said — in other words, giving more to needy areas than to well-off ones.

“We need to expand it in a way that incentives are available everywhere, period,” Brockhouse said. “We’re redlining parts of town, for the most part. We don’t even look at them.”

For his part, Wolff wants the county to come up with stricter standards for when neighborhoods become exempt from incentive programs and to better define the areas that are eligible. He questions whether aid should be given to projects at the Pearl just because there are needy neighborhoods nearby.

“OK, you’re right next to a currently economically depressed area. Should you continue to incent there because it will by definition increase the opportunities for other areas close by?” he said.

Affordable housing?

Calvert, the county commissioner, said at an East Side community event last week that he wants to make sure that residential projects receiving government aid are affordable. The city and county have incentivized some of San Antonio’s priciest apartment complexes, such as Agave Apartments on the border of downtown and Southtown, where rents for a two-bedroom range between $1,700 and $2,725 a month. The city and county gave a total of $5.2 million in incentives for the complex.

Residents of urban core neighborhoods also have had misgivings about the city’s incentive programs, saying they have overwhelmed residential neighborhoods with too much construction. Last year, City Council responded by shrinking CCHIP’s coverage area to less than a fifth of its former size.

Rose Hill, president of the Government Hill Neighborhood Association, has mixed feelings about incentives. On the one hand, they help bring what she calls “good” developers, such as GrayStreet Partners, which plans to build a massive cluster of apartments, retail and offices that Hill thinks will beautify the neighborhood, wedged between downtown and the Pearl.

But she is unhappy with other projects, such as a row of townhomes on Grayson Street that received $218,000 worth of city fee waivers and tax rebates. She feels that the 14 townhomes were crammed onto a 0.45-acre lot, ruining the whole block.

“Incentives are good to some extent, but you need to think, what do the residents get out of it?” she said. “The city’s getting something, but what is the community getting?”

rwebner@express-news.net | Twitter: @RWebner