Teachers’ pension system shut down following sale of town center property

ByShannon J. Cortes

Oct 6, 2022

The Texas Teachers’ Retirement System has sold its longtime headquarters on Red River Street in downtown Austin for $108 million.

The buyer was Austin Real Estate Acquisitions LLC, a Delaware limited liability company and subsidiary of a publicly traded real estate investment trust.

In a press release Wednesday, the retirement system — which manages nearly $185 billion in retirement assets for Texas school teachers and employees — said the purchase “completes an extensive competitive sale process. to secure the best value for the 3.8 acre property and buildings”.

The state agency has been based at the Red River campus for nearly 50 years. The two-building complex is located at 1000 Red River and has an area of ​​198,972 square feet.

After:Texas Teachers’ Retirement System pays out $116.6 million for first stage of new Austin headquarters

The sale closes another chapter in the pension system’s multi-year effort to address what it said was a need for more office space. It moves its headquarters and main offices to the Mueller mixed-use development in East Austin.

A representative from Austin Real Estate Acquisitions could not be reached for comment Wednesday, so it’s unclear what the company’s plans for the property might be.

Real estate watchers say the Red River campus is in an area that is changing with new developments, particularly in the areas of life sciences and medicine.

Israel Linares, senior market analyst in Central Texas for CoStar Group, a commercial real estate data company, said the property “is at the heart of what is now recognized as the innovation district of Austin”, an area designed to stimulate collaboration between leaders in science, research and medicine.

“The area is primed for office redevelopment targeting life sciences tenants given its proximity to Dell Medical School,” Linares said.

Tenants could also be attracted to the site because of its proximity to the Waller Creek district, he said, where current redevelopment plans call for new parks and improved greenways.

The pension system’s efforts to meet the needs of its offices made it headlines from 2019, due to a since-discontinued controversial plan to move its investment management division from rented space in a building on Congress Avenue in approximately 100,000 square feet in the upscale 36-story Indeed Tower, currently the tallest office building in the city.

The pension system scrapped those plans after facing heavy criticism from some retired teachers and state lawmakers, following a public request by the US statesman for financial terms of its Indeed Tower lease. Despite the agency’s efforts to keep the information secret, a partial amount of the lease was initially made public, and eventually the full cost was disclosed – $487,000 per month’s rent to start, or $5.8 million. dollars the first year.

After:Texas teachers’ retirement system to spend up to $300 million on new headquarters after Indeed tower plans scrapped

As part of the sale of the Red River campus, the pension system will be able to continue to occupy it for two years while its new Austin headquarters – two buildings in the business district of the Mueller mixed-use project – will be finished and ready to be occupied.

Mueller’s headquarters will provide more efficient space outside of downtown, pension system officials said. Austin-based system employees will be located in the new facility, “further reducing downtown rental costs previously required for additional office space,” they said in the press release.

The state agency is expected to begin occupying the first building, located at 1900 Aldrich Street, next summer. About 500 employees will occupy that building after move-in day, agency spokesman Rob Maxwell said. About 500 more people will remain at the Red River site until the nearby Mueller Building is ready for occupancy in 2024, Maxwell said.

The pension system purchased the first Mueller building for $116.6 million from Shorenstein Properties. The agency also budgeted up to $21.5 million more to finish the space, bringing the building’s total to $138.1 million.

The pension system said its budget for the second Mueller building, which Shorenstein is also developing, is $161.9 million. This amount includes the purchase price and the cost of finishing the space.

The Red River Retirement System headquarters first housed employees in the early 1970s, when there were just over 200 employees and approximately 300,000 members of the Red River Retirement System. teachers. Currently, there are approximately 1,000 employees in the pension system and nearly 1.9 million members.

After:Teachers’ pension system released from Indeed tower lease after building sold

In September 2021, the state agency’s board voted to spend up to $300 million on Mueller’s two buildings for its new headquarters.

Retirement system officials previously told the Statesman the move would save the agency about $15 million over 20 years. This estimate was based on a potential sale price of $80 million to $100 million for the Rouge River campus, as well as millions of dollars in savings on improvements and upkeep of the aging headquarters and perks to no longer have to rent additional office space nearby. .

CBRE, a global commercial real estate services firm, represented the retirement system in the sale of its downtown headquarters.

Troy Holme, executive vice president of CBRE in Austin, said the Red River campus was a unique downtown property in “extremely high demand.”

Austin ranked 14th in the nation for total commercial real estate investment volume with nearly $16.9 billion invested between the second quarter of 2021 and the second quarter of 2022, according to CBRE Research. These figures represent all commercial properties, including office, retail, industrial and apartment buildings, sold in the Austin metro area during this period.

Last year, California-based Kilroy Realty Corp., a publicly traded real estate investment firm, announced it was buying Indeed Tower for $580 million. At that time, the pension system said it “no longer had any lease obligations” following the sale to Kilroy.

Earlier, the statesman reported that the teachers’ pension system has an indirect, albeit significant, stake in Indeed Tower through an investment partnership that includes a subsidiary of Trammell Crow, a co -developer of Indeed Tower.