Texas teacher retirement system sells downtown Austin property

The Teacher Retirement System of Texas has sold its longtime headquarters building 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 news release Wednesday, the retirement system — which manages nearly $185 billion in retirement assets for Texas teachers and school employees — said the purchase "completes an extensive competitive sale process to ensure 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 198,972 square feet of space.

More:Texas Teacher Retirement System pays $116.6 million for first stage of new Austin headquarters

The sale closes another chapter in the retirement system's multiyear effort to address what it has said is a need for more office space. It is relocating its headquarters and main offices to the Mueller mixed-use development in East Austin.

A representative of 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 observers say the Red River campus is in an area that is transforming with new development, particularly in the life sciences and medical fields.

Israel Linares, senior market analyst in Central Texas for CoStar Group, a commercial real estate data firm, said the property "is at the heart of what is now recognized as Austin's Innovation District," an area designed to drive collaboration among leaders in science, research and medicine.

"The area is poised for an office redevelopment targeting life science tenants given its proximity to Dell Medical School," Linares said.

Tenants also could be drawn to the site due to its proximity to the Waller Creek District, he said, where current redevelopment plans point towards new parks and improved greenways.

The retirement system's efforts to address its office needs landed it in the headlines starting in 2019, because of a since-scrapped controversial plan to move its investment management division from rented space in a building on Congress Avenue into about 100,000 square feet in the upscale 36-story Indeed Tower, currently the city's tallest office building.

The retirement system ditched those plans after encountering harsh criticism from some retired teachers and state lawmakers, following an open-records push by the American-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 made public initially, and ultimately, the full cost was disclosed — $487,000 a month in rent to start, or $5.8 million in the first year.

More:Texas teacher retirement system to spend up to $300M on new HQ after scrapping Indeed Tower plans

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

The Mueller headquarters will offer more efficient space outside of downtown, retirement system officials said. The system's Austin-based employees will be located at the new facility, "further saving downtown leasing costs previously needed for additional office space," they said in the news release.

The state agency is expected to begin occupying the first building, located at 1900 Aldrich St., next summer. About 500 employees will occupy that building after move-in day, agency spokesperson Rob Maxwell said. Another 500 or so will remain at the Red River site until the neighboring Mueller building is ready for occupancy in 2024, Maxwell said.

The retirement system bought the first Mueller building for $116.6 million from Shorenstein Properties. The agency also has budgeted up to $21.5 million more to finish out the space, bringing the total for the building to $138.1 million.

The retirement system has said its budget for the second Mueller building, which Shorenstein also is developing, is $161.9 million. That amount includes the purchase price and the cost to finish out the space.

The retirement system's Red River headquarters first housed employees in the early 1970s, when there werejust over 200 staffers and about 300,000 Teacher Retirement System members. Currently, there are about 1,000 retirement system employees and nearly 1.9 million members.

More:Teacher Retirement System freed from Indeed Tower lease after building sale

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

Retirement system officials previously told the Statesman that the move will save the agency about $15 million over 20 years. That estimate was based on a potential sale price of $80 million to $100 million for the Red River campus, as well as millions of dollars in savings on improvements and maintenance at the aging headquarters and the benefits of no longer having to lease extra office space nearby.

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

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

Austin ranked 14th in the country 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. Those figures represent all commercial properties, including office, retail, industrial and apartment buildings, sold in the Austin metro area during that 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 retirement system said it "has no further lease obligations" as a result of the sale to Kilroy.

Previously, the Statesman reported that the Teacher Retirement System had an indirect, though significant, ownership stake in Indeed Tower through an investment partnership that includes an affiliate of Trammell Crow, a co-developer of Indeed Tower.