The Teacher Retirement System of Texas has secured a 10-year lease for 100,000 square feet of office space in what is likely one of the most expensive buildings in the state, the new Indeed Tower going up on West Sixth Street in Austin Texas. According to TRS officials, the state agency which oversees a retirement portfolio of roughly $160 billion negotiated a good deal for the lease on three floors of the new Class-A building. The base rent starts at a bargain of only $326,200 per month during the first year, rising to $383,391 per month toward the end of the lease.
Sounds like a great deal for the investment management division of TRS which will apparently be moving into the new digs on Sixth Street. For the thousands of teachers and retirees in the TRS system, it looks like a colossal disaster.
While the starting base rent of $38.50 per square foot (per square foot!) might be a decent deal in terms of the current inflated office rents in downtown Austin, the TRS lease agreement in the Indeed Tower is really more a case of the Teacher Retirement System of Texas giving teachers and retirees a giant middle finger.
As reported by the Austin Statesman that base rent figure which the TRS has been reluctant to release to the public only captures a portion of the actual lease cost. Commercial leases like this also normally contain an operations cost component born by the tenant, the tenant in this case being TRS.
“The initial operating lease rate for Indeed Tower is being marketed at $19 per square foot, Graves said, which combined with the base rate would put the retirement system’s total lease rate in the building at $57.50 to start.”
This means that the Teacher Retirement system of Texas is going to be paying well more than $3.9 million for the first year of the lease and more than $4.6 million for the final year. At a total lease rate of $57.50 per square foot, TRS would be paying well over $50 million over the total term of the lease. By comparison, state office lease rates in the Austin metro area average less than half what TRS will be spending, or $24.44 per square foot. That average for state office lease space is for property mostly outside of the downtown area, but that’s not the point.
The point is that the Teacher Retirement System of Texas just inked a deal for some of the most expensive lease space in the state when it is telling teachers and retirees to live within their means amid rising healthcare costs and tight budgets, and that’s before we find out that TRS has an investment relationship (aka conflict of interest) with Principal Real Estate Investors. It turns out that TRS has invested roughly $1.4 billion over the past decade with Principal, an Iowa-based investment firm. Trammell Crow is jointly developing the Indeed Tower with Principal Real Estate Investors!
TRS reportedly “declined to comment on whether the relationship with Principal Real Estate Investors helped it secure its lease rates in Indeed Tower.” I’ll bet they did!
When the next recession hits, Texas teachers and retirees would do well to remember the laughable logic TRS officials have floated to justify their decision to occupy the Indeed Tower, as well as the lack of transparency in disclosing the actual costs. They might also want to read the latest TRS operating budget.