Thomas Properties, CalSTRS Buy 3 MSF Austin Portfolio for $859M

By Barbra Murray, Contributing Editor 

Forming a new 50/50 joint venture, TPG/CalSTRS Austin, L.L.C., Thomas Properties Group Inc. and California State Teachers’ Retirement System have claimed total ownership of a group of eight office buildings totaling 3 million square feet in Austin, Tex., courtesy of an $859 million transaction. It’s not new territory for TPG and CalStrs. The partners acquired the assets from TPG-Austin Portfolio Syndication Partners, a venture involving Lehman Brothers Holdings Inc. with a 50 percent share, an offshore sovereign wealth fund with a 25 percent share and TPG/CalSTRS LLC–a partnership between TPG and CalSTRS–with the remaining 25 percent.

The change in ownership was initiated by Lehman, which exercised its right to sell the portfolio; TPG/CalSTRS then exercised the right of first offer on the properties that it had partially owned with Lehman since 2007.

The price tag for the collection of office buildings included the assumption of existing debt totaling $626 million in first mortgage loans. But that’s not the end of the new ownership story for the office portfolio, which encompasses downtown Austin’s Frost Bank Tower, 300 West 6th Street, One American Center, San Jacinto Center and One Congress Plaza, and Westech 360, Park Centre and Great Hills Plaza in Northwest Austin. In conjunction with TPG/CalSTRS Austin’s acquisition of the assets, TPG inked a deal that allows an affiliate of Madison International Realty to buy a one-third interest in the TPG subsidiary that owns the joint venture share of TPG/CalSTRS Austin.

“These are dynamic properties in a fast-growing market that continues to demonstrate strong fundamentals,” said Ronald Dickerman, president of Madison International Realty.

Indeed, the office market is on the upswing in Austin. In the third quarter, the year-over-year vacancy rate had dropped 3.6 percent to 15.7 percent. Tenants are snapping up the limited pool of large contiguous blocks of space and construction activity remains low.

“The Austin area continues to receive recognition for its impressive growth and high-quality workforce,” according to the report. “As firms flood into Austin and vacancies dwindle, tenants in the market have found it increasingly difficult to find ample, quality office space.”