TRS facilities planning update: Economic downturn plays into new lease considerations

TRS facilities planning update: Economic downturn plays into new lease considerations

The TRS Board of Trustees discussed its planning process for facility needs at its April 17 meeting. The overall takeaway is that facility decisions mostly are on pause until the economy–shattered by the COVID-19 pandemic–stabilizes.

TRS initially had planned to move its investment division into the new Indeed Tower in downtown Austin, but public and lawmaker outcry on the cost led officials to instead look to a lease and added space at its current 816 Congress building. The lease has been negotiated but not signed, and TRS does not anticipate finalizing the lease and plans for that facility until the markets stabilize.

The Board heard considerations for whether it should move forward with the lease:

  • Negotiated rental rate was based on market conditions prior to the pandemic.
  • The risk of a recession or worse is high.
  • Lower real estate values will mean lower rental rates.
  • Public Office Real Estate Investment Trusts values have declined 30% from February 21 to April 8 of this year.
  • The “New Normal” potential expanded working from home capabilities.
  • Unknown timeline to return to office space with a need for stability of the future.
  • Office space density might change.

Since TRS had already signed a lease for the Indeed Tower, it now needs to sublease that space, which also could be difficult in the current market. The Board approved procuring an agent to initiate that effort.

TRS also is evaluating its original plans for building new headquarters, which might house all employees and avoid the cost of leasing space. However, because of the economic situation, system officials said they will now re-evaluate that strategy as well as getting more details on costs for renovating its current headquarters on Red River Street in Austin.

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