The Texas legislature will hold hearings in March to discuss the Teacher Retirement System (TRS) of Texas' plan to move its Investment Management Division (IMD) to the Indeed Tower high-rise in Austin where the rent is $326,000 a month.
Disclosure of the cost of the lease, which TRS had been keeping secret, incensed teachers and retirees who lit up the phones to their legislators and took to Facebook with their complaints.
“TRS always claims to be on the brink of financial crisis, so why are they paying millions a year in rent? ... I sent the TRS boss this letter to let him know we can fix him up with nice office space out here in Odessa for a much more reasonable price,” Jana Druepple Bright posted.
"How tragic that teachers and retired teachers are paying for TRS to be in the most extravagant building close to the bars on 6th Street," Margaret Rutherford posted.
State Rep. Jim Murphy (R-Houston) who chairs the House committee overseeing pensions and financial services, said a hearing on the issue will take place sometime in March.
TRS Executive Director Brian Guthrie said in a written statement that he’s looking forward to the hearing as an “opportunity to discuss the Indeed Tower lease, address our members’ concerns and provide all the facts in a public setting.”
Lt. Gov. Dan Patrick told the Austin Statesman that he directed the Senate Finance Committee to consider the retirement system’s total rental costs and furnishings at its Feb. 25 meeting.
TRS is a state agency charged with managing the teacher retirement trust fund, which has $160 billion in assets. Seven months ago, the Austin Statesman asked TRS for details of the office move and the lease but the organization has kept the information secret, the Statesman said.
Guthrie defended the decision to move to Indeed Tower in a four-page letter to Rep. Dan Flynn (R-Canton) on Jan. 21. Guthrie said the lease of space at Indeed Tower was made "after thorough due diligence and cost comparisons." Copies of the letter were sent to Gov. Greg Abbott and other state officials. The letter was posted on Facebook.
“While the trust is funded by employer and employee contributions, nearly two-thirds of the fund’s revenue comes from investment returns," the letter states. “...Total administrative costs, including salaries, lease costs and all other operating expenses, paid from the pension trust fund equals less than 0.12 percent of the total trust fund value of $160 billion,” Guthrie said.
Guthrie explained that TRS intends to expand its IMD from the current 180 employees to 270 employees by 2023. He wrote that there is not room for the expansion at the 816 Congress St. location, where the lease will expire in 2021. Guthrie’s goal is to do more investment management in-house, which Guthrie says will save an estimated $1.4 billion in fees and carried interest from investing activity in the next five years.
The rent at the Congress Street location is $39 per square foot. Guthrie said he was able to negotiate a $38.50 per square foot for the first year rent at Indeed Tower because TRS has a decade-long investment relationship with Principal Real Estate Investors, the majority investor in the development. The Austin Statesman reported that $38.50 per square foot is below market rate for commercial space similar to that at Indeed Tower. The current market rate at Indeed Tower is $48 per square foot, the letter said.
“It is prudent to keep the investments team in close proximity to Austin’s financial and business core as recruiting the best talent from all over the globe is one of the keys to our success,” Guthrie wrote.
The IMD currently meets and works with 191 external managers who control $102 billion of the fund’s assets, Guthrie said. Many of the collaborators also have offices downtown.
“In order to ensure the best return for the trust fund, these relationships require frequent meetings,” Guthrie’s letter said.
Last year, the TRS trust fund considered more than $15 billion in investments for review and approval. IMD logs 115 meetings a month and hosts 186 office visits a month, the letter said.
“We must continually collaborate to source new investments and provide due diligence on existing and new external managers,” Guthrie said in his letter.