29-story Austin tower for sale; could set price record

Wanted: A buyer for a 29-story office tower in downtown Austin.

In an earnings announcement this week, Dallas-based TIER REIT announced that it is putting the tower, called Third + Shoal, up for sale. Local office brokers say they expect any eventual sale to set a new record for a downtown Austin office building, on a price-per-square-foot basis. The high-rise is at 208 Nueces Street, site of the former Austin Music Hall.

“As a result of significant capital looking for high-quality properties in Austin, our Third + Shoal joint venture has begun marketing the property for sale this week, potentially allowing us to capitalize on the value created," said Scott Fordham, chief executive officer of TIER REIT.

Third + Shoal was developed in a partnership between TIER REIT Inc., global real estate investment manager Invesco Real Estate, and Austin-based Cielo Property Group.

Fordham said TIER REIT delivered its Third + Shoal and 16-story Domain 11 office buildings to tenants to build out their interior spaces last year.

Third + Shoal's anchor tenant is Facebook Inc., which in 2017 signed a lease for 231,507 square feet of space in the tower. Facebook occupies other space downtown in the 300 West Sixth office tower.

Domain 11, a 315,000-square-foot building at the Domain mixed-use project in North Austin, will be occupied in full by HomeAway (Expedia).

Local commercial real estate brokers said they expect Third + Shoal, which will be about 375,000 square feet, to trade well above $700 per square feet. That per-square-foot price would put the sale price at more than $260 million. It would also top the $663 per-square-foot price that 5th & Colorado, an 18-story tower in downtown Austin, traded for in 2017, brokers said.

"Austin is one of the most sought-after locations for commercial real estate investment right now, and this type of product doesn’t come to market often," said Karen Judson, a vice president with Transwestern in Austin. "Depending on what the tenants are paying in rent, the sale of Third + Shoal should blow past our previous per square foot record-holder, 5th & Colorado."

Todd Mills, executive managing director of the capital markets division of Cushman & Wakefield Austin, said that "due to continual rent growth and low vacancy rates in Austin’s central business district, we will see many pricing records broken in the coming year. Austin’s office market is fundamentally very strong top to bottom and hard to see any reasons for that to change.”

Mike Kennedy, principal in the Austin office of Avison Young, a global commercial real estate services firm, echoed that view.

"Look for rents to increase, more buildings to come online and even higher sale prices achieved as the (downtown Austin) success story continues," Kennedy said.

At Third + Shoal, TIER REIT's management team moved in earlier this month. Other tenants are working on their interior spaces and could start moving in in the next few weeks and months.

Kennedy said that "given the quality of tenants and attractiveness currently of Austin's central business district for investment," he also expects Third + Shoal to fetch a record  per-square-foot price. Kennedy said the likely buyer will be an institutional investor with long-term hold strategy.

In September, the Statesman reported that Facebook had signed a lease for the entire Domain 12 building. Located at the Domain in North Austin, Domain 12 is a 17-story office building currently under construction that is being developed by TIER REIT and Endeavor, the original developer of the Domain mixed-use project.

In its earnings report, Fordham referenced TIER REIT's Domain 10 building now under construction, which he said is about 60 percent leased, "including 145,000 square feet to an expanding Fortune 100 Domain tenant."  Cushman & Wakefield identified Amazon as the tenant for the Domain 10 lease, in a list the commercial real estate services firm provided the Statesman.

Citizens Inc., an insurance holding company based in Austin, also will be a tenant in Domain 10, leasing 35,000 square feet. The building will have 300,000 square feet of rentable space in all.