KKR Makes a Splash in Austin Office Market

Real Estate Alert

December 11, 2019

KKR has agreed to pay $258 million for Riata Corporate Park in Austin, one of the
highest prices ever paid for an office property in the city.

The fully leased complex encompasses eight Class-A buildings totaling 688,000
square feet in the Northwest submarket. Cushman & Wakefield marketed the property for a partnership between Switzerland-based Partners Group and Accesso Partners, a fund shop in Hallandale Beach, Fla. The price works out to $375/sf.

The acquisition, which also includes a parcel, would be the first in Austin for New
York-based KKR. The firm has been expanding its scope. As previously reported, it
recently broke into the Seattle-area office market, agreeing to buy two properties
for a combined $1.2 billion. Both cities are benefiting from rapid growth in the
technology sector.

Cushman’s pitch for Riata Corporate Park touted it as a rare opportunity to enter
the Austin office market “at scale.” Only three office trades in the market’s history have topped $250 million, and only six have cleared $200 million.

While Austin’s strong job market and concentration of technology companies puts it in demand among big investors, it has a relatively small inventory that constrains sales. Volume climbed 29% in the first half to $681.3 million, making it the 20th most-active market in the nation, according to Real Estate Alert’s Deal Database.

Although Riata Corporate Park is fully occupied, in-place rents average 15% below what the space could command today, according to marketing materials. The weighted average remaining lease term is 4.4 years. Major tenants include: Accenture (25% of the space until 2023), Apple (14% until 2026), Allergan (16% until 2027), and United Health Group. Some 70% of the total space is leased by investment-grade tenants, according to marketing materials.

Austin’s 53.4 million-sf office market was 90.6% leased at the end of the third quarter, up from 89.4% at midyear, according to Cushman. The average asking rent was $38.86/sf, up 8.5% year-over-year. Rates have climbed 35% over the past five years.

Riata Corporate Park is on 56 acres at 12301B-12365 Riata Trace Parkway. It was developed between 1998 and 2000. Accesso acquired it in 2015, paying $171.3 million, or $249/sf. HFF advised the seller, San Francisco-based Spear Street Capital. Partners Group purchased a 75% stake in the property the following year.
The Accesso team made upgrades, signed or renewed leases for 540,000 sf and boosted occupancy. It also increased rents 30%, including 10% in the past year, according to marketing materials.