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The biggest commercial real estate deal in Texas history was signed in Austin in April 2007. Thomas Properties Group Inc. spent $1.15 billion to buy 10 of the most prominent buildings in the capital.

Since the sale occurred months after the January 1 assessment date, the assessed value of the properties compared with sales price was under 70% for the 2007 tax year. By law, properties must be assessed at their full-market value. So assessors will likely have to play catch up next year.

This deal, along with other recent sales of office, apartment and retail properties in the Austin area points to an assessment spike across-the-board for 2008.
 

INVESTING IN AUSTIN
Austin’s affordable cost of living and attractive quality of life make it a very desirable place for companies to do business. Thomas executives say their firm has no plans to flip the new holdings.

James Thomas, founder, was quoted in the Austin American Statesman as saying, “Austin is expected to exhibit the strongest job growth in the nation over the next five years and this portfolio is well-positioned to benefit from that growth.”

The record purchase comes amid a strong office market in Austin, where rents for first-class space climbed about 18 percent from 2005 to 2006 citywide. Currently, rental space for these properties is in the range of $25-$35 psf and occupancy is listed at 82%. The new owners must expect rent rates to climb to $50.00 and occupancy to stabilize at 90% in the next two years.
 

INCREASED TAX OBLIGATION
The 2007 total assessed value for the Thomas Properties portfolio is $799,266,526 or $266 per square foot. The purchase price was $329.99 psf. The 2007 assessed value to sales price represents 69.5%.

Since Texas is a full market value state, the new owners could see an increase of as much as 30% for the 2008 value. The reassessment would equate to an extra tax burden of $4,900,000 over and above the taxes paid in 2007.

At the present time, there is a large spread between what investors are paying and the current tax assessments in Travis County. Therefore, these properties and virtually any commercial building in the Austin area can expect a sizeable increase for 2008.
 

THE AUSTIN PORTFOLIO OF THOMAS PROPERTIES GROUP, INC.
Property Name	2005 A/V	2006 A/v	2007 TCAD Notice Value	2008 Value
Frost Bank	$80,979,000	$147,389,000	$180,014,931	?
300 West 6th Street	$65,242,000	$126,685,780	$127,484,806	?
San Jacinto Tower	$53,441,092	$79,416,150	$91,152,350	?
One Congress Plaza	$57,527,992	$89,740,276	$104,439,956	?
One American Center	$58,942,872	$91,458,130	$109,760,457	?
Stonebridge Plaza I & II	$19,719,838	$30,843,023	$38,706,667	?
Park 22	$24,063,950	$34,733,567	$40,828,083	?
Research Park I & II	$32,116,000	$46,355,883	$54,489,683	?
Westech 360	$21,118,025	$27,710,000	$31,625,650	?
Great Hills Plaza	$13,215,000	$16,240,000	$20,673,943	?
Total:	$426,365,769	$690,571,809	$799,266,526	+ 15-30%
Source: Travis County Appraisal District