Bonnie Arbittier / Rivard Report
USAA Real Estate Company’s recent announcement that it had purchased one of San Antonio's premier office towers in the central business district comes at a time when the San Antonio skyline is set to change significantly for the first time in more than two decades.
The acquisition of the 28-story Bank of America Plaza, which opened in 1983, gives USAA ownership of one of the best business addresses in the downtown area.
The only significant change to the downtown profile in recent years was the opening of the 34-story Grand Hyatt Hotel in 2008, the tallest building built in San Antonio in the 2000s, and now the fourth tallest building in the city. No downtown office towers have opened since the 32-story Weston Centre opened as the NBC Bank Plaza in 1989. The Weston Centre is the third tallest building downtown at 444 feet in height compared to the Grand Hyatt's 424 feet.
Hotels dominate the San Antonio skyline as much or more as the office towers. The 38-story Marriott Rivercenter, completed in 1988, is the tallest building in San Antonio with a height of 546 feet, but its roof tops off at 441 feet, three feet shorter than the Weston Centre. The historic 30-story Tower Life Building, which opened in 1927, is the city's oldest downtown tower.
The Tower of the Americas, opened in 1968 for HemisFair '68, is the tallest structure in the city at a height of 750 feet.
For those with a keen interest in the downtown real estate market, height matters less than what the USAA acquisition means in terms of potentially adding more workers in high-paying jobs to the central business district. Speculation is rampant about the possibility that USAA eventually will populate the Bank of America building with its own employees. They already have a significant presence across Convent Street at One Rivercenter Place, an 18-story office tower that USAA bought in 2013.
A USAA spokesperson declined to say how much USAA paid and would not discuss the company’s future plans for the building.
“Together with Patrinely Group, USAA Real Estate Company purchased 300 Convent last week,” Samira Bitar, senior director of marketing at USAA Real Estate Company, stated in an email to the Rivard Report. “We believe it is one of the premier buildings in San Antonio and an outstanding addition to our existing portfolio of holdings here. We hope to raise it to an even higher standard, through a capital improvement strategy that is still in development.”
Weston Urban CEO Randy Smith said downtown investors are extremely pleased with the USAA acquisition. Weston Urban is developing the new Frost Bank Tower, now under construction and set to open in 2019.
"It is a vote of confidence in the urban core by someone whose vote really matters," Smith said. "The previous owner ... paid what was widely regarded as a really healthy price for it. For a buyer like USAA to come along in 2017 and complete that transaction is a huge vote of confidence for downtown."
Bexar County records show the 534,184-sq.-ft. Bank of America Plaza was appraised at $85 million in 2016. But the purchase price in 2014 by Clarion Partners and Griffin Partners was reportedly closer to $100 million.
Owner-occupants historically pay more for commercial real estate than investors, although USAA has not indicated any plans to occupy the Bank of America Plaza. A building of that size could accommodate around 1,500 people.
Currently in One Riverwalk Place, a select number of the insurance, banking, and investment giant’s 19,000 San Antonio workers occupy four floors, including USAA's innovation team which moved there in April.
On the same day USAA Real Estate Company announced its purchase of the Bank of America Plaza, the company also announced an intention to relocate 1,500 employees to suburban office space near the intersection of I-10 and UTSA Boulevard and expand by 2019 its existing offices in Plano to accommodate an additional 850 people. One USAA building in Phoenix has already been renovated for even more workers – jobs that would of course exist out-of-state.
Earlier this year, City Council approved tax abatements and fee waivers as an incentive for CaptureRx, a San Antonio-based health care technology company, to relocate its corporate headquarters downtown. The company also received a performance-based Economic Development Incentive Fund (EDIF) grant of up to $614,000 and a nomination as a Texas Enterprise Zone Project which allows CaptureRx to apply for state sales and use tax refunds on qualified expenditures such as building materials or property purchased for the business.
A CaptureRx executive said at the time that the company was offered incentives from other cities, but chose to remain in its hometown San Antonio.
In her email, USAA's Bitar stated that the Bank of America Plaza is substantially leased and occupied by other companies. Though OCI Solar moved from the building to its Brooks site at Mission Solar in June, and Zachry Exploration relocated to its main campus several months ago, County records show about three dozen businesses remain there.
The law firm of Akin Gump Strauss Hauer & Feld occupies 21,000 sq. ft. of the building for its 15 partners and staff. “We have not yet made any decision regarding the location of our San Antonio office following the conclusion of our current lease in June 2018,” said Ben Harris, director of communications for the firm.
Martin & Drought leases the entire 25th floor, according to the firm’s accounting assistant Kelly Presley, with 20 to 25 people. The San Antonio offices of Norton Rose Fulbright has three floors with 89 people.
“We were actually one of the first tenants in 1983, so we’ve been in the building for a long time,” said partner Jim Summers, a real estate attorney for the firm. “We are very happy that USAA bought the building. They’re a preeminent institution in San Antonio. It shows a commitment of USAA to downtown.
“Downtown San Antonio is thriving right now, and for an institution like that in San Antonio to expand their footprint, especially in downtown San Antonio, it sends a fantastic message to San Antonio as a whole ... I think it’s great.”
Another tenant is the federal government, according to the building’s previous owner, Griffin Partners. But the exact identity of the group is a mystery to others who work in the building.
“You see people in military uniforms coming in and out from maybe a couple of floors,” Presley said. Summers also sees workers getting on and off elevators at three upper levels, where security seems tight. He believes the group is affiliated with government health care, although another building tenant said a cybersecurity mission is based there.
Though office property investment is down nationwide, central city office investments, like the Bank of America building, are considered in the "good" range for investment, according to the Urban Land Institute's Emerging Trends in Real Estate report, while suburban office space is at the bottom. The report states there are several reasons for this trend.
A central business district office is an easy way for investors to scale up a portfolio, with property values often ranging between $100 million and $1 billion, and it is a favored sector among many foreign investors. Central office space is also a relatively glamorous sector, with buildings that photograph well and provide bragging rights. Plus, its performance during the economic recovery over the past five years has been stellar.
Economic development incentive packages can also sweeten the deal.
The Bank of America Plaza Building opened as Interfirst Bank Plaza. Real estate investment companies Clarion Partners and Griffin Partners purchased the building in late 2014, completed significant renovations, and installed on the exterior the "Kinetic Skyline," a blue and green light display by local artist Bill FitzGibbons.