Texas Senate and House leaders are deeply divided over property tax plans, but they have something new in common: Both are being sued by Horizon Bank over a real estate deal that went wrong.
As a Grade A building in the city center Facing leasing dilemmaHorizon accused House Speaker Dade Phelan, Lieutenant Governor Dan Patrick, and Comptroller Glenn Hegar of sabotaging a deal with a state agency at its West Fifth Lease signed for the new downtown building at 600 Street.
The Texas Forever Schools Foundation signed a lease with Horizon in June 2022. As administrator of a $51.3 billion endowment for public schools in Texas, the firm has had trouble retaining top investment professionals who expect fancier office facilities than the average government staff.
Under the lease agreement, the company will address that by moving to brand new, high-end offices closer to downtown Austin. Horizon agreed to build the office building and lease 45,000 square feet on three floors to the Permanent School Fund Corporation for more than 10 years. The leasing company will spend $2.2 million a year, or $49 per square foot, plus $1.2 million for space renovations.
But the June 2022 lease was signed before this year’s budget set the company’s spending limit, making it possible that state lawmakers will provide the company with less money than is needed to pay rent. When scouting for new space, Horizon said it told potential landlords that the chances of a budget shortfall leading to lease defaults were “extremely low.”
Such a breach would “impair the ability of any entity in Texas to continue entering into long-term contracts in the future,” the company wrote in the lawsuit.
Horizon and D2000, a development and management company linked to the property’s ownership LLC, built the building the following year after signing a lease with the Permanent School Fund. It was delivered in March, and the company began making improvements to the space.
But when Gov. Greg Abbott signed the new budget into law in June, it contained a rider that prohibited the company from using any of its funds to pay for private facilities, but are currently on West 15th Street. Excludes leases at 400 Moody Bank Building. Moody’s lease expires this year and is not eligible for renewal, the lawsuit said.
It’s unclear exactly who added language to the budget that would remove the company’s ability to sign private leases. But the rider dates back to a February meeting of the House Appropriations Committee’s higher education subcommittee, when Forever Schools Fund executives Holland Timmons and Tom Maynard presented their budget request.
Timmons told the subcommittee that the company had signed a new lease, a “financially modest option” that would “significantly increase our ability to retain and recruit.” Some committee members asked whether the company had considered vacating space in the George HW Bush State Office Building, a state-owned facility, at 1801 Congress Avenue. The company said it was already in talks, but never received definitive word on available space.
“Do we have to be downtown?” asked Rep. Carl Tepper, R-Lubbock and investor in commercial real estate. “I was surprised, I mean $49 a foot.”
Rep. Gary VanDeaver, D-Calif., the chairman of the committee, could not find a single lawmaker who specifically added language that prohibited companies from using it. state funds private lease. But when the committee reports on rider recommendations, it includes that provision.
“It is a fundamental principle of this country that the state cannot simply pass legislation to avoid fulfilling its contractual obligations to its citizens,” the bank wrote in the complaint.
Horizon claimed that since the lease was signed, any failure to pay would be considered a breach of contract with “severe consequences,” suggesting the state’s commitment “is entirely at the mercy of the legislature’s ever-changing mind.”
And change those whims are sure to have.patrick and Phelan Embroiled in debate over how best to lower property taxes, Phelan backed assessment tax cap throughout legislative session just to ditch them When the May special session begins.
A lawyer for Horizon and representatives for Patrick, Phelan and Hegar did not respond to requests for comment.
