ISTA weighs downtown headquarters sale-WEB ONLY

The Indiana State Teachers Association may try to unload its nine-story headquarters in downtown Indianapolis to cope with financial turmoil, but such a deal likely would keep the teachers union as the building’s anchor tenant.

Selling the 115,000-square-foot headquarters could help the teachers’ union regain its footing after big losses at its insurance trust drew the attention of FBI and state investigators. The once-powerful ISTA has ceded operating control to the National Education Association, is raising union dues and plans to lay off dozens of employees.

The 1957 building, at Capitol Avenue and Market Street, likely is worth between $11 million and $13 million as part of a sale-leaseback transaction, local brokers say. The group owes just $3 million relating to the property, stemming from a loan it took out earlier this year with the building as collateral.

Even if it sells the building, ISTA likely would remain in its ninth-floor space and control leasing of the rest of the building, said ISTA President Nate Schnellenberger. The group already has lined up new tenants to move into space vacated by the dismantled ISTA insurance trust and financial unit on the seventh and eighth floors.

ISTA has not yet put the building on the market or retained a broker to explore the possibility.

“The building is profitable and has been for quite some time now,” Schnellenberger said. “Obviously, it’s a prime location right downtown, right across from the Statehouse. It would be a prime location for a large number of organizations.”

The key to a sale is having a built-in tenant like ISTA, said Sam Smith, an office market specialist who heads locally based Resource Commercial Real Estate.

“You have a credit tenant, despite their issues, and a well-located building, and long-term sale leasebacks are holding up better than most,” Smith said. “If a buyer had to take a lot of real estate risk, it would be a tougher scenario.”

A sale could happen even if it’s not the preferred route for ISTA officials, said Irwin B. Levin, an attorney with Cohen and Malad LLP who is suing the ISTA insurance trust on behalf of those who are due benefits.

The trust, which provided long-term disability coverage for about one-third of the state’s 300 school districts and provided health insurance for about 30 districts, has assets of just $19 million and liabilities of $87 million.

The trust had traded frequently and had 88 percent of its investments in high-risk vehicles such as hedge funds and real estate limited partnerships.

“We would look at all assets ISTA had to make sure people don’t lose their benefits,” Levin said. “We’d hope [selling the headquarters] wouldn’t be necessary.”