Ex-Blackstone Dealmakers Said to Plan Austin Office in Tax Move

(Bloomberg) -- Stonepeak Infrastructure Partners, a $15 billion firm led by former Blackstone Group LP dealmakers, is expanding its reach in the Lone Star State in part to protect its executives from potentially higher New York state taxes.

The firm is planning to open an office in Austin, Texas, according to a memo sent to investors Tuesday that was obtained by Bloomberg News. Stonepeak co-founders Mike Dorrell and Trent Vichie are among those who have decided to relocate their families to Austin, but the duo will initially spend a majority of workdays in New York, said people with knowledge of the move. The executives want to have the option to transfer amid concerns that New York’s state tax rates could climb if high earners flee as result of the new tax law, one of the people said.

President Donald Trump’s tax overhaul sets a new cap of $10,000 on state and local tax deductions, which includes property taxes. The limit is pushing money managers in high-tax states such as New York and Connecticut, who may have previously written off hundreds of thousands of dollars in property taxes annually, to consider moving to states such as Florida that have zero state income taxes and relatively lower property taxes.

Austin, with a population approaching 1 million, is sometimes nicknamed Silicon Hills, with more than 5,600 technology companies and 150,000 college students, including those at the University of Texas at Austin, according to the GreaterAustin Chamber of Commerce. As well as hosting the annual South by Southwest conference, the Texas state capital is home to offices for companies such as Apple Inc., Google parent Alphabet Inc. and Amazon.com Inc. Money manager Pacific Investment Management Co. is planning on opening a new office in Austin later this year.

Read more about how Pimco selected Austin for its next U.S. office

Stonepeak is in the final stages of signing a lease for 8,000 square feet on the top floor of a building currently under construction named Third + Shoal, according to one of the people with knowledge of the details, who asked not to be named because the information is private. The building’s anchor tenant is Facebook Inc.

A representative for Stonepeak declined to comment on the Austin office. A leasing representative for Third + Shoal, Troy Holme at CBRE Group Inc., declined to comment on Stonepeak but said the building will be substantially complete in the fall, with tenants moving in by early 2019.

The co-founders, who were both raised in Australia, are also relocating their families because they want their children to grow up in a place other than Manhattan, one of the people said. The executives considered Miami and Denver, but ultimately chose Austin because of its appeal to young professionals and its reputation as a tech hub since the firm has been investing in communications assets such as Cologix, the person added.

Stonepeak also has a handful of investors in Texas including the Teacher Retirement System of Texas, Employees Retirement System of Texas and the Texas Municipal Retirement System, according to disclosures.

The firm is in the process of raising money for its third fund. Austin will be Stonepeak’s third office, in addition to Houston and New York, where it’s set to move to a 30,000-square-foot (2,800-square-meter) space in Hudson Yards, an upgrade from its roughly 14,000 square feet at 717 Fifth Avenue.

Like Florida, Texas has zero state income taxes, whereas New York’s state income taxes are among the country’s highest. Despite the move, Dorrell and Vichie will still be on the hook for some New York state taxes, in part because Stonepeak, a partnership, will maintain a presence in the Empire State.

Still, they’ll experience a larger benefit from tax savings on their carried interest, or the 20 percent of a fund’s profit that can be eligible for a much lower capital gains rate. Non-residents can be exempt from paying New York state taxes on investment gains from deals in states with lower tax burdens.

The pair aren’t alone in decamping. Bloomberg News reported earlier this week that founders of I Squared Capital, Stonepeak’s rivals, are relocating to Miami from New York.

©2018 Bloomberg L.P.

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