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Valley's buildings sold well in 2006

Yvette Armendariz
The Arizona Republic
Jan. 7, 2007 12:00 AM

While the housing market went through a significant stall in 2006, commercial real estate gained momentum.

The year was one of low vacancies and increasing rents and plenty of deals. Some of those office and industrial purchases came with big price tags, while others were significant because they reinforced Phoenix as a place companies and investors are looking to be in.

"Overall, 2006 was stronger than 2005 in deal volume," said Mike Coover, research marketing manager for Grubb & Ellis BRE Commercial.

And even more deals would have been likely, he said, if only there was more space to show in the Phoenix market.

Notable deals included two deals for more than $100 million each, several companies moving into larger-than-average industrial buildings, a big land sale, and corporations investing in headquarter or regional offices in Phoenix.

A few Phoenix buildings fetched more than $100 million in 2006. In the fall, the Chase Tower in downtown Phoenix sold for $103 million to a Canadian real estate investment fund run by Brookfield Asset Management of Toronto.

A few months earlier, the Hines building at 24th Street and Camelback sold for $113 million to German company GLL Properties. A German investment company sold it just months after it bought the 302,000-square-foot building from Houston developer Hines at the end of 2005 for $107 million.

Bigger was better

Buyers were on the hunt for bigger buildings in 2006.

"All our top (industrial) deals exceeded 150,000 square feet in '06, and (those top deals) could be exceeding 200,000 square feet in '07," said Mark Urbanowicz, the research director for Cushman & Wakefield.

Brokers point to the $31 million sale of the Airport Business Center, a 268,000-square-foot multi-tenant building. Also, AAA of Arizona opened its Member Solutions Center in July that takes up 206,000 square feet once occupied by Honeywell at 59th Avenue and Bell Road in the Talavi Business Park. The improved building houses a call center and information-technology operations.

Land is the key

Land deals point to future commercial development.

In the final days of the year, DMB Associates Inc. closed on the $265 million purchase of the 3,200-acre General Motors Desert Proving Grounds near Mesa, opening up development for office, industrial, retail and residential development a few years from now in the East Valley.

But for the next three years, GM will lease the property. DMB, meanwhile, will develop its plan for the land at Elliot and Ellsworth roads over the next 18 to 24 months.

That deal follows the acquisition of about 900 acres adjacent to Williams Gateway Airport in three separate deals of four properties by Carefree-based Paragon Properties, operated by Doug Dragoo. His most recent purchase of about 300 acres, announced in October, was worth $23.5 million. The land is part of the Williams Trade Center development that is expected to begin construction during the second quarter of 2007.

Investors turn to offices

Real estate investors are seeking Phoenix office buildings to bring in steady income. One of the bigger deals came in November when two buildings housing American Express operations in northwest Phoenix sold for a combined $90.7 million. The buildings, near Loop 101 and Interstate 17, were acquired by a Detroit pension fund. Those same buildings were sold 18 months earlier for $82 million to two companies tied to an Oklahoma broker.

National headquarters

Corporations kept headquarters within the Valley.

Dial and Allied Waste both made splashes with their decisions to move into new corporate headquarters.

Dial announced its plans months after its two-story headquarters, just east of Scottsdale Road and Greenway-Hayden Loop, sold for $23 million to California-based Crown Realty & Development.

Dial will move out in the fall of 2008 after its lease expires; it has broken ground on a new building on a 4.75-acre site off Loop 101 and Scottsdale Road.

Meanwhile, Allied Waste Industries moved its corporate headquarters out of Scottsdale and into a 150,000-square-foot space in the Chauncey Ranch development in northeast Phoenix in November. It signed a 15-year lease worth about $60 million, Urbanowicz said.

National companies came in.

eBay-PayPal Inc. was the most buzzed about. Its seven-year lease on about 96,000 square-feet of new office space wasn't big in dollars. Its lease is estimated to be worth just $18.2 million. But it's definitely noted by brokers for the Valley's ability to attract a national company that was looking at several markets.

"Getting a large creditworthy company calling Phoenix home is the wow factor," Urbanowicz said.

In November, PayPal moved into its new office at 90 Mountain View in Scottsdale with about 100 employees. Plans are to grow to 400 in a few years.



Reach the reporter at yvette.armendariz@arizonarepublic.com.

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