Downtown Phoenix high rises in demand

by Andrew Johnson
The Arizona Republic
Dec. 20, 2007

Millions of investment dollars could flow into downtown Phoenix before the year's end as commercial property speculators make a last-minute push to beef up their portfolios.

At least two large downtown Phoenix office high-rises are in escrow to be sold, and investors are shopping around a third building for potential buyers, according to several brokers.

Despite rising vacancy rates in some Valley areas, downtown Phoenix remains a hot investment prospect because of high demand for space and the lack of new inventory, and experts say these potential sales are an example of that.

Houston-based Hines is currently in escrow to buy the One and Two Renaissance Square buildings at Central Avenue and Washington Street from The Pauls Corp. in Aurora, Colo. for $272.9 million, or $283 per square foot, according to a report from industry tracker CoStar Group Inc.

"I believe that will close before the end of the year," said Hines Vice President Bill Olson, who oversees the firm's Phoenix office.

If the sale does close by Dec. 31, it would be the largest office transaction of 2007 in terms of the dollar amount.

The $176.8-million sale of Collier Center, 201 E. Washington St., to GE Asset Management in June currently stands as the most expensive office deal this year. That transaction included one building.

Real estate Web site GlobeSt.com first reported last week that Hines was under contract to purchase the two buildings, which include a total of 962,087 square feet.

Property records show that Pauls bought the 26-story One Renaissance Square, Two N. Central Ave., in June 2005 for $128.8 million from Maguire Properties. The company then bought the 28-story Two Renaissance Square, 40 N. Central Ave., from Crescent Real Estate Equity Cos. in September 2005 for $119 million.

Those familiar with the properties describe them as some of the most exquisite office buildings in the Valley.

"It's going to be difficult for anybody to recreate them because their construction materials are so elaborate," said Mindy Korth, an executive vice president in CB Richard Ellis' Phoenix office.

The Renaissance towers are not the only ones that could be sold in the near future. Several brokers have said that the nearby Phelps Dodge Tower, One N. Central Ave., is also for sale by its owner, Sumitomo Corp.

Calls placed to the company were not returned as of press time.

Sumitomo bought the building from developer Ryan Cos. in 2004 for $82.8 million. The property was built in 2001 and is one of the last office towers to open in downtown Phoenix.

"The underlying fundamentals of our market are still very strong," said Don Mudd, a senior vice president with Grubb & Ellis/BRE Commercial LLC, who specializes in office properties. "Absorption is going to be off (in 2008), but rents are going to hold, and that's a function of the overall market maturing."

He and other brokers said it is typical for investors to try to close deals before year's end, as some may have equity partners that require them to place money within a certain amount of time.

Downtown Phoenix isn't the only spot benefiting from investors' faith in the market.

Opus Cotton Center, a four-building complex on 21.5 acres near 48th Street and Baseline Road, was sold to Minnetonka, Minn.-based Carlson Real Estate Co. for $46.1 million.

Carlson bought the properties from Opus West Corp. in Phoenix and Opus Real Estate Fund IV in Minneapolis in a deal that closed Thursday, according to brokers with Cushman & Wakefield of Arizona Inc. who negotiated the deal.

The four buildings, which include a total of 264,994 square feet, are 77 percent occupied.

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Valley Has Wealth of Luxury Homes

Catherine Reagor
The Arizona Republic Jan. 20, 2008

Metropolitan Phoenix, long known for its affordable new houses on the fringes, has become a magnet for affluent home buyers.

Nearly every suburb of the Valley, from rural Buckeye in the far southwest Valley to the farm community Queen Creek in the far southeast, posted sales of homes with seven-figure prices.

Paradise Valley, Scottsdale and the Biltmore and Arcadia neighborhoods of Phoenix continue to be the hot spots for the Valley's poshest homes. Nine out of metro Phoenix's 10 priciest homes are in Paradise Valley. The town hosts the most expensive dwelling: a $26 million estate with more than 31,000 square feet of space.

But as Historic metro Phoenix grows, more deep-pocketed buyers are opting for other areas closer to their work, family, favorite golf course or mountain preserve.

A few years ago, more sales of million-dollar homes started showing up in the older central Valley neighborhoods, in the new high-rises in Phoenix and Tempe, in well-established West Valley neighborhoods of Litchfield Park and Glendale and next to the mountain preserve in Ahwatukee.

More recently, luxury-home builders have started constructing speculative million-dollar homes in farther out communities known more for semi-affordable luxury homes and good schools. Among them: Ocotillo in Chandler, Las Sendas in Mesa, Estrella in Goodyear, Verrado in Buckeye and Vistancia in Peoria.

Craig and Wendy Kasten recently bought a $1.1 million home in Gold Canyon's Superstition Mountain golf community. The couple, who live most of the year in Wisconsin, have been visiting the Valley in the spring for several years.

"We looked in Paradise Valley and north Scottsdale, but the homes were smaller and there was more traffic," Craig Kasten said. "We wanted the best house for our money."

The Valley's million-dollar-home market slowed in 2007, but seven-figure sales weren't down as much as the rest of the market.

Last year, 2,227 million-dollar homes sold across metro Phoenix, according to an Arizona Republic analysis of real-estate data from the Information Market. That compares with 2,505 in 2006, which is about an 11 percent drop.

Overall, home sales were down almost 30 percent Valley-wide.

"Buyers are definitely looking for values," said Walt Danley, a luxury-home real-estate agent in the Valley with Coldwell Banker Residential. "But I haven't run into any million-dollar buyers having trouble getting financing because most are paying cash or putting significant down payments down."

Like the rest of the housing market, the number of listings of million-dollar homes is up.

There are 3,500 new and existing homes with price tags above $1 million for sale on the Arizona Multiple Listing Services Web site. In 2005, there were half that many pricey homes for sale Valley-wide.

Lawrence Yun, chief economist of the National Association of Realtors, said many people from pricier housing areas such as California and New York are buying million-dollar homes in Arizona because they are deals compared with the home prices they are used to.

Sandra Baldwin, a luxury-home agent with the Phoenix office of Equitable Real Estate Co., said the Valley's growing luxury market continues to attract a lot of buyers from not only out of state but also internationally. But she said like the rest of the area's housing market, some owners of million-dollar homes are overpricing their properties, which works to slow sales.

Two-thirds of the Valley's ZIP codes with large residential sections had million-dollar home sales last year.

The adage that buyers get more house and land for their buck the farther they drive holds true for the luxury-housing market, as well.

"A million dollars will get a buyer an old, smaller home that needs work in Paradise Valley and a newer home on a golf course with almost everything they need but their toothbrush in Chandler," said Mo Yaw of Realty Executives Ahwatukee.

A Mesa home listed for $1 million has 5,500 square feet, an acre lot, two master suites, a pool and spa, five baths and two offices. The least expensive home for sale in Paradise Valley was listed at $2 million. It has 3,500 square feet, three bathrooms and a pool.

Buyers looking for million-dollar homes can find them in most new suburbs. Besides getting bigger homes, some people who grew up in parts of the Valley and can afford million-dollar homes don't want to move away from their longtime neighborhoods.

"People who lived in Arrowhead on the west side and now can afford a million-dollar home are moving to Verrado, not necessarily Scottsdale," Baldwin said. "People from the old farming families in the southeast Valley are buying million-dollar homes in Chandler and Gilbert."

Only a few of the Valley's biggest suburbs didn't have million-dollar sales last year. But two of those ~ Laveen and New River - now have residential properties listed for more than $1 million.

"The housing market may be slowing now," Yaw said, "but new exclusive pockets of million-dollar homes are going to keep opening up in the Valley."

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