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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