PARADISE VALLEY, AZ-In their first joint venture acquisition in the metro, Sterling American Property Inc. and Lincoln Property Co. have snagged the 268,598-sf Paradise Village Office Park of Paradise Valley. The partners have paid $64.1 million to San Francisco-based Lowe Enterprises.
The JV will spend an additional $1.9 million to upgrade the class A building at 11811 N. Tatum Blvd. "The building is over 20 years old now," explains David Krumwiede, executive vice president of Lincoln's western region. "When it was first built, it was very much top of the market. What it needs now is a freshening up of new common areas and signage." He adds a name change is not in the plan because the building's brand is well established in the marketplace.
Lincoln Property will take over leasing and management for Paradise Village from the seller's overseer, Main Street Real Estate Advisors of Phoenix. Jeff Smith, senior vice president for the Long Island, NY-based Sterling, tells GlobeSt.com that the current rents of the 87%-occupied building are 10% to 15% below current market value. Because there isn't much land left for development in Paradise Valley, the market demand most likely will push rent growth and occupancy even higher. "This is a very residential neighborhood and there isn't much office space within a five-mile radius," he adds.
Sterling senior associate Charles Jean adds that close to 50% of the leases will roll within three years. He says one of the top attractions was the ability to renew leases at a higher rate upon expiration.
Smith says another property attraction is tenant demand. "You have a lot of tenants who live in the area, who need a boutique kind of office with about 5,000 sf," he adds. "As Camelback continues to rise in rents, people who can't afford it will come north to our submarket and our property."
Smith says Sterling plans to seek more opportunities in the Southwest and West with Lincoln, looking at all product type. "It doesn't have to be value-add, as much as we have to understand the way the investment will work over a period of time," he says.
The deal was brokered by Dennis L. Desmond, senor vice president, and Nathan A. Thinnes, vice president of Grubb & Ellis/BRE Commercial LLC's Phoenix office. Also part of the sales team were and Jim Achen Jr., senior vice president, and William B. Zurek, vice president, both with Transwestern's regional office in Phoenix.