PHOENIX-When GLL Real Estate Partners recently paid $21.6 million to acquire the 159,764-square-foot Papago Spectrum as part of a CMBS package from special servicer C-III Asset Management LLC in Irving, TX, the German buyer received a class A, multi-tenant building that was 91% occupied. However, as Jones Lang LaSalle senior managing director Dennis Desmond tells GlobeSt.com, getting to the closing table was an interesting process.
“The entire process took about 18 months,” confesses Desmond, who partnered with JLL senior vice president Brian Ackerman to market the office building at 1225 W. Washingtonon behalf of the seller. “An encroachment was uncovered.” The encroachment in question was an Salt River Project Power & Water (SRP) line running under the building. “It took a lot of doing to determine if a) it was live; b) it was secure and c) who should do something about it,” Desmond says. Adding to the issue was that, during the process of determining responsibility for the power line, the servicer that had hired JLL was sold to another servicer, further muddying the waters.
It should probably come as no surprise that Papago Spectrum’s escrow period was somewhat rocky. The office building came online in 1999 and was acquired by Triple Net Properties LLC in 2005 for $26.3 million. But Triple Net, which went through several incarnations of its own because of the Great Recession, ran into problems with the loan, and Papago Spectrum was foreclosed on in 2010.
But Desmond says that, despite the woes befalling the building and its former owner, Papago Spectrum had done fairly well during the Great Recession and its aftermath. He and Ackerman received a great deal of interest during the marketing period.
But even as closing approached, another issue came up. “Not too many weeks before closing, University of Phoenix (which is one of the main tenants of the building) identified space it was going to put on the market for sublease,” Desmond comments. Though this might seem to be alarming, “the buyer wasn’t too concerned about it,” Desmond says. “That submarket has been historically strong. During the past 5-6 years, the vacancy has been around 5%.” GLL is planning cosmetic upgrades, mainly to clean up the common areas and the lobby.
In the meantime, Desmond has some kind words for the buyer, which has been active in the Phoenix area. “GLL was the buyer we selected through the marketing process, and they were terrific to work with,” he says. “It wasn’t an easy transaction, but they stuck with it.”