PHOENIX-The Stamford, CT-based GE Real Estate and Muller Co. of Irvine, CA are digging into a repositioning of the 425,000-sf Pointe at Squaw Peak, which they foreclosed upon a month after they spent $28 million for the note in an off-market deal with GMAC Commercial Finance.

The JV plans a short-term hold geared around renovating and re-tenanting the class B office complex, according to Stephen Muller, president of the Irvine firm. The immediate plan calls for an $8-million renovation to the 30-acre property, renamed to the Plaza at Squaw Peak.

GE and Muller scooped up the note after the previous owner ran into trouble when the local office market, like many others in the US, fell on hard times with occupancies and rents after 9/11. The previous owner had a conduit loan, with a fixed-rate interest hovering 8.8%, that could not be prepaid, according to Muller.

"When the rents in Phoenix went down over the last three or four years, they were not able to get any relief on the debt service," Muller tells GlobeSt.com. "Because they had the cash flow to meet, they weren't able to drop rents. So as leases came due, they couldn't cut good deals." Then, the property owner got hit with a couple large move-outs.

"They just really got hit because of that loan and the rents being down. They were over-leveraged," Muller continues. "I don't think this property would be in this shape if they had been able to lower rents."

The complex was resting at 47% occupancy when the JV took over, but has since gone up to 57% without any improvements to the property, says Christian Garner, manager of GE's West Region. "Definitely we have been seeing great signs of absorption. Our timing was good," he adds.

The lease-up strategy targets tenants needing 5,000 sf to 25,000 sf. Currently, the leases roll sporadically every year, Garner says, and most tenants--small, professional firms--are on five-year terms. The previous owner's rents ranged from $22 per sf to $23 per sf, but the JV is able to quote $18.50 per sf to $19 per sf.

Garner says the planned hold is three to five years to give the Phoenix office market time to fully recover. "We figured there were some opportunities," he says. The JV is not contemplating breaking up the trio of Spanish-style, low-rise buildings at 7500 N. Dreamy Draw, 7600 N. 16th St., and 7600 N. 15th St.

"At the end of the day, we inherited it with a lot of deferred maintenance," Garner says, citing some minor leaks and a need for new landscaping. "We think it will take a couple of years to lease up. It's going to take a lot of elbow grease. ... The plan is to cure some deferred maintenance issues and enhance the property and lease it to stabilization ... then sell it."

Built in the mid-1980s by prominent Phoenix area-developer Bob Gosnell, who also built the two nearby Hilton Pointe hotels, the buildings stand to gain from the popular Camelback corridor nearby, says Muller. "We really like this area, because it's right on the 51 Freeway, which has become the major north-south artery in Phoenix, and it's pricing on the lower end" for Camelback-area offices, he says. Offices on Camelback are "90% leased," he says, so this offers a chance to be near that area without paying the higher rents. It's also positioned near several under-construction multifamily developments.

GE and Muller, teaming since the 1980s, last year started buying under-performing properties in Los Angeles and San Diego. As the JV bought more properties, the focus shifted from the relatively stable Los Angeles and San Diego office and industrial markets to recovering markets like Phoenix, according to Garner. The newly named Plaza is the JV's first local acquisition, but it's on the hunt for more office product in the metro. "We continue to look at Phoenix. "We're looking at similar deals," Garner says, careful not to go into detail about the pending takeovers.