Middle Market Digest: This Week in Southwest
Here’s a look at this week's trends, announcements and deals that you may have missed in Southern California, Utah, Arizona and Nevada.
BY THE NUMBERS
PHOENIX—Strong net absorption and a 15.5% vacancy rate in the office market has spurred new construction. This is all noted in a recent first quarter report released by Colliers International in Greater Phoenix. Office tenants moved into a net of approximately 679,000 square feet during the first three months of the year. This net absorption level was a retreat from fourth quarter 2017, but stronger than first quarters of previous years. Office vacancy fell 30 basis points during the first quarter, dipping to 15.5% across the metro area. This level is now 90 basis points lower than a year ago and is the lowest rate in nearly a decade. First quarter vacancy performance marked a full year of quarterly declines in Greater Phoenix. Strongest improvements in vacancy occurred in the Southeast Valley, including Tempe, Chandler and the Superstition Springs submarkets. These areas of the metro area have experienced strong employment growth in recent years. Class-A properties had reached a below-15% vacancy by yearend 2017. The city is now seeing more improvement in class-B properties in which vacancy has dropped 100 basis points in the past 12 months to 16%. Asking rental rates in Greater Phoenix reached an average of $24.68 per square foot in the first quarter of 2018, rising 3.9% year over year. Rates are expected to rise approximately 4.5% during this year. Rental rate advances are stronger in class-B properties than class-A, though both are showing improvement. Class-A asking rents are expected to push higher this year as a result of new developments coming online. Construction trends have begun shifting towards the office market. Developers are increasingly putting speculative projects in the construction pipeline. Currently, more than 1.5 million square feet of spec space is underway, which is nearly double the total a year ago. Delivery of new projects had slowed in the past 12 months, totaling less than 1.4 million square feet. The pipeline is now filling with more than 2.8 million square feet of spec and build-to- suit office space under construction, 2.2 million of which is slated for completion during 2018.
(SOURCE: COLLIERS INTERNATIONAL)
NEW & NOTABLE
PASADENA—Colleen Carey, a 20-year commercial real estate veteran in the Los Angeles Basin and the San Gabriel Valley, has joined the Pasadena office of Lee & Associates has a founding principal. Carey joins the firm from Coldwell Banker Commercial Advisors, where she served as SVP, and has experience in office, retail and investment properties in the L.A. Basin and San Gabriel Valley markets. While at Coldwell Banker Commercial, Ms. Carey earned Circle of Distinction Membership nationally in 2008 during her first full year with Coldwell Banker Commercial and again from 2012-2017—placing her in the top 3% nationwide. In 2017, she finished in the top 2% of all CBC brokers nationwide and was among the top 25 producers nationally at CBC Advisors.
NEWPORT BEACH—Hoffman Strategy Group has hired veterans Dan Sheridan and Jeff Green as partners of the firm. Sheridan is based in Newport Beach, California with Green being located in Phoenix, Arizona. Hoffman Strategy Group works with clients that are owners of shopping malls and centers, developers of retail, residential, hospitality, and mixed-use projects and municipalities. The firm provides comprehensive advisory services including master planning for development and redevelopment; development feasibility; highest and best use feasibility analysis; location analytics; revenue forecasting; and optimal retail tenant mix and merchandising strategies.
IRVINE, CA—Steadfast Companies has hired Michael Brown as president of its multifamily management affiliate, Steadfast Management Company, which oversees 134 apartment communities totaling more than 36,000 homes in 20 states across the U.S. Prior to joining Steadfast, Brown served as divisional vice president for the western US with Camden Property Trust, one of the nation’s largest apartment-focused real estate investment trusts, and in senior positions with a number of multifamily real estate firms, including Western National Group, Stellar Management, KOR Realty Group, R.W. Selby & Company and The RREEF Funds.
PHOENIX, AZ—Knight Management has expanded its leadership team with the addition of Chad Clark as regional director of business development. Clark is responsible for providing overall leadership and direction for Knight, which focuses on generating and marketing new business opportunities to the commercial office, medical, retail and industrial real estate property management community. He brings a broad level of expertise in the real estate industry to establish and implement business development prospects with brokers, financial leaders, wealth managers, independent property owners and other referral sources.
SAN DIEGO—The Heritage Group has hired Robert Kerr as a senior director. Kerr’s knowledge, experience and extensive background offers new and valuable insight to the team, providing specialties in the acquisition and disposition of all types of investment and owner-user properties, investment sales, including NNN, retail, industrial and multi-family. Prior to joining The Heritage Group, Kerr was the Senior Vice President of Coldwell Banker Commercial SC and Vice President of NAI San Diego Commercial Real Estate Services. Before pursuing commercial real estate, Kerr held both C-level and Executive level positions in startup to Fortune 500 companies. With a financial and operations background, Kerr managed all facets of operations including Strategic Business Planning and Implementation, Performance Optimization, P&L Management, Contract Negotiations, VC Funding, Acquisitions-Mergers-Partnerships, Customer Relations and Strategic Alliances throughout his career.
DEALTRACKER
LOS ANGELES—Granada Pointe Townhomes, a 52-residence multifamily asset in Granada Hills, has traded hands for $21.5 million, which equates to $413,462 per unit. Marcus & Millichap Capital Corp., secured $10.75 million in acquisition financing. Obrien represented the seller and procured the buyer, a Los Angeles-based high-net-worth individual. Ronald Balys, a director with MMCC, arranged 10-year financing fixed at 4.2%. Built in 2010, Granada Pointe Townhomes is situated on nearly 100,000 square feet of park-like grounds in Granada Hills, an affluent neighborhood in the San Fernando Valley. Each residence has two bedrooms, two bathrooms, and a garage with laundry and storage. Floor plans range from 1,354 square feet to 1,601 square feet.
RANCHO DOMINGUEZ, CA—DAUM Commercial Real Estate Services has completed a 10-year lease of a recently-renovated 104,339 square-foot industrial building in the South Los Angeles County submarket of Rancho Dominguez, California on behalf of the lessor. Michael Collins represented IPT, a REIT operated by Denver-based real estate investment firm Black Creek Group, along with Jordan Lara, a First Vice President at DAUM’s South Bay office, and part of the LARA Team. The new tenant, Apex International, a global supply chain solutions provider, is relocating and expanding from a nearby 34,500 square-foot facility. DAUM directed the acquisition of the property to IPT in January 2017 for $12 million. The asset is currently valued near $20 million, according to Collins.
IRVINE, CA—This year, the Southern California office of Duke Realty has leased 824,363 square feet of space in newly developed or recently acquired buildings and expanding its portfolio with the acquisition of two, fully leased last mile buildings totaling 119,431 square feet. As a result of its first quarter activity, Duke Realty’s portfolio in Southern California has increased to 8.1 million square feet, with another 1.5 million square feet of 100 percent preleased industrial space under construction.
HONOLULU—Cullen Oesterly has joined JLL as VP of Industrial Brokerage. He will be based in the firm’s Honolulu office and will work primarily with industrial property occupiers, landlords and investors throughout Hawaii. Oesterly comes to JLL from a global commercial real estate firm where he worked with institutional, national and local occupiers and property owners of both industrial and retail properties. His experience also includes planning and development of several master planned communities in Hawaii and Southern California. Oesterly has a bachelor’s degree from the University of Southern California. He is an active member of Internal Council of Shopping Centers and Certified Commercial Investment Member where he is a 2018 candidate.
BEVERLY HILLS, CA—ESI Ventures has sold Madison Grove Apartments in Phoenix, Arizona for $21.5 million. The class-A multifamily complex is a fully-renovated property located at 7045 N. 7th Street, which has 171 units and features a resort-style pool, state-of-the-art fitness center, fire pits, pet park and outdoor BBQ / patio area with TVs, heaters and misting system. ESI purchased Madison Grove in 2009 for $5.3 million. During its ownership of Madison Grove, ESI made substantial improvements to the property including renovation of all interiors and exteriors. Renovations included: new air conditioning, hardwood floors, stainless steel kitchen appliances, window coverings, energy efficient windows, high-end Pental quartz countertops, paint, a wall mounted, cable-ready TV in every unit, carport parking, laundry services, storage, controlled/gated access, and more.
BEVERLY HILLS, CA—ESI Ventures has sold a 179 acres of a 290-acre mixed-use business park called Surprise Pointe in Surprise, Arizona. Surprise Pointe is located just 30 minutes northwest of downtown Phoenix and started as an unimproved site. Since ESI acquired the property in 2003 for $25 million it has invested more than $20 million in major infrastructure improvements including water storage, wells, water lines, sewer lines, power, and road access. The property is easily accessed via three major arterial streets, including rail as well. ESI also led the property through zoning changes with the City, making it readily available for a variety of uses. Since completing the infrastructure improvements and re-zoning, ESI has sold over 61% of the land to a developer, a distributor and a manufacturer.
SAN DIEGO—The Heights at Fashion Valley, a luxury residential development site in San Diego’s submarket of Mission Valley, has traded hands for an undisclosed price. Kevin Mulhern, Rachel Parsons and Laurie Lustig-Bower of the CBRE Multifamily team represented the local seller, Guardian Capital and the buyer, Fairfield Residential, represented themselves. Located at 6950,720,7050 Friars Road, the 319-unit complex will be situated on 5.43 acres and is directly across the street from Fashion Valley mall. Currently there are two three-story vacant office buildings on the property that will be demolished. The Heights is within a 10-mile radius of 810,444 jobs, representing 56 percent of San Diego County’s total workforce. Mission Valley has 5.5 million square feet of office space and 1.8 million square feet of industrial space, with major employers Booz Allen Hamilton, Inc., Wawanesa Insurance Company and Aetna Inc. The Trolley light rail Green Line station is a short walk from the property and connects Mission Valley to downtown San Diego. Nearby Interstates 8, 5, 15, and 805 provide immediate transportation linkage to Greater San Diego, Orange County, Los Angeles and beyond.
SAN DIEGO, CA—Developer the Padre Gardens Rancho Mission has sold Bella Posta, a 344-unit, mid-rise apartment community in San Diego’s Mission Valley submarket to SARES REGIS MULTIFAMILY VALUE-ADD FUND II, L.P. Additionally, the HFF team worked on behalf of the new owner to secure floating-rate acquisition financing. Bella Posta consists of four garden-style buildings comprising a mix of one- and two-bedroom units averaging 816 square feet. The 95-percent-occupied community is situated on approximately eight acres adjacent to the Interstate 15/8 interchange and SDCCU Stadium. Bella Posta is also a short distance from the Grantville Trolley Station, which provides easy access to San Diego’s major employment centers in the CBD, Fashion Valley, East County and Kearny Mesa. Community amenities include two swimming and spa areas, grilling area, locker rooms with saunas, fitness center, racquetball court, clubhouse and a blend of private garages and underground parking. The HFF investment advisory team representing the seller included senior director Hunter Combs and senior managing director Sean Deasy. HFF’s debt placement team representing the borrower consisted of executive managing director Kevin MacKenzie and senior director Brian Torp along with senior managing director Timothy Wright.
PEORIA—Vue Park West, a 260-unit multifamily asset located within Park West, a 250,000-square-foot open-air lifestyle center in Peoria, Arizona, has traded hands for $43.6 million, which represents $167,500 per unit. Steve Gebing and Cliff David, senior managing director, IPA, represented the seller, a joint venture between Baron Properties and Buchanan Street Partners, and procured the buyer, an institutional investment manager. Vue Park West is directly adjacent to Loop 101, the Agua Fria Freeway, and close to Interstate 10 and St. Joseph’s Westgate Medical Center. The Bell Road Retail Corridor, which has nearly five million square feet of retail, dining, and entertainment is seven miles away. The Westgate Entertainment District, a nearly eight million-square-foot mixed-use development anchored by the University of Phoenix Stadium and Gila River Arena is within two miles. Major nearby employers include Conair Corp. Humana Pharmacy Solutions, Bechtel Corp. and Luke Air Force Base. Built in 2008 on nearly 12 acres, the 252,643-net-rentable-square-foot Vue Park West features nine residential buildings with an attached leasing office, clubhouse and fitness center.
LOS ANGELES—Washington Capital Management has selected Transwestern to provide property management and project/construction management services for nearly 6.5 million square feet of office and industrial assignments in Southern California and Las Vegas. SVP Nicole Audette will oversee the portfolio, supported by senior property manager Chris Cussen, who will lead management for the industrial properties. The four goals of The Transwestern Experience include consistently creating positive experiences, connecting the dots between internal and external service, rupturing industry stereotypes, and building passion about purpose. This service mindset has resulted in an average 12% increase in overall tenant satisfaction, with 94 percent satisfaction in response speed/efficiency, 89% in accuracy/attention to detail, and 91 percent in collaboration/partnership. Transwestern was also retained in 2017 for a construction and project management assignment of over 425,000 square feet in Southern California. With these 26 buildings, Transwestern adds more than 350,000 square feet to its Los Angeles office management portfolio, more than 3.5 million square feet in the red-hot Inland Empire industrial market, and 2.4 million square feet of industrial space in Las Vegas. This brings Transwestern’s management portfolio to 21 million square feet in Southern California and 2.8 million square feet in Las Vegas, one of Transwestern’s newest markets.
LOS ANGELES—An eight-property, 644-unit multifamily property portfolio in Los Angeles County, California has traded hands for $161.9 million. The eight properties are located throughout the Los Angeles market. IPA’s Greg Harris, Ron Harris, Kevin Green and Joseph Grabiec, along with Bryan Schellinger of Marcus & Millichap, represented the seller, a private ownership group, and procured the buyers. The new owners include an institutional discretionary fund, regional syndicators and high-net-worth private investors.
BUILDING BLOCKS
IRVINE, CA—R.D. Olson Construction has broken ground on the Marriott, a dual-branded waterfront hotel in Marina del Rey, California. Located on Via Marina and Tahiti Way near world-famous beaches, seaside dining and waterfront activities, the hotel will include a Courtyard and Residence Inn by Marriott overlooking the harbor. The 2-acre property will feature two podium-type buildings with 288 guest rooms in total and is close to Venice Beach, Redondo Beach Pier, Los Angeles International Airport and major freeways. The Courtyard by Marriott, a five-story, 159-room building situated on the south side of the project site, will be designed for business travelers. Features and amenities will include free Wi-Fi, in-room desks and flexible work and meeting spaces. The 129-room, six-story Residence Inn, situated on the north side of the project site, will cater to extended-stay guests. Hotel offerings will include several room options, including large one-bedroom suites and penthouses. All rooms will feature a spacious living room, in-suite work space, wraparound decks that overlook the marina and a fully equipped kitchen to allow guests to feel comfortable and at home during their stay.
SAN DIEGO—Construction is underway on the Schmale Family Senior Residence, a
62-unit affordable apartment complex for low-income seniors in Ramona, Calif. Chelsea Investment Corp. and Serving Seniors partnered on the $21.9 million project, scheduled to open in spring 2019. The two-story building is comprised of 50 one-bedroom apartments, offering 560 square feet, and 12 two-bedroom units, offering 790 square feet. An on-site manager will occupy a two-bedroom
apartment. Located at 430 16th St. near transit, shopping and services, Schmale Family Senior Residence will provide comprehensive support services for its residents, aged 55 and over. This is the first new affordable housing for low-income seniors to be built in Ramona, an unincorporated community in the foothills of the Laguna Mountains in San Diego’s East County.
SCOTTSDALE—Sigma Contracting, Inc. broke ground recently on the $7.4 million, 100,000-square- foot headquarters and warehouse for high-end furniture retailer Potato Barn. Sigma is constructing the ground-up building on 8.4 acres at 7104 E. Ray Rd., in Mesa, Arizona. The facility will comprise 50,000 SF of retail, 30,000 SF for warehouse space, and 20,000 SF for an outlet store. Potato Barn is a family-owned Arizona furniture store featuring unique collection and one-of- a-kind pieces imported from around the world. Potato Barn will close the Gilbert store at 4900 E. Power Rd. and the Gilbert outlet store at 596 E. Germann Rd., as part of the consolidation.
SIGNAL HILL, CA—Meta Housing Corporation has completed Zinnia, a 72-unit affordable apartment community in Signal Hill, California. The Studio One Eleven designed community will provide quality housing to low income families throughout the City of Signal Hill, according to Kasey Burke, President of Meta Housing Corporation. Located in close proximity to local transit options, Zinnia was designed with a focus on community engagement, walkability, and sustainable design. Zinnia achieved Gold-level LEED for Homes certification, according to Meta Housing Corporation’s EVP, Chris Maffris. Financing for the project was provided by the City of Signal Hill, California Tax Credit Allocation Committee and Bank of America Merrill Lynch.
BALDWIN PARK, CA—Brandywine Homes has acquired 1.52 acres in Baldwin Park with plans to build Palmera, a community offering 23 three-story townhomes. Brandywine plans to open the property for sale in November 2018. The spacious, contemporary two- and three-bedroom, two-and-a-half and three-and-a-half bath townhomes will range from approximately 1,242 to 1,737 square feet. These townhomes will include large kitchens with islands and stainless steel appliances, private balconies and decks, dens and inspired master suits with generous walk-in closets, hand-selected upscale finishes, dual sinks and separate enclosed showers (in select plans). Palmera will include two barbecue areas with seating. Located at 14799 W. Badillo Street in Baldwin Park, Palmera will offer convenient access to the I-605 and the I-10 as well as the MetroLink. The community is close to Baldwin Park Aquatics Center, Azusa Pacific University and California State University, Los Angeles. The area offers many opportunities for youth athletes, and nearby Whittier has excellent hiking trails. According to the National Association of Home Builders’ formula to determine the local impact of single-family housing in typical metro areas, adding 23 townhomes will generate $6.6 million in local income, $828,000 in taxes and other revenue for local governments and 91 local jobs.