Fund's Two CBD Plums Always Tagged as Flips

Brookfield Asset Management Co.'s Real Estate Opportunity Fund's acquisitions team had determined the class A office buildings at 201 N. Central Ave. in Phoenix and 1111 Fannin St. in Houston weren't an integral part of the strategic mission. "From an opportunity fund perspective, there was no work to be done on these two assets," a spokeswoman for the Toronto-based Brookfield, tells GlobeSt.com. "And, it was thought they would be a better fit in someone else's portfolio."

Brokers, who asked to remain anonymous, say both buildings share many characteristics, including their construction in the early 1970s and long-term leases with JPMorgan Chase as the lead tenant. The local sources confirm that both assets traded at cap rates south of 5.5%.

A Phoenix broker speculates the sale was a continuation of Brookfield's acquisition strategy. "If Brookfield bought these assets as part of a portfolio, it provided a quiet, off-market opportunity for Chase to pull some cash out of the deal," he explains. "Then, Brookfield could go through a more traditional investor market and get more money out of it."

The office broker says sometimes that method can be typical in a large off-market buy. It sets up a scenario for a fully leased building not requiring much in the way of improvements to be flipped almost immediately to a TIC or REIT at a lower cap rate.

In Houston, an office broker familiar with the Howell Building says Crystal River Capital Inc. put forward the most aggressive bid. He says the cumulative bid offered by Crystal River far outstripped the combined price of any other group.

Although the price was high and cap rate low, the Houston broker believes Crystal River ended up with a decent cash flow deal over the long haul. "My understanding is the building has a great deal of technology in it, and some space being marketed for sublease, which would provide a good upside," he adds.