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PHOENIX-A property adjoining the Phoenix Art Museum that had been slated for development of a high-end apartment complex has sold to a new owner for a fraction of its original asking price. A company formed by local investor Michael Lieb paid $3.2 million in cash to acquire the 48-room Quality Inn & Suites hotel at 1627 N. Alvarado Rd. and a neighboring 30,000-square-foot office building at 202 E. McDowell Rd.

Phoenix-based Alliance Residential Co. previously had the property under contract with seller Phoenix-based San Juan Sun Valley Inc. for more than $11 million. It intended to demolish the existing structures and replace them with a 290-unit apartment project. Though it succeeded in getting the property rezoned, the company withdrew from the project before beginning work. Lieb, president of Michael A. Lieb Ltd., acquired the property after Alliance pulled out due to inability to get financing for the proposed project.

The property is located within an official redevelopment zone, making any project developed on the site potentially eligible for tax abatements. But rather than trying to push a new project through during a period of economic retrenchment, Lieb plans to hold the property till the economy settles and the area’s real estate market rebounds. He says the deal’s approximately 8% cap rate allows him to make money on the current uses. The previous price, he adds, reflected the site’s development potential rather than existing use. With redevelopment off the plate due to the credit crisis, the seller had little choice but to reduce the price.

Choice Hotels International, the franchise holder of the Quality Inn & Suites, has a five-year contract to operate the hotel, and the office building, known as Los Olivos Plaza, is about 70% occupied. While the Phoenix office market has been suffering a severe downturn, Lieb maintains the building’s garden-style design and location adjacent to the museum and a block from the city’s newly inaugurated light-rail system make it more attractive than many of its competitors.

Kernit Rankin of OMNI American in Phoenix, who shares the leasing assignment with OMNI colleague Scott Fey, attributes the building’s high vacancy level to the demise of a number of small mortgage companies that were tenants there. The property, which offers spaces as small as 200 square feet, is in fact quite popular, he says. “Tenants tend to recommend the buildings to friends if they’re looking for space,” he tells GlobeSt.com. “Everybody who’s there likes it a lot.”

According to Rankin, Lieb is offering one- to three-year terms at annual rates that range from about $11.50 to $16 a square foot. The short terms leaves the owner freer to redevelop the property once the market turns around, but Rankin says the option tends to appeals to small office tenants, many of which are startups that are reluctant to commit to longer leases or businesses such as tax preparers and workout specialists that work on temporary time lines.

He reports he and Fey recently signed the first new lease since the transfer of ownership to a home refinancing outfit that took 400 square feet. Other deals are in discussion and additional prospects have expressed interest. “We’ve just finished creating the marketing program and are just putting up the new leasing sign, but interest has already been pretty substantial,” he says.

Lieb says he and his investor partners are looking for additional real estate investment opportunities in the Phoenix area. Another company formed by Lieb recently received zoning approval for 500 townhomes and a retail center on a 60.78-acre parcel at 23rd and Northern avenues Denver. It bought the property in 2007 for $4 million.

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