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REIT from Phoenix is buying City Center Plaza for $310M May 14, 2010

Posted by Sean Tufts in Articles, Research/Data, Sale.

May 14, 2010

REIT from Phoenix is buying City Center Plaza for $310M 

Journal Staff Reporter

The City Center Plaza price works out to nearly $532 per square foot. Microsoft leases almost all of the 583,000-square foot tower.

A Phoenix real estate investment trust is buying the 26-story City Center Plaza in Bellevue for $310 million, according to a Securities and Exchange Commission filing.

If the sale goes through, it will be the largest commercial real estate transaction since last fall when another downtown Bellevue high-rise, the Expedia Building, sold for nearly $168 million.

While not a record-setter, the City Center Plaza deal shows there is “capital out there that is willing to move quickly to tie up stable assets,” said Jim Footh, a senior vice president in the Seattle office of Jones Lang LaSalle.

Demand is fierce for well-leased assets, such as City Center Plaza, which Microsoft occupies.

“By many estimates there [are] two to three times as much capital available as there is product for sale,” said Mark McFadyen, an office specialist in the Bellevue branch of Colliers International.

It’s unclear whether the City Center deal will be the first of a number big office transactions. After a dearth of deals last year, investors and brokers have been eagerly anticipating the next wave of sales so they can gauge the state of the market.

City Center Plaza has been the focus of much speculation because it reportedly was under contract earlier this year before the deal fell through.

The City Center Plaza price works out to nearly $532 per square foot. The Puget Sound region office record is around $635, set in 2007 when Black Rock Realty paid just over $83.1 million for Market Place I & II in downtown Seattle. The Bellevue record — about $575 — was set in 2006 when a limited liability company affiliated with Brickman Associates paid more than $175.7 million for Civica Office Commons.

The City Center buyer, an operating partnership of Cole Credit Property Trust III Inc., reports in the SEC filing it has a purchase-and-sale agreement to buy the 583,000-square foot tower. The buyer made a $10 million earnest money deposit, and expects the deal to close June 18. The filing goes on to say that Microsoft occupies virtually all of the tower, and that lease expires in June 2024.

The buyer is controlled by Cole Real Estate Investments of Phoenix. A Cole spokesman said he could not comment directly on the City Center Plaza deal.

The seller is an LLC governed by Beacon Capital Partners of Boston. Beacon bought the building as part of a portfolio, so it’s difficult to break out what it paid for City Center Plaza. Beacon officials declined comment.

Commercial building sales in this region have fallen drastically from the peak in 2007. That year, with investors seeing escalating rents, more than 130 office properties traded for $20 million or more, Ann Chamberlin, a principal with Pacific Real Estate Partners, told the DJC last year.

After the bubble burst, sales dried up. At the time of the Expedia deal there had been only three other office sales in 2009 for more than $20 million.

With so much capital looking to be placed, the pace of large sales may be starting to accelerate. Earlier this month, Schnitzer West founder and Managing Member Dan Ivanoff said his company has hired CB Richard Ellis in London and Los Angeles for advice about whether to sell the Advanta and office space in The Bravern. Microsoft leases both of those Bellevue buildings.

Footh said that while Advanta and the Bravern have Microsoft as their tenants, the lease terms are shorter than at City Center Plaza, and that could potentially lessen their values.

Other factors besides the lack of well-leased properties could get in the way of sales. Not many owners of such properties want to cash out, according to McFadyen.

“Due to the high basis many landlords have in their properties, they need to have a number of factors line up in order to get the values they need,” he said.

Plus, underwriting assumptions have become far more conservative, said Footh, due to the steep decline of the capital markets and the perception of “a very gradual recovery curve.”

Despite such challenges, Footh thinks the market can expect to see other deals like the City Center sale. He said institutional buyers view Seattle as a West Coast gateway, along with San Francisco and Los Angeles, with a diverse economy and good long-term prospects.

“For those reasons, they want to put their and their clients’ capital here.” He expects the bulk of the institutional offerings over the next 12 to 18 months will come mainly from banks.

Jones Lang LaSalle was working with a buyer that earlier this year had City Center Plaza under contract. Various brokers said the German-based bank Commerz Real AG was the buyer. Jones Lang LaSalle was representing American Capital Partners, a Washington, D.C., firm that was going to invest with Commerz Real AG until the bank froze purchases after the Wall Street Journal reported the bank logged negative earnings.

About Cole

A trophy office property is not the type of asset that Cole normally buys. Its slogan is “The Landlord of Where America Shops.” The company’s website says it invests in retail properties with national or “super regional” tenants with long-term leases.

In addition to City Center Plaza, Cole is under contract to buy 10 retail properties ranging from an LA Fitness in Texas to a Lowe’s in Ohio, CoStar reports.

“We actually can and do purchase offices in our REITs,” a Cole Real Estate Investments spokesman said, to diversify the portfolio.

Over the last 10 years, Cole has raised $2.8 billion and bought 615 properties across the country, according to the company’s website.






























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