The Des Moines-based Principal got five class A and two class B office buildings plus ready-to-go land entitled for office and multifamily development. The park is located along Interstate 10, across from the Tempe Diablo Stadium and near the intersection of Broadway Road and Priest Drive.
"Principal had purchased another asset from AmberJack in Portland in a similar off-market deal and that gave them the confidence that we could close a large transaction," says Tony Hepner, director of acquisitions and dispositions for Principal Real Estate Investors. Last November, Principal paid $114.6 million to the State Farm subsidiary for Amberglen Business Center with 1.2 million sf of built space and 36 developable acres.
Hepner points out Principal owns the Papago Buttes Corporate Park, also in the North Tempe submarket. "We were familiar with Fountainhead because we saw it as a competitor to Papago," he tells GlobeSt.com. "We're very bullish on tenant demand in Tempe since Papago was 30% occupied when we acquired it [in September 2004] and is now more than 90% full."
Hepner says Principal is eyeing the repositioning opportunities with its new holding. The class A buildings were constructed between 1985 and 1999. Occupancies range from 82% to 95% in Park Garden, Park Bridge, Park Plaza and the two-building Park Square. The class B duo, built in the late 1980s, contains about 35,000 sf that's just 38% leased.
According to Hepner, Principal will generate significant upside from leasing and rent hikes. He says about 25% of the park's leases roll in the next year, but is holding letters of intent for most of the space. Rents now run $20 per sf to $21.50 per sf, but he says "it should be at $22 per sf to $23 per sf plus parking."
Principal expects to spend the first half of 2006 working with the City of Tempe to get permits to develop the vacant acreage, which could accommodate up to 1.1 million sf of office space and 150 apartments. At this stage, Hepner says it's not likely that Principal will build that much office product, but instead seek to develop 300 apartments.
Jim Lovsted of GVA Kidder Mathews in Seattle and Ted Rabban of Birtcher-Arizona Properties brokered the deal. Rabban will oversee Fountainhead Corporate Park and act as its master developer. The Trammell Crow Co. leasing team of Dave Seeger, Karsten Peterson and Mark Gustin will continue to handle leasing and property management.
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