PHOENIX—BH Properties has added a Class A retail center to its Arizona portfolio as the firm positions itself for growth in the state in 2014. Gilbert Town Center, a 159,000 square-foot retail center that was purchased for $13.4 million in late December, is located within the burgeoning submarket of Gilbert. In 2006 the center was sold to a TIC buyer for $34.7 milllion. BH Properties is a Los Angeles-based firm that specializes in repositioning real estate and resolving difficult transactions quickly and effectively.

"The circumstances involving Gilbert really illustrate how we are able to identify properties that fit in our value-add strategy to act fast and close the transaction," said Steve Jaffe, executive vice president and general counsel for BH Properties. "The center, which was built in 2001, experienced a rapid lease-up to a 94 percent occupancy rate, which included restaurants, entertainment and service. However, that changed in 2007."

In 2007, when the recession hit the nation, the Phoenix metro retail market was hit particularly hard as the region experienced a sharp increase in vacancy going from a low of 6.2% to 12.6%.

"In regard to Gilbert Town Center - when the center started to experience vacancy during the recession - the structure of the TIC ownership made it difficult for ownership to fund shortfalls in income and to pay for new leasing costs associated with tenant improvements and leasing commissions," said Jaffe, noting that average retail rents fell from $20.04 per square foot to $14.12 per square foot. "As a result, because of the TIC's inability to properly manage and lease the property in order to weather the downturn, the property was forced into receivership."

Two other groups previously had the property under contract but were not able to close on the deal. When BH Properties was finally able to get the deal under contract, it moved quickly to put it into escrow with an all cash, quick-close offer.

Gilbert Town Square was constructed in several stages from 2001-2004 and is anchored by Regal Theaters and is shadow-anchored by Brunswick Bowling Lanes. The center's prominent exposure along Gilbert Road has historically been a key to attracting national tenants such as Chipotle, Sport Clips and Pei Wei.

On an unrelated timeline, in the fourth quarter of 2013, BH Properties was working to restructure almost all its debt with Wells Fargo and secure an additional $60 million in financing from U.S. Bank. Not only did the company reduce its interest rate significantly, but it also freed up a significant amount of funds to be available to purchase assets. Gilbert Town Square was purchased using funds from this financing.

Read more about BH Properties' expansion in Arizona and the Southwest in Natalie Dolce's compelling and exclusive interview with Steve Jaffe.