Barker: We are active from an office ownership perspective in several markets, and with respect to Phoenix, we have been active from time to time over the last 35 years. We were active in developing ground up in the late 80s and then saw the market getting overbuilt, and then we went back in the mid 2000s and sold out in 2007. We see the Phoenix market as being more cyclical than other markets; it is more of a boom-and-bust market because it is easier to develop there. If you couple that with the pricing, it tends to get overbuilt.

GlobeSt.com: Is Mesa Financial Plaza indicative of the types of opportunities that you are looking for in the market?

Barker: We like to do projects that are in the $20 million to $50 million range. Anything lower, the economies of scale don't make a lot of sense, especially in this market. The building was the right size, and it needs cosmetic work. The building is in excellent physical condition, and we are going to make it lighter and brighter as well as add some environmental upgrades.

GlobeSt.com: With a property like this in Los Angeles, we would be talking about creating amenities and design that would attract a more creative type of company. Is that true for a value-add office project in Phoenix?

Barker: Not as extreme as in West L.A. This building is 63% leased and it has a wide variety of tenants. It has engineering companies and software, and some of the building has been converted to more creative-style space, without the drop down ceilings and so on. We will be creating spec suites that are currently empty that we will outfit with that in mind, but not to the same extent that we would if we were in Santa Monica or Culver City.

GlobeSt.com: Are you getting better yields in Phoenix?

Barker: Yes. The answer is a simple yes. We also think that the rental increase has more potential for growth than some of the California markets. In San Francisco, we own the City Bank Building, and we recently signed leases that are more than $80 per square foot gross. If you go to Phoenix or Mesa, the rents are in the $24 to $26 gross. That is a big difference. Now, Phoenix isn't going to go to $80 per square foot, but even if it goes to $30, it is still a big increase and well below what you are looking at in the Bay Area.

GlobeSt.com: How do you protect against oversupply in a market like Phoenix where it is much easier to develop?

Barker: In order for new construction to be justified, rents have to be at a certain level to provide the basic yield on the cost of the building. In Phoenix right now, rents in general are still well below what is justified for new construction. As rents rise, there will be more new construction. As rents do rise, assuming the economy is doing okay, there will eventually new construction. Today, it is rare. When it starts, it is getting to be a point in the cycle where it is time to sell.