Perfect Time to Buy and Harvest Phoenix Office Assets

Liberty Property Trust is executing a national strategy of divesting from its office assets to focus on industrial. The firm has sold its final five office assets in the Greater Phoenix market, which total 806,000 square feet, for $255 million at the perfect time. The Phoenix office market is on an upswing—seeing tremendous activity this year—making it a great time for Liberty Property Trust to capitalize on the portfolio and for new institutions to get a quality portfolio in the market.

“This was a perfect time to harvest the asset as well given the strength of the capital markets on the West Coast,” Barry Gabel, EVP at CBRE, tells GlobeSt.com. “There is a tremendous amount of capital looking for this type of opportunity in that the credit worthiness of the tenancy is investment grade as is the quality and location of the portfolio. Phoenix is a market with a great amount of runway left, and as such, capital is looking at Phoenix in the long-term and believing in Phoenix. Our economy has changed significantly and it is much more diverse than ever before, and Phoenix is looked at as a great way to get a great yield at a great price with a great future.”

The portfolio consisted of four properties in Tempe—the four-property Liberty Center at Rio Salado, a 682,406-square-foot office campus—and in Scottsdale, a three-story 123,340-square-foot office campus at 8501 East Raintree Drive. Tempe in particular was a big draw for investors. “Tempe is our preeminent, most premier submarket across the valley,” Chris Marchildon, VP at CBRE, tells GlobeSt.com. “Four of the five properties are in Tempe, and the development proforma for this opportunity was actually a 10-year horizon, and they leased to full occupancy in three years. That is a testament to the market.”

As a result of the quality of the project and location as well as the growth in the Phoenix market, the sales team saw tremendous investor interest. “We have really started to see all walks of buyers interested in Phoenix. Overall, we have seen interest from institutional buyers, foreign investors, high net worth funds and high net worth individuals,” Will Mast, VP at CBRE, tells GlobeSt.com. “Phoenix is looked at as a top tier or top target market for all types of investors across the country and across the world.” The name of the buyer was not disclosed, but Gabel confirmed that the buyer was domestic.

Phoenix offers better yields and pricing that other coastal markets, which is driving investment activity. “The cap rate environment across coastal markets is at an all-time low, and cap-rate compression in the Seattle, San Francisco and Los Angeles markets has never been this low for this type of product,” adds Marchildon. “Phoenix has had great infrastructure improvements and our diversification of industries is as good as it has been, and buyers, both locally and internationally, are now looking at Phoenix because they can get a good yield.”

Still, pricing has increased 20% since 2007, according to Gabel. Today, the average price is $185 per square foot, compared to $150 per square foot last year. However, Marchildon notes that the market is still 30% below peak pricing. “Pricing has remained well below the peak pricing from 2007,” he says. “If you look year to date, the average price of office sales is currently $185 per square foot, compared to 2007 when the average price was $222 per square foot, and there was more than $3 billion in transactional volume.”

Gabel, Marchildon and Mast represented Liberty Property Trust in the deal.