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Three ­Property Portfolio Sells at Below Replacement Cost

By Lisa Brown

TEMPE, AZ—The RREEF Tempe portfolio, a portfolio, consists of 16 multi­tenant light industrial buildings encompassing 305,524 square feet and three­properties. BKM Capital Partners, an institutional fund manager focusing on that type of investments, has acquired the portfolio in an off­ market transaction.

The three­property portfolio was purchased from Deutsche/RREEF and the CIM Group on behalf of its client, an institutional investor, for $24.1 million, which is 34% below replacement cost. This portfolio was acquired as part of BKM Industrial Value Fund I LP, which closed earlier this year and now has 14 assets totaling more than $155.1 million under management.

“The Phoenix metro is one of the most highly sought­after industrial regions in all of Arizona,” says Brian Malliet, CEO and co­founder of BKM Capital Partners. “The prime location of these assets, coupled with the Tempe submarket’s historically high industrial occupancy, will allow us to maximize returns for our investors over time.”

The Tempe submarket currently boasts 93.4% occupancy, averaging 91% occupancy since 1990. The RREEF Tempe portfolio is 87% occupied with in­place rents that are significantly below market, providing an opportunity for BKM to drive value and yields, according to Malliet.

Malliet tells “We continue to find the Phoenix market attractive with strong economic drivers such as job and housing growth, and opportunities for real estate well below replacement costs. These strong market fundamentals, coupled with our ability to source off­market deals provides a tremendous opportunity to add long­term value to our investors. This is our eighth acquisition in the Phoenix area this year, and we plan to stabilize and reposition each of these properties to further drive cash flow and property value over time.”

These acquisitions bring BKM’s holdings in the Phoenix region to 1.3 million square feet. The three­ property portfolio acquisition includes Twin Business Park, Ash Business Center and Elliot Park 10.

Comprised of two buildings, Twin Business Park encompasses 120,496 square feet of industrial space. The property is located 1430­1454 and 1602­1638 West 12th Pl. Built in 1979 and renovated in 2011, the property is equipped with dock­high loading at every unit, which is extremely rare for a property in its size range. This will command premium rents, further increasing net operating income, according to Brett Turner, director of acquisitions at BKM Capital Partners.

In addition to its amenities, the Twin Business Center is centrally located near Sky Harbor Airport, downtown Tempe and Phoenix, and provides convenient access to the I­10, I­143, I­202, I­101 and I­ 60 freeways.

The Ash Business Center encompasses 89,728 square feet and is comprised of nine light industrial buildings. Situated along a major thoroughfare at the corner of the I­60 freeway and Baseline Road, the property is approximately one mile from downtown Tempe, at 4666­5010 South Ash Ave.

Constructed in 1986, the property is equipped with 16 to 18­foot clear heights, 16 grade­level doors,

2.7 per 1,000 square feet parking, and 59% built­out office.

“The property is in excellent condition and easily competes with more recently developed properties in the area, but it lacks key cosmetic upgrades. We plan to enhance the interior and exterior of the building through a series of capital improvements that will further increase property value and drive rent growth for the asset,” says Turner.

Located at the intersection of the I­10 freeway and Elliot Road, Elliot Park 10 consists of 95,300 square feet and five industrial buildings. The property is currently 80.1% occupied with a major tenant, Elite Delivery, occupying 30,000 square feet through September 2019. The property is located at 1819­1849 West Drake Dr., within a mile from Desert Vista Commerce Center, an additional property owned by BKM.

“This asset provides a strong opportunity to drive yields by aggressively leasing up vacant space,” says Turner.

Current in­place rents are $0.64 industrial gross, with competitive properties in the area garnering more than $0.82 industrial gross. BKM expects the asset to command a nearly $0.20 industrial gross increase during the next one to two years.

Bob Buckley and his team at Cushman & Wakefield represented the seller in the transaction.

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