or roughly $115 a square foot........General Growth Properties working on $127 million sale of office buildings
LAS VEGAS REVIEW-JOURNAL
Posted: Sep. 11, 2012 | 1:03 p.m.
Updated: Sep. 11, 2012 | 4:21 p.m.
General Growth Properties working on
$127 million sale of office buildings
General Growth Properties is working on a deal to sell 32 office buildings in Las Vegas to a partnership of institutional investors for an estimated $127 million, or roughly $115 a square foot, a source close to the transaction said Tuesday.
The buildings in the master-planned Summerlin community total nearly 1.2 million square feet and would be one of the larger commercial real estate acquisitions in Las Vegas in recent years.
Interested buyers are Houston-based Hines real estate management firm and Los Angeles-based Oaktree Capital Management. Oaktree has more than $78 billion in assets under management, and Hines has about $23 billion in asset management. The companies recently partnered to buy two office buildings in Irvine, Calif.
Hines has no other investment properties in Las Vegas. Oaktree last year acquired a 33 percent interest in Cannery Casinos and was also part of a $1 billion merger between the World Market Center in Las Vegas and International Market Center in High Point, N.C.
"Unfortunately, we don't have anything to talk about right now," Hines spokeswoman Kim Jagger said. A spokeswoman for Oaktree also declined to comment. Calls to General Growth's corporate headquarters in Chicago were not returned.
Most of the buildings are located in the Canyons Business Center, Crossings Business Center and the Plazas off Summerlin Parkway at Town Center Drive. They include Le Cordon Bleu culinary school, the former U.S. Department of Energy office and vacant AT&T call center.
"It's a landmark transaction to acquire that many buildings," said Michael Newman, managing director of CB Richard Ellis brokerage firm. "It's a great opportunity from a market perspective to get this kind of investor."
Newman said the transaction has not yet closed escrow, and he's not at liberty to discuss specifics of the deal because of the broker's confidentiality agreement.
"It's a very high-quality national investor that's acquiring the properties," he said. "Having companies of this sort is a good thing. It shows an institutional-grade investor has confidence they can be successful in this market."
Brendan Keating, principal of the Equity Group in Las Vegas, said it makes sense that the group buying GGP's Summerlin portfolio would be institutional investors by nature.
"Investors right now are chasing yields," he said. "They're making no money in their bank account, so the ability to place $100 million in Las Vegas is exciting. It's hard to place that in many markets. Buyers right now are really excited about shifting money to investments with some kind of return. Instead of doing 10 transactions, they're able to do it in one."
Investment capital is starting to flow into Las Vegas as real estate values appear to have stabilized after the crash. Commercial properties are selling at about one-third the value from 2006, Keating said.
The Las Vegas office sector is struggling with high vacancy rates of about 25 percent, so these investors know they can lease up the space and get a better return in the future, he said.
Voit Real Estate Services acquired the 172,000-square-foot Cheyenne Technology Center in North Las Vegas in July for $11.9 million, or about $70 a square foot. The property was 52 percent occupied at the time of the sale.
"We have confidence in the Las Vegas market and we believe that the market has reached its bottom, creating the right timing for this acquisition," said Robert Voit, chief executive officer and founder of the Newport Beach, Calif.-based real estate firm.
In 2006 and 2007, CIP Real Estate and Buchanan Street Partners bought 18 buildings at Hughes Airport Center for $145 million. Last year, they sold off $62 million of assets in the center.
Nick Barber, senior associate for Gatski Commercial in Las Vegas, said he was working with a client group that was on the "short list" of qualified buyers for GGP's Summerlin portfolio, but the price was too high. They were figuring prices in the range of $90 to $100 a square foot, he said.
"I helped them come up with a number that made sense with the blocks of space coming vacant," Barber said. "They knew that it was going to sell for close to what Oaktree and Hines would pay, so they backed off."
Summerlin is one of the top three office submarkets in Las Vegas Valley, but it's running at 25 percent vacancy and landlords are writing down rents, Barber said. One of the buildings in the GGP portfolio is a vacant 100,000-square-foot call center that will take a large investment to make it ready for tenants.
Barber said a lot of cash is circulating into Las Vegas to buy properties at a discount, but that isn't directly correlating with the flow of tenants.
"I'm a firm believer that it will happen in time. There's people putting money in Las Vegas and rehabilitating distressed properties," he said. "For Summerlin in specific, they've got a great portfolio of buildings with tremendous visibility in the most affluent part of town, so it's going to be one of the first submarkets to recover. That's still a lot of money to invest to wait the time out. Everybody underwrites differently."
General Growth Properties, which also owns the Fashion Show, Boulevard and Meadows malls in Las Vegas, acquired the Rouse Co. in 2004. Rouse had acquired The Howard Hughes Corp., developer of the 26,000-acre Summerlin community, in 1996. GGP filed for bankruptcy in 2009 and spun off Hughes Corp. as a separate division in 2010.
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
