Cole Real Estate Investments, a diversified real estate company, has acquired The Hillshire Brands Company’s headquarters in the West Loop of Chicago’s CBD on behalf of Cole Corporate Income Trust Inc. for $97.5 million.

The 233,869-square-foot headquarters facility was recently redeveloped by Sterling Bay Cos, which entered into a long-term net lease with Hillshire. The build-out included a complete restructuring of the infrastructure and building components, plus windows were added on all four exposures to increase its natural light.

“The Cole philosophy for single-tenant acquisitions remains consistent: we look for high-quality, income producing commercial real estate in strong markets, leased to creditworthy tenants under long-term leases,” Boyd Messmann, Cole’s senior vice president of office and industrial acquisitions, told Commercial Property Executive. “The Hillshire Farms headquarters property fits our criteria.”

According to Messmann, the West Loop submarket of the Chicago Central Business District is an emerging Chicago neighborhood that provides excellent visibility and accessibility with ample nearby public transportation. The building is one of the only Class A, single-tenant office buildings in the entire area.

“The Hillshire Brands Company headquarters is a mission-critical property in a great location. The property was recently redeveloped with new infrastructure and building components, and was the 2012 NAIOP Chicago Award for Excellence winner for office redevelopment of the year,” Messmann said. “When you factor in its long-term 15-year lease with an investment-grade tenant such as Hillshire Farms, this was an attractive acquisition for Cole.”

The transaction brings CCIT’s investment portfolio to 27 wholly owned properties in 15 states, totaling approximately 4.6 million square feet with a purchase price of approximately $731.1 million. More than 65 percent of CCIT’s portfolio consists of tenants rated by Standard & Poor’s, and of those tenants more than 88 percent are rated investment grade.

Additionally, the weighted average remaining lease term is nearly 11 years and the overall average credit rating of the rated tenants in the portfolio is A-.

“Cole continues to see development and tenant expansion increase in markets nationwide, which may lead to more supply for the remaining year and beyond,” Messmann concluded. “Our portfolio management team continues to focus on identifying and acquiring fundamentally strong properties with recognized tenants in markets across the United States.”

Construction has begun on Junction Flats, a six-story, 182-unit luxury apartment building in downtown Minneapolis located near Target Field and a major transit hub. The 240,000-square-foot building is being developed by High Street Residential, a Trammell Crow Co. subsidiary, in partnership with The Carlyle Group.

The cost of the development and the amount of the equity invested by The Carlyle Group, a global alternative asset manager, were not made public. The Carlyle Group is using equity from Carlyle Realty Partners VI, a $2.34 billion fund that targets opportunistic real estate investments in North America.

“Junction Flats is located just northwest of the central business district in the North Loop, a vibrant community that offers residents a unique experience and a wide range of destinations, including entertainment venues, fine dining and specialty shops,” Grady Hamilton, principal & head of Trammell Crow’s Midwest Business Unit, said in a news release. “We have excellent partners and are pleased to be moving forward with such a unique development in the heart of the North Loop.”

“This has all the makings of a great development, a vibrant city with a strong local economy, solid supply-demand fundamentals, convenient transit options and a trusted partner in Trammell Crow Company,” added Tom Levy, a Carlyle principal.

The project is being billed as a “transit-oriented development.” The site is near I-94 and I-394 and The Interchange, a multi-modal transit hub expected to be completed next year and serve an estimated 22,000 people a day.

Located on 1.37 acres in a downtown area known as the North Loop, Junction Flats will feature studio, one- and two-bedroom units and live/work units. It will have nine-foot ceilings, balconies and patios and upgraded appliances. Other amenities include a clubroom, pool deck, fitness center, dog-wash station, bicycle storage, business center and Wi-Fi coffee lounge and a covered heated parking garage.

Junction Flats should be completed by summer 2014. It will join several other new multi-family communities under development in Minneapolis and its nearby suburbs as a strong economy is driving the rental market. Trammell Crow said last week it is teaming with another partner, Investment Real Estate Properties to develop a six-story, 260,000-square-foot multi-family project known as Arcata in the suburb of Golden Valley, Minn. Construction is expected to start soon on the development located about a 10-minute drive from downtown Minneapolis. ESG Architects, also the lead architect for Junction Flats, is the lead architect for Arcata, which will have 165 luxury units.

Employment is expected to rise nearly 3 percent in the Minneapolis area this year and is boosting the demand for rental apartments, according to the Marcus & Millichap ApartmentResearch Market Report for the second quarter. The report said the Minneapolis-St. Paul area has the second-lowest multi-family vacancy rate in the nation. It is expected to be 4 percent this year, up 80 basis points due primarily to the construction of new properties.

“Construction is already at an eight-year high and the list of planned projects continues to expand,” the report noted.

Developers are expected to deliver about 3,400 units of market rate, affordable and student housing in 2013, a 1.3 percent rise in inventory, according to Marcus & Millichap. The report said 1,200 apartments have hit the market in the past 12 months, including about 364 finished in the first quarter of 2013. The pace is expected to continue because more than 6,400 multi-family building permits were issued in the last 12 months, up 32 percent year-over-year, the report stated.

Minneapolis is also the site of a $400 million mixed-use development by Ryan Cos. for a site adjacent to the new Vikings stadium planned for the city’s Downtown East neighborhood. It is expected to have 1 million square feet of office space, 40,000 square feet of retail and more than 300 residential units and be completed by summer 2016.

Hines Global REIT Inc. has added the Campus at Playa Vista, a 325,000-square-foot office complex in the Playa Vista neighborhood of West Los Angeles, to its portfolio. The REIT acquired the premier, well-leased asset from Tishman Speyer for $218 million.

It was, roughly, a half-cash, half-debt deal for Hines, which financed the acquisition of the property with proceeds from its it public offerings and a mortgage loan of $115 million.

Developed by Tishman, the Campus at Playa Vista sprouted up on seven acres in the nearly 1,100-acre Playa Vista master-planned community in 2009, offering four four-story office buildings with the addresses of 12015, 12025, 12035 and 12045 East Waterfront Dr. The complex garnered a great deal of attention from the start. In advance of the property’s completion, lead tenant Belkin International Inc. staked its claim to 150,000 square feet for its corporate headquarters in an agreement that will keep the technology manufacturer in its two-building home until fall 2021, and the University of Southern California’s Institute for Creative Technology followed with a deal for 103,200 square feet  under a lease scheduled to expire in 2020.

Today, with a roster of seven predominantly tech-industry tenants, the Campus at Playa Vista is 97 percent leased. It’s a feat that belies the current state of the Playa Vista submarket where, according to a report by commercial real estate services firm Transwestern, the total vacancy rate in the first quarter was 33.4 percent. The vacancy rate for West Los Angeles is 16.4 percent, and in metropolitan Los Angeles it was 16.4 and 18.7 percent, respectively.

“We were attracted to this property due to its strong tenancy, recent construction, excellent access and long-term prospects for this emerging West L.A. submarket.” Doug Metzler, managing director with Hines, said in a prepared statement. “The Lower West L.A. submarket is one of the most attractive office markets on the West Coast.”

The entertainment, media and technology firms take to West Los Angeles like bees to honey, which has led to a steady increase in rents, while rates remain flat for metropolitan Los Angeles, per the report.

And investors are willing to pay the big bucks for West Los Angeles assets. The average office sale price during the first quarter was $300 per square-foot in metropolitan Los Angeles; the average price for the four leading building sales in West Los Angeles was just over $482 per square-foot. The Campus at Playa Vista sold for approximately $670 per square-foot

180 Brisbane

Japanese developer Daisho Group has recently broken ground on a $300 million office tower in Brisbane, the capital and most populous city in the Australian state of Queensland.

According to Architecture & Design, the 34-story commercial project will bring the first speculative high-rise on the city’s skyline since the start of the global financial crisis. Colliers International and Knight Frank are the project’s leasing agents.

“As Watpac begins principal construction works, local and interstate companies are showing keen interest in becoming tenants of 180 Brisbane when it is completed in late 2015. These include mining and resource companies, professional service firms and others looking to establish or expand their presence in the Brisbane CBD,” said Yasuo Iwasaki, Daisho Group’s general manager.

Designed by Crone Partners, the new building at 180 Ann St. will offer approximately 630,000 square feet of space, including large floor plans, ground floor retail, a food court, an on-site management office and basement parking. Amenities also include direct escalator access off Ann Street, extensive landscaping, generous lounge and meeting spaces, secured bicycle storage, along with jogger and cyclist changing rooms, showers and lockers.

One of the most notable architectural features of the 180 Brisbane tower will consist of a distinctive river-shaped graphic wrapped around the building’s façade.

The project aims to achieve a 6 Star Green Star and 5.5 Star NABERS rating. Environmentally sustainable design features include reduced water and energy consumption, increased levels of fresh air, as well as a creative use of glass that maximizes natural lighting inside the building.

“Daisho has owned 192 Ann St. since 2001 and 180 Brisbane will be another high-quality addition to the city and Daisho’s long-term investment here. It will also rejuvenate the CBD by forming a new hub. which links key parts of the city’s center,” Iwasaki added.

Headquartered in Japan, Daisho Group is an international property developer with offices in Malaysia and Brisbane. Since it was founded in 1986, the company has amassed a portfolio currently valued at more than $1.5 billion.

Mill Creek Residential Trust, of Dallas, will hold a groundbreaking ceremony in Morristown, N.J., today for the 268-unit first phase of Latitude, a luxury apartment development. The project reportedly is the first large-scale residential development to be undertaken in Morristown in almost four years. The building’s cost has not been disclosed.

The 258,300-square-foot first phase will comprise studio and one-, two- and three-bedroom rental homes and a 350-space parking garage incorporated into the structure. The project’s location, at Early Street and Speedwell Avenue, is walking distance from downtown Morristown.

Apartments will feature 9-foot ceilings, walk-in closets, patios/balconies (in select residences), lofts (in select residences), washers and dryers, granite countertops and energy-efficient stainless-steel appliances. Amenities planned for Latitude include a fitness center outfitted for cardio, strength, spin and yoga; a rooftop deck; lounge with fireplace; business center; and game room.

Despite the community’s upscale nature, 26 deed-restricted, affordable rental apartments also will be part of the first phase.

Initial occupancy for Latitude is planned for next year.

The project’s second and third phases will add more residential units, as well as non-residential uses, both designed to blend with the existing architecture along Speedwell Avenue, Rich Murphy, managing director with Mill Creek, told Commercial Property Executive.

Latitude is roughly half a mile from the Morristown station on New Jersey Transit’s Morristown (Green) Line; commuter trains run from there to Hoboken Terminal or directly to New York’s Penn Station.

When the New Jersey Department of Transportation established its Transit Village Initiative in 1999, Morristown was one of the first municipalities to join.

The median age of Morristown’s approximately 18,500 residents is not quite 35, and one-third are foreign-born, according to the U.S. Census Bureau. The median household income is estimated at $62,600, though 13.2 percent of Morristown residents are below the poverty line.

Surging demand, new retail concepts and stirrings of new development were the talk of the Las Vegas Convention Center on Monday during the first day of RECon, the International Council of Shopping Centers’ annual spring convention. It is impossible to tell how many deals will emerge from the event, but as thousands of real estate professionals roamed the vast halls of the 3.5 million-square-foot facility, participants reported a sense of renewed optimism about the market.

“Going into the show, we have more meetings this year than last year,” said John Bacon, vice president of marketing with Cole Real Estate Investments. As of Monday morning, the firm’s acquisition team had scheduled about 240 meetings and the leasing team had about 110 meetings on the calendar. “Our leasing people were getting calls as late as Friday night” from attendees hoping to schedule meetings at the last minute, Bacon added.

Conversations with a variety of attendees revealed optimism fueled by stepped-up interest in investment sales, leasing and development. “The net-lease industry as a whole is hot,” said Stan Johnson Co. managing director Harold Briggs Monday morning at the firm’s booth in the convention center’s south hall. The company’s net-lease retail transaction volume posted a 50 percent year-over-year increase during the first quarter, outperforming the company’s office and industrial sales growth by a considerable margin. One noteworthy net-lease retail trend is the participation of institutional investors, particularly in the $50 million to $100 million range, Briggs reported. “You’ll see five or six institutional buyers compete for portfolios of 15 to 20 assets,” he said.

Owners exhibiting at the show confirmed on Monday that renewed tenant interest is pushing them to adjust their tactics. Scott Prigge, senior vice president of property operations for Regency Centers Corp., said that pet supply stores, fitness centers and fast-casual restaurants are leading the way. Quick-Service restaurants, said Prigge, “can’t get enough space.”

Underscoring his point, a variety of fast-casual restaurant brands like Subway, Smashburger and Jersey Mike’s are using RECon as a bully pulpit to bring attention to their expansion programs and identify suitable space for new locations. Demand for space in desirable locations has improved to the point that Regency aims to backfill a vacant space with the best possible tenant. This year the company is also rolling out a company-wide campaign to review best practice in customer service.

Other restaurant niches besides are commanding the attention of RECon attendees. Chef-driven restaurants are catching on, especially as part of redevelopment in core urban areas that appeal to members of Generation X and Generation Y, according to James McCandless, director of retail for Streetsense, a diversified Bethesda, Md.-based consulting, design and development firm that is a member of the X Team network of service providers and consultants. Another X Team member, Legend Retail Partners, recently rolled out its new Urban Legend affiliate in an effort to tap into the growing chef-driven restaurant market, reported Legend partner David Larson.

Real estate investment is increasingly becoming a global business, with widening competition as more players place money around the globe. Depending on investment goals, players may be drawn to the recovering U.S. markets or the lagging European markets. And while U.S. investors seek opportunities in Asia, local investors there are already well entrenched.

Foreign investors are so eager to pursue opportunities in U.S. real estate that they are racing to join the biggest deals, making it sometimes difficult to differentiate between clients and competitors. That was a conclusion among speakers on the Urban Land Institute Spring Meeting keynote panel, “Capital Markets: Who Has the Capital and Who is Getting It,” which was moderated by Christopher Ludeman, CBRE Group Inc. president of brokerage services and the capital markets. Capital is flowing in from around the globe, ranging from the top-ranking Koreans—now permitted to invest abroad and only held back in the U.S. by FIRPTA limitations—to those from the Middle East and Canada, noted LaSalle Investment Management global head of the capital markets Jon Zehner. And he is keeping an eye on China and Australia as capital sources.

The Japanese, too, are eager to invest outside their slow-growing borders, noted J. Michael Stedman, senior executive vice president of Union Bank, whose employer is owned by Bank of Tokyo/Mitsubishi.

Meanwhile, some big U.S. investors see more opportunity overseas than in their own backyards. Zehner observed that the spread between assets in primary and secondary markets is now 75 to 100 basis points in the U.S. and Canada but 250 to 350 basis points in Europe. In fact, his company is representing a major Asian financing source venturing with a regional European fund to invest in U.K.-located residential property. The U.K. economic cycle is six to 12 months behind the U.S.’s, according to Charles Fedalen Jr., executive vice president & group head of the Wells Fargo CRE Institutional and Metro Markets Group and the Wells Fargo Real Estate Banking Group.

Elsewhere, John Miller, senior managing director for Tishman Speyer, pointed to a fund his company recently put together using Chinese currency to invest in that country. He noted a lot of pent-up demand there.

Wherefore Art U.S. Returns?

Speakers on “The Next Best Bet: Making the Case in a Capital Constrained Market” all expressed interest in European investment. But they also see opportunity in various segments of the U.S. market, although with the U.S. recovery at something of a midway point, identifying risk-adjusted returns can be challenging, they said.

The multi-family sector continues to attract attention, and PIMCO vice president Chris Flick is no exception. He said he still sees room for growth even though the best deals were done two years ago. Damian Manolis, managing director at Prudential Real Estate Investors, advised seeking out micro areas that work, even in more concentrated cities like Seattle and Washington, D.C.

Starwood Capital Group senior vice president Mark Deason, however, sees more opportunity in recovering sectors such as the office market, where he said you can still achieve cash-on-cash returns in the double digits (although largely only as much as 10 percent). Pricing is far ahead of fundamentals in the primary markets but more closely aligned in secondary markets, he noted, although he confessed to remaining focused on the primary cities. And Manolis pointed to the recovering job market and lack of development as contributing to a more solid office sector, even while companies are pursuing smaller space-per-person ratios and hoteling to minimize office size. Flick was less optimistic about the sector but allowed that opportunity could increase as conditions improve.

The panel as a whole was less optimistic about retail and industrial property, although Flick suggested a “barbell” model to retail opportunities, with high- and low-end properties offering the best bets. Grocery-anchored centers, he said, are too popular to offer good deals. That makes it necessary to focus on in-line retailers for growth—and that, the panel agreed, requires strong relationships with national retailers, the better to identify expansion plans. As for industrial, only development offers returns, Flick affirmed.

It is also challenging to find good hotel deals, especially in the limited-service segment, Deason said, although his company has been an active hotel buyer. The panel agreed hotels may have hit the bottom of the cycle and are about to turn upward again.

A series of audience polls turned up continued favor for the multi-family, industrial and retail sectors, with office and hotel eliciting a more negative response.

Institutional real estate fund manager Paladin Realty Partners L.L.C. continues to answer the cry for multi-family housing accommodations in Brazil, with the closing of an investment in a homebuilding partnership with Construtora Altana. Through the $60 million joint venture, A-PIMA II, the partners envision building approximately 2,400 condominium units for low- and lower/middle-income buyers in São Paulo. 

Paladin financed its investment in A-PIMA II through its fourth Latin America-focused institutional fund, which recently attracted a $100 million commitment from the board of the Overseas Private Investment Corp. 

The partners have already gotten the green light for the fund’s first project. There’s every reason not to dawdle. “Growth in demand for low- and middle-income housing is far outpacing pace of new supply,” Fred Gortner, a managing director with Paladin, told Commercial Property Executive. “As a result, the housing deficit in the country is growing, not shrinking.”

A-PIMA II marks the second go-round for Paladin and Altana. The two companies first joined forces in 2009 on the inaugural A-PIMA platform, which yielded 3,171 low- and lower/middle-income units in eight residential projects, including La Dolce Vita (pictured), and revenue totaling in excess of $250 million.

Paladin and Altana anticipate generating roughly $250 million in sales through A-PIMA II as well, despite the growing number of multi-family development activity in the area. It’s all about demand.

“Demographic trends supporting strong housing fundamentals–most notably, a declining dependency ratio as their ‘baby boomers’ continue to enter  the workforce–will last for another decade,” Gortner said.

And it’s not just São Paulo that’s on Paladin’s radar. “Brazil has over two dozen cities with populations of over one million people [and] Paladin has been active in over a half dozen of these markets,” he added. “All are ripe for housing development.”

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By Suzann D. Silverman, Editorial Director

Can apartments be too small? Developers are testing the boundaries, experimenting with layout and design to determine just how tiny and inexpensive a space they can easily lease. During the Urban Land Institute’s Spring Meeting last week, Kauri Investments Ltd. chairman James Potter and AREA Real Estate L.L.C. principal David Adelman offered some creative configuration ideas that are attracting not just Gen Y programmers seeking to live near their Silicon Valley jobs but even empty nesters in search of close-in urban locations in San Antonio. Either group may use the units as their sole residence or maintain a larger, perhaps weekend-only additional home farther from the city. What makes these renters different from those who prefer more space, Potter noted, is their even greater focus on price point.

Over the past four to five years, Potter has been striving for increasingly smaller units. With eight projects currently under development, he has achieved an average size of 100 to 200 square feet. So far focused on smaller buildings with a limited number of units, his latest, in downtown Oakland, Calif., is situated on a 40-by-100-foot site and includes six to eight “bedrooms” and a kitchen.

Potter achieves such small unit sizes by considering what can be removed from the unit. A central kitchen, for instance, can be a big space saver, since people are not cooking to the extent they used to, he noted. Having discovered that a shared refrigerator does not make for good neighbors, he includes a small model in each unit, plus a sink (not a “kitchen sink” or a “bathroom sink”—just a sink, said the developer, who maintains that putting labels on the properties or their contents complicates their image). Residents must supply their own dishes, eating utensils and linens, but the central kitchen includes pots and pans and cooking utensils. Residents can collaborate on any herbs or spices they want to share. The units are fully furnished—there is only room for a bed, table and chair—and include utilities and Internet access. A central bathroom—dormitory style—can also help reduce the unit size.

Adelman’s initial micro-apartment units are not nearly as small. His San Antonio property 12WELVE 2WENTY1, at 1221 Broadway, offers a mix of “loft apartments,” the smallest of which is 456 square feet and rents for $725. He is currently planning to renovate 606 Avenue B to produce 113 units in three sizes: one-bedroom units with 614 square feet, studios with 514 square feet and micro-units with 380 square feet. The micro units, which will comprise 10 percent of the total, will include “almost no kitchen,” whereas the larger micro units in 12WELVE 2WENTY1 include galley kitchens with minimal furnishings to provide flexibility. “The more you allow people to set up the way they want to, the more it will attract,” he maintained.

Potter noted that he is able to charge $200 to $400 per month for units by reducing his own costs. The units come with neither parking (in Oakland, only 15 to 20 percent of the property’s residents have cars, he said)nor amenities (people prefer to interact with their community, anyway). The leasing contract (currently generally 90 days, offering flexibility and a chance to learn more about these tenants, but he will produce a lease for as long as nine months) and monthly payments are all handled electronically. Potter provides laundry facilities in the building, and has experimented with card systems and free use but is avoiding coin operation, while Adelman will help residents arrange for a local company to install a stacked washer and dryer in the unit on request.

Such units, the developers noted, have had no trouble attracting residents or financing from local community banks. Major banks—which might offer lower interest rates—have been more reluctant to embrace the concept, and municipalities’ responses have been mixed. For instance, Potter was rebuffed by San Francisco before heading across the bay to a more welcoming Oakland. Parking creates the biggest challenge, since municipalities are accustomed to requiring parking for their residents and homeowners can be leery of losing their own on-street parking alternatives to renters that have no other option. Although alleys, when present, can alleviate this concern, Potter suggested an agreement with an office building as another alternative, as businesses tend to popular their garages during the day while apartment residents are more likely to need them at night.

Look for an upcoming video interview with Potter and Adelman for more insights into their experiences with micro units.

Industrial Income Trust, of Denver, a non-traded REIT, has purchased the 11-building, 808,400-square-foot Broadway 101 Commerce Park in Mesa, Ariz., for $77,002,000 in a cash deal, it was announced Thursday by Cassidy Turley. The closing took place the previous day, Commercial Property Executive was told by a spokesperson for Cassidy Turley, which represented the seller, Lincoln Property Co.

Built in two phases in 2005 and 2007, Broadway 101 Commerce Park comprises five warehouses, three general industrial buildings and three office/warehouse buildings. At 2140-2360 E. Broadway, the property is one-half mile from the Loop 101/Price Freeway.

The Cassidy Turley sales team included executive managing director Tom Powers; executive vice presidents Bob Buckley, Steve Lindley, Tracy Cartledge, Mike Haenel and Andy Markham; and vice president Marc Tuite. Powers works in Cassidy Turley’s Cincinnati office, while the other six brokers are in the Phoenix office.

Broadway 101 triggered “exceptional buyer interest with major institutional investors including several that were new to the Arizona market,” Buckley said in a release.

In addition, Cassidy Turley has handled the leasing at Broadway 101 since the project’s inception. The park is leased to a diverse tenant base that includes Worldwide Technology Holdings, PCT International, Aviall Services (a Boeing subsidiary), Mitel Networks, Siemens Water Technologies and Patterson Dental Supplies.

While the property was in escrow prior to closing, the Cassidy Turley spokesperson told CPE, the property enjoyed additional lease-up, with its occupancy moving into the high 80 percent range.

That’s consistent with nearby properties, according to first-quarter 2013 market stats from Cassidy Turley, because the West Mesa submarket ended the quarter at 11.6 percent average vacancy.

Overall, industrial space in metro Phoenix is doing dramatically better than just a year ago, according to the Cassidy Turley report, with user activity up sharply, strong net absorption, spec projects increasing and rents likely to rise 3 to 5 percent by year’s end.

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