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.”

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

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.

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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Sources: Real Capital Analytics Inc., Jones Lang LaSalle Inc.

By Suzann D. Silverman, Editorial Director

While the Baby Boomers and Gen Y sit at opposite poles, that doesn’t make it necessary to choose between them as targets for housing or retail. In fact, according to analysis at last week’s Urban Land Institute Spring Meeting, the two groups—those in the process of entering the ranks of seniors and their children—complement each other.

That’s good news, considering they represent the two biggest generational groups in America—and when it comes to housing, the two biggest buyer groups, according to Alan Mark, CEO of The Mark Co. During a panel comparing the two generations, he quoted the Baby Boomers as comprising 47 percent of buyers, with Gen Y at 35 percent, Gen X at 14 percent and the 64-and-older group at 4 percent.

Comparing the two groups is complicated by the fact that the beginning and end of the Baby Boomer generation are more easily identified and their composition is more clearcut. A larger group than their children, they are mostly native born and mostly white, for instance, while Gen Y includes a significant immigrant population, from a variety of countries, making them less unified, noted Robert Lang, director of Brookings Mountain West at the University of Nevada at Las Vegas. That said, Gen Y is a more tolerant generation, not fearing change and, having never been through the urban exodus of the 1970s, more drawn to cities than their parents, who prefer privacy and space.

“What’s different is the pace of change,” added Jamie Gutfreund, chief strategy officer for The Intelligence Group, who noted that the bar continues to rise. She emphasized the need to look ahead to who this group will be as they continue to age. Already, she noted, quoting her Cassandra Report, 82 percent would rather live in a city than a small town, and they are highly entrepreneurial (49 percent want to bypass traditional companies in favor of startups). And they rely on the opinions of family and friends.

Many say they want to live with their parents, yet Mark noted that a lot of them are second-home buyers. Everything about them is different, observed Jeff Kreshek, vice president of West Coast leasing for Federal Realty. “They want to be challenged … they want the experience, but in a very different way.” And they want experience shopping even when they don’t want to interact with people, he observed. In the retail sector, properties that offer a “sense of place” will have a better chance of succeeding, he said, pointing as an example to his company’s Santana Row in San Jose, Calif.

Despite the differences between the two generation, mixing the generations is important, according to Mark, who said the younger group doesn’t want to live only with other members of Gen Y. And he sees room for combination. For instance, both groups like high-rises, although for different reasons. Baby Boomers are ready to give up caring for a house and property, while Gen Y has no time or interest in such responsibility, he explained. And when they move into multi-family housing, they are drawn to different types of units: Gen Y to smaller, more affordable units and the Baby Boomers to larger units. Mark cautioned that those larger units should be placed at the top of the building, where the views are better.

Specific preferences don’t stop there: Baby Boomers like outdoor space (even if it’s not private), a single level (don’t build their space on multiple levels), larger common rooms for entertaining (more important than large bedrooms) and two rather than three bedrooms to encourage their children to visit but not move in. Gen Y also likes social aspects, but they prefer a rooftop deck for gathering (it can also double as a marketing venue for the building), dog runs and stylish finishes.

For more on Gen Y retail preferences, see the ULI Special Report “Gen Y Goes Shopping.”

Leanne Lachman

By Suzann D. Silverman, Editorial Director

As retail strives to recreate itself for the post-recessionary market, investors and developers are targeting one group in particular, and they are an opinionated and fickle bunch. The good news is that Gen Y loves to shop, the Urban Land Institute found in its most recent study of the generation’s retail preferences. The study, released at the Spring Meeting in San Diego on Thursday, followed last year’s report on Gen Y housing preferences.

Gen Y, those 18 to 35 years old, constitutes a strong segment for retailers. Beyond being a huge group, they bring financial strength to the market. Sixty-five percent of the 1,251 respondents to the survey do not receive financial help from their parents, with 41 percent working full time and fully 46 percent achieving household income of $50,000 or more per year. Thirty-two percent own their own home (predominantly those in their 30s).

And they are a financially responsible group, noted study author Leanne Lachman. Although they carry an average of $22,000 in student debt, four of five don’t use credit cards and 27 percent pay their credit card bills in full every month.

And they do shop. Eighty-five percent of respondents said they enjoy shopping, and not just women. In fact, eight of 10 men admitted to favoring this pastime. Overall, blacks and Hispanics turned in higher numbers than whites, with 89 percent of each group claiming a liking for shopping versus 83 percent of whites. Only 4 percent of the overall group said they hate shopping.

Shopping for them is very much a social pastime. Sixty-five percent said they typically shop with friends or family members. And 28 percent said shopping centers are their favorite place to get together with friends. Seventy-five percent go out to the movies, And 46 percent eat out with family or friends at least once a week.

Online shopping figures heavily in Gen Y activities, but bricks-and-mortar stores are still important. While 45 percent spend at least an hour online each day exploring retail-oriented sites, they often use Web sites for research, making their actual purchase in the store (conversely, of the 38 percent who purchase electronics online, one-quarter first go to the store for research).

With Gen Yers sporting short attention spans and a low boredom threshold, Lachman advised shopping center owners to think about fresh stimuli to keep this group interested. Certainly they are fickle restaurant goers, but the overall mix in a mall or shopping center needs to appeal to a range of interests that include entertainment, value, style and social gathering. Pop-up shops can be a critical part of this mix, according to Team I-Sight president Linda Berman, who noted they are not just for temporary offerings but are being used for experimentation by well-known chefs as well as established retailers seeking to try new ideas before they implement them in their stores. In fact, she said, they are turning to fashion schools for inspiration, setting up competitions between groups of seniors to get new, inexpensive inspiration from the Gen Y group itself.

Shopping center owners also need to think about other lifestyle preferences, Berman cautioned. For instance, while they have a strong preference for including their pets in many aspects of their lives, “everyone should have great pet concepts in their mall,” she declared, pointing to the hospitality sector, where brands like the Ritz Carlton have figured out how to incorporate pet attendance successfully. Yet among retail center owners, nobody has. With the pet segment highly fragmented, with many mom-and-pop owners, “developers are still looking for retailers.”

The popular stores targeting the generation continue to thrive, according to Steve Morris, president & co-founder of Asset Strategies Group—the likes of Forever 21 or H&M. But don’t be too quick to dismiss longer-standing brands, he cautioned. This group also likes thrift and discount stores. Department stores, too, continue to attract them, although they are using these stores differently, Lachman noted, doing their research online and then heading directly to their target item in the store for purchase. The end result, though, is that Macy’s, despite many dire predictions through the years, keeps performing again and again, noted session moderator Alan Billingsley, principal of Billingsley Investments, and Lachman added that JC Penney ranked high on survey respondents’ preference list despite recent criticism of its experiment with incorporating discounts rather than offering sales.

For a comparison of Gen Y and Baby Boomer characteristics and residential preferences, turn to the ULI Special Report “Across the Generations.”

Douglas Emmett Inc. now owns over one-fifth of the Class A office stock in Beverly Hills. The REIT just acquired the 225,000-square-foot property at 8484 Wilshire Blvd. from L. Flynt, LTD.-8484 Inc. for $89 million, bringing its total presence in the submarket to 1.6 million square feet. 

Douglas Emmett financed a portion of the acquisition with cash on hand. The 10-story tower last traded in 1994, when publisher and activist Larry Flynt acquired it for, as reported in the Hollywood Reporter, less than $19 million. Since then, the office destination has become commonly known as the Flynt Building.

It’s not just any building. The William Pereira-designed property, originally developed in 1972 to house offices of Great Western Savings, holds the distinction of being one of the few elliptical-shaped buildings in Los Angeles.

The property comes with a diverse tenant roster that includes users ranging from physicians and attorneys to entertainment firms and the consulates of Brazil and the Consulate of Ecuador.

With a price tag of $395 per square-foot, 8484 Wilshire fetched a pretty penny, but a few other office properties in Beverly Hills have recently commanded even prettier pennies. During the first quarter of 2013, the building at 100 Crescent Dr. sold for $667 per square-foot, and in the fourth quarter of 2012, 474 N. Beverly Dr. reeled in a whopping $1 million per square-foot.

Douglas Emmett’s last office purchase in the submarket came in 2011, when the REIT snapped up the 74,000-square-foot asset at 150 S. Rodeo Dr. for $42 million, or $568 per square-foot.

In the second and third major moves in less than a week, Ares Commercial Real Estate Corp., Chicago, has agreed to acquire EF&A Funding L.L.C. (d/b/a Alliant Capital L.L.C.) for about $62.8 million in cash and stock and has also named a new co-CEO, Todd Schuster, the REIT announced Wednesday.

Alliant Capital L.L.C. will become a wholly owned taxable REIT subsidiary of ACRE. (Alliant Capital Ltd., which provides affordable housing tax credit equity, is not included in the acquisition and will remain a part of The Alliant Co.)

Alliant Capital L.L.C. focuses on lending, asset management and servicing in the multi-family sector and specializes in the origination and servicing of multi-family loans through the Fannie Mae DUS program. Its servicing portfolio is about $3.9 billion in multi-family loans with mortgage servicing rights at a fair value of about $61.0 million.

In addition, Alliant Capital L.L.C. recently was approved to originate loans insured by the Federal Housing Administration and to securitize those loans through Ginnie Mae.

Schuster’s appointment as co-CEO of ACRE, where he joins existing CEO John Bartling Jr., clearly is connected to the Alliant Capital acquisition, because Schuster is a board member of an affiliate of Alliant Capital L.L.C., as well as a current ACRE board member.

“As a leading commercial real estate finance CEO, Todd’s significant insights in running GSE and FHA/Ginnie Mae platforms will be invaluable to the success of this acquisition,” Bartling said in a release.

Schuster was the founder of CW Financial Services and its CEO from 1991 to 2009.

Through a spokesperson, Ares declined to comment further on either action.

These moves are hard on the heels of last week’s announcement by ACRE parent Ares Management L.L.C., Los Angeles, that it would purchase AREA Property Partners, essentially quadrupling Ares Management’s total committed capital, to $8 billion, once AREA’s real estate equity investments in North America and Europe are added.

The Alliant Capital acquisition, Bartling said “will enable ACRE to better meet the short- and long-term financing needs of multi-family owner/operators in an asset class that has performed well over the long-term, especially in the past five years.”

It’s reportedly expected to benefit ACRE shareholders in several ways.

* Alliant Capital L.L.C.’s national direct origination platform focused on Fannie Mae and FHA/Ginnie Mae multi-family loans scales up ACRE’s platform and enhances its direct origination capabilities.

* The addition of Alliant Capital L.L.C.’s focus on long-term multi-family GSE loans to ACRE’s background in providing multi-family bridge loans will let ACRE offer “a complete turnkey financial solution for multi-family owners/operators seeking short- and long-term financing options.”

* Adding Alliant Capital L.L.C.’s $3.9 billion servicing portfolio (about 1,000 loans) diversifies ACRE’s revenue stream.

CBRE Strategic Partners U.S. Value 6 fund is making its first hotel acquisition with the purchase of the San Jose Marriott, a 506-room, full-service hotel that is attached to the San Jose Convention Center.

Sponsored by CBRE Global Investors, fund officials did not publicly disclose the sale price or the seller citing a confidentiality agreement. However, several media reports state it was Prudential Real Estate Insurance (PREI). The Silicon Valley Business Journal put the price at between $80 million and $85 million while the Private Equity Real Estate (PERE) global news service said the hotel sold for $83 million. CBRE Global Investors would only say that it bought the 28-floor hotel at 301 Market St. for “significantly less than replacement cost.”

“The Silicon Valley lodging market is fed by strong corporate demand from the significant concentration of high-tech companies in the region,” Vance Maddocks, president of CBRE Strategic Partners U.S., said in a news release. “With strong current cash flow, the San Jose Marriott, in particular, is an attractive business hotel with an added benefit of being directly connected to the now-expanding San Jose Convention Center.”

The Strategic Partners U.S. team is planning renovations at the hotel, which opened in early 2003. The plan includes upgrades to guest rooms, suites, corridors, the lobby, and meeting space, according to a CBRE Global Investors spokesperson. The dollar amount was not released.

SCS Advisors, the original developer of the hotel and a leading hotel asset management company, will serve as the asset manager. The hotel was built for $93.9 million with $10.6 million provided by the San Jose Redevelopment Agency, according to an agency document. It is still the newest hotel in the submarket, according to CBRE Global Investors. Features include a swimming pool, fitness room, business center, 23,000 square feet of meeting and event space and acclaimed restaurants.

The hotel purchase comes five months after the Strategic Partners U.S. team purchased Fairmont Plaza, a 17-story office building at 50 West San Fernando St. in downtown San Jose, from Forest City Enterprises Inc. for $93.1 million.

CBRE Global Investors closed the Strategic Partners U.S. Value 6 fund in December with equity commitments of almost $1.1 billion from 22 institutional investors. It is expected to have total purchasing power of $2.7 billion. As of December, the fund had already closed on or committed more than $900 million in investments, including several multi-family and office properties.

The global real estate investment management had $90.7 billion in assets under management as of March 31. It is an independently operated affiliate of CBRE Group, Inc. Founded in 2000, the Strategic Partners U.S. program has closed eight funds and three co-investment partnerships.