Arizona Sees Largest CRE Deal of 2010 with $280M Trade of Tempe Marketplace

Rockwood Capital L.L.C. joined forces with Vestar Development Co., the developer of Tempe Marketplace, to acquire the three-year-old property. Vestar had been in a partnership with DLJ/Credit Suisse, which sold its stake to Rockwood, leaving Vestar and Rockwood as the sole owners of the asset.

December 8, 2010
By Barbra Murray, Contributing Editor

It’s a big deal. A very, very big deal. Tempe Marketplace, a 1.3 million square-foot open-air shopping center in the suburban Phoenix market of Tempe has just changed hands for $280 million. The trade constitutes the largest commercial real estate transaction in the state of Arizona this year to date.

Rockwood Capital L.L.C. joined forces with Vestar Development Co., the developer of Tempe Marketplace, to acquire the three-year-old property. Vestar had been in a partnership with DLJ/Credit Suisse, which sold its stake to Rockwood, leaving Vestar and Rockwood as the sole owners of the asset. Information regarding just how much Vestar contributed to the purchase and how much Rockwood threw in has not been publicly divulged, but the agreement does leave Vestar in the position of managing partner of the joint venture.

Tempe Marketplace sits 10 miles east of Phoenix at 200 East Salado Parkway on 120 acres of land that was once home to three landfills. Developed at a cost of approximately $270 million, the highly touted shopping center made its debut in 2007 as the Valley’s biggest retail construction project in six years. Butler Design Group served as executive architect for the retail destination, which is divided into three segments–an area featuring large national chain retailers like Best Buy, JCPenney and Target, The District outdoor shopping and entertainment plaza and a stand-alone retail and restaurant segment. As for the tenant roster, it is nearly full; the property is presently 94 percent occupied, which is nothing to sneeze at, particularly given the presently lackluster state of the metropolitan Phoenix retail market.

While the vacancy rate in the Tempe/South Phoenix submarket was 10.7 percent in the third quarter, according to a report by Marcus & Millichap Real Estate Investment Services, the figure in greater Phoenix was notably higher at 12.3 percent and is on target to reach 12.6 percent by year’s end. Even a positive change in the jobs market has not been enough to spark a retail rebound. “Though employment growth will stimulate an increase in retail sales in 2010, the job additions will not be sufficient to prevent the vacancy rate in Phoenix from rising for the fifth consecutive year,” according to the Marcus & Millichap report. “Unlike previous years when excessive construction drove vacancy increases, lagging demand has become the anchor on the market.”

Tempe Marketplace is clearly an exception to the current rule. Its superior occupancy level undoubtedly played a role in German American Capital Corporation’s decision to provide the new ownership with $200 million in permanent financing concurrent with the closing of the property’s purchase.