Pacific Office Properties Takes Phoenix Tower

On the heels of a major office building acquisition yesterday in Honolulu, as reported by CPN, Pacific Office Properties Trust Inc. has bought the 370,400-square-foot U.S. Bank Center complex in Phoenix. The 31-story office structure is the second-tallest building in Arizona, after the Chase Tower, and the deal also includes a separate seven-level structure with additional parking and ground-floor retail space. Besides the bank of the same name, U.S. Bank Center’s major tenants include Jacobs Engineering Group, a major architectural and engineering firm, and Valley Metro Rail, which is overseeing the city’s new light rail transit project. Consistent with its co-investment strategy, Pacific Office will co-own the U.S. Bank Center in partnership with an institutional co-investor. No price was released for the building, but in 2006 the Shidler Group bought it for about $66.3 million. Pacific Office was formed via the contribution of the Shidler Group’s Western U.S. office building portfolio and operations to a subsidiary of Arizona Land Income Corp. As part of its formation transactions, Pacific Office was granted the option to acquire some of the properties that the Shidler Group previously acquired, including the U.S. Bank Center. The acquisition price for each option property is equal to the property’s cost to the Shidler Group. The acquisition increases Los Angeles-based Pacific Office’s total portfolio to about 3.2 million square feet. According to the REIT, the light rail transit project, targeted for a December completion, and the expansion of Arizona State University’s Downtown campus, will to have a long-term impact on the economic growth of Downtown Phoenix, boosting demand for office space. Demand for office space has been consistently strong in recent years, up to the first quarter of 2008, during which it posted negative absorption. According to Grubb & Ellis Co., the greater Phoenix office market showed negative net absorption of about 197,700 square feet during the quarter. Some submarkets showed positive absorption, such as Scottsdale North and Scottsdale Airpark, while Downtown and other submarkets showed enough negative absorption (about 161,600 square feet Downtown) to tip the entire market into negative territory.