TerraCap Pays $31M for Phoenix Industrial Asset

BKM Capital Partners sold the 225,400-square-foot property after nearly six years of ownership.
Koll Cotton Center. Image courtesy of JLL

TerraCap Management LLC has paid $30.9 million for Koll Cotton Center, a seven-building, 225,403-square-foot flex industrial park in Phoenix. BKM Capital Partners sold the Class A property they had purchased in 2015 for $26 million from Clarion Partners. JLL Capital Markets assisted both parties in the current deal and, working on behalf of the buyer, arranged a $23.2 million acquisition loan with Voya Investment Management. The floating-rate financing is due to mature in 2026.

According to CommercialEdge data, this is TerraCap’s first Phoenix industrial property and only its second industrial asset overall. However, this is not the Florida-based company’s first foray in the Valley; in January, TerraCap acquired a 333,014-square-foot office campus for $103.5 million.

Koll Cotton Center, up close

Completed in 2000 and renovated in 2015, Koll Cotton Center occupies nearly 18 acres at 4050 E. Cotton Center Blvd. within Cotton Center Business Park, a 286-acre development totaling more than 3 million square feet of real estate. Buildings 1, 2 and 3 comprise a total of 78,400 square feet of office space. The rest of the components are industrial buildings featuring a 20-foot maximum clear height and grade-level loading doors, CommercialEdge shows.

After the 2015 purchase, BKM implemented a multi-million-dollar improvement plan at the property. Upgrades included spec suite build-outs and new signage, as well as interior and exterior renovation. According to JLL, the asset was 93 percent leased at the time of sale.

TerraCap intends to further improve Koll Cotton Center by replacing the roofs, improving the exteriors, and repositioning the vacant suites. The new owner appointed CBRE as leasing manager and retained BKM as property manager.

The location is some 6 miles southwest of downtown Phoenix within the Airport Industrial submarket, providing easy access to interstates 10 and 17. More than 2.1 million customers live within 15 miles of the property. Sky Harbor International Airport is 4 miles north.

JLL Senior Managing Director Mark Detmer and Senior Director Ryan Sitov, together with Executive Vice President Steve Sayre and Managing Directors Mark Gustin and Dave Seeger, led the brokerage team representing BKM. Executive Managing Director Kevin MacKenzie and Director Jason Carlos negotiated on behalf of TerraCap.

Betting on industrial

Greater Phoenix is currently one of the strongest metros for industrial development. According to a recent CommercialEdge report, the metro had 16.7 million square feet under construction as of January, representing 6.6 percent of the total stock, almost three times higher than the 2.6 percent national average. The vacancy rate stood at 5.7 percent, 30 basis points below the national average.

Zooming in on the Koll Cotton Center area, the Airport Industrial submarket showed a 6.4 percent vacancy in the last quarter of 2020, according to a JLL report.