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Ariz. Complex Trades Far Below Cost

Real Estate Alert

A mixed-use development in Phoenix that fell into foreclosure after the market crash is being sold for less than a quarter of its development cost.

A joint venture between ScanlanKemperBard and Wayzata Investment Partners agreed to pay roughly $67 million in cash for the 628,000-square-foot CityCenter complex, which market pros said cost nearly $300 million to build.

The seller is a lending group led by Capmark Bank, which seized the property in April 2010 after a Related Cos. partnership defaulted on about $290 million of construction debt HFF is brokering the sale.

The foreclosure was believed to be the largest in Arizona during the recent downturn. Related and its partner, Klutznick Co. of Chicago, had planned to develop a 144-acre complex, dubbed CityNorth, in three phases. CityCenter, the first phase, opened in 2008 with 330,000 sf of offices, 175,000 sf of retail space and 99 residential units.

The recession stopped the project cold and thwarted plans to sell the residences as condominiums. 1he developers were unable to refinance the construction loan or line up the estimated $570 million of financing needed for the second phase. The residential units were converted into apartments and are now nearly fully occupied. The buyers will work to lease up the office and retail components, which are each about 40% occupied.

CityCenter sits on 25 acres near the intersection of Route 101 and 56th Street, about 20 miles north of downtown Phoenix. The property includes a 1,400-space parking garage, another 458 surface parking spots and an adjacent five-acre parcel that could be developed for retail and residential use. The remainder of the 144-acre project site – part of a larger 5,700-acre master planned community, Desert Ridge – isn’t part of the sale.

The ScanlanKemperBard team beat out a host of institutional bidders chasing the property, including a joint venture between Lincoln Property of Dallas and Principle Real Estate of Madison, N.J. Also bidding were GEM Realty of Chicago and Brookfield Asset Management of Toronto.

The acquisition is the largest in years for ScanlanKemperBard, a Portland. Ore., fund shop that was battered by the market collapse and just recently began investing again. It opened a Seattle office two months ago with the hiring of former Schnitzer West executive Jeff Taylor as chief operating officer. And last week. it added Richard Morean as an executive vice president in Denver, where he previously ran a GE Capital Real Estate outpost.

Wayzata, based in Wayzata, Minn., was formed in 2004 via a management buyout of the former CFSC Wayland Advisers, a subsidiary of Cargill. It has some $7 billion of assets under management Wayzata and ScanlanKemperBard up last fall to buy the 221,000-sf Parkside Center office building in Portland for $38.7 million.

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