BKM Capital Partners, an institutional fund manager with a niche focus on value-add, multi-tenant industrial investments, has acquired the Koll Cotton Center, a seven-building, 225,435 square-foot industrial business park in Phoenix for $26 million.
“The Cotton Center is an institutional quality asset that presents a dynamic value proposition,” says Brian Malliet, CEO and Co-Founder of bkm Capital Partners. “By acquiring this property well below replacement cost, there is a tremendous opportunity to reposition the asset through our firm’s proven capital and leasing strategy.”
This is the sixth asset that bkm Capital Partners has acquired to be included in its $200+ million commingled fund which targets final close in Q4 2015. The firm intends to acquire approximately $450 million of multi-tenant industrial assets by the end of 2016.
“Multi-tenant industrial is a unique product type that is poised for substantial investment returns in the current commercial real estate market,” Malliet explains. “The caveat is that these assets require extensive product knowledge. As specialists in this product, our firm is uniquely positioned to capture the upside of these assets and produce strong yields for our investors.”
The Cotton Center was at 77 percent occupancy upon acquisition from leading real estate investment manager Clarion Partners, which owned the property on behalf of a commingled fund. The business park is leased by 26 tenants in diverse industries, including telecommunications, construction, manufacturing, food service, business services, and healthcare, among others.
Brett Turner, Director of Acquisitions at bkm Capital Partners, was responsible for sourcing and acquiring the deal, working closely with Clarion Partners. According to Turner, “Our experience working with Clarion Partners was quite smooth and we hope to build a long term relationship with them as they control many assets in our target geography.”
“We enjoyed working with a skilled organization like bkm Capital Partners on this transaction,” said Ryan Collins, Vice President with Clarion Partners. “The transfer of ownership felt seamless and we look forward to working with them again in the future.”
BKM plans to implement interior improvements to the property, including a spec suite program for currently vacant space that will modernize the asset and result in strong residual value, according to Malliet.
“Today’s small-bay industrial users are seeking ‘plug-and-play’ space that is fresh, modern, and ready to lease,” he explains. “By updating the asset, we will be able to leverage the performance potential of this project, ultimately rolling tenants to a market rate rent. This strategy will further increase NOI and result in an attractive risk-return investment profile.”
Malliet notes that the asset’s location in Phoenix is another factor that boosts the investment potential of this acquisition.
“As the 6th largest metro area in the U.S., Phoenix boasts a real estate market that is deep and diverse, with more than 266 million square feet of industrial space that has demonstrated positive net absorption for seven consecutive quarters,” he explains. “Further, the state of Arizona has been recognized as first in the nation for quality and availability of workforce by CNBC. Recent job growth in Phoenix ranks 8th in the nation at 2.3 percent, and employment and population growth continues to outpace national averages.”
The Cotton Center is one mile south of Phoenix Sky Harbor International Airport, and is approximately ten miles from both downtown Phoenix and downtown Tempe. Built in 2000, the property is located in the Cotton Center Master Plan, a premier destination for tenants seeking high image and excellent access.
Jones Lang LaSalle represented Clarion as the seller in the transaction.