2019 was a landmark year for Capital Hall Partners, marking our first full year of engagement in Qualified Opportunity Zones (QOZs) following the 2017 Tax Cuts and Jobs Act. We now have 5 active investments in the QOZ space: 3 in the Greater Boston Area and 2 in Phoenix. Our enthusiasm behind these projects could not be higher—we see Boston and Phoenix as two of the most exciting job creation hubs in the country.
Our latest QOZ investment is in Phoenix, where we are under contract to acquire a 100,000- square foot building aptly named PHXTECH. We are targeting an $8 million fundraise for the project with approximately $4 million raised to-date and a closing date of April 22, 2020. Please contact us directly at info@caphall.com for investment inquiries and for more detailed information.
The Greater Phoenix area is brimming with economic opportunity. Over the last 70+ years, the city has developed a diversified tech ecosystem, home to high-tech manufacturing, R&D, software companies and next-generation technologies. Tech hubs elsewhere in the country are generally known for exorbitant cost of living and restrictively high wages, but Phoenix stands out for having neither—being known instead for a deep talent pool, low labor costs, and some of the best housing affordability in the country.
Demographics also play a key role in the Greater Phoenix area’s relative attractiveness. Metropolitan Phoenix is home to more than 4.8 million people (2018 data), a number expected to nearly double to 9.3 million by 2040.
These figures make Phoenix the third largest labor pool in the west, producing talent in high-demand industries including emerging technology, aerospace, semiconductors, healthcare and biomedical. Arizona State University outputs the most educated and technically-skilled workforce in Arizona, and over 86% of this skilled workforce has resided in greater Phoenix since 2010. The confluence of these factors attributes to the region having a median age of 36, one of the lowest in the nation.
Some of the biggest corporations in the world have taken note, with major players like Microsoft, Morgan Stanley, Silicon Valley Bank, KPMG, MetLife, State Farm, and JPMorgan opening large offices in the area.
Within the tech sector in particular, private capital investment in Greater Phoenix is on the rise. Over the last 10 years, the industry has seen 280 deals accounting for approximately $2.03 billion in total funding. In 2019 alone, tech start-ups raised $430 million, marking a 25% jump over the previous high of $344 million set in 2016. According to a report released by the Greater Phoenix Economic Council and CBRE, “the steady growth trend is attributable to a thriving ecosystem of quality startups in Greater Phoenix bolstered by a collaborative entrepreneurial culture. Emerging tech companies choose Greater Phoenix to establish their footprints, test their technologies and scale.”
It follows that the Greater Phoenix area is an emerging market for office space that caters to a younger, technology-oriented crowd. In our view, this assigns higher value to redesigning and rebuilding traditional office spaces into multi-tenant creative office suites, with sustainable and environmentally conscious features like solar paneling and thoughtful landscaping. Tech workers and younger workers want flexibility, sustainability, a sense of community, and productivity that comes with creative, shares office spaces (co-working spaces).
How Our PHXTECH Project Fits into the Phoenix Growth Story
Capital Hall Partners envisions the redevelopment PHXTECH (our QOZ project) to be the first domino to fall in an underutilized submarket rife with opportunity. The submarket is known as the Sky Harbor Office Market, situated on 9.4 acres in close proximity to the Phoenix Sky Harbor International Airport. PHXTECH’s zip code is home to 858 employers and nearly 50,000 jobs. .
The Sky Harbor submarket is quickly filling with new and expanding tenants, pushing vacancy rates down 9.3% year-over-year and inching rental rates up. Overall vacancy in the Sky Harbor submarket in 2018 fell from 32.7% to 23.4%, and is now hovering around 20%. In 2018, rents climbed from $19.63 to $21.95 per-square-foot, luring many businesses that are priced-out of the highly desirable Tempe market.
The micro-market where PHXTECH is located, Southbank, is a master planned business park. The vast majority of tenants in Southbank have focused on economics—not desirability—when leasing space. This is due in part to lack of available improved options. With the large bulk of buildings stuck in old, 2nd generation improvements and little ownership desire to offer modern buildouts and amenities, Southbank is often viewed (based upon current availability) as a basic call center office with little value proposition.
This backdrop creates an excellent opportunity within Southbank to redevelop commercial real estate that leads the market and offers tenants the opportunity to lease a fresh, progressive building. That’s our goal with PHXTECH.
The Capital Hall Partners team will revamp the existing data center building into multi-tenant creative office suites, with a renewed façade, solar-covered parking, updated and refreshed landscape and hardscape, outdoor workspace, new exterior windows and doors, and 150 new parking spaces. The improvements are projected to take approximately 4 to 6 months to complete.
We will hold the building for a 10-year period and lease it to multi-tenants at market rate over a thirty-six-month period. Half the battle is already won: Fidelity Information Services, the publicly-held credit tenant, will continue occupying approximately 50% of the building with a short-term (18-24 months with a 6-month extension) at a competitive market rate. We are now actively working to identify tenants with expiring leases, new tenants in the market, and tenants looking to expand their operations.
Learn More About the PHXTECH QOZ Opportunity
Capital Hall Partners has over $1 billion in real estate investments and developments underway across the country, with over 50 years combined real estate experience in investment, development, and asset management. Investing in Qualified Opportunity Zones offers us a way to support job creation and growth in local communities, while also upgrading the real estate profile of the city/community with modern and sustainable buildings.
We’re excited to be active in the Greater Phoenix market. We view Phoenix as one of the best urban growth stories in the country, and we believe the PHXTECH project plays nicely into the budding strengths of the city’s dynamic economy.
For readers and investors who want to learn more about the project, the terms of investment, or who have questions about how Qualified Opportunity Zones work, please reach out to us at info@caphall.com. We’d be happy to talk with you.
Capital Hall Partners is a privately-held real estate investment and development firm. We have over 50 years of experience over multiple real estate cycles, with a current focus on value-oriented investments in Qualified Opportunity Zones in the Los Angeles, Phoenix, & Boston areas. Our commitment to investors is to preserve capital, deliver attractive risk-adjusted returns, be trustworthy and transparent.
If you would like to learn more about Capital Hall Partners, Qualified Opportunity Zones, or how to invest, please contact us today at info@caphall.com or by calling 310-264-1504.