What a QOZ Real Estate Deal Looks Like

In May 2019, Capital Hall Partners (headquartered in Los Angeles, CA) closed its first Qualified Opportunity Zone (QOZ) transaction: the purchase of a 50,000-square foot zoned General Industrial District (GID) building, situated on 4.32 acres in southwest Tempe, AZ with a $10MM total capitalization.

As the first QOZ project in the Tempe area and specifically within this census tract, the opportunity offers an exciting path for addressing a series of needs in a rapidly growing region. The project, being rebranded as “The Hub,” is well-suited for redevelopment based on its prominent location, tall ceilings, building infrastructure, and a large site that can accommodate parking requirements requested by market users.

The project’s mission is to stimulate new economic development and redevelopment of Tempe and surrounding areas, while incorporating sustainable design and construction into an attractive facility.

Capital Hall Partners will redevelop the property by transforming the existing industrial building into a creative office environment. This will include a complete renovation of the exterior, featuring new doors and windows arranged to allow natural light into the interior, while offsetting the heat gain from direct sun. A shade screen structure will wrap the building to shadow the windows and create exterior patios around the perimeter.

The area beneath the shade screen structure, known as the ‘The Commons,’ is located on the north side of the building and serves as the primary entry. It will be covered with photovoltaic panels arranged in a pattern to provide a balance of light and shadow. Engineers estimate the solar array will generate enough power to off-set utility use by up to 75%.

The Commons will feature three primary zones: ‘The Plaza,’ ‘The Lounge,’ and ‘The Lawn.’ The Plaza will serve as the main point of entry to the building and features modular pavers and a variety of low-water-use lush plants. The Lounge serves as the exterior dining and conference room, and The Lawn will feature synthetic turf to soften the space and cool the building and plaza environment.

The building interiors will be reconstructed using high efficiency HVAC, electrical, and plumbing systems. The interior architecture will be tenant dependent, but will feature open ceilings highlighting the existing building structure.

Finally, the efficiently redesigned parking area will accommodate nearly 300 vehicles and will feature shade trees, modular pavers, asphalt drives, and a pervious surface parking area intended to reduce the heat island and allow for more adequate storm-water management.

Design plans have been submitted to the City of Tempe with construction scheduled in the third quarter of 2019, with exterior construction estimated to be completed by the second quarter of 2020. The business plan is to lease the building to a single user or multiple tenants.

An Architectural Rendering of the New Office Space

The Phoenix Metropolitan Area Represents a Burgeoning Economic Opportunity

The Phoenix Metropolitan Area which is the 11th largest metropolis in the nation by population and home to over 4.7 million people as of 2018.  Phoenix-proper is the sixth-most populous city in the United States (and the most populous state capital in the nation), with an estimated 1,626,000 residents as of 2018.  As of April 2019, Maricopa County has been named the fastest growing county in the United States for three consecutive years, according to the U.S. Census Bureau.

As its population has grown, Metro Phoenix has developed into Arizona’s primary business center and a key nationwide economic hub.  Lower costs of living, robust infrastructure, strong quality of life, and a growing, qualified talent supply have attracted an influx of new residents and businesses to the city.  Phoenix is now home to the third-largest labor pool in the West.

The Metro Phoenix job market is healthy and continuing to improve, adding over 82,400 jobs year-over-year through December 2018, welcoming 42 businesses and three corporate headquarters, while maintaining a 3.9% unemployment rate over the same period. According to the Bureau of Labor Statistics, the Phoenix metropolitan area added 25,000 office sector jobs through the fourth quarter 2018 (encompassing business & professional services, information/ technology and financial activities). Employment is projected to grow by 10% (compared to 6% nationally) over the next decade.

This skilled, diverse workforce is fueled by a network of globally recognized universities and community colleges, including Arizona State University, University of Arizona, Grand Canyon University, Northern Arizona University, and the Maricopa Community Colleges.  These institutions, along with others throughout the region, provide a pipeline of exceedingly qualified talent to supply high-demand industries like technology, aerospace, healthcare, and biomedical.  The end result is a young (median age 36) and extremely competitive workforce, available for some of the lowest labor costs nationwide.

How Tempe Fits into This Unique Economic Opportunity

Tempe has benefited from its central location in the Greater Phoenix Metropolitan area.  With a strong workforce and talent pipeline, Tempe has become a top-tier destination for major corporations like State Farm, Union Bank, Northern Trust Bank, Silicon Valley Bank, ADP, Wells Fargo, and JP Morgan. It has also emerged as one of Arizona’s preeminent technology centers, further cementing its status through citywide initiatives focusing on sustainability, quality of life, open data, performance metrics, and inclusivity.

Top Tempe Employers

Tempe is home to Arizona State University, whose nearly 110,000 students and community of residents, researchers, and business leaders make up the most educated and technically skilled workforce in Arizona.

Other Economic Hightlights

Tempe’s Economic Potential from a Real Estate Perspective

Robust employment growth, a readily available supply of qualified talent, cost advantages, and a high quality of life has significantly increased demand for office space throughout Metropolitan Phoenix, and Tempe in particular.

Metro-wide, there is currently 1.6 million square feet of office space under construction, placing Phoenix in the top 10 of American cities with new office construction.  The slow and steady timing of expected new office inventory, relatively tight vacancy in Tempe (measured at 8.3% at the end of the second quarter of 2019), and a high barrier to entry suggests constrained supply with rising demand—leading to higher rents and continued velocity of leasing activity.

We believe the Qualified Opportunity Zone (QOZ) property closed by Capital Hall Partners offers tremendous advantages for employers and employees alike.  Its proximity to Arizona State University, easy access to all the major freeways and Sky Harbor International Airport give “The Hub” direct channels to the Greater Pheonix area and easy access to other tech hubs (including short flights to California).California).

“The Hub's” Advantageous Location

The Bottom Line:

Capital Hall Partners’ commitment to the Phoenix and Tempe markets demonstrates our firm’s mission to create and develop sustainable communities—driving both social and economic impact.  We anticipate this project will fuel local job creation in one of the most up-and-coming job markets in the economy.

Capital Hall Partners’ Qualified Opportunity Zones transactions remain in the top 10% of all 8,700 designated Opportunity Zones in the United States.

 

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.

This is presented only for informational and educational purposes and is not intended to interpret laws or regulations.  This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments.  Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.