Case Study #1

Arizona Business Park

Acquired July 2004. Sold September 2005, July 2006 and March 2007.

The Arizona Business Park (“AZBP”) was acquired in July 2004.  It is a well-located portfolio of 7 office properties totaling 437,000 square feet that is adjacent to Interstate 17 in northern Phoenix.  The AZBP portfolio was fully leased at closing but its newest and most prominent freeway-frontage building was unoccupied by its tenant, Bank One, and several of the other properties were encumbered by high interest rate, non-prepayable mortgages at low loan-to-value ratios. These factors made the portfolio very challenging for prospective purchasers to finance with conventional debt, and effectively provided an opportunity to acquire these assets at a discounted sales price.  The acquisition was completed by our investment fund in a joint venture with a large public insurance company for $51.8 million or approximately $119 per square foot.  Our strategy was to resolve the portfolio’s tenancies, refinance the existing mortgages, and sell the portfolio’s properties over time.

In late 2004, we solved the tenancy issue of the portfolio’s most valuable individual asset, the vacant 104,000 square foot building leased to Bank One.  We successfully negotiated a multi-million dollar lease termination penalty from Bank One and simultaneously leased the entire building to an affiliate of American International Group, Inc. under a new 10.5-year lease. In September 2005 we sold the AIG building as part of a 4-property sale for $48.8 million, or $163 per square foot. This transaction alone resulted in equity proceeds of $11 million and an IRR of over 40% against allocated equity.

To date, we have leased, repositioned and sold all of the remaining buildings in the portfolio for net equity proceeds of $22 million resulting in an IRR of over 75% against allocated equity