Case Study #2

Camelback Center

Acquired October 2004. Sold January 2007.

Camelback Center was acquired October 2004 by our investment fund in a joint venture with a large public insurance company. The property is a 235,000 square foot Class A office building located at 24th and Camelback, Phoenix’s premier office intersection.

Camelback Center was built and completed in 2001 just about the time Phoenix was entering a real estate recession. The inauspicious timing of the property’s delivery was exacerbated by an assortment of negative issues involving development, ownership and operating problems. This created an overall negative perception in the office market and gave the building a poor reputation within the leasing brokerage community. In addition, its occupancy had stalled at 40% despite a rapidly improving submarket. Our vision was that the property’s performance was unrelated to the asset and that with appropriate building enhancements, management, and leasing expertise that our repositioning efforts would be rewarded. In October 2004 we purchased Camelback Center for $32.4 million or $138 PSF. Including costs for renovating and leasing, our all in total cost was approximately $40 million or $170 PSF.

During our first year of ownership, we repositioned the building by executing significant improvements and upgrades of the building’s lobbies and common areas, enhancing the tenant finishes and commencing new aggressive leasing efforts. Eighteen months after completing our building enhancements and renovations, occupancy of Camelback Center had grown to 94%. Our new roster of tenants included high-quality companies such as Wells Fargo and Oracle Corporation. At the time of our acquisition average rents were $19.00 PSF. Recent leasing activity has produced average rents of $25.00 PSF, with Oracle Corporation paying $30.25 PSF. As well, when Camelback Center was acquired, it was not considered an institutional-quality property (usually judged by tenant and construction quality by pension funds or insurance companies). The Property was marketed for sale late in 2006 and we received 16 bids, including 6 from institutions, one of which was TIAA-CREF (“Teachers”), the largest institutional real estate investor in the nation.

In January 2007 we closed the sale on Camelback Center to Teachers for $76.4 million, or $325 PSF. The resulting net distribution generated an IRR on this investment of over 75%.