Phoenix Trophy Office Trades for $86M, Basis Up 43%

Esplanade III, a 10-story trophy office building at 2415 E. Camelback Road in Phoenix, has traded for $86 million. The buyer is Southwest Value Partners, a joint venture of Transwestern and C-III Capital Partners. JLL brokers Ben Geelan, Will Mast and Charlie von Arentschildt represented the seller. The 222,820-square-foot building changed hands at roughly $386 a square foot, a step-up of about 43 percent from the $60.2 million all-cash price recorded in Maricopa County records for July 2019, as cited by the Phoenix Business Journal.

The transaction gives Phoenix an office comp it has been missing. At $386 a foot, the price lands well above the roughly $270 a foot implied by the 2019 trade. The step-up amounts to $25.8 million over the 2019 transaction price, a span that includes the pandemic and the office market's repricing. The buyer is not paying for a stabilized asset: the building is 83.4 percent leased, with a weighted average unexpired lease term of 4.4 years. Tenants include Vestar, Vanguard Realty Advisors, Barclay Group, Velocity Retail Group, Husch Blackwell and Pederson Group, but roughly 17 percent of the floor area is not currently on rent. The rollover is the second challenge: with a 4.4-year weighted average term, a large slice of the existing rent roll turns over inside a typical hold period, giving the buyer a short window to re-let the vacant space and keep renewal rents from falling. The price puts the value in the real estate — the Camelback address, the trophy specification, the floor plates — more than in near-term cash flow.

The buyer's identity matters for what comes next. Southwest Value Partners is a joint venture formed by Transwestern and C-III Capital Partners, two national names. That puts this deal in the hands of a well-capitalized investor rather than the local all-cash buyer often credited with setting bottom-fishing office prices, and it signals that institutional capital is willing to accept vacancy and short lease terms as the cost of owning the top end of the corridor. That is the profile that has been clearing office trades, as this publication has argued: buyers willing to underwrite the building while the market works off its vacancy.

The 43 percent premium over the 2019 sale is the number that will set the next comparable. If that basis holds, the next trade on Camelback, and any appraisal filed in between, will be measured against it. A trophy-office market that was supposed to be repricing downward has just recorded a trade 43 percent above the last cycle's mark. The bid for quality is not gone; it is arriving with a floor plan that expects the building to do the heavy lifting. The next test is whether the underwriting holds — whether the vacant space leases at rents near the existing roll and the 4.4-year term turns over without another mark down.