RED's $28.6 million Phoenix buy is a land trade

RED Development has bought a north Phoenix office campus whose previous owner had already concluded its next life would not be offices, paying $28.6 million for the property off Interstate 17 and Thunderbird Road, according to Connect CRE, which credits the Phoenix Business Journal with the price. The 28 acres carry two vacant buildings that together exceed 500,000 square feet; the site served as a technology campus first for General Electric, later for Honeywell.

The seller, Dimension Financial & Realty Investments, had recently prepared the parcel for an industrial redevelopment called Canyon Commerce Center; its plan calls for three buildings of 62,268, 152,889 and 236,735 square feet, constructed once the existing offices are demolished. That comes to 451,892 square feet of replacement industrial space, less than the empty space it would replace, so the site's floor area shrinks under the new plan rather than grows. Ray Cashen of Cashen Realty Advisors represented both buyer and seller.

The price says the same thing: $28.6 million across 28 acres works out to roughly $1.02 million an acre, and against the more than 500,000 standing square feet it is about $57 a foot, a valuation coherent only if the two buildings are treated as a cost of occupancy rather than the thing being bought. Measured instead against the 451,892 square feet RED is considering building, the land alone comes to about $63 a buildable foot before demolition, sitework, and vertical construction.

The replacement plan also gives up floor area: roughly 452,000 square feet of industrial on 28 acres is about 16,000 square feet an acre, while the offices it would replace already exceed 500,000 square feet on the same ground. Fewer square feet is the price of the move, and it is a price the seller's existing plan and the buyer's interest both accept.

Dimension's stake is older than the conversion plan; it acquired Metro North Corporate Park, the 160-acre redevelopment site that holds this parcel, in 1994, and the industrial scheme surfaced on its watch. A three-decade hold made selling the entitlement rather than the finished buildings a way to hand demolition and construction risk to the buyer, though the coverage does not say whether Dimension retains the balance of the park.

Commodity office clears when a sponsor's balance sheet sets the first bid, while trophy assets refinance above their prior loans; north Phoenix produced a clean example of the first case. The underwriting question here is what 28 infill acres with interstate frontage are worth once the buildings are gone and the ground is graded for industrial use, which is why a $28.6 million number arrived without a cap rate attached to it.

Phoenix has become a reliable laboratory for that arithmetic; Federal Realty's plan for 216 apartments at Camelback Colonnade takes a 62-year-old retail property and underwrites it as housing, a repricing of commercial ground covered earlier in September. The Honeywell campus is the same maneuver pointed at a different replacement use, pulling down commercial square footage the market has stopped bidding for and putting the dirt back to work.

The acquisition is the easy half; buying at $1.02 million an acre for land inside a corporate park is a workable basis for infill industrial, and the three-building program is sized to phase, with 62,268 square feet as a starter box, 236,735 as the anchor, and 152,889 between them. The removal of more than 500,000 square feet and everything downstream of it remains unsettled; the coverage describes a plan RED is considering, reports that the property may become an industrial park, and says nothing about pre-leasing, a general contractor, or a construction schedule. A parcel bought at land value with half a million square feet of obsolete structure standing on it is a bet on executing a conversion, and the conversion is the expensive part.

That makes the next trade the informative one: if another north Phoenix campus changes hands near $1 million an acre, the market has settled on a clearing price for obsolete suburban office set by the ground underneath, and the owners worth watching are the long-hold landlords of 1990s corporate parks sitting on empty buildings and an unused conversion plan.