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Case Studies

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Phoenix Technology Center

Phoenix, Arizona

In May of 2005, Block Income Fund I acquired a three-building office portfolio totaling 143,425 square feet. As part of the transaction, Block purchased an adjacent, under-utilized 1.27 acre parking lot and secured entitlements to build an additional 18,000 square feet of office space.

Opportunity

During negotiations to purchase the Phoenix Technology Center office building portfolio the Block Funds investment team identified that the property possessed an unusually high parking ratio. Further due diligence revealed that initial plans for the Phoenix Technology Center included an additional 18,000 square feet of office space on an adjacent 1.27 acre parcel. Construction of the additional office space was halted when a lease was executed to utilize the adjacent parcel as a parking lot.

Strategy

Our strategy was to acquire the Phoenix Technology Center portfolio at an aggressive cap rate and extract unrealized value by developing an office building on the adjacent parcel.

Challenges

To maximize investor returns we needed to maintain the cash-flow stream from the parking lot lease in the short-term and simultaneously preserve our long-term strategy of developing 18,000 square feet of additional office space.

Result

Based on our view of the Phoenix real estate market cycle, we timed the lease buyout of the parking lot such that the additional office space can be developed and sold as part of the Phoenix Technology Center portfolio. The Interstate-10 and Elliot submarket continues to enjoy high demand for Class A office space. Block Fund I sold one of the Phoenix Technology Center buildings at an annualized return of 21.5%. We expect an exceptional return on our investment.

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