Three years after buying dozens of Summerlin office buildings, out-of-state investors are ready to cash in.
Las Vegas brokers with CBRE Group last week listed for sale more than 895,000 square feet, spread across 18 buildings, that Hines Interests and Oaktree Capital Management bought in fall 2012 as part of a $119.5 million portfolio purchase.
The listing does not have an asking price, but it comes after the owners signed tenants and pushed up rental rates in an office market that, despite improving a bit the past few years, remains badly bruised by the recession.
Hines and Oaktree’s 1.1 million-square-foot, 32-building suburban portfolio was only about half occupied when they bought it from General Growth Properties. At the time, Southern Nevada’s office market had a 23.5 percent vacancy rate, up from 7 percent in mid-2006, and average monthly asking rents of $1.90 per square foot, down from $2.69 in late 2007, according to Colliers International.
Today, their remaining 18 buildings are a combined 92 percent occupied, CBRE broker Charles Moore said, while Southern Nevada has an 18.5 percent vacancy rate and average rents of $1.91 per square foot, Colliers data show.
Ultra-low-cost airline Allegiant Travel Co. bought the portfolio’s other buildings in 2013 and 2014 for its corporate headquarters. All of them had been empty.
Efforts to get comment Monday from Houston-based Hines were unsuccessful. Carissa Felger, from public relations firm Sard Verbinnen & Co., said Los Angeles-based Oaktree declined to comment.
Las Vegas’ office sector, marked by sweeping overdevelopment during the real estate bubble last decade, was hammered by the recession. Buildings emptied out as tenants, many of whom worked in real estate, closed shop; lenders seized properties throughout the valley; and construction ground to a halt.
The valley’s economy was climbing out from the worst of the recession when Hines and Oaktree bought its portfolio. But as listing broker Marlene Fujita of CBRE noted, “there was so much uncertainty” still surrounding Las Vegas, one of the hardest-hit metro areas during the country’s worst downturn in decades.
“A lot of other people were hanging on for dear life,” Fujita said.
To lure tenants, Hines and Oaktree renovated about 60,000 square feet of vacant offices. And as the market improved, they cut back on concessions and boosted rental rates.
Before it sold the portfolio, Chicago-based General Growth charged as little as $2 per square foot and gave a year or two of free rent upfront in some deals, said CBRE broker Randy Broadhead, leasing agent for Hines and Oaktree.
After the sale, rates eventually climbed to around $2.40 to $2.70 per square foot at a number of buildings, and the landlords gave tenants up to a month of free rent for each year on the lease, according to Broadhead.
Before Hines and Oaktree took charge, roughly a third of the portfolio had been occupied by powerhouse contractor Bechtel. The San Francisco-based company ran the U.S. Department of Energy’s nuclear-waste disposal project at Yucca Mountain, about 90 miles northwest of Las Vegas. Bechtel vacated the offices after the Energy Department rebid its expired contract and hired another company, Bechtel spokesman Fred deSousa said. Yucca itself was later tabled as a dump site.
Allegiant bought most of Bechtel's former space, according to Broadhead, acquiring offices that were in rough shape.
"It was pretty beat-up," Moore said.
Meanwhile, the last major office-portfolio sale in Las Vegas was in 2013, when Wall Street giant the Blackstone Group bought the Hughes Center, Moore said. Blackstone paid $347 million for the 68-acre office park a mile east of the Strip.
Eli Segall can be reached at 702-259-2309 or [email protected]. Follow Eli on Twitter at twitter.com/eli_segall.