By Gary Emerson, GRE Partners
TUCSON, AZ (June 19, 2024) -- Tesoro Enterprises, LLC acquired the approximately 63,300-square-foot Oracle Tower business park in November 2007 for $3,000,000 (approximately $48/SF). At that time, the project was approximately 60 percent occupied, and market lease rates were around $.90/SF/month on a modified gross basis. A large portion of the vacant space was the former Ponderosa Steak House. The purchaser remodeled the 30-year-old project by adding new copper fascia, updating the stucco, and painting and sealing the parking lot.
The former Ponderosa Steak House was remodeled in 2011 for USA Pawn, which is still a tenant within the project. Fast-forward to 2017, when the project was appraised at $5,100,000 ($81/SF) due to higher occupancy and lease rates.
The value of multi-tenant business parks around Tucson is steadily climbing, with lease rates increasing. The simple supply and demand equation is in our favor, as few multi-tenant business parks are being built, and demand remains strong. The market vacancy for all product types remains below 6%, even lower for small bay multi-tenant projects. Despite a significant increase in vacant industrial space in 2023 due to large bay projects coming online, there was no significant increase in the construction of small bay incubator projects. The replacement cost of a project like Oracle Tower would be in excess of $150/SF, which appears to be a barrier to entry for many developers. However, this also presents a unique opportunity for those who can overcome these barriers and tap into the potential of the Tucson industrial real estate market.
Rental rates at Oracle Tower, now at $1.20/SF modified gross, are a testament to its stability and profitability. The project is currently 95% occupied and is expected to remain so into the foreseeable future. Lease rates on existing projects have room to increase, as rates of $1.35 modified gross would be needed to provide a reasonable return to any potential competitor paying a project cost of $150/SF. This stability and potential for growth make Oracle Tower a secure and promising investment in the Tucson industrial real estate market.
Gary Emerson is a graduate of Arizona State University and has brokered industrial buildings and investment properties in Southern Arizona since 1984. He was one of the top producers at CB Richard Ellis, Grubb & Ellis, and Bourn Partners before forming GRE Partners, LLC, in 2010. Gary has negotiated many complex multi-million-dollar transactions for national and international corporations. These transactions included large leases, existing building and development deals. He and his wife, Laury, enjoy the authentic Tucson lifestyle on their eastside horse property. Gary is on the Advisory Board of Big Brothers Big Sisters and is one of the top Masters competitive swimmers in Arizona