Investors Showing Interest in Bentonville Office Niche

by Paul Gatling  on Friday, Nov. 9, 2012 9:06 am  

Bentonville’s evolution during the last decade-plus, from down home to downtown, has been fueled by infrastructure improvements, investment dollars and revitalization.

Those same principles are beginning to surface in the office space niche of the city’s commercial real estate market, sending more strong signals that the days of cautious investment practices are being left further behind.

“There are some great stories out there about the market coming back, money being spent on revitalizing older properties, things like that,” said Grady Mathews, a CCIM with Grubb & Ellis  | Solomon Partners in Bentonville. “It’s very exciting, and it’s important for Bentonville.”

Two notable transactions of that type were completed earlier this year in Bentonville, which had an office vacancy rate of 13.1 percent in the third quarter of 2012, down from 15.5 percent in the third quarter of 2011. The grabs illustrate the assertion that investors are spending money to re-introduce distressed or vacant assets back into the market.

The two projects involve nearly $7 million and about 180,000 combined square feet of space.

“Generally, just the simple fact that they are distressed equates to lower purchase prices,” said Chuck Sharp, a commercial realtor and owner of Sharp Properties and Development in Bentonville. “There’s an upside to it if you can buy it right and lease it right.”

On June 27, Bentonville Commerce LLC, a company owned by FBE Limited LLC of New York, landed a bargain with a $4 million acquisition — about $33 per SF — of Bentonville’s Commerce Centre, an eight-building group of bank-owned office properties with 120,000 SF on 10.8 acres. The distressed asset — just off South Walton Boulevard behind two strip mall centers, the Bentonville Post Office and Burger King — had been in the portfolio of U.S. Bank NA. It was operating at 30 percent occupancy at the time of the acquisition.

FBE Limited — which also owns the nine-story Bentonville Plaza office building and 15 surrounding acres across the street from the headquarters of Wal-Mart Stores Inc. — has re-branded its newest acquisition as Bentonville Commerce, with Grubb & Ellis  | Solomon  Partners — the leasing and marketing agent for Bentonville Plaza — leading similar efforts for Bentonville Commerce.

Also this year, a group of local investors paid $1.45 million for a vacant manufacturing/office building at 1602 E. Central Ave. in Bentonville, across the street from Washington Junior High School. Central Investments LLC bought the 60,000-SF building on 8.4 acres from global manufacturer Kennametal Inc. of Latrobe, Pa.

Oelke Construction Co. of Rogers is leading the renovation, valued at just less than $400,000 according to city records, to give the single-story building a more attractive glass and metal facade, and upgrade the interior before leasing to new tenants.

Marshall Saviers with Sage Partners in Fayetteville represented the buyer in the deal, and is the leasing agent going forward.

 

New Commerce

The Commerce Centre addition began its initial development in the late 1990s, led by investors Collins Haynes, Rick McCullough, Dan Dykema, Vic Evans and Mark Marquess. It’s a commercial development of retail and office space, near Walton Boulevard and Arkansas 102.

The eight office buildings that are now owned by Bentonville Commerce LLC — whose owners declined an interview for this story — were constructed between 1999 and 2002 as Wal-Mart vendors began to set up offices in Bentonville. Local developer Bill Lazenby previously owned and managed all eight of them, entering the picture in 2000 by purchasing an existing building, then later building more of his own.

As a result of difficulties relating to the real estate bust — and coupled with less than satisfactory property management, according to one source — the buildings passed into receivership in 2010.

“It was just day-to-day stuff,” said the source, who did not wish to be identified, about the property management issues. “And one day it finally all added up, was going to cost a bunch of money to fix, they didn’t have it, the market tanked, then they had even less money to fix it.”

Colliers International of Bentonville had the property listed after that, but didn’t lease any new tenants.

“We didn’t even try because of the work that was needed,” said Butch Gurganus, a CCIM and principal with Colliers. “We didn’t even push it. We did a property condition assessment for each building on what needed to be done and it was an inch thick. It was bigger than the marketing book.”

Mathews recently signed a new tenant to a five-year lease, and said the eight buildings are now 34 percent leased. Each of the buildings has flexible floor plans with spaces ranging from 917 SF to 18,747 SF, with an asking rate of $15.50 per SF.

The new landlord has invested about $1 million to upgrade and revitalize the image of Bentonville Commerce. They range from complete window replacements, to roof improvements, new signage and landscaping.

Mathews said the owners intend to create a “top-notch” Class B office development.

“All the issues related to the previous neglect have been remedied,” Mathews said. “And after five years of working with this particular landlord, I can assure any potential tenant that the ownership goes above and beyond for their tenants. They are extremely hands-on with their properties and pay attention to the details.”

Mathews currently has proposals out to seven different tenants for consideration.

“The biggest factor is the location, and that’s what is helping here,” Mathews said. “Then the price, and the flexibility of the build-out.”

Bentonville Commerce also has added an on-site fitness center, with full-time maintenance and management staff.

“Amenities are becoming a big deal, and that is becoming more expected as far as tenants are concerned,” Mathews said.

The new landlords also have a strong reputation in the market, Gurganus said, because of their success with Bentonville Plaza. That development, which just signed an eight-year lease with a tenant to reside in the entire ninth floor, is operating at about 96 percent occupancy.

“Of all the people who could have bought it, I’m glad they bought it,” Gurganus said of the New York investors. “They don’t knock off five bucks a foot just to get a deal done. They stick with their rates and that will be good for the market.”

 

For Lease

It is a good sign for the Bentonville office market when investors buy an empty building, rather than gauge its value by the rent generated by tenants.

The East Central building has been vacant since Kennametal ceased operations there in December 2008.

But the location was too good to pass up, Saviers said. The address is less than a mile from the downtown square, and has a similar proximity to the Walmart Technology Center on Moberly Lane.

Because of that, the building should be desirable for IT contractors who work with Walmart.

The building does not have any pre-leased tenants, but Saviers said he is negotiating with several. The lease rate is about $15 per SF, and the open floor plan should be ideal for a large office user.

“We are looking for larger tenants; we don’t want to divide it up too many directions,” said Saviers, who declined to name the ownership group. “We’ve had a good bit of activity on the building.”

Saviers said he is targeting potential tenants moving in by next spring.

 

More Activity

The Bentonville Commerce and Kennametal deals, both consistently described as good for the market, could be the beginning of a trend in Bentonville’s office market uptick.

“I think there is potential for a trend, maybe,” said Jordan Ligon, regional director for the commercial real estate information firm Xceligent Inc. “You certainly will always have enough work force population there with the [Wal-Mart] headquarters being there.”

Other examples of new office space in the pipeline include a new Midtown Center on the northwest corner of the downtown square.

A 31,000-SF Walmart Neighborhood Market will anchor the three-story retail development, but it will also include an office space element, with offices on the second and third floors.

Wal-Mart Stores Inc. and the city of Bentonville made the announcement last month. Construction is slated to begin in June.

Another addition to the Bentonville office market could be coming at the former location of National Home Centers Inc., a privately held, Springdale-based chain of home building supply stores that filed for bankruptcy in 2009. The vacant property at 1705 S. Walton Blvd. is now under contract, with contingencies.

The buyer, according to a source, is an end-user who intends to redesign the retail/warehouse facility for office space as the primary tenant, with additional space available to lease to other tenants.

A different source indicated it’s a local engineering company.

The property, listed with Bill McClard, a CCIM with Lindsey & Associates in Rogers, has an asking price of $5.2 million — reduced from $6.7 million. It consists of eight buildings and about 130,000 SF.

The development appraised in 2011 for $5.9 million. It’s owned by NHC founder Dwain Newman, through his The Newman Family LLC, and currently has one tenant, operating through a lease agreement.

New Life Christian Center renovated one of the buildings earlier this year, and holds services there twice on Sundays and Wednesdays.

“Across the board, economic factors are making for some attractive buys,” Ligon said. “And Bentonville is a unique market that is having a lot of interest right now.”

 

 

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