Demand, OREO Sales Power Commercial Market Gains in Rogers

Resurging demand coupled with the paring of an Illinois lender’s OREO portfolio are helping push commercial activity in the heart of Benton County’s fabled Billion-Dollar Mile.

The near completion of the 60,000-SF Pinnacle Heights I office building developed by Hunt Ventures is an obvious sign of better days in the Rogers market.

Johnelle Hunt’s group also has a nine-story, 211,000-SF office tower on the drawing board. Construction of the grand project could start as early as June 2014 if tenant interest builds as anticipated.

Starting with “30 to 50 percent [preleased] would be right in our wheelhouse,” said John George, executive vice president of Hunt Ventures LLC. “We’re kind of working with that right now.

“When you get a building that tall in an area that doesn’t have that many tall buildings, you want to do something special.”

Construction of the two-story Pinnacle Heights I project at 5708 Northgate Road weighs in at $5.6 million.

It’s considered to be the largest market-rent office project to come on line since the northwest Arkansas real estate bubble burst in 2008.

“It’s user-driven,” said Ramsay Ball, commercial real estate broker with the Bentonville office of Colliers International. “The market is much more rational. A lot of space has been absorbed, and there’s some big tenants out there looking for some substantial space.”

Pinnacle Heights I is 85 percent leased with a mix of tenants needing more space and new names coming to the market, according to George.

He declines to identify who’s on the rent roll. But it’s no secret that Kimberly-Clark Corp. is leasing the entire first floor, a deal that allowed construction to start last year with 50 percent of the space preleased.

“Right now, we’re experiencing some folks looking for larger footprints, and with 750,000 SF to offer in Pinnacle Hills, we’re close to 91 percent leased,” George said.

Though less visible than the Pinnacle Heights project, the nearby sale of “other real estate owned” by PrivateBank Trust of Chicago is also putting dormant property in play along the Interstate 540 corridor.

PrivateBank got shed of 39 acres of undeveloped commercial property in Rogers in recent transactions totaling $6 million.

Chad Hatfield purchased 28.4 acres at the northwest corner of Champions Drive and Northgate Road for $3.4 million. Hatfield, a local boy turned Wal-Mart vendor, accomplished the acquisition through Hatfield Whalen Land LLC.

A Little Rock investment group led by Stephen LaFrance Jr. and his brother Jason bought 10.6 acres at the southeast corner of Champions Drive and Pauline Whitaker Parkway for $2.6 million.

The change of ownership has drawn talk of office development on both properties, but the investors haven’t announced their intentions yet.

In January, PrivateBank started its Rogers OREO liquidation with a $1.3 million sale to the world’s largest retailing chain. The 3.1 acre property was transformed into a fueling operation for the adjoining Wal-Mart Neighborhood Market.

All of this land was part of the April 2011 bankruptcy of Pinnacle Hills West LLC, led by Bill Schwyhart and Robert Thornton.

Before rolling onto PrivateBank’s balance sheet two years ago, the three parcels were linked with more than $19.7 million in Pinnacle Hills West debt.

The combined sales of the Schwyhart-Thornton land represent an OREO write-down from $14.35 per SF to $5.32 for PrivateBank.

More market-driven write-downs are waiting in the wings.

The commercial OREO sell-off in Benton County was jump-started in March 2012 with a series of transactions by affiliates of Bank of America. Commercial developer Joe Whisenhunt bought 375 acres of improved, undeveloped land along the I-540 corridor for $19 million cash.

The property was associated with bad loans totaling $80 million to three northwest Arkansas development groups led by Schwyhart, Charles Reaves and Gary Brandon.

“As we continue to see the OREO property removed, we’re seeing more activity,” said Johnny Kincaid, chief operating officer at Little Rock’s Whisenhunt Investments.

The company is working on two developments in Rogers among its Benton County holdings. One is a small office project on 10 acres at the southwest corner of Champions Drive and Northgate Road, just west of Hunt Ventures’ Pinnacle Hills development. The plan is to sell property to owner-occupants.

“Miss Hunt is tough to compete against, but there’s still a demand for small office lots,” Kincaid said.

The second project Whisenhunt Investments has in motion is 20,000 SF of retail space near the Pleasant Grove exit on I-540. The site is in front of the Wal-Mart Supercenter at the Pleasant Crossing development.

“We’re close to getting about 75 percent preleased,” Kincaid said. “We’re shopping pricing packages with contractors.”

Both the retail and office sectors in the Benton County market are seeing positive trends.

“Everything is getting pretty tight, especially considering where we were a few years ago,” said Jordon Ligon, regional director of Xceligent Inc. of Independence, Mo., which tracks commercial real estate data.

The average occupancy rate of Class A office space in the Benton County market is about 86 percent. Xceligent tracks about 2.3 million SF of top-tier office space in the county.

On the Benton County retail scene, the overall occupancy rate is about 93.3 percent. Xceligent keeps tabs on nearly 6.5 million SF of space in this sector.

Even as the market improves, it will be years before all the improved but vacant commercial land in the Rogers area is developed.

“It’s going to take awhile to absorb,” Kincaid said. “We just have to stay the course.”

Arvest OREO Total Drops From $91.6 Million Peak

Arvest Bank, the largest lender in the Benton County market, continues to work through its portfolio of real estate recovered through foreclosure.

The $14.1 billion-asset bank’s OREO total throughout its four-state territory reached a peak of $91.6 million last year after climbing from $28.8 million in 2008.

“What we have on our books is down and continues to go down,” said Greg Stanfill, executive vice president at Arvest Bank. “That number is heading in the right direction, it’s not at pre-recession levels, but it’s headed in that direction.”

The lender’s largest piece of local commercial OREO appears to be nearly 30.5 acres in Rogers recovered from developer Charles Reaves in September 2010. The land was earmarked to become a power center at his Pleasant Crossing project.

The Arvest acreage, sliced into four pieces for now (see slideshow above), surrounds the only retail parcel that was developed. The nearly 4.5-acre site was originally a Sportsman’s Warehouse and is now home to an Ashley Furniture outlet.

The bank has marked the improved property for sale in a package deal of $4.9 million ($3.69 per SF).

Arvest Bank        
(Dollars in millions)        
  2013* 2012 2011 2010
Other Real Estate Owned 79.10 91.60 75.60 86.00
Gain/loss from OREO sale -5.00 -16.20 1.10 1.50
         
*As of June 30.      

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