Microsoft co-founder Paul Allen has snapped up an 8-story office building in Tempe, creating a buzz over what his real estate company will do with a vacant downtown building.
Allen's Vulcan Real Estate is a well-funded enterprise that's undertaking one of the nation's largest redevelopment projects in its hometown of Seattle, where it owns 60 acres in the South Lake Union neighborhood.
Those who are following Vulcan's entrance to Arizona say they expect the company will have a strong presence in the community and attract noteworthy office users and shops.
Vulcan is unlikely to flip the Tempe Gateway building for a quick profit, said Phillip Breidenbach, a Colliers International commercial real estate broker who specializes in offices.
"They don't do that kind of thing," he said. "They look at what's best for the community, for the area. They're what we refer to as legacy buyers."
Vulcan paid $35 million for the building at Mill Avenue and Third Street. Breidenbach estimated construction costs were $45 million to $50 million.
Tempe Gateway was built by Opus West, widely considered one of the state's top developers. The company dissolved in a Chapter 7 bankruptcy just as work was wrapping up on the building last summer.
Not a single tenant moved into the building's 260,000 square feet.
The empty building sits at a light-rail station and gives visitors the wrong impression that nobody wants to open a business on Mill, said Nancy Hormann, executive director of the Downtown Tempe Community. Businesses were interested but couldn't lease in Tempe Gateway because it was in limbo while being auctioned off, she said.
The sale is a sign Tempe's economy is picking up and that Allen's company liked the light-rail access and the building's environmental features.
"He came here because we are a destination for the creative class," Hormann said. "We are a very unique urban community and that company itself looks not just to buy buildings, but to be part of the community and that's important for us."
The purchase is Vulcan's first foray out of Washington and the start of building Arizona investments, said Ada Healey, the company's vice president of real estate. Vulcan is in talks with potential tenants but hasn't signed leases yet, she said.
"We are starting to see some signs of recovery in the Tempe submarket and I would say we are cautiously optimistic about the future prospects," Healey said.
The Valley's office vacancy rate is pegged at 26 percent, one of the highest in the nation.
Breidenbach figures it could take two years to lease most of the building based on the average 20-month span to get tenants in vacant space. He said the market is starting to recover but the strength of it is still questionable.
"For us to say we're in a full recovery mode, we need to get people in these buildings," he said.
Mayor Hugh Hallman sees Vulcan's purchase as a sign Tempe is at the front of a recovery, and he believes its reputation will trigger greater confidence in the city.
"Paul Allen is one of the brightest people on the planet and has a vision and mission for his investment portfolio that is not just about maximizing investment, but also about making communities that are poised to thrive in a sustainable way," Hallman said.
Vulcan has more than $2 billion in assets and touts environmentally sustainable features in its developments.
Vulcan will likely be a key player in the industry and the community, Breidenbach said. Many developers that were known for quality projects or community involvement have left the state, scaled back or closed during the recession, he said. Vulcan is the kind of developer that has potential to fill some of that void.
"We're lucky to have them here," he said. "I hope they continue to buy stuff."