City Office REIT buys Dallas, Phoenix office towers for $283M

IMAGE: The Block 23 office and retail office tower in Phoenix. (Google Maps)

The Block 23 office and retail office tower in Phoenix. (Google Maps)

Vancouver’s City Office REIT has acquired two premier U.S. office properties in the past two weeks as it recycles over a half-billion dollars in capital from the sale of a California life science portfolio.

The trust announced the acquisition of The Terraces in Dallas for $133.5 million (all figures US) just days after buying the newly constructed Block 23 complex in Phoenix for $150 million.

In Dallas, the 173,000-square-foot LEED Gold property was completed in 2017 and is situated in the city’s affluent Preston Center submarket. It contains a full suite of amenities including state-of-the-art fitness centre, rooftop deck, barista, deli and conference facility. The Terraces features a tiered design, allowing for multiple outdoor terraces for tenant use.

The building is 99 per cent leased to what City Office calls a “diverse tenant base” with a weighted average lease term remaining of about eight years.

“Expanding in Dallas’ strongest and highest-barrier-to-entry markets has been a priority,” said James Farrar, City Office’s chief executive officer, in the announcement. “The acquisition of The Terraces in Preston Center aligns with our focus on acquiring superior properties with long-term cash flow in the most desirable submarkets.  The amenity package, high-end tenant suites and prime location make The Terraces one of Dallas’ top office properties.”

The Block 23 acquisition

The Block 23 building in Phoenix is part of a mixed-use redevelopment at the well-known downtown property and City Office (CIO-N) says it is currently 94 per cent leased with an average remaining term of 12 years. Approximately 70 per cent of the tenancy is investment grade.

“Block 23 is a perfect fit to reinvest a portion of the proceeds from our recent Sorrento Mesa sale,” said Farrar, in a separate announcement. “It is situated in a top location within our footprint of growing markets in the South and West. The vibrant location, new construction and full suite of on-site amenities has attracted an incredible base of growing tenants.”

The 307,000-square-foot mid-rise building features floorplates averaging about 45,000 square feet.

It’s located in a popular live-work-play district in downtown Phoenix, immediately adjacent to dining, entertainment and transportation options. Construction was completed in 2019 with “best-in-class finishes, modern tenant suite build-outs and floor-to-ceiling windows on every floor.”

Block 23 possesses what City Office calls 15,000 square feet of “unmatched tenant amenity offerings,” including an expansive outdoor rooftop deck with green landscaping and three high-end food and grocery options.

The building features 80,700 square feet of ground-floor retail as well as on-site underground parking. It has a Walk Score of 94 and is adjacent to the new Downtown Hub light rail platform. The light rail system is to be delivered in 2024.

The REIT says the forecasted year one cash NOI cap rate is 5.3 per cent, with a year three cash NOI cap rate forecast at 5.9 per cent.

Sale of the Santa Mesa portfolio

The acquisition is part of an ongoing adjustment of City Office REIT’s portfolio.

The $576-million sale of the Sorrento Mesa life science portfolio near San Diego left the REIT with $548 million in proceeds. The portfolio had been sold unencumbered by debt and City Office said at the time it was in negotiations to acquire properties in three markets.

“We are positioned to redeploy these funds into premier office properties across some of the best markets in the country,” Farrar said following the close of that sale on Dec. 2.

In addition to the Phoenix and Dallas buildings, Farrar said the REIT was in negotiations to also acquire an office property in Raleigh.

“This is an exciting, transformational transaction for the company. The sale and redeployment positions us to complement and elevate the quality of our office portfolio through acquisitions across some of the highest employment and population growth cities in the South and West.”

About City Office REIT

City Office REIT is an internally managed real estate company focused on acquiring, owning and operating high-quality office properties located in leading 18-hour cities in the Southern and Western U.S. It currently owns or has a controlling interest in 5.5 million square feet of office properties.

The company is taxed as a real estate investment trust for U.S. federal income tax purposes.

EDITOR’S NOTE: This story was updated after publishing to incorporate the follow-on acquisition of The Terraces in Dallas.



Don is a veteran editor and journalist with four decades of experience in print and online news, including 20 years at the Ottawa Sun. Prior to joining RENX, Don was…

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Don is a veteran editor and journalist with four decades of experience in print and online news, including 20 years at the Ottawa Sun. Prior to joining RENX, Don was…

Read more



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