Tolles Development Co., sold 201 W. Liberty St. and 241 Ridge St. recently.
Two recent office property sales in Reno’s financial hilltop district further demonstrate the continued strength of Northern Nevada’s economy.
The struggles of office landlords in large metro regions following the COVID-19 pandemic and work-from-home movement are well documented. In Austin, office vacancy is just under 23 percent. In Denver, it’s 22 percent. In Dallas it’s 21 percent.
In Reno’s downtown submarket, which comprises more than 1.4 million square feet, vacancy was a hair under 11 percent in the second quarter. However, vacancy at both 201 W. Liberty St. and 241 Ridge St. was around 2 percent, said Chase Houston, senior vice president with Logic Commercial Real Estate. The Logic team of Houston, Michael Keating and Mike Dorn represented the seller — Tolles Development Co. — and two unrelated and repeat buyers in the off-market transactions.
“Reno’s office market, and Reno as a whole, is somewhat insulated,” Houston said. “Our office market has been healthy all through COVID. I represented these buildings, and we continued to push rents throughout COVID with zero defaults from the many tenants.”
Tolles Development Co., which has offices on the top floor of 241 Ridge, acquired the assets when it purchased the six-property commercial portfolio of AMH Properties in 2017 following the sudden death of AMH founder Marion Tavenner Hose in 2016. The portfolio comprised 140,000 square feet and included the aforementioned buildings, as well as 275 Hill St. and properties on Cordone Avenue and Washington Street.
The San Francisco-based buyer of the four-story, 34,407-square-foot building at 241 Ridge also purchased 275 Hill in an earlier transaction, Houston said. The two properties have adjacent parking lots and work well together, he added.
“It was almost a control play,” Houston said. “The buildings almost butt up to each other, so the owner can control the parking and tenant flow between the two buildings. The building at 275 Hill has a lot of smaller suites, while 241 Ridge is a bit bigger (building), so as tenants start to grow, we can flip them into the larger building.”
The recent transaction marks the investor’s fourth purchase in the Reno market, Houston added.
The 33,208-square-foot, three-story building at 201 W. Liberty was nearly full as well, with just a 2,074-square-foot space available. The acquisition was the replacement asset to complete a 1031 exchange.
The buyer of that property also purchased the building at 1301 Cordone Avenue, said Kyle Rea, chief operating officer of Tolles Development Co.
Divestiture was always the plan when TDC acquired the properties, Rea noted. Tolles Development Co., was founded in 2016, and the acquisition of the AMH portfolio was one of its first big plays in Northern Nevada.
“Our plan from the beginning was always to evaluate this position opportunistically – it was just a matter of timing,” Rea told NNBW. “Office as a broad category in real estate has not been so favored post-COVID and particularly after interest rates went up. But we have done a lot of work since we acquired the portfolio on shoring up rent rolls and fine-tuning our plan on these assets.
“The portfolio provided a good return for our investors and gives us an opportunity to recycle the capital for the next opportunity,” he added.
The office buildings, especially 201 W. Liberty, needed some investment on the tenant improvement and capex side, Rea noted, and once those investments were complete, they increased both building’s appeal
“As a value-add developer, we decided that we had made our mark on these properties,” Rea said. “We put some high-quality tenants into high-quality spaces.
“Reno and Northern Nevada are still hugely attractive for capital,” he added. “Both of these buyers are California-based families who are looking to invest in Northern Nevada because the returns are strong here and there’s an upward trajectory that’s hard to find outside of Northern Nevada, especially compared to the Bay Area and California in general.”
One of the main attractions of both office buildings, Rea said, is that they both have walk-up parking, a rarity for office space in the downtown core. The building at 201 W. Liberty also includes a large parking lot to the west, Houston said.
“It’s a great property, because not only do you get the building but you get a big lot right next to it,” Houston said. “It has development potential, but right now it serves as a parking lot.”