FEATURE ARTICLE, MAY 2008

BOURN TO CREATE REAL ESTATE VALUE
Bourn Partners’ team identity helps it excel in commercial development in the Southwest.
Brian A. Lee

Houghton Town Center, Bourn Partners’ 700,000-square-foot community center project in southeast Tucson, Arizona, will greatly benefit from the Arizona State Land Department’s recent release of 12,000 acres for development.

When Don Bourn started Bourn Partners in 1990, he carried over many of the successful real estate business concepts from his standout career at Trammell Crow Company. Ownership, team orientation and value creation were chief among them.

“I think a large part of that was because of the structure they had in place where people would become partners within the projects and partners within the business units of the company,” says Bourn. “I think that’s served us very well. We’ve been able to recruit the very best people within our market in the various disciplines. Those people are partners in the projects that we carry out.”

The Tucson, Arizona-based diversified real estate development, brokerage and property management firm focuses on key retail, office, condominium and hotel property sectors in Arizona, California, Texas and Colorado.

Bourn knows it would be a disservice to the talented individuals making up his team as well as the bottom line of the 70-person company to try to play it safe and operate within a rigid set of development parameters.

“We’ve tried to be entrepreneurial and reactive to the market conditions,” the CEO says of his company’s versatile approach.

In Georgetown, Texas, north of the Austin metro area, Bourn Partners is developing Longhorn Junction, an 800,000-square-foot lifestyle project on 345 acres.

The “bread-and-butter” operation for Bourn Partners’ Retail Development Group is developing well-located shopping centers that appeal to the group of anchor tenants with which the company has cultivated strong business relationships, but the firm has the wherewithal and agility to negotiate changing market conditions and take on redevelopment or distressed projects.

“With the experience level of the senior people in our organization, we feel like we have a pretty broad net with which to find projects,” says Bourn.

“The company has been very, very successful in taking advantage of opportunities as they existed,” says Executive Vice President Alan Smith. “If you want to be successful, you can’t be limited. You have to broaden your horizons. We will look to have a pipeline of 1.5 million to 2 million square feet in development in any one particular time over a period of the next 5 to 7 years.”

Target Markets

Tucson is Bourn Partners’ home and its hub, but the company is quite busy outside of Southern Arizona.

From left: Don Bourn, chief executive officer; Alan E. Smith, executive vice president; Toufic Abi-Aad, chief investment officer; and Alan Tanner (back turned), founding partner & development principal, meet with WREB Publisher Jerry France in Tucson.

“We’re looking at other markets in the Southwest, from Austin, Texas, west and Salt Lake City south,” says Mike Treadwell, who brings retail development expertise and a national knowledge of big box tenant relationships to the company from his former position at Westcor, Macerich’s Phoenix-based development arm.

 The company has two large projects in Austin, where it has a satellite office. Also, Bourn Partners just opened an office in Phoenix, where Treadwell is based. The new executive vice president says that the company will focus its efforts in the Valley of the Sun on well-located redevelopments, possibly with re-tenanting needs, in urban submarkets and good long-term, ground-up development opportunities in the suburban areas.

“Traditionally, we’ve been able to keep busy just by focusing on Tucson but we’re trying to realize our full potential,” says Bourn.

The firm’s jump to Austin was very opportunity-driven, the CEO says of the Texas growth market anchored by both the government and university sectors.

“We took a look at the market and really liked it,” Bourn says. “It had a lot of similarities to Tucson so we felt comfortable in a market of that size. It was really the land deals [that took us there].” 

Retail Product & Portfolio

Bourn estimates that the firm has developed approximately 2 million square feet of retail development in the past 6 to 7 years, but says that about 3 million square feet are in the pipeline currently, primarily in Tucson and Austin.

“We’ve made a major commitment to retail,” says Bourn. “I’d say that retail is clearly the largest part of our portfolio going forward. All this talent — including Mike, Paul Schloss and Alan Tanner — they’ve consistently been the top retail people in Southern Arizona for years. We have a very strong team and the opportunity to expand now.”

When asked about the particular retail project types the company focuses on, Smith more than hinted at the firm’s flexibility: “All of the above and any part thereof.”

Bourn Partners’ Tucson work has ranged from the redevelopment of the Foothills Mall, which is a 500,000-square-foot enclosed project, to smaller retail projects. For example, the firm is currently redeveloping a 70,000-square-foot former grocery-anchored center.

“In Tucson, which isn’t a huge market, we’ve had to be a little more flexible in doing different types of projects,” says Bourn. “If we’d started with a different business model to begin with and were going to do these types of projects over a wider geographic area then we’d probably be more specific in the project type.”

The company is developing a 700,000-square-foot community center in southeast Tucson called Houghton Town Center. The approximately 85-acre center will be anchored by The Home Depot. “We’re working with several other anchor tenants,” says Tanner, a founding partner and retail development principal at the firm. “We anticipate bringing that project out of the ground in 2010 for an opening.”

Tanner points out that the power center’s prime position goes well beyond its proximity to Interstate 10. In January, the Arizona State Land Department granted permit for 12,000 acres in southeast Tucson to Westcor. The resulting master-planned project will reportedly be able to accommodate 250,000 people.

“Houghton Town Center is actually one leg of that 12,000 acres,” says Tanner. “We’ll be substantially ahead of the curve because that 12,000-acre project is a 40-year plan.”

Bourn Partners is finishing two smaller community centers in Tucson, both along the Strong-Oracle retail corridor. One is the 286,000-square-foot Oracle Wetmore Shopping Center, located on 27 acres directly across Oracle Road from Tucson Mall.

“We’re just finalizing now the third phase of that project, which is 6.5 acres or about 75,000 square feet,” says Tanner. “We’re happy to announce that we’ve signed a very exciting tenant, a new kind of anchor called Total Wine & More. It’s their only location in Tucson. That should be coming on line later this year.”

Bourn Partners is completing final build-out on the other community center located about 5 miles north on Oracle Road. The 253,600-square-foot Oracle Crossing Shopping Center will be anchored by Kohl’s and Sprouts Farmers Market. Adjacent to Oracle Crossing, the company repositioned a 15-acre, 106,000-square-foot center, re-anchored it with a Wal-Mart Neighborhood Market and redeveloped its satellite space.

“Today, Arizona has more grocery supermarket chains, including the addition of some of the smaller farmer’s markets — Sprouts and Sunflower,” says Smith. “There seems to be plenty of grocery distribution, and there seems to also be plenty of growth opportunities. And it’s all at the same time that we’ve seen Wal-Mart become the largest player in that category.”

In Georgetown, Texas, just north of Round Rock and the Austin metro area, Bourn Partners is developing Longhorn Junction, an 800,000-square-foot lifestyle project on 345 acres. Leasing, including the anchor tenant signings, is currently underway for that project.

On the investment side, Bourn Partners sold a 780,000-square-foot, six-center retail portfolio to Weingarten Realty Investors last year. The properties, five of which are located in Tucson, including Oracle Crossing and Oracle Wetmore, were collectively 88.2 percent leased.

Beyond Retail

Given Bourn Partners’ versatility, it should come as no surprise that the City of Tucson selected it as co-master developer with Dev-Con International for the mixed-use revitalization of the Pacific Center block downtown. Plans for the extensive project include an expansion of the convention center, a 700-room convention center hotel and a new arena.

“It’s a very significant project,” says Bourn. “Our background of doing multiple types of uses certainly helps us with this important development effort.”

The 5151 E. Broadway project involves the redevelopment of a portion of a high-rise office tower that helps define Tucson’s skyline in the heart of its financial district. The project includes repositioning existing street-level office/retail into approximately 35,000 square feet of contiguous restaurant space.

“We’re doing quite a bit of office, either development or acquisitions,” says Bourn. “We just reacquired four buildings, totaling about 200,000 square feet, that we developed 6 or 7 years ago.”

Bourn Partners targets office properties or opportunities that it feels are attractive to larger regional or national tenants. The firm started its office development business by doing build-to-suits for AOL. Since then, the firm has done buildings for FedEx, KB Home, University of Phoenix and other large tenants.

The company’s office portfolio is approximately 2 million square feet strong. In a relatively thin Tucson office market, Bourn Partners has owned many a quality office parcel and developed state-of-the-art buildings. The firm is starting to look at other markets as well.

Bourn Partners also has condominium and hotel projects under way in all four states that it operates in. The firm looks at sectors with still strong demand and avoids building very large projects so as to limit its exposure in a slow residential market. The Post, the firm’s chic 6-story, 52-unit loft development in Tucson with ground-floor shops and restaurants, was already half pre-sold as of late March.

“Tucson is an example of a market where there hasn’t been any new condos built [except for] maybe a couple, relatively small projects,” says Bourn. “Our particular project here is a pretty high-profile loft project, a big project for the revitalization of downtown Tucson. We’ve benefited from that.”

Bourn Partners’ other condo developments are located in resort markets — relatively small projects with a couple of boutique hotel components. Lumiere, which combines boutique hotel and ski lodge offerings in Telluride, Colorado, has 14 of its 19 condo units already pre-sold.

“We brought a number of components together that we think are important to be successful in that resort segment and realizing that it’s a contrarian type of investment today,” says Bourn.

Financials

To finance developments, Bourn Partners typically teams with outside partners on its various projects. Historically, that’s been with high net worth individuals. As his company’s financial needs expand though, Bourn still places importance on selectivity, valuing greatly the established partnerships.

“As we move more into an institutional business model, we’d like to work with a limited number of institutional investors that we have ongoing relationships with,” he says. “We just find that having ongoing business relationships makes everyone’s lives a lot easier. It takes a lot of time and effort to start a new relationship, document it and do all the work that goes into that.”

Says Toufic Abi-Aad, Bourn Partners’ chief investment officer, “We’ve been able to expand our capital markets footprint, getting to know a lot of the major institutionals on the equity side. On the debt side we’ve also expanded our footprint well beyond the local bank to more of the top life companies, conduit groups and structured finance groups. When looking at institutional partners, we’re trying to find joint-venture and capital partners that can sustain each segment of our business.” 

Given the state of capital markets currently and the real estate market in general, Schloss, one of the founding partners of the firm, thinks the next 6 months or so could yield opportunities to joint venture with one-off developers or even buy them out if the situation is right.

“This is the time in the cycle where those kinds of opportunities, requirements and dialogues can occur,” says the development principal. “That’s something we’ll contemplate.”

According to Smith, the markets in Tucson and, to some extent, Phoenix have been very strong and somewhat insulated up until just recently. They’re becoming less insulated even though Tucson is still a little under-built and under-retailed.

“Those opportunities may not be immediately present now but as we are better capitalized and as we go forward in the marketplace that may well bring an opportunity in our backyard,” says Smith. “We’re branching out, we’re moving further a field from our core area and essentially those kinds of opportunities will be there.”

Says Abi-Aad, “At the end of the day on the capital side of the business, we look at each opportunity as how to do we create the value for our partners and for us individually in the organization.”  

Combined Vision

In 2005, the Bourn team had the real estate vision — “6 to 9 months ahead of time,” says Schloss — to target an emerging market along the I-10 corridor between Phoenix and Tucson in the town of Marana. There at the Tangerine Road interchange was the confluence of three critical development conditions — available land, access and population.

“That area was going to be a major part of our transporting infrastructure and a major hub for all of northwest Tucson, particularly given it was cotton fields ready for development into housing and located on that interstate corridor with access to the employment market and in many cases closer to Phoenix’s SkyHarbor Airport than the northern reaches of the valley,” Schloss says. “We had the vision to say if we plant ourselves here, we think we’re in the middle of a major growth area.”

By the time the firm closed in January 2006, Bourn Partners’ strategic move was validated because Westcor had acquired 290 acres at the same interchange but on the other side of the interstate. The company is now working with the town of Marana and surrounding property owners to upgrade the interchange in preparation for a project that will deliver on the 167 acres in 4 to 6 years.

This kind of foresight is cultivated when a commercial real estate company develops a positive team dynamic and allows its team members to have a stake in the mission.

“More often than not, people get pigeon-holed into what they do — you’re in project management or leasing or development or property management,” says Smith. “Here it’s a team-effort concept. Team is basically charged with making it work so everybody’s got that vested interest.”

Schloss adds, “It’s alignment, getting your capital aligned with you and everybody working on the business model and business plan. When your team is working on the project on a day-to-day basis and everybody has a sense of ownership in the outcomes, they put their life and blood into it.”

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.