California's Blue Real Estate establishes local presence

November 17, 2008
A California firm that made a bundle selling West Coast office buildings at the market's peak has been buying up local buildings and trying to learn the Indianapolis market.

The privately held firm, Blue Real Estate, now owns the Century Building downtown, along with office and distribution buildings in Park 100 on the northwest side, Park Fletcher on the southwest side, and Castle Creek on the northeast side. All told, Blue controls more than 1.6 million square feet worth more than $120 million in the Indianapolis area and hopes to add more when credit markets thaw.

But as the firm has added properties, it also has struggled to put down roots, jumping between brokers as it tries to set expectations for properties in a market more than 2,000 miles from its headquarters in Glendale, Calif.

The company now plans to hire its own local management and operations team — five full-time employees, replacing the local office of CB Richard Ellis. The new management team is scheduled to take over Dec. 1.

Between late 2006 and 2007, Blue sold 13 office buildings in Los Angeles and a complex of buildings in Fresno — many of which the family-controlled company had owned since the 1970s. The sales were brilliantly timed, just as sale prices shot to logic-defying heights.

Indianapolis, by comparison, looked more stable and predictable. The company began buying properties here and in St. Louis in 2006. Prices per square foot paled in comparison.

"You don't get the huge spikes, the huge troughs," Ted Ries, the president of Blue, said of the Indianapolis market. "That type of consistency is important for us. You also don't have tremendous reliance on any single company or any single industry that you see in some other markets."

Blue closed on its first Indianapolis properties, a four-building portfolio at Castle Creek (Progressive Insurance is a major tenant), in October 2006. The firm now owns 17 buildings in Park Fletcher (where Rolls Royce is a major tenant) and seven more at Park 100. Its crown jewel is the Century Building downtown that has the headquarters of The Steak n Shake Co. as its largest tenant.

The company's introduction to Indianapolis came when it made an unsuccessful bid for the Gold Building. The principals just had "a good feeling," said Ries, 38, who runs the firm with his father, Jim, the chairman.

The company controls a total of 2.5 million square feet of space, buying and managing properties for about 60 investors.

Top brokers in Indianapolis say the firm has been disheartened here by stagnant rent rates and slow leasing. Firm officials have developed a reputation for being hard to reach and indecisive about potential deals and building improvements.

"They're just very California," one broker said. "It's just not the same business mentality. You can't get much done if you don't follow through. Eventually, you're going to get the reputation that you don't follow through."

Ries takes issue with that characterization but acknowledges that learning the market has been more work than the firm anticipated.

"There's been a learning curve, without question," he said. "We believe it takes a year or two to get to know an asset."

Blue intends to hold the properties for the long term and has been investing to improve them. It spent more than $1 million on improvements at Castle Creek and is planning a $250,000 renovation of the Century Building lobby after updating its HVAC systems.

The firm has some great local properties, but managing them from an out-of-town headquarters won't be easy in such a relationship-focused town, said Todd Maurer, president of locally based Halakar Properties, which is working on a deal with Blue.

That's part of the reason Blue plans to hire a local team.
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