Head of the class

ASU a national leader when it comes to innovation

Arizona State University is at the forefront of innovation both locally and nationally. It was named the No. 1 innovation university in the U.S. for the sixth straight year.

With such honors, it’s no wonder that ASU President Michael Crow points sees such a bright future for the state.

“We all saw Arizona as the kind of place to build a new university,” he said, addressing an online audience at Valley Partnership’s November virtual Friday Morning Breakfast. “It had momentum, scale and drive. We saw the opportunity for the private and public sectors to come together for the first true 21^st century university. We have achieved that.”

With Arizona Regent Karrin Taylor Robson moderating the event, Crow also talked about the numerous development projects ASU has in the pipeline – and what is yet to come.

“Our industry is very much dependent on the quality of the workforce produced by our higher education system,” Taylor Robson said. “It’s important to know what is going on at the university. They are producing our workforce and keeping our industry humming.”

Some impressive numbers:

>> ASU has 10.5 million SF of projects in the pipeline, spread out among its six campuses across the Valley.

>> The downtown campus is now home to 15,000 students in 2 MSF on 40+ acres.

>> The school has added 10 new degree programs at its Los Angeles campus.

>> Enrollment is up 7 percent at the main campus; all schools up by 4 percent.

Crow also shared the numerous developments including projects at ASU at Mesa City Center, ISTB 7 on the Tempe campus, Wexford, the Health Future Center at Mayo Clinic, City Center dorm and the Thunderbird School of Global Management in downtown Phoenix and a 5,000 SF multi-use arena also on the Tempe campus.

“All of these projects are attracting new tenants, even during COVID-19,” Crow said proudly. “Arizona still has the greatest potential to build and grow its economy.”

Crow also addressed ASU since COVID-19.“In December we knew it would jump the ocean and hit our shores,” he said. “We had our first COVID case in January. By March we were ready to engage technologically and expand our ability to teach.“This summer we deployed a PCR saliva test; we were able to create and expand testing. We faced the notion of being closed or not closed. Not for one second did we think we would close. Since COVID we are fully operational. The vaccine will be just one tool. We will always be operational, always be advancing and always be adapting.”

But while business as normal has come to a screeching halt in some sectors, the development community continues to hum along. Raising the question: how will the Valley’s continued growth impact Arizona’s state water planning?

Valley Partnership’s virtual August Friday Morning Breakfast brought together three leaders in the state’s water discussions to map out how potential agreements will affect the development industry and what must be done to properly manage and deliver clean, reliable water to Arizonans now and well into the future.

Everything from climate change to Colorado River water supplies to West Valley infrastructure projects were on the table as Valley Partnership President and CEO Cheryl Lombard served as moderator.

And while present-day issues were discussed, it was issues and challenges 5 years down the road that drew the most discussion.

Joe Gysel, President of EPCOR USA, the largest private water company in Arizona, said growth strong in the West Valley is creating a need for new infrastructure.

“The challenge is with the goods,” Gysel said. “The timeliness of loads coming on; it’s hard to do when don’t have advance notice. We don’t have that planning time. It’s tough to make it efficient.”

Gysel said EPCOR has completed two projects to keep up with the unprecedented growth in the West Valley: a $95 million water reclamation and wastewater treatment facility near Luke Air Force Base and a $29.4 million expansion (20 million gallons a day to 33 million gallons a day) of the White Tank Regional Water Treatment Plant in Surprise.

Tom Buschatzke, Director of the Arizona Department of Water Resources said the need for reserve capacity is what he sees as the biggest challenge in the next 5 years.

“Climate change affects how we conserve water,” he said. “And we need to conserve water. There is no low-hanging fruit. We also will need to continue to advance our ability to use reclaimed water. Back in the day it was something to get rid of. Now it’s not so simple. We need to be a big player in that debate. The big picture – we need to look under the cushions and turn it something we need for our future.”

Ted Cooke, General Manager with the Central Arizona Project (CAP), identified three areas in which he predicts challenges over the next 5 years: supply, demand and infrastructure.

“The focus on demand will be quite a bit through conservation,” Cooke said. “The importance is the topic of credit transfers, not a new supply. We are also looking at other things such as reclaimed water and desalination. In respect to infrastructure, a challenge is there as well. Having a one-way interconnect in regards to runoff silt will give us more flexibility. In times of shortage, we need to support other things we’re not doing yet.”

Cooke opened the discussion with an update on the seven-state Drought Contingency Plan. Both he and Buschatzke agreed the state’s Colorado River water supply will remain stable for the foreseeable future. The trio also discussed the role the Native American tribes in Arizona play and water wheeling, the ability for CAP to use its canals to move non-CAP water.

Also on their minds was the issue of climate change. Arizona is already on record to have its hottest summer – a dubious record not lost on the panelists. “We are living though a summer of extreme heat,” Gysel said. “That drives a lot of consumption. Our focus has to be even more on conservation.”

“Climate change is a daily issue we have to face,” Cooke added. “It goes beyond the most obvious. It affects the utilities. Supply. It also affects the power market for moving that water. The hotter the days, the more demand for air conditioning and electricity. Climate change also affects the workforce and equipment.”

Trends, tools for Valley’s growth

Panel of economic development experts look to the future

With plenty of sunshine, new residents pouring into the state every day and the Great Recession clearly in the rearview mirror, it’s no secret that the Valley boasts a robust tool kit when it comes to economic development.

With all this momentum, panelists at the February Friday Morning Breakfast agreed, now is the time for the Valley to take advantage of the latest trends including international commerce and development, opportunity zones, community facilities districts, GPLETs and the future for TIF.

“2019 was a record year for Mesa,” said panelist Bill Jabjiniak, Economic Development Director for the City of Mesa. “ASU and St. Augustine University were game changers for downtown Mesa. Plus, we had Waymo, Google and SkyBridge make huge economic impacts. We have the workforce. There are now 1.4 million residents in Mesa. And we have the facilities.

“It’s not just us (Mesa). There is a great story to tell what’s going on in the East Valley as a whole,” he added.

From the East Valley to the West Valley, the story is same, said Kevin Phelps, City Manager, City of Glendale.

“It’s no secret that we’ve been incredibly busy in the West Valley,” Phelps said proudly. “The economy and growth of our cities is being managed intelligently. The 303 corridor has continued to be a major economic driver. We’re learning more about annexation by leading a series of workshops. We have to use our land correctly and find the best areas for development.

“In Glendale, we want to totally reshape the view of the Westgate area,” he said.

So, what are some of the tools in the toolbox? Zach Sakas, Bond Counsel, Sherman & Howard, shared his thoughts on the Government Property Lease Excise Tax (GPLET), opportunity ones and Community Facilities Districts (CFP).

“These are basically three tools whose benefits are mutual,” Sakas said. “But the key for each of them to really work is putting the right team together. It’s the approach everyone concerned takes. My advice is to use the resources that are available to you.”

Our trade partners to the North and South also play big roles in the Valley’s economic muscle. Top of mind was the new USMCA, a free trade agreement between the United States, Mexico and Canada that replaces NAFTA.

Glenn Williamson, CEO/Founder, Canada Business Council, said the foreign direct investment (FDI) between Canada and Arizona is a huge boon to both economies.

“With Arizona being such a pro-business state and hundreds of days of sunshine, why would investors from Canada not want to come here,” Williamson said. “There is a lot of interest in Arizona. Turnaround time and speed …  a passion for getting things done, all of this is not lost on these FDIs. Word gets around fast.

“This includes residential real estate. Back in the day, a third of Scottsdale was built by a Canadian company. Fifty percent of the residents in Yuma are Canadian. There is truly a welcome mat out.”

Moderator Kelly Patton, Senior Economic Development Director, APS, asked each panelist for a take-away to share with the audience. Jabjiniak summed up the breakfast the best.

“Invest in the future. Invest in education. Invest in infrastructure. Protect exploited areas,” he said.

To which Patton responded:

“We are state 48; we are toddlers. Thinking big; that’s our next step.”

‘The Arizona Way’

Gov. Ducey shares successes, future with Valley Partnership

Education. Jobs. Water. Transportation.

Each represent a success by the administration of Arizona Gov. Doug Ducey, but also present a challenge for the state in the future. Gov. Ducey shared his thoughts before a packed house at Valley Partnership’s January Friday Morning Breakfast.

Valley President President/CEO Cheryl Lombard moderated the Q&A session.

>> Calling on leaders to build the Arizona way

“The ‘Arizona Way’ is the reason people are fleeing places and California. Arizona is the No. 1 inbound state in the country. Maricopa County is the fastest growing in the country the last 3 years. This is not happening by accident. Arizona is winning. Lower taxes and lighter regulations benefit us. People in my business and influencers measure progress by how much a state is spending. I measure progress by how much a state is growing.”

>> Education is important to attract and retain new residents

“Education is something we can’t blame Washington, D.C., for. We are in charge of our state education. It’s almost hard to believe that at one point we had a $1 billion deficit. At the same time, education was mired in Iawsuits. Fast forward to today and we have a $1 billion surplus. We now focus on outcome and results. This goes for K-12, colleges and vocational schools and the trades. Funding will always be a part of the issue.”

>> Increasing taxes is a bad idea

“There is a lot of misinformation out there. The ground has softened for so long and there was not enough funding in education at the time of the Great Recession. Times have changed. People want to see more spending in education. Right now, we have $1 million sitting in the general fund; we have a booming economy. The last thing we should be doing is raising taxes and taking a page out of the California playbook.”

>> Water: Another economic driver for the state

“Water is a very heavy lift. The last big reform was 40 years ago. It brought together homebuilders, the business community, the construction industry. What’s amazing is we are in the middle of a desert and having this kind of growth. We planned ahead. We have excelled on this issue. These are things we need to be working on decades ahead. There was some pressure in that first year to change the policy and stunt the grow. We have to keep that kind of discipline, but also make sure it is focused and ongoing. We use less water today in Arizona than we did in 1959.”

>> Transportation: Focusing on future investment

“In 2015 when we had the budget deficit, I knew that the most important thinking to do was to make the tough decisions. I have lived through a couple of downturns and also come out of them. I wish I would have acted faster, but I didn’t use any tricks. There was real pain and political unpopularity. But it allowed us to clear the decks and make the tough decisions. The economy came back in 2016 and put us in position we’re in now. We are expanding I-17, widening I-10. We have the dollars to do some of these multi-million-dollar projects. The state is in position to address our infrastructure needs.”

Gov. Ducey also touted the success of the USMCA, developing state land and protecting the culture when it comes to tribal gaming compacts.

“… Go out and have tremendous success,” Gov. Ducey concluded.

Photos courtesy of SRP

‘Go West, Young Developers!’

West Valley development corridors driving huge opportunities 

An analogy can be made between the popular movie “Field of Dreams” and what is happening in Metro Phoenix’s West Valley – at least in the eyes of developers.

A corn farmer in Iowa hears a voice telling him: "If you build it, he will come." It’s to be interpreted as instructions to build a baseball diamond in his fields. In the expanses of the West Valley, developers are finding their diamonds in the rough.

When Maricopa County approved a Regional Transportation Plan in 1985, not even the most optimistic Arizonan would have predicted the population boom to arrive in the Valley over the next three decades.

The Loop 303 was a critical part of its passage at the time. While it took longer than initially planned, the West Valley freeway's expansion is now playing a crucial role in bringing new development and attracting world-class businesses like Red Bull, Nike, Sub-Zero, REI, Dick’s Sporting Goods and many others to the area.

With the completion of the Loop 202 South Mountain Freeway connecting the East Valley to West Phoenix, business leaders, real estate experts and developers throughout Arizona are projecting another wave of smart development around the new transportation corridor to continue the region's strong economic growth.

November’s Friday Morning Breakfast brought together development leaders who are extolling the virtues of the “Go West” mantra.

Panelists included Don Bessler, Chief Capital Investment Officer, City of Glendale; Nic Fischer, Vice President, Merit Partners, Inc.; David Krumwiede, Executive Vice President, Lincoln Property Company; and Kelly Patton, Senior Economic Development Consultant, APS. Moderating the breakfast was Rusty Kennedy, Senior Vice President, Industrial, CBRE.

“With the arrival of the 303 and PV303, you saw a cross section of many things giving the West Valley an edge,” Fischer said. “Infrastructure. An employment base. Transportation. You can see where the population has shifted. This presents a real opportunity to answer the question: ‘Is this a place where you want to work and also live?’ Also, the availability of infrastructure has been the key to the West Valley’s success.”

According to Bessler, it’s all about “connectivity and labor.”

“Our market features the third-largest labor pool behind Los Angeles and San Francisco,” Bessler said. “Everything is about attraction and retention. Back in the day, a company’s HR person came to the site visit on the last day. Now, the HR person is on all the tours. They’re not just moving location. These are all new hires. With connectivity, you’re a day’s truck drive from 65 million people in the West.”

To prepare for all these new residents and development, energy is a vital commodity. APS is very aware of this, Patton said.

“There is so much activity in the West Valley, and that’s great to see,” she said. “When a company comes into our service area, we can offer a generational mix of coal, nuclear and natural gas. So we don’t put all our eggs in one basket, we can shift our power from one source to another to offset liability and cost. Companies like Nike, Microsoft and REI want their own (carbon free) footprint. We help them get there.”

With major development comes the fear of overdevelopment, which some economists say hurt the Valley during the Great Recession. Patton said infrastructure capacity is a major priority in this cycle.

“The question is how much capacity can we have and still stay ahead,” she said. “You have to remember this is growth not just in the business sector but in the residential sector as well. We are working with these two entities on the development side. It takes about 18 months to build a substation.

“We have to identify where are those areas growing. Where is the best location? We have to make sure we are prepared for that growth. That will make us much more competitive. To have the ability to plan and bring business here. The West Valley presents that opportunity,” Patton said.

Available amenities are also helping drive the West Valley’s momentum. Bessler says he wants to see Westgate become “the downtown of the West Valley.”

“We had 10.2 million visitors to Westgate last year,” he said proudly. “There is so much excitement there. We have a millennial workforce that resides in the community. The West Valley has raised the live-work-play desire greatly.”

The panel also discussed the role the Loop 303 has played and the development boom the West Valley has enjoyed around that transportation corridor.

“Major tenants are out there and want to come to the West Valley,” Krumwiede said. “They are driven by common factors, and one is access to transportation. The freeway had a big part in a company like Sub-Zero locating a facility out here.”

Fischer said the second piece is that the West Valley has room to grow.

“In a traditional industrial market, land constraints are an issue. Sometimes there is no sizable land available. The users along the 303 each bought their building. These are not lease transactions. They are making a long-term commitment. It’s pretty exciting that they want to plant their flag here.”

Trading Spaces

Valley enjoying robust industrial, office activity

The saying used to be: “Location, location, location.”

With industrial space leading a surge in commercial real estate activity in the Valley (along with office), the saying now goes: “Logistics, logistics, logistics.”

As the Valley’s economy continues to remain strong post-Great Recession, the need for industrial and office space to attract quality companies and high-level talent continues to play a significant role for developers and investors.

With a record amount of industrial and office space currently available in the Metro Phoenix market, some of that remains vacant with development continuing based on the positive trends the state has seen over the past half-decade in the job market.

The October Friday Morning Breakfast brought together a group of panelists whose respective companies are among the most active in both industrial and office markets in the Valley.

Moderating the panel was John DiVall, Principal Regional Head, Mountain Region, with Exeter Property Group. The panel comprised Keith Earnest, Executive Vice President, VanTrust Real Estate; Jeff Foster, Vice President/Market Officer, Prologis; and Cathy Thuringer, Principal, Trammell Crow.

“We have $13 billion worth of work in the process or in the pipeline,” Thuringer said. “That’s the highest level ever. They are primarily office and industrial as we’ve been extremely active the last quarter. We’re busy as long as the market allows us.”

Trammell Crow’s projects include Axis Raintree in Scottsdale, a 175,000 SF spec office building; Gilbert Gateway, a 420,000 SF industrial project totaling three buildings; and Park Aldea in Glendale, a 356,000 SF industrial project totaling four buildings.

Prologis has perhaps one of the largest footprints in the Valley with 46 buildings totaling 6.8 MSF. It recently completed a 136,000 SF facility for Sun State Builders in Phoenix. It currently is getting drawings done for Prologis Commerce Park in Goodyear.

“We missed out on some of the bigger deals in the market,” Foster said. “This is our opportunity to build 2.3 million square feet.”

Earnest said that while his firm is a “small family company,” it is also pursuing the same property types as Trammell Crow and Prologis. Two of its office projects include Chandler Corporate Center, 120,000 SF, and Chandler 101, 200,000 SF.

Talking about the Valley’s growth and demand for office and industrial product, Earnest said: “Now the (Loop) 303 seems like the I-17 or the 101.”

As with any property type, hurdles exist, the panel agreed. Some included:

>> Infrastructure and water: who is paying for it and how much is it?

>> Construction and land costs: how much is too much?

“We’re seeing people move here,” Foster said. “People who are seeing this as fastest growing county in the country. Infill is now Southwest Phoenix. Developers are out there pushing towards Goodyear, Glendale and Buckeye.”

Said DiVall: “There are now more manufacturing jobs that construction jobs in Arizona.”

So, what other things keep them up at night?

>> Foster: “Growing rents. Access to labor. We boast the third-fastest growing market in the U.S. Site selectors are choosing Phoenix for a reason. That’s the big story right there.”

>> Thuringer: “The elections. We saw that in 2016. I don’t know what the outcome will be. And TI costs.”

>> Earnest: “It’s not the when for me, it’s the what. Sublime lending crushed us the last time. If the what stays away, it’s a good thing. I like the discipline we have now. There is good competition. It feels healthier. I’m sleeping better.”

Rising Demand, Soaring Costs

The next wave of Valley homebuilding will be a wild ride

Constructions costs. Labor issues. Tariffs. Impact fees. Land costs.

The demand for housing in the Valley isn't the only thing that has changed since Arizona came out of the Great Recession. It’s been a “perfect storm” and combination of rising material costs to labor shortages to plan review fees increase.

It’s no secret that the costs of development and homebuilding have steadily grown and impacted the overall cost of housing in Arizona. With 200 new residents moving to Valley each day, experts have expressed concern with the ability of homebuilders to combat hyper-inflation and supply enough affordable housing options as the industry deals with these ever-increasing costs.

The September Friday Morning Breakfast brought together an expert-driven discussion on the rising demand and soaring costs that are impacting development and homebuilding in the Valley.

Moderating the panel was Jim Belfiore, Founder & President, Belfiore Real Estate Consulting. Panelists included Susan Demmitt, Partner, Gammage & Burnham; Jeff Gunderson, Sr. Vice President, Lennar; Ron Hilgart, Land Managing Principal, HilgartWilson; and Jeremy Ramsdell, VP Land, Ashton Woods.

Belfiore led off the discussion detailing the bump in interest rates and housing demand post-Great Recession. As one was high and the lower, single-digit growth resulted. It’s a different story now.

“Demand is very healthy today,” Belfiore said. “Lower interest rates have opened the market and made it (home buying) accessible to more. However, we’re not seeing the discounted lots anymore. During this period of time we have seen increases in homebuilding costs and land development, construction and labor. The issue is, ‘who is going to afford housing in the next coming year.’”

With the cost of underwriting deals increasing, developers are beginning to feel the pinch as well.

“Deals are harder to underwrite; that’s no secret,” Gunderson said. “We're still experiencing a lot of upward cost pressure on the vertical side. The land development side had been relatively unaffected until two years ago. Land deals have been scary the last 10 to 14 months.”

From his perspective, Hilgart said the biggest issue is labor.

“There was a time when contractors weren’t making. Guess what? They are now going to make money. That’s to be expected. But a shortage of labor is a huge problem right now. It’s being felt by both the contractor and the homebuilder.

“Some contractors are forced to hire an employee they wouldn’t have hired before and keep them on. Production rates are down. A lot of them are not that worker that’s been sit out in the hot sun and producing. That person with 5 to 10 years of experience still capable of working through the hot day is gone,” Hilgart said.

Demmitt, who works with the various Valley municipalities, said her clients are experiencing another side of the homebuilding issues.

“There is so much that requires us to change. Delays. Negotiating. Across the board amenities,” she said. “Open spaces. On the architectural side … a detail here or there. Twelve elevations for every floor plan.”

Ramsdell pointed out how tariffs are having an effect on his customers in the design center by driving up final costs.

“We have a perfect storm,” Belfiore said.

A Higher Level of Higher Education

Arizona’s universities are crucial to the state’s future growth

One thing is clear when it comes to the future of Arizona’s economy – its three major universities are and will be playing a key role in its growth.

That was very evident at Valley Partnership’s August Friday Morning Breakfast.

Arizona State University President Dr. Michael Crow addressed a full house at Phoenix Country Club, explaining how he has transformed the school into a landmark example of how a university can look beyond its past and set a new standard for excellence in the future.

Dr. Crow has been at ASU for 17 years and said he believes there is plenty of untapped potential at ASU and the other two state universities. To him, it’s all about creating a highly-trained, educated workforce. This, in turn, will spur the state's economy, and wisely using development of university assets to attract more opportunities for Valley residents. 

“We found open-mindedness and we found ways to move the university forward other than as a government bureaucracy university,” Dr. Crow said. “We made a fundamental shift in thinking that we couldn’t do in other states.”

Dr. Crow delivered the keynote address on how ASU, the University of Arizona and Northern Arizona University have handled the state's transforming economy, the funding battles waged with the Legislature and how they plan to take higher education in Arizona to a higher level.

The August panel consisted of John Arnold, Executive Director, Arizona Board of Regents; John Creer, Associate Vice President, Real Estate Department, ASU; Alan Maguire, Maguire Company; and Rick Shangraw, CEO, ASU Enterprise Partners. Moderating was John Graham, Chairman and CEO, Sunbelt Holdings.

Dr. Crow identified anti-fragile economies that create new industries (Seattle) and resilient economies that adapt to change (Pittsburgh). Arizona’s economy, he said, is fragile.

“It’s (a fragile economy) a function of adaptation to change,” Dr. Crow said. “We went through a recession and made a slow comeback and we do not yet have a highly adaptive, self-created, regional economy.”

Being innovative is important as well, Dr. Crow said. He pointed out how ASU’s engineering programs have ballooned from 8,000 students in 2009 to more than 19,000 now.

“That’s a function of being allowed to innovate,” he said.

While Arizona’s top schools are outperforming the rest of the nation in terms of college graduation rates, students in lower-income brackets and younger students, namely Hispanics, are not there yet. Latinos are the fastest-growing demographic in Arizona but their college attainment rate is a paltry 9 percent.

“We don’t have enough kids graduating from high school,” Dr. Crow said. “We don’t have enough going on to college. We don’t have enough people with college degrees who are staying.”

What the panelists had to say:

>> Maguire, on producing an educated workforce: “Workforce is knowledge, skills and culture. That’s the most important things that the universities do,”

>> Arnold, on how attracting out-of-state students increased revenue during the recession when state funds dried up: “We’re charging them market price for a degree. Turns out our degrees have a great deal of value. There’s a coming reduction in the number of young people. It will hit not only university enrollments but employment markets.”

>> Creer, on projects such as SkySong, Novus of the downtown biomedical campus: “They are rooted deeply in the university’s mission. It’s taken us 30 years to develop our research park in south Tempe. We call that a success.  “It’s something we can do patiently and deliberately.”

>> Shangraw, on ASU raising more than $400 million from donations in 2018: “We’re not only asking people to provide resources to ASU because they’re affiliated. We have a lot of causes that prompt people to be active in what we’re doing with the university.”

At the end of the day, Dr. Crow said, Arizona must embrace innovation, open-mindedness and flexibility.

“We find other ways to move forward than running a simple-minded, simple government-funded government bureaucracy university. We have abandoned that. That is gone.”

All Aboard!

The future of public transit in the Valley drives July FMB panel

An election to determine the future of light rail in the Valley looms on the horizon.

 A yes vote on Prop. 105 is a vote in favor of amending the City of Phoenix charter to end construction of light rail extensions and direct funds to other transportation improvements in Phoenix.

A not vote on Prop. 105 is a vote against amending the city charter, leaving funds allocated to light rail expansion.

Since the passages of Prop. 400 in 2004 and Prop. 104 in 2015, the Valley's public transportation system has evolved to meet the demands of booming population growth and economic development. As a result, new development has energized both the region and the debate over what the future holds for this mode of public transit.

“The topic of public transportation is near and dear to my heart,” said Scott Smith, CEO of Valley Metro and moderator for July’s Valley Partnership Friday Morning Breakfast. “I lived through it during my development days, as an elected official and now as a CEO.”

As the light rail celebrates its 10th year of operation, business, transportation and real estate leaders are now planning out where it will head next. The August 27 election will affect the future of real estate, development and investments.

Joining Scott were panelists John Giles, Mayor, City of Mesa; Shannon Scutari, President, Scutari & Co., LLC.; and Eric Anderson, Executive Director, Maricopa Association of Governments. Smith is also the former mayor of Mesa.

“Light rail helped revitalize Mesa’s urban core,” Scott said. “A $500 million investment translated into connectivity and thousands of jobs. Those were federal dollars that would have some elsewhere.”

The sticking point is light rail construction that could affect businesses along the line. Grass roots organizations and small business groups have echoed their concerns.  Giles said those were the same concerns of businesses in downtown Mesa when light rail construction began.

“Small business owners thought this was their death sentence,” Giles recalled. “As we well know now, the net loss of business was zero. Valley Metro and the city worked very hard to accommodate folks. They helped nurture their livelihood during construction. We doubled down on all those efforts.

“The Valley has evolved and matured, as has Mesa. I have never been more happy being wrong in this situation,” Giles said.

Scutari touched on the impact the light rail has had on three communities: Phoenix, Mesa and Tempe.

“Light rail is good for generations of people in the Valley,” she said. “You want communities that are walkable, bikeable, connected. Something for all generations.”

On the other side, Smith said, there are those who “the streets suck” and “fix the potholes.”

But if wasn’t for the Valley’s transportation system and its myriad freeways, where would it be today?

“A couple of days ago I did a podcast for AZCentral,” Anderson said. “Part of what came out was that in the 70s the Republic came out against freeways. It’s more than just getting from point A to point B. Long-term, it’s pretty important where we go. Who knows, maybe commuter rail could be the next evolution.”

The benefits of light rail’s first decade are palpable, the panelists agreed.

“Downtown Phoenix has a vibrant 24/7 population,” Anderson said. “That didn’t happen overnight. Chase Field. The science museum. Arizona State University. The light rail happened to downtown.”

In Mesa, Giles said, affordable housing projects along the light rail have been developed.

“Light rail changes the dynamic of a community,” Smith said. “That shows you just how fragile transportation is.”

Looking back, looking forward

Numbers tell the story at the 2019 mid-year review of real estate development,
growth in the Valley

Numbers don’t lie. Actually, they tell a pretty good story.

Economic momentum. Employment growth. Population growth. Personal income growth.

“In my opinion, getting knocked out during the downturn gave us the opportunity to get back up. Obviously, we’re doing something right. Look at the numbers. They tell the story. We are consistently seeing things headed in the right direction.”

Jim Rounds, President of Round Consulting Group, painted a positive picture as moderator of Valley Partnership’s June Friday Morning Breakfast at Phoenix Country Club.

And why not.

 The economies of Arizona and the U.S. have been buoyed by low employment and new highs for consumer confidence. The real estate and development markets in Arizona have been equally impressive in the first half of the year.

As the Valley approached the halfway point of 2019, June’s Friday Morning Breakfast featured a conversation hosted by Rounds, a renowned economist, on what we've seen so far in 2019 and where investors should expect we'll go for the remainder of the year.

“The market has been incredibly frothy for some time,” said panelist Ryan Sarbinoff, Vice President/Regional Manager Phoenix, Marcus & Millichap. “A big driving force is foreign investment. There is still safety and security in the U.S.”

Joining Rounds and Sarbinoff were Jessica Morin, Director of Market Analytics, CoStar Group; Pete Wentis, Senior Vice President, CBRE; and Micah Miranda, Economic Development Director, City of Chandler.

What can slow down the train that’s driving the Valley’s economic engine? A lack of new and existing office and industrial space could present a challenge, Morin said.

“During the Great Recession we were one of the hardest hit markets in the country,” she said. “We lost 300,000 jobs, about a quarter of that were construction jobs. Since then, we have shown steady growth. Are we building enough space now?

“Some of our markets are showing incredible growth,” Morin said. “The East Valley. Tempe. Chandler. There is a large labor pool of quality talent in those markets. ASU has also been a significant catalyst for the growth.”

While the Southeast Valley’s office market is booming, Morin said Downtown Phoenix hasn’t caught up just yet. However, she said she expects that to change in the next few years.

With Chandler becoming one of the top submarkets in the Valley for financial service and technology companies, Miranda said, “Product wins projects. Unless we have the products, companies will skip over us.

“In Chandler, preserving the Price Corridor and other employment corridors is key as we create the right environment for growth,” he said. “My perspective is that education is also key to business attraction. Education is critical.”

On the industrial side, Wentis said the cost of development of that product type presents an advantage for the Valley over competitors in Southern California. He said the West Valley will benefit greatly when the Loop 202 South Mountain Freeway bypass opens later this year.

“We are at historically low vacancy numbers in the industrial market,” Wentis said. “This is a sign we have a very healthy market (in the Valley). Two of biggest challenges are the net cost of tenant improvements and lack of labor.

“Developers are trying to be creative,” he added. “And with better corridors such as the 202 South Mountain Freeway, there will be a huge impact on our transportation of goods and services.”

Adaptive Reuse

Repurposing our history to create news spaces for the future

The development world defines adaptive reuse as “the process of taking an old building or site, and reusing it for a purpose other than it was designed. It is closely related to historic preservation or conservation around cities with rich history.”

The Valley has established itself as a leader when it comes to adaptive reuse. Evident throughout Metro Phoenix are buildings that are given a second life through adaptive reuse. Now, a new generation of Arizonans gets to experience these structures with a new vision for the future.

The conversation was lively at the May 17 Friday Morning Breakfast as the panel dug into the topic of adaptive reuse. The highlighted projects and their representative: Papago Plaza in Scottsdale, Lee Mashburn, President, Pivot Development; ARRIVE Phoenix, Lorenzo Perez, Co-Founder, Venue Projects; and Park Central, Stan Shafer, Principal and CEO, Holualoa Companies.

“I was in Los Angeles talking to 12 different institutional investors and one thing we heard was the traditional suburban office product is a bit out of favor,” said moderator Chris Toci, Executive Managing Director, Cushman & Wakefield. “What’s in favor is creative, adaptive open architecture. Investors can’t get enough of it.”

A look at the projects:

>> Park Central: This iconic shopping center has been the buzz of the development community and Midtown Phoenix neighborhood for the past year. The former site of a dairy farm was once the shopping destination of Phoenix residents. It featured some of the Valley’s big-name department stores such Goldwater’s and Diamond’s.

As other malls cropped up around the Valley, Park Central began to decline as major tenants moved out. It was sold to a special servicer who didn’t have much luck with it, according to Shafer. In 2016, Holualoa Companies and Plaza Companies came to the rescue.

“My inspiration was the Warehouse District,” Shafer said. “It had light rail access, surface parking and onsite amenities. It presented us with a great adaptive reuse opportunity. We were able to unlock the ability to develop the entire project.”

When all the phases are complete, Park Central will feature new retail and dining destinations, a multifamily project, a new parking garage, and Creighton University’s Health Sciences Campus.  

“This project is the collaboration of many stakeholders,” Shafer said. “By 2021 it will be a dynamic location and will revitalize downtown Phoenix.”

>> ARRIVE Phoenix: A stone’s throw from the Newton, one of Venue Projects’ signature adaptive reuse collaborations, is ARRIVE Phoenix. The innovative project features a 79-room boutique hotel that includes a rooftop cocktail lounge, a tropical-shaded pool, coffee shop and popsicle shop (where guests check in).

The project will occupy a pair of obsolete office buildings at 400 and 444 Central Avenue.

“This project opened doors for us,” Perez said. “We are bringing a sense of place and preservation of our heritage. We found a creative opportunity and solution. Our plan with this project is create, not compete.”

With a focus on urban infill, Perez said, Venue Projects pursues transportation-oriented development. Its other signature adaptive reuse projects are The Orchard and Windsor and Churn in Phoenix.

>> Papago Plaza: This aging retail property presented a big challenge to the developer. At the corner of Scottsdale and McDowell roads, it sits pretty much as a diagonal on the side. Walking from one end of the plaza to the other, Mashburn said, is the equivalent of crossing three and half football fields.

A re-imagined Papago Plaza will feature a grocery anchor, a hotel, a four-story apartment building, a four-story parking garage and restaurants and retail shops. Another great Scottsdale landmark, SkySong, sits across the street.

“We looked at all the options here and think we’ve come up with a great solution,” Mashburn said. “We will do something with this project that they didn’t do in the 80s.”

Learn what’s next for Desert Ridge

Phoenix Mayor, Kate Gallego, opened April’s Friday Morning Breakfast by expressing her wishes and sharing her plans for Phoenix and the surrounding suburbs. With an emphasis on planning and preparing for water-related issues, and a desire to infuse the city with more transportation options, jobs, and healthcare options, Mayor Gallego’s plan for the city — simply stated — is one that is forward-looking and future-focused.

“We want to create great places for families in every corner of our community”

Her simple statement perfectly led into the panel discussion about the progress and the projections for Desert Ridge — a location that will soon become a great place for not only families but businesses and students as well.

April’s panel was comprised of Desert Ridge experts who are actively involved in the planning and development of this blossoming community. Moderated by Christine Mackay, Community and Economic Development Director with the city of Phoenix, the panel discussed in detail some of the exciting plans in the works for Desert Ridge.

Panelists included: Rick Carpenelli — Vice President Acquisition Development at Crown Realty

& Development, Rick Hearn — Vice President of Leasing at Vestar, Rick Naimark — Vice President for Program Development Planning at Arizona State University, and David Schwartz — Business Development and Site Planning Administrator for Mayo Clinic of Arizona.

A medical center partnership between ASU and the Mayo Clinic, the update of Desert Ridge Market Place, and Crown Development's plans as master developer for 5,700 acres at Desert Ridge were all topics of discussion. The growth and further development of Desert Ridge comes with the promise of more than just new buildings and infrastructures. Carpenelli stated that as the Master Developers they envision this city as a “job generating,” area with, “commercial office and health care spaces”.

Though the original plans for Desert Ridge were crafted in the early 90s, the Desert Ridge of today will pay homage to those plans, but bring them past the present day and straight into the future of community development. Carpenelli and his team foresee Desert ridge as “a city of the future,” and with property that is shovel ready and the ability to bring 5G to the area — the future is closer than we think.

In addition to the forward-thinking plans taking place in Desert Ridge, the community can expect to see a revitalization of the Desert Ridge Market Place. In hopes of marrying working spaces, living areas, entertainment, shopping, and transportation, the plans for Desert Ridge are mindful of working singles, families, businesses, and the needs and wants of the millennial workforce. “Workforce is key in everything we do,” stated Hearn, and that emphasis is at the epicenter of the Desert Ridge plans.

Also shaping the future of Desert Ridge is a medical center partnership between ASU and the Mayo Clinic. ASU and the Mayo Clinic have a long-standing, reputable relationship and with the construction of a new medical center in Desert Ridge, that relationship continues to grow and strengthen the medical community.

Naimark relayed that for this partnership, research dollars are growing. Bringing this medical center partnership to fruition has been nothing short of “a herculean task,” but Naimark and Schwartz are excited by the “opportunity to design the healthcare of the future.” The ASU, Mayo Clinic partnership is predicted to be a pillar of the community and a great benefit to the medical world.

Carpinelli relayed that, “in short, what we are building here is a small city.” As the plans for Desert Ridge continue to come to life, it is expected that this “small city” will be a booming, thriving community.

Let Us Entertain You

Hospitality, sports hubs score with the development community

“It’s got to have everything.”

That phrase, read by moderator Maria Baier, set the backdrop for March’s Valley Partnership Friday Morning Breakfast.

As a new generation of tourists visit Arizona in droves, exciting new “entertainment corridors” are popping up across the Valley as hubs of hospitality, sports, and dining options designed to attract both tourists and local denizens.

The March panel comprised representatives from hospitality and development who discussed these new entertainment corridors and how they’ll impact our tourism and development industries.

“No group is more able to explain this (the above phrase) than our panel,” said Baier, Senior Vice President of Public Affairs for the Phoenix Suns.

The panel featured Bridget Binsbacher, Director of Operations, Cactus League Baseball Association; Brett Hopper, Vice President, Opus Group; Kim Sabow, President | CEO, Arizona Lodging & Tourism; and Aaron Studebaker, Community Development Project Manager, Salt River Pima-Maricopa Indian Community.

“Tourism in Arizona truly has a profound economic impact,” Sabow said. “It’s the No. 1 service import in the state. That’s the message, along with the data, that we have to get in front of the policymakers.”

Arizona’s tourism data speaks for itself: 44 million overnight visitors; $22.7 billion direct visitor spending; $3.4 billion in tax revenue; and 320,000 hospitality jobs.

“Those numbers are pretty staggering,” Sabow said. “It’s one of our largest industries and fastest-growing sectors. For many of our cities, it’s the lifeblood of their economy. Look around the country. We have sunshine. We have spring training. The economic impact is undeniable.”

The Cactus League, a staple in Arizona for more than a century, is also a hit with visitors, Binsbacher said. The scorecard: $644 million economic impact ($315.8 million from out-of-state fans); 6,439 jobs; $31.9 million in taxes; 1.8 million fans in 2018.

“With 10 facilities and 15 of Major League Baseball’s teams here, fans can get to multiple stadiums in one day,” Binsbacher said. “Spring training here is on a whole other level. It’s not just about the teams and players, its about those who come to our cities. And the numbers have grown."

On the development side, it’s companies such as Opus that leverage the impact of the state’s booming tourism and entertainment industries.

“Destination oriented; pedestrian focused,” Hopper explained. “It’s different even today than it was 4 or 5 years ago. Take Tempe Town Lake. Look what it has created. That took a lot of courage. Over time, we have been able to do that. Build the energy. Move these kinds of projects forward.”

In Peoria, Opus has created that type of synergy. In the heart of the Peoria Sports Complex Urban Design District, also known as P83, Opus is bringing a 352-unit, 10-building multifamily development to market. The vibrant, pedestrian-friendly development is a multi-building project on approximately 17 acres at the corner of 75th Avenue and Paradise Lane.

“It also took vision and courage to come up with this plan,” Hopper said. “In evaluating the West Valley, we are doing something more urban than we’re used to. P83 has spurred all types of development in the area. We have to make sure it’s sustainable. It can’t be ‘here today and gone tomorrow.’ We have to establish a unique identity around the district.”

Talk about establishing an identity? Studebaker shared a little of that, discussing development along the Loop 101 through Scottsdale on SRP-MIC land.

“Years ago, we talked about an entertainment with a vision of what it would look like,” he said. “Since 2010 we have seen incredible development growth. Salt River Fields at Talking Stick opened in 2011 and what followed was what you see today.”

This includes Talking Stick Resort, Top Golf, OdySea Aquarium, and ground-up construction for office and education. Other developments set to open within the year, Studebaker said, are Medieval Times, Great Wolf Lodge, numerous hotels, a mixed-use project – even a White Castle restaurant.

For visitors looking to enjoy a world-class resort in a winter oasis or baseball fans looking to enjoy spring training, Arizona is internationally recognized for its outstanding hospitality options.

With the ability to serve millions of tourists year-round, Arizona’s tourism remains one of the most critical components of the state’s economy and a significant influence on new development in the Valley.

Show Me The Money!

Capital is coming off the sidelines and bucking the trend

The development community is banking on a strong economy to get things built and help investors buy and sell assets.

That was the message from a panel of commercial real estate financial experts at Valley Partnership’s February Friday Morning Breakfast. Moderating the panel was Mindy Korth, Executive Vice President, Colliers International.

“I’ve seen all the cycles, and this is a good time for the lending business,” said panelist Jim Pierson, Managing Director, Walker & Dunlop. “The flow of capital is very strong. This goes for lenders from all over the country.”

Over the past two years, a strong American economy brought record lows for unemployment and healthy investments on both Wall Street and Main Street.

With the December interest rate increase now in place and uncertainty within our federal government beginning to affect economic growth, real estate and financial investors are closely monitoring the markets with the same question in mind:

Where's the money?

“Phoenix is a great place to be,” said Paul Engler, Executive Vice President/Chief Real Estate Officer, Alliance Bank. “I really like where we sit. As Jim said, it’s not just here but throughout the country as well. As bankers, we concentrate on the data and not on the negative headlines. It’s hard to find bad news in the data.”

Real estate investment opportunities exist in almost all asset classes, said Ann McCartney, Vice President, Debt & Structured Finance, CBRE. Bridge loans, she said, are popular in some development circles. This includes ground up construction or a property that is almost stabilized.

“It’s for owners who want short-term money,” McCartney said. “Someone looking to sell in two years. They want flexibility; nothing long term.”

Engler agreed that all asset classes are taking advantage of the capital resurgence.

“We are also seeing a strong value add component,” Engler said. “Different loan types in the $5 million to $30 million range. That’s our sweet spot. We tend to stick with more institutional players with a lot of equity behind the transaction.”

Strong asset classes include industrial, multifamily, office and yes, retail.

“Industrial is very high, office feels pretty good, and despite negative headlines about retail, there are lots of groups doing retail deals in Phoenix,” Engler said. “Single family is strong, although it faces labor challenges.”

The panelists pointed to the new Park Central as an example of great collaboration and capital “coming off the sidelines.”

Developers knew midtown Phoenix had potential, especially with the Metro light rail on the way. Then the Great Recession hit. Banking on a more robust economy, Plaza Companies collaborated with Holualoa Companies to redevelop Park Central.

“It really starts with the client,” Engler said. “This was a partnership of a good client, developer, and operator. That’s Number 1. Number 2 is the light rail is in place. It’s active. It’s working. Now you’re seeing more development coming to midtown. We like it, and you will see us there for a while.”

Pierson said he is seeing a fair number of deals in that submarket. McCartney added it’s all about new jobs and demographic changes in midtown and downtown Phoenix.

“What they are doing there is fantastic,” she said. “It will only continue to attract residents, businesses, and financing opportunities.”

Going with the flow

Water vital to the future of the Valley development industry

A looming drought on the Colorado River could spell disaster for not only residents of Arizona but for the development community as well.

Arizona lawmakers voted to approve a plan outlining how the state would share cuts with other Western states and Native American tribes.  This meets the Bureau of Reclamation Jan. 31 deadline to make a deal or else it will step in make the needed cuts to stop Lake Mead’s water level from plunging.

The Lower Basin Drought Contingency Plan (DCP) was the topic of January’s Friday Morning Breakfast. Valley Partnership is playing a key role on behalf of the development community led by President and CEO Cheryl Lombard.

The discussion focused on three major topics:

>> How will the Lower Basin Drought Contingency Plan help the Colorado River and Lake Mead?

>> How will responsible development and the need for critical infrastructure investment take place in the Johnson Utilities service area with EPCOR as the interim water manager?

>> What is the future of the Central Arizona Groundwater Replenishment District (CAGRD) and how do tribal communities like the Gila River Indian Community help address our state’s water shortage? 

Valley Partnership assembled the key players in all of the state’s water discussions to map out how potential agreements on water will affect the development industry and what must be done to properly manage and deliver clean, reliable water to Arizonans now and into the future.

The panel included Tom Buschatzke, Director, Arizona Department of Water Resources; Ted Cooke, General Manager, Central Arizona Water Conservation District; Stephen Roe Lewis, Governor, Gila River Indian Community; and Joe Gysel, President, EPCOR, USA.

Valley Partnership crafted an overview of guiding principles to evaluate the DCP in order to protect and sustain Arizona’s maximum Colorado River water supply. Some included:

>> Promoting a vibrant and growing economy while maintain good stewardship of our water;

>> Protecting Arizona’s Colorado River allotment and the state’s ability to effectively manage the allotment;

>> Supporting local jurisdictions and industry in their reasonable and cost-effective efforts to address critical infrastructure needs;

>> Supporting the creation and use of long-term storage credits to allow flexible management of water resources necessary to achieve the goals state above.

“Ted and I have been at the legislature working on key legislative elements of the importance of this plan for Arizona. Everyone has been working hard to assist in implantation of the DCP,” Buschatzke said.

Said Gov. Lewis: “Cheryl (Lombard) has been a great spokesperson and advocate on the steering committee for your interests. These have been some very difficult discussions, but she has brought her concerns to the forefront.”

Grant Woods 2018:

The Good, The Bad, And The Ugly

His predictions from last year were spot on. His humor was wry. He even announced winning ticket numbers for the holiday wreath raffle.

As the guest speaker at the December Valley Partnership Friday Morning Breakfast, Grant Woods once again left the room laughing and gasping. In the end, though, he received a standing ovation.

This year Woods shared some poignant and bittersweet memories of his long-time friend and mentor Sen. John McCain, who passed away in August.

“He (Sen. McCain) knew there were a lot of big issues facing our country and state,” Woods said. “He was willing to listen, and work both sides of the aisle to find a solution. The outpouring of emotions after he passed was a tremendous tribute to the man.

“I fear that maybe the days of great patriots and statesmen like him are over. He was always a fighter,” Woods said.

About those 2018 predictions:

“I did pretty well,” he said with a laugh. “I predicted a blue wave. I predicted Kyrsten Simena would be our next U.S. Senator. And I predicted our sports team would still have some issues.”

His prediction for 2019: “Things will only get worse for Donald Trump.”

Woods’ parting words took a more serious tone: “Stand up for what’s under attack. Don’t remain silent. This project called America is just that. There’s no guarantee what’s going to happen in the future. The opposite of hope is cynicism. Don’t let cynicism influence your life.”

Woods was introduced by longtime friend and Valley banking executive Paul Hickman.

The December breakfast got off to a rousing start as Dena Jones officially wrapped up the 2018 Community Project, this year benefiting Sunshine Acres in Mesa, with a video.

Happy holidays to all of our partners. See you in 2019.

Dirt, dollars, and development

FMB panelists share vision for utilizing 9.2M acres of State Trust land

Just as talk of Arizona’s water supply fills the pools of discussion around the Valley and state, what to do with our 9.2 million acres of land in the State Trust and the Arizona State Land Department’s plan is just as big a part of the conversation.

The November Valley Partnership Friday Morning Breakfast featured two experts on the topic of land: Lisa Atkins, Commissioner, Arizona State Land Department; and Wesley Mehl, Deputy Commissioner, Arizona State Land Department. Moderating was Grady Gammage Jr., Founding Member, Gammage & Burnham as well as Honorary Board of Director for Valley Partnership.

Land, one of Arizona's most important resources, continues to be a topic of great debate among state and national policy leaders. Arizona holds 9.2 million acres of land in its State Trust and the Arizona State Land Management plans. How to best utilize this asset is at the forefront of discussions.

“This presents a great opportunity for us,” Atkins said. “That after 100 years after statehood we have this great asset. It is intended to be a huge contributor to the state’s future. Of the utmost importance is how we see the immediate benefit. It has to be there for the next generation of entrepreneurs. Of building our buildings, and expanding our horizons as a state.”

Responsible development, enhancing revenue production and establishing careful environmental protections are all part of the strategic approach taken by the Land Department as stewards of Arizona’s land. With Arizona's population continuing to grow and legislators searching for new, dependable revenue sources, the discussion of how to best use state land will likely continue to for years.

“Sales are going up, and revenue is up,” Mehl said about recent sales. “For the Trust, last year we sold $175 million of dirt. This year we think we will get up to $300 million. A lot of Phoenix infill has sold in the past six to eight months.”

Mehl also discussed the state leasing some of its land. In some circumstances, he said, leasing is a good tool.

“In the past, leasing land made sense; we had money,” Mehl said. “But we were getting beat up by inflation. There was some reform in 2002 and it helped diversify (selling vs. leasing).

Mehl said he predicts there will be incremental changes coming soon. He mentioned about 30 changes spanning the entire operation, including its effect on real estate.

“Some include rolling options, value-in packages, online auctions, and a due diligence fund,” Mehl said.

‘Internet of Things’ key to planning future of urban development

As technology changes, so does the vernacular as we talk about the future of our cities.

Among the key phrase are smart cities, smart infrastructure, smart development, and the Internet of things (IoT).

“Good things are happening in our society economically. You are in a way the economic infrastructure of this community. Permitting. Growth plans. Our community is a major exporter. I’ve seen the angst: how do you finance the next generation of infrastructure. How do you build enough bandwidth? Part of the debate is technology.”

If you know anything about Arizona Congressman David Schweikert, you know he is tech savvy. That’s why he was the perfect moderator (his words above) for Valley Partnership’s October Friday Morning Breakfast topic, “Smart Cities, Smarter Infrastructure, and Smarter Development.”

The October breakfast featured industry leaders who discussed the need for cities to invest in IoT-friendly infrastructure, the value of communities collecting and sharing data with residents to improve their quality of life, and how real estate development plays a role in it.

As urban development and infrastructure continue to evolve in the era of Uber, Waymo, and other IoT-friendly apps, forward-looking cities are emphasizing the need to integrate smart apps with roads and infrastructure as they build for the future. The future of smart urban development depends on tech leaders partnering with government leaders to build a smarter infrastructure for the next generation.

“When you’re talking IoT, you’re talking about connecting things to the Internet,” said Josh Kosar, Director of Technology Development at Sensagrate. “Traffic lights. Your home. You. Your phone. Essentially everything can be an IoT device. This will have an effect on smart cities. They are all little pieces of the puzzle. They will change lives. We will need economic growth to drive that technological change.”

When asked by Congressman Schweikert what technology the panelists see coming to Arizona, Brian Kearney, Senior Vice President, Catellus, didn’t hesitate to chime in. Catellus is developing the Novus Innovation Corridor at Arizona State University’s main campus in Tempe.

“This is a very interesting time to be building a community from scratch,” Kearney said. “It is so difficult to predict the future of technology and what its impact on our cities. Decisions made today will affect the communities of tomorrow. It will be all about connected systems. Connected automobiles.”

Kumar Balasubramanian, General Manager, IOT Solutions with Intel, said it will all come down to what makes our lives better. “What will help us? Tell us what it is. This is technology in its most practical form. We will be seeing a lot of that in the next two years.”

The panelists were in agreement that it will take buy in from all levels of government for smart cities to thrive. This also includes the non-profit sector and institutions of higher education.

“We’re partnering with the local municipalities,” said Bobby Gray, ASU’s Director of Digital Transformation. “ASU is smart. It makes no sense if Tempe has technology infrastructure and across the street (in Phoenix) there isn’t. That has to be practical standards we can take from one to the other. We must develop a long-term plan in which municipalities work outside their borders.”

Safety is one factor that can benefit from smart technology, the panel suggested.

“We are in the early days of smart cities,” Gray said. “There is no playbook. No percentages. We are really forging that data now. We have to be flexible and look forward.”

Kosar agreed.

“We need to push these ideas forward,” he said. “We need a quorum. There are things the city and state can do that will directly help with that. We need a place to get together and discuss that. It’s something that needs to be bigger – a meeting of the minds between cities and state.”

Still hot...

It’s fall, but the Valley’s commercial real estate market is sizzling

More room to run. Office fundamentals in a good place. Rent growth in retail. Industrial uptick in delivery.

Those were just a few of the comments shared by panelists at the September Valley Partnership Friday Morning Breakfast. It was news that perhaps came a surprise. But it’s evident that commercial real estate in the Valley is on the upswing in a big way.

Moderator Chris Toci of Cushman & Wakefield took the sell-out audience for a ride across the Valley, asking why companies seeking out Phoenix and its surroundings markets. Is it more than the weather?  What are the hot spots? What is driving companies to come here? What is Arizona doing to land these new companies?

“Why is Phoenix hot?” Toci asked. “Are we on the edge of the abyss? Or is there more room to run?”

Michael Petrivelli, a market analyst with CoStar, provided answers.

“A key economic driver is job growth,” Petrivelli said. “During the recession we were hit hard that you did have a lot of job growth to catch up on. Now it (job growth) is being fueled by population growth.”

Assessing how property types are doing across the Valley, he had this to say.

“Office fundamentals are in a really good place. Vacancy rates have tightened. There is an uptick in delivery of industrial products and vacancies are at all all-time low. Retail is doing well as household growth and income continue to climb.

“Overall, the picture looks good. We will see some of the strongest job growth through 2022,” he said.

The topic of co-working space produced some interesting thoughts. Asked if co-working startups are going to survive, Tiffany Winne, Executive Vice President with Savills Studley, said they are not.

“It is the most exciting industry in America today, and We-Work is the darling,” she said. “I would not put a dollar of my money in it. Although we don’t have WeWork here, I see a co-working glut.”

Job growth in the tech sector is key the Valley, according to Brad Smidt, Senior Vice President of Business Development for GPEC. Asked if his city is prepared for this tech economic boom, Bill Jabjiniak, Economic Development Director for Mesa, said an emphatic “yes.”

“For being one of the most conservative cities in the country, yes we do,” Jabjiniak said. “We have grown by more than 6,000 people and will be at about 534,000 in 5 years. All our tech employers tell us they have no trouble attracting talent. We have great universities, and the dynamic of real estate is changing.”

Supply and demand is also driving the Valley’s commercial real estate hot market.

“In terms of office, we’re see a flight to talent,” Petrivelli said. “There is young talent, and so much new construction in Tempe and Chandler. That’s where the highest concentration of talent is going. Infrastructure, specifically the loops 303 and 202, will have huge impacts on the industrial sector. We’re seeing retail construction in the faster growing areas such as Gilbert, Chandler, and Goodyear.”

“Yin and yang,” Toci remarked. “Tempe or Camelback Corridor?”

Winne said she doesn’t see any crossover.

“There is not a lot of tech friendly real estate office space on Camelback. They (clients) are looking to Tempe. That space is also increasing in downtown Phoenix.”

Winning submarkets in the Valley? Deer Valley and Gilbert, Smidt said. USAA is adding to its already expansive operation in North Phoenix. Deloitte is opening a 102,000 SF U.S. delivery center in Gilbert.

Jabjiniak said it’s companies such as EdgeCore, which recently broke ground on a $150 million, 180,000 SF date center in Mesa, that are selecting his Southeast Valley city.

A popular industry saying goes, “Retail follows rooftops.” The Valley’s motto could well be: “Retail and office and industrial follow rooftops.”

With the Great Recession and the bursting of the housing bubble in the rearview mirror, the Valley’s homebuilding industry is on solid footing once again. Valley Partnership’s August Friday Morning Breakfast featured a panel whose companies combined have accounted for 17 percent of homes sold in the past 30 days.

They included Greg Abrams, Vice President, Land Acquisitions, Planning & Entitlements, PulteGroup; Jeff Gunderson, Senior Vice President of Land Acquisition, Lennar; Ryan Huffman, Executive Vice President of Operations, Richmond American;  and Dennis Webb, Vice President, Fulton Homes. Moderating was Jim Belfiore, President, Belfiore Real Estate Consulting.

This spring, homebuilders sold more than in any spring in more than a decade. In the process, new home prices are finally appreciating. Part of the recipe for this slow but successful recovery is the addition of the “turnkey” product by multiple builders bringing the first-time and returning homeowners back to the market.

In referring to turnkey homes – either spec housing or ready-to-go custom homes – to each builder it means something different.

“We have always been a strong spec builder,” Webb said. “We can deliver in 30 to 60 days the buyers still have options they can add. Our upgrades are among the highest in the country. These are not yesterday’s floor plans. These are new communities; mini masterplans.”

Richmond American is typically not a spec builder, Huffman said. Its turnkey segment highlights customization for what a home buyer might want.

“Most of our business is driven by entry level or move up buyers,” Huffman said. “These are people all waiting the last few years to get back into the market. It’s now moving faster. Our Seasons collection is a good example. Those homes include spec level features.”

Lennar has a much different vision, Gunderson said. That homebuilder takes the “everything-included approach.”

“For 20 years our philosophy has been to really try to understand our customers,” he said. “This allows us to operate more efficiently. You can get exactly what you want in a house for that price. This gives us a good understanding of who our buyer is.”

With his company one of the bigger builders in the Valley, Abrams said the strategy at PulteGroup is to manage production levels in its communities.

“The big thing is maintaining a consistent work schedule,” Abrams said. “We know when they (construction crews) leave. We build a consumer-inspired planned community. We make sure they are selection the product and options they really desire. This comes from a lot of national research and focus groups. It is something you can really see in our homes.”

Options have moved beyond pools and kitchen appliance upgrades to RV garages and luxury packages. Infill locations are becoming extremely popular. And yes, labor woes continue be an issue.

Still, the panelists remain upbeat.

“We’re all bringing in more buyers,” Webb said. “It’s a busy market.”

The August breakfast wrapped up with special guest speaker U.S. Congresswoman Kyrsten Sinema. Photo courtesy of SRP.

Connecting to the West Valley by staying in the Loop

Little did American newspaper editor Horace Greeley know when he penned the famous quote “Go West, young man” that it would also be the rallying cry for a Metro Phoenix regional corridor ready to witness incredible growth.

For years, the Loop 303 freeway was a dream of the West Valley. Its opening in October 2017 has already started to change the development patterns in its wake. Even before that, most thought the South Mountain Loop 202 would never come to fruition. Today, construction is well under way with a late 2019 anticipated opening.

These much-anticipated transportation corridors connecting the West Valley to the Southeast Valley are quickly becoming a reality. Panelists at the July Friday Morning Breakfast shared their views of the West Valley’s future with a full house at Phoenix Country Club.

Moderating the event was Greg Vogel, Founder/CEO, Land Advisors. The panel comprised Lori Collins, Deputy Director, City of Phoenix; Megan Creecy-Herman, Vice President, Liberty Property Trust; Tony Lydon, Managing Director, JLL; and Cathy Thuringer, Principal, Trammell Crow Company.  

“I started some 31 years ago in the far West Valley and worked my way in because that’s when Interstate 10 was being completed from Los Angeles,” Vogel said. “Also, 1985 was when the first half cent sales tax was passed. It enabled us to get ahead in transportation.

“The tables shifted to the East where there was more clout, money, and strong lobbying efforts. The 202 and 303 got shorted. But you can’t build freeways anywhere now. The West Valley is open,” Vogel said.

The Valley’s population growth has been the key to its development growth, Vogel said. In 1985, there were 1.5 million people living here. Today, the Metro Phoenix population is just shy of 5 million at 4.9 million. The Valley’s growth, Vogel said, has now shifted to the West Valley.

“This growth cycle is one that is really exciting,” Thuringer said. “It’s more ordered, more measured, more diverse, and not as frenzied as 2005 and 2006. The economic base is very encouraging. Economic development entities are really involved.”

Lydon said a “silver bullet” in the West Valley’s toolbox is its Foreign Trade Zone (FTZ) designation. Other factors bolstering the West Valley’s standing, he said, include infrastructure, and capital investment in infrastructure.

“I agree that this cycle is more measured,” Creecy-Herman said. “The last cycle was overbooked, and pretty aggressive. The numbers now seem to be broad-based in the midsize industrial product, from 50,000 square and up. All the sizes are being delivered. We’ve been about 200 to 250 deals a year in that size. We need those to grow the market.”

Thuringer said Phoenix industrial space is highly sought after with a lot of large capital players in the gateway markets. “It’s a better investment,” she said.

“As a region, we paid for sins the past,” Lydon said. “Now we have dynamic consumption and trade. We have a great relationship with Mexico. We’ve already seen the manufacturing sector improve by 30 to 40 percent. The next step is to begin to design and build for the mid-size users.”

The West Valley is key when competing against other regions, Collins said. “Roughly 85 percent are looking for ready space,” she said.

New product or ready space? Obsolescence is a hot topic, one that bodes well for the West Valley, Lydon said.

“There are great opportunities for those older buildings,” he said. “Three important words: Last mile fulfillment. This is key for distribution in dense urban areas. Older product is being converted to LMF.”

When it comes to significant anchors in the West Valley, panelists pointed to the region’s higher education entities, Grand Canyon University and Midwestern University. Lydon said a German pharmaceutical firm toured the Southeast Valley and Sky Harbor submarkets but decided on the West Valley.

“Midwestern has a robust pharmacy school,” Lydon said. “That was important to them.”

What will benefit from growth in the West Valley? Lydon’s list includes e-commerce, food and beverage, manufacturing, healthcare, logistics, data centers, education, workforce, infrastructure, the FTZ, and executive housing.

“The workforce is heading West,” Lydon said. “This is going to be a much different West Valley 24 to 36 months from now.”

Added Collins: “Phoenix has a good transportation system. Once the 202 opens it will be great. There are not many cities we compete against that can boast a 22-mile strip of freeway opening. It will be a great new gateway.”

2018 Valley Partnership Community Project revealed

Sunshine Acres Children’s Home in Mesa was announced as the recipient of the 2018 Community Project. Partners transformed an underutilized parcel of land into a vibrant fitness park and recreation area in 2016. Valley Partnership is returning to Mesa on Nov. 3. Please join us.