Q&A: Rebecca Burnham, Shareholder, Greenberg Traurig
Q: More and more, institutional investors are dominating real estate investment in Arizona. What’s driving this trend? It is a good or bad thing?
A: This is a national trend that we are seeing replicated in Arizona. There are two key things driving this: First, the economy is in recovery and there is a renewed faith in real estate as an attractive asset class. Second, and related, is interest rates — they are historically low, which is driving investors to broaden their portfolios to include a wider
range of assets offering superior yield potential. Most investors do not have the expertise to make direct investments in real estate and, rather, place cash and reserve monies with major institutional players. These large institutional funds, in turn, have to find opportunities to place the cash and see Arizona as a great investment. This is not a bad thing for Arizona as this activity represents a significant amount of net new investment. It boosts our economy and gives us good exposure. There is some cause for concern, in a global sense, in that the search for yield can lead to pricing that may or may not be based on market fundamentals. Still, we have a ways to go before real estate prices here are in the “red” zone again and, so far, this is mostly real equity coming in, not leveraged dollars.
Q: Do you see state land sales making a comeback this year? Where will be the hot spots?
A: Absolutely, they will make a comeback when the State Land Department is ready and able to sell. The constraint will continue to be the lack of resources at a perennially under-funded government agency. Given that most of the proceeds generated from state land are ear-marked for the public schools, one can hope that our state leaders will realize the revenue potential and make an investment now that will should lead to great returns in the future. I believe the hot spots will continue to be in Desert Ridge, Paradise Valley — the Northeast Valley in general. Other areas that will likely see significant interest include the Black Canyon Corridor, the areas around Peoria and around the greater East Valley region. All of these areas saw significant investment and interest in the past and investors are interested in returning to them for future growth.
Outside the metro areas, signs are that it will be a slower comeback but the state land trust represents an enormous and very valuable asset. In the last up cycle, state land sales became a major factor and, as the market recovers, are likely to be an even bigger factor in our growth over the next decade.
Q: What are your real estate clients telling you — are we in a full market recovery? Which sectors are specifically active?
A: What I am seeing and hearing is cautious optimism. Residential continues to lead the comeback, and to some extent and in certain areas, commercial development. Due to our weather, topography and favorable economic climate, Arizona remains a “hot spot” for growth and we have seen several large corporate re-locations announced recently and there are many smaller deals that have happened or are in the works. It’s nice to see people smile when you say the words “real estate” again.
Q: Should people be concerned about the rapid recovery we are seeing on the residential side? Are we headed for another downfall?
A: The market does not appear to be overheated at the moment. Values are up, but nowhere near where they were a few years ago, and underwriting seems to be more conservative. One unequivocally positive thing I can say is this is — without a doubt — one of the best opportunities in my lifetime to purchase a home and obtain a favorable mortgage. Given that many folks are still recovering from the recession, not everyone will be able to take advantage of this but, for those with jobs and a current income, this may well be a once-in-a-lifetime opportunity.
Q: You have seen many cycles come and go — what insights do you offer your clients?
A: Cycles come and go, but, as I see it, the fundamentals don’t change — be adaptable, work hard, use leverage carefully and sparingly, never lose sight of your core principles — and, of course, a little luck never hurts. Seriously, though, I believe our character and relationships are what sustain us through the tough times and, when things are better, how nice to be able to enjoy that with people you respect and care for.
Q: Immigration reform and a sizzling job market have put a strain on the real estate industry to find qualified workers throughout the state. How is this impacting your clients?
A: A dearth of qualified workers is something we are seeing across all industries around the state but it seems construction is especially affected. There is a “black hole” of sorts as a result of the recession. A lot of people retired and many simply left the state or moved into other endeavors. As a result, the lack of qualified and experienced employees is likely to create a drag on the economy, including the real estate industry, for some time until businesses are able to ramp-up, train people and get them back into jobs. That said, the real estate industry, in my experience, is remarkably resilient and resourceful and will work through this, I am sure. I am just glad to be part of it and, as ever, remain optimistic and see great things ahead.
Rebecca Burnham represents real estate development interests in connection with the acquisition, planning, development, financing, operation and sale of real estate developments, as well as legislative and public policy matters pertaining to economic development and land use.