Tag Archives: Dick’s Sporting Goods

Dick's Sporting Goods distribution warehouse, Goodyear

Industrial Evolution: West Valley poised for land grab

Dick’s Sporting Goods built a 720KSF distribution center in Goodyear to service its West Coast stores.

A California-based investor erected a 400KSF spec shell in Surprise’s Southwest Railplex business park.

Corporate giants, Macy’s, Amazon, Sub-Zero, Marshall’s/TJ Maxx, Southwest Products and WinCo have landed or expanded their vast West Valley industrial operations within the last two years.

Even more companies are eyeing potential stakes in the burgeoning industrial parks springing up in once sleepy bedroom communities west of Phoenix.

With the recession in their rear-view mirrors, local, national and international companies are revving up manufacturing and distribution operations, and the West Valley is poised to be a big beneficiary of their expansion plans.

Justin LeMaster, Cushman & Wakefield

Justin LeMaster, Cushman & Wakefield

Available and affordable land, a deep labor pool, business-friendly state and local governments and top-notch transportation corridors contribute to the West Valley’s desirability, said Justin LeMaster, Cushman & Wakefield’s director for industrial properties.

Farsighted developers are already master-planning vast spreads of land, setting up infrastructure and even building large-scale spec structures that can accommodate another industrial giant or get sliced and diced to accommodate several smaller operations.

The developers — along with city and state economic development specialists — want their properties primed to snag the business when the lookers become movers, LeMaster said.

“Smart, creative developers will make the West Valley a successful high-growth market for years to come,” he said.

The numbers confirm the trend.

An impressive 4.5 MSF — nearly 94 percent of the metro area industrial construction started or completed in 2013 — is in the West Valley, according to Jones Lang LaSalle’s Q4 Industrial Report.

Q4 absorption was 1.96 MSF, and only 15.3 MSF of the West Valley’s 90.7 MSF total industrial inventory was still available at year’s end.

Nevertheless, 4.5 MSF is a significant amount of new inventory for a post-recession market, and, in fact, it boosted Valleywide industrial vacancy rates above 12 percent.

Anthony Lydon, Jones Lang LaSalle

Anthony Lydon, Jones Lang LaSalle

Industry experts aren’t worried.

“The new, grown-up, industrial tenants coming to market right now are looking for 300KSF, 400KSF and above,” said Anthony Lydon, Jones Lang LaSalle managing director for Supply Chain & Logistics Solutions.

Less than half of the West Valley’s available space meets that criteria, and a few big employers could snatch that up in a flash, he said.

Like LeMaster, Lydon expects that to happen sooner rather than later.

“Over the next 24 to 36 months, the Valley, and the West Valley in particular, will see significant new job creation,” he said.

So what makes the West Valley suddenly so attractive to the industrial users?

“Economics and location,” said Pat Feeney, CBRE senior vice president for industrial services.

Cost is key
Of the metro area’s three major industrial hubs ­— the airport area, the Tempe/Chandler corridor and the West Valley — the first two are nearly out of developable land, Feeney said. And scarcity makes that land pricey, especially for a large user.

Pat Feeney, CBRE

Pat Feeney, CBRE

A skilled and diverse labor force that moved west when the home builders did is another major factor, he said.

“Nearly 70,000 people live in Goodyear, but only 14,000 or 15,000 work in Goodyear,” Feeney said.

When big employers like Sub-Zero, Amazon and Macy’s held job fairs for their new West Valley digs, they typically attracted eight to 10 qualified applicants for every position, he said.

“They all shared that they were so happy they could pick the cream of the crop,” Feeney said. “It’s a really big draw.”

David Krumwiede, Lincoln Property Company

David Krumwiede, Lincoln Property Company

Staffing a large warehouse is a major economic concern, especially for companies with labor-intensive, e-commerce picking systems, said David Krumwiede, executive vice president for Lincoln Property Company, which owns 6 MSF in its four-state Desert West Region, 2.4 MSF of that in the West Valley, including Goodyear AirPark and 10 Lincoln.

Arizona’s main competition for the big industrial users looking to establish or expand operations in the West is California’s Inland Empire, Krumwiede said.

While the Inland Empire’s construction costs are comparable to Arizona’s, labor costs in Arizona, a right-to-work state, are much lower, he said.

“We are extremely competitive with California’s Inland Empire if a user has more people than trucks,” Krumwiede said.

And big energy consumers, such as companies employing sophisticated e-commerce logistics technology, can save as much as 30 percent to 40 percent in operating costs by locating in Arizona instead of California, Lydon said.

But possibly the biggest economic incentive for many industrial users is Arizona’s much more favorable tax basis, Krumwiede said.

All of the West Valley’s large planned business hubs have designated areas that are Foreign Trade Zone capable, and that’s a big selling point for companies that do significant international business in parts or products, Krumwiede said.

“If a company qualifies, it can see a 72 percent reduction in property taxes,” Feeney said. “It’s a tremendous benefit.”

And a benefit none of the nearby states can offer, he said.

Such issues make Arizona, especially the West Valley, where land is available and affordable, a clear economic winner over California.

Location, location, location
Second only to the West Valley’s attractive economics, is its advantageous location, less than half-a-day’s drive from the southern California ports — a major consideration for retailers and e-commerce leaders like Amazon, as well as manufacturers like Sub-Zero, according to the experts.

Rob Martensen, Colliers International

Rob Martensen, Colliers International

“If you can get out of traffic and get closer to the ports in Los Angeles and Long Beach, you can make that in six hours,” said Rob Martensen, Colliers International vice president.

That means truck drivers can log a round trip and still stay within federal guidelines regarding length of time on the road, a feat not so easy to accomplish from the East Valley.

And for companies distributing products regionally — Macy’s or Dick’s Sporting Goods, for example — the completion of the Loop 303 will forge the final freeway link that can speed trucks to and around cities and states north and west of Phoenix.

“It will open the gateway,” LeMaster said. “Companies want to be in Phoenix, and the West Valley will be the industrial hub of Phoenix with the (Loop 303/I-10) interchange.”

Overall, the combo of favorable attributes will ensure the West Valley lands on the short list for large and small industrial users for the next decade or so, Krumwiede said.

“The companies that are already out there — Amazon, Target, Costco, PetSmart, Staples, Macy’s — are all household names. It’s a great start. We’ll see more of those,” he said.

“My vision is that a lot of that vacant land will be put into production in the next five to 10 years.”

Phoenix-Market

Phoenix Market Is Affordable Again

The current state of the Phoenix commercial real estate market can be viewed from two sides. The reality is that we are still pushing through, so to speak, amidst a haze of foreclosures, bank take-backs and monetary defaults.  But through the fog, there is a silver lining in the form of good old-fashioned opportunity.

As REO properties flood the market, there is one truth that has emerged that brightens the hearts of real estate buyers:  The Phoenix market, already a fantastic place to live and do business, has become affordable again.

In This Ring: Investors vs. Owner-Users

Demand is on the rise for all distressed property types in the Phoenix market, based primarily on competitive pricing.  Buyers are ready to invest, and there is an enormous amount of money chasing opportunities in the Phoenix market.  This leads to a highly competitive buying pool where investors and owner-users duke it out over attractively priced distressed properties.

Recently, owner-users have thrown some of the proverbial winning punches, sometimes beating out investors in distressed sale opportunities.  On the other hand income-producing multi-tenant properties remain competitive amidst investors.  This competition is a good sign for the market as a whole, as it is pushing winning bidders into shorter due diligence and closing periods, which moves deals through the market faster.  This positive activity will continue for the next few years, as distressed properties move their way through the system.

The bottom line:  When the price is right, buyers are interested.

Local Businesses: Things Are Looking Up

The recent rise in demand has had a positive impact on the Phoenix business community.  Companies know that now is a good time to buy and lease, taking advantage of current low occupancy costs.  With that in mind, many companies are moving into the Phoenix market, while some other local businesses are absorbing customer base from failing competitors, resulting in local expansions.

In many cases, investors are making deals now which will help local businesses to lease space affordably moving forward.  In the past year, Voit’s Phoenix office has closed a number of large transactions for investors, encompassing all product types.  From land to retail centers to office properties, to a 57,000 square-foot multi-tenant flex project which was acquired as a value-add upon purchasing the distressed note from a special servicer.  In most cases, the investors will be able to deliver these properties to local tenants at competitive lease rates.

Other notable businesses that are taking advantage of today’s affordable Phoenix market include Dick’s Sporting Goods, which is developing a 600,000 square-foot build-to-suit, as well as Amazon.com, which expanded its footprint over the past 24 months in the region by leasing more than two million square feet.

Each of these transactions directly benefits companies throughout the Phoenix market, bringing business opportunities to local architects, engineers, contractors, brokers, and more.

But large corporations are not the only beneficiaries when it comes to the affordability of today’s market.  Local “Mom and Pop” owner/operators are buying buildings at low prices and renovating them.  In addition, SBA financing is readily available from many lenders, offering small business owners an opportunity they may not have had in prior markets:  the chance to own their own space and control future costs.

The Flip Side: Why Local Bank Failures Help The Market

One area of the market that has demonstrated immense improvement in the past few months is the ability to complete real estate transactions.  For a portion of the downturn many companies had difficulty closing deals, but the market has begun to move again, allowing local businesses to relocate and expand.

Some of this new movement may be attributed to the various mid-sized local and regional banks which are failing in the Phoenix market.  While bank failures may appear negative on the surface, these failings actually begin a ripple effect that helps the real estate market.  When a bank fails, it is marketed by the FDIC to be purchased by a healthier bank, which is in a better position to work through distressed assets and bad loans – actions which help move real estate deals forward.

In addition, banks are now able to complete loan-to-value assessments that are based on distressed pricing.  When the market was stagnant, there were very few transactions closing, so banks had no comparable sales to consider when completing appraisals.  Now that real estate transactions are moving again, banks can more easily create valid appraisals based on sales comps from recent deals.

At the same time, banks and life insurance companies are all starting to place more debt in the marketplace. As financing becomes more readily available, transaction activity in the local real estate market will flourish.

What’s Next For the Phoenix Market?

The outlook for the Phoenix commercial real estate market is positive.  There will be a continued supply of distressed properties which will hit the market over the next two to three years as CMBS loans come to maturity and banks work out the properties on their books.  Buyers and tenants will enjoy an affordable Phoenix market for the next few years.

Darren Tappen is Senior Vice President of Voit Real Estate Services.