Tag Archives: great recession

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The Rental Renewal: Q&A with Tom Simplot

Tom Simplot, president and CEO of the Arizona Multihousing Association, has watched the hottest commercial sector light the way for new developments during the darkened years of recovery. Even though there are thousands of new units in the pipeline, Simplot weighs in on the cooler markets, the Class-A flood and important legislative wins.

With the increased interest in mixed use developments, Which usually include apartments, are developers hoping to piggyback on multifamily’s success to jump-start the rest of the sectors?

If the old saying that “first comes rooftops” has any bearing, then, yes, after the construction of several thousand new multifamily units throughout the metro area, it will cause at least some level of new construction activity in office and retail. We have probably seen the end of “silo development,” where commercial, apartment or home builders work in a vacuum. There is now incredible motivation to create partnerships to build mixed-use projects and add value to the development. People want to live, work and play in the same vicinity. Everyone wins.

How will rising rental rates affect dense urban areas such as phoenix?

The new units being built throughout Phoenix are almost all Class-A properties, with incredible amenities and design elements. These new properties are also pushing rents to all-time highs. The question is probably more about the depth of this market and how many units can sustain the new, higher rents. So far, the lease-ups of these new communities have been fairly rapid and successful. By adding to the overall stock of housing, we add new options for families and maintain affordability. Our housing is still relatively inexpensive compared to other major cities, so instead of building a lot of new affordable housing stock in this cycle, our aging stock becomes the next affordable housing option. It may not be ideal, but in the current market, it is our reality. During the Great Recession, most of the new multifamily communities in Arizona were built with tax credits and government assistance. Until the legislature is able to restore funding to the State Housing Trust Fund, affordable housing development is a tough business.

How are northern and southern arizona markets?

Flagstaff is a hot market. Go anywhere in Flagstaff and the neighborhood chatter turns to how many student apartments are being built. The need for student housing has been the driver, but thanks to shifting consumer trends, we are starting to see market rate housing under construction as well. Tucson is coming back, but, historically, the Tucson market never reaches the highs (or the lows), of Phoenix. Vacancy rates are a little higher in Tucson, and that probably won’t change much given the new communities (and competition) that are coming on the market.

Is there a buzzing around the multifamily sector that you think Will get louder over the next 12 months?

What we see under construction in Scottsdale, Tempe, Chandler, Gilbert and parts of Phoenix has been on the planning books for several years now. We continue to play catch-up after the dark years of the Great Recession, and since the Phoenix area has not yet reached post-recession growth like other Western cities, we are nowhere near the end of this building cycle. The biggest challenge is probably finding affordable land to assemble for new projects in the future.

Have there been any major legislative Wins backed by ama for the multifamily sector in the last year?

The past few years have been fairly good for the apartment industry when it comes to government oversight: Local red-tape was preempted with regard to energy benchmarking; there is now a choice when it comes to selecting a solid waste hauler and how and when to recycle within an apartment community; and an apartment owner/manager seat has been added to the Real Estate Advisory Board. We work very closely with all Arizona cities and towns as they review new building codes and are vigilant to ensure that safe, affordable and well- designed apartment housing remains the norm.


Arizona drops from Top 10 for job growth

We’re still slowly recovering from the staggering loss of jobs during the Great Recession, but some cities and states are rebounding faster than others. The job-growth numbers for the first three quarters of 2014 are now out. Research Professor Lee McPheters of the W. P. Carey School of Business at Arizona State University provides rankings and analysis of the winners and losers, based on the latest figures from the U.S. Bureau of Labor Statistics.

Top 10 cities and surrounding metro areas (1 million or more workers), for non-agricultural job growth — comparing January through September of this year to the same nine months last year:

Orlando, Fla. – up 3.7 percent
Houston – up 3.5 percent
Dallas – up 3.4 percent
Miami – up 3 percent
Portland, Ore. – up 2.9 percent
Riverside, Calif. – up 2.8 percent (tie)
Denver – up 2.8 percent
San Francisco – up 2.6 percent (tie)
Seattle – up 2.6 percent
10.  San Diego – up 2.4 percent

Top 10 states for non-agricultural job growth – comparing January through September of this year to the same nine months last year:

North Dakota – up 4.6 percent
Nevada – up 3.6 percent
Texas  – up 3.3 percent
Utah – up 3.1 percent
Florida – up 2.9 percent
Oregon – up 2.8 percent
Colorado – up 2.7 percent
Delaware – up 2.5 percent
California – up 2.2 percent (tie)
Washington – up 2.2 percent


The United States has added about 2.4 million jobs so far this year. The monthly average from January through September was 1.8-percent job growth nationwide. That pace is only slightly better than last year’s, when we saw an overall annual increase of 1.7 percent, so the recovery remains relatively slow.

On the state list, North Dakota has held the No. 1 spot every year since 2009, largely thanks to its oil and gas production. Nevada, Texas and Utah also topped 3-percent job growth this time, with Nevada’s economy receiving a big boost from building activity and impressive construction gains of more than 10 percent.

“Seven of the top 10 job-growth states so far this year are in the West,” says McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “Oregon and Delaware are new on the list this time, replacing Idaho and Arizona.”

Arizona actually fell out of the top 10 for the first time in two years. Even though it ranked No. 3 in health-care job growth and No. 5 in financial-activities job growth, the state has now dropped to No. 14 overall. Manufacturing, government and construction contributed to the decline.
The bottom 10 states so far this year are Michigan, Pennsylvania, Connecticut, Maryland, Illinois, Vermont, Virginia, New Jersey, New Mexico and last-place Alaska.  Five of these states were also on the bottom in 2013: Pennsylvania, Vermont, Virginia, New Mexico and Alaska.

McPheters notes very high interest in state economic performance right now because 30 governors are up for reelection, including those in top-10 states Nevada, Florida, Oregon, Colorado and California, as well as bottom-10 states Michigan, Pennsylvania, Connecticut, Illinois, Vermont, New Mexico and Alaska.

On the top 10 cities list, Orlando holds the No. 1 position with 3.7-percent job growth, double the national pace.

“Eight of the top large cities for job creation are in the West,” explains McPheters, “However, Florida also did well, with two cities on the list.”

Seven of the top 10 cities are clustered in Florida, Texas and California. They include Orlando, Miami, Houston, Dallas, San Francisco, San Diego and Riverside, Calif.

The greater Phoenix labor market dropped out of the top 10, as its rate of job growth slipped from 2.7 percent in 2013 to a more modest 2.2 percent during the first three quarters of this year. Phoenix is currently No. 12 among labor markets with 1 million or more workers.

Still, seven large labor markets have job creation below 1 percent: Chicago, Cleveland, Philadelphia, Kansas City, Pittsburgh, northern Virginia and lastly, Detroit.

The full rankings and other job-growth data from McPheters can be found at the W. P. Carey School of Business “Job Growth USA” website: www.wpcarey.asu.edu/jobgrowth. Use the “year to date” function for the current 2014 numbers.


Why Different States Are Getting Out of the Housing Crisis Faster

America’s housing market is finally starting to really recover from the Great Recession, but some areas of the country are fighting back faster than others. New research from the W. P. Carey School of Business at Arizona State University indicates one reason: Different states have dramatically different mortgage laws, and some make it easier to push through tough times.

“The laws across states use different legal theories as the basis for mortgages, and they balance the rights of creditors and borrowers very differently,” explains Assistant Professor of Real Estate Andra Ghent of the W. P. Carey School of Business. “The variations started early in America’s history, and they’re not really based on economic reasons, but they’re still having a major influence on what’s happening now with the housing market.”

Ghent runs through a few main issues playing a role in whether a state has already gotten through the worst of the housing crisis or whether it’s still plodding along:

Some states require judicial involvement in foreclosures, while others don’t.
Some states require a massive amount of paperwork, including the original promissory note, in order for a lender to foreclose.
Some states require a longer “redemption period” of time, during which the borrower can be behind on payments, before a foreclosure can happen.

Ghent says, in general, many of the states that don’t require judicial involvement or tons of paperwork have already run through the bulk of their foreclosures and are finally seeing rising property values. That’s because the flood of cheap, foreclosed properties onto the market has stopped.

Arizona is one of the states in which the damage happened relatively quickly, and there’s no longer a big backlog of foreclosures to go through the process. Phoenix-area home prices have been rising dramatically since last fall.

“The key is quick resolution of the situation,” says Ghent. “For example, if a state requires a longer period before foreclosures can happen, then that generally means the homes deteriorate more as the borrowers realize they’re going to have to leave and stop taking care of the property. This is bad for the neighbors and the property values.”

Ghent adds she doesn’t see much renegotiation during the times leading up to the foreclosures. The rules just allow for drawing out the situation.

“New York and Florida, for example, have very slow foreclosure processes,” Ghent says. “Properties can sit around without any maintenance for two to four years while they work their way through the maze, before they finally get a new owner.”

Ghent also doesn’t think that making more foreclosures go through the judicial process will help prevent problems like robo-signing. That’s where some lenders didn’t properly review all the individual details of the cases or follow all of the required procedures.

“In most of those cases, the borrowers were really behind on their payments and would eventually have lost the homes, anyway,” Ghent says. “Fraud is unacceptable, but it was also a case of sheer volume. If those particular states had required less paperwork, that’s what might actually have helped prevent more robo-signing.”

Ghent emphasizes that getting rid of the patchwork of different state laws would ultimately benefit the housing market as a whole.

“Can you imagine how much money, time and resources we could save, if we didn’t have 50 different sets of laws, paperwork and legal-expertise requirements?” she asks. “Again, there appears to be no real economic reason for the differences. Many of these laws date all the way back to the 1800s, and some were changed just after the Great Depression.”

Overall, Ghent has one big message for those who can influence the process in the future.

“Nobody pays attention to mortgage laws for 50 to 60 years at a time,” she says. “They only examine these laws after a major event, so the time to change is now.”

Ghent’s research on the history of America’s mortgage laws can be found online at

Are Your Investments Safe Or Risky?

Risky Investments: How Much Of Your Porfolio Is Risky?

It’s been only four years since our Great Recession, and the investment world has changed drastically. Many investors are thinking, planning and attempting to grow their wealth more cautiously. In many cases, it’s not about growth but preserving what one already has.

It wasn’t long ago when general planning of life was much simpler. We live in a constantly changing world of politics, finances, technology, healthcare and social integration. These elements will continue to change, so we must understand and take control of our decision-making.

When making financial decisions it is important to know how much of a portfolio is considered risky and how much of it may be considered less risky.

There is no investment that is 100 percent safe, but there are some that can be less risky than others.

Most investments can be analyzed by considering three different factors: an investor’s potential loss of principal, loss of purchasing power, and illiquidity.

An investor’s risk tolerance will vary from person to person. When factoring the amount of risks within investments, it is critical to understand the investment and the risk for potential loss. We also need to be aware that our dollars today will most likely be worth less in the future; therefore, our purchasing power is at risk. Some investments that have surrender costs or are tied to investment strategies, such as real estate, can restrict the liquidity needs of investors. This is another form of risk that investors must be aware of, specifically when considering long-term investments. Generally, the greater an investment’s possible reward over time, the greater its level of price, volatility or risk.

Remember, the important factor is to have clear goals so that investment strategies will fit within the risk you’re willing to take. These goals should involve not only the growth potential, but also the amount of safety within the investment. Investing a portion in more risky investments allows for growth, and having a portion in less risky type of investments helps reduce risk within a portfolio. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in a declining market.

Another way to consider investments in a portfolio is to identify the investments that clearly do not fit within the guidelines of your safety level. These should be excluded right away. Avoiding big mistakes is a form of safe decision-making. Some examples are: avoiding long-term surrender investments, avoiding investments you don’t understand, and lumping all of your investments in one type of strategy or institution.

We consider risk in our lives in many ways and it is important to consider risk in our financial decision-making. We must look at the big picture and refrain from only considering the potential return because those results can quickly change. Identifying specific goals can make it much easier for investors to choose appropriate investments for their needs. Goals help us keep investments on target, avoid making big investment mistakes, and refrain from investments that are not appropriate for our needs.

For more information about risky investments, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc. This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.
Hope for Industrial and Office Markets

Hope On The Horizon For Industrial And Office Markets

As jobs return to Arizona, industry experts predict a brighter future for the industrial and office markets

After 4 to 5 years of being bludgeoned, the Metro Phoenix industrial and office markets appear to be on the mend.

“It has been our belief that in order for the industrial and office segments to return to health, the Metro Phoenix housing market would first need to be firmly entrenched in recovery — and it is,” says Chris Toci, executive director, Cushman & Wakefield of Arizona.

As one of the four states hammered during the subprime housing fiasco, Arizona — specifically the Valley — received more than its share of negative press during the Great Recession. Arizona’s fall from grace was hard as the state witnessed a peak-to-trough decline in the median single-family home price of about 55%.

According to the Arizona Regional Multiple Listing Service (ARMLS), median home prices in Phoenix peaked in June 2006 near $265,000 and hit bottom near $120,000 first in March/April 2009 and then again in late 2010 after the $8,000 new home price stimulus was withdrawn. Th rough 2Q 2012, the median home price is $147,960, 24.9% higher from the lowest point in 2Q 2011.

“The key metrics to indicate a bottoming real estate cycle are one, trend reversal on price, and two, an increased velocity of sale transactions,” Toci says.

With the median home price 25% higher than 2Q 2011 and with annual sales of single family residences approaching, and in some instances exceeding, peak levels in 2005, there are indications to suggest that Arizona has bottomed in the housing market. Continued reduction in housing supply — combined with elevated demand from new home buyers and investors purchasing at deep discounts — have led to new affordability levels which have had the impact of attracting major employers to the Valley, namely American President Lines (APL), Amazon.com, eBay/PayPal, Safelite Auto Glass, Transperfect and Power One.

Both the Metro Phoenix industrial and offi ce markets are the beneficiaries of this employment growth. In 2005, Phoenix was No. 1 in the nation in terms of job growth with 103,800 new jobs added. Three years later, in 2008 and 2009, Phoenix lost nearly 230,000 jobs.

During that time, the industrial market, with a current base inventory of 263 MSF, suffered negative absorption of 2.3 MSF and 2.8 MSF, respectively. Similarly, the office market, with a current base inventory of 78 MSF, suffered negative absorption of 1.1 MSF each year in 2008 and 2009. With 2010 being a transition year, 2011 witnessed 6.1 MSF and 1.1 MSF of positive industrial and office absorption, respectively. 1Q 2012 trends are continuing with nearly 600,000 SF of industrial and 210,000 SF of office absorption, respectively.

“Phoenix is leading the national recovery in housing and commercial development,” says Kurt Rosene, senior vice president for The Alter Group. “The current activity from potential corporate relocations looking at Arizona are at an all-time high. Phoenix is on every site selection list, based upon affordable housing, strong educated employment base, the availability of zoned land, a relatively easy development process and a proactive state government that keeps signing additional economic incentives into law.

“We believe that all of these factors will combine to cause positive job growth in Arizona, maintaining the recovery that has already taken place in the industrial distribution sector,” Rosene adds.

According to Toci, rental rates for the industrial sector are beginning to firm with strong rental increases projected within the next 12 months across many of the submarkets. Office rents in certain submarkets are beginning to firm and will continue to do so in those submarkets with rapidly declining vacancy rates. More peripheral office submarkets will take more time to chew through excess supply levels generated in the last development cycle.

“After nearly five years of ‘chill’ in Phoenix, institutional investors are beginning to lift their restrictions for acquisitions,” Toci says. “As trite as it sounds, blue sky and sunshine will once again prevail and will continue to attract residents from the frozen tundra of the Rust Belt.

“The systemic challenges related to California’s deep budget deficit will serve as a catalyst for future growth in Phoenix and we will once again demonstrate that the Valley of the Sun’s resilience should never be taken lightly.”

Industrial outlook

“Net absorption of industrial space slowed in the first quarter following a 2-year run where tenants moved into a net of more than 12 MSF. The easing pace of absorption was not a function of a retreating demand, however, but rather a function of a lack of available product, particularly among large users.

“Tenant demand for large blocks of space has been driving the local industrial market, and will fuel future development. After peaking at approximately 20% in early 2010, vacancy in industrial buildings 250,000 SF and greater fell below 7% in the first quarter, well below the rate for all industrial properties in the market and nearly identical to levels achieved from 2002-2006.”

— Bob Mulhern, managing director, Colliers International

“The Metro Phoenix industrial market has seen 2+ years of growth as demand among users continues, resulting in declines in vacancy and positive absorption. Large users, 250,000 SF and greater, continue to be active and have fueled the growth in the Southwest Valley. With only three or four viable options in this size range, Phoenix will see both spec and build-to-suit development projects break ground this year. In 2012, and specifically during the second quarter, there has also been renewed interest from mid-size users looking for 100,000 to 200,000 SF of industrial space. Growth among the mid-size user, continued interest from large users, and developers willing to pull the trigger on new development are strong indicators that the Phoenix will continue its positive trend as one of the country’s leading industrial markets.”

— Brad Ahrens, vice president, Cassidy Turley BRE Commercial

“With the banks beginning to loan to owner-occupied small business industrial sites, I predict that smaller industrial spaces will become scarce and the average price will begin to rise. A small business person can now purchase a building with an equal to or lower mortgage payment than lease payment and only put down 10% for an SBA loan.

“This re-entering of the banks into industrial building loans should start to slowly drive up prices.”

— Rex Griswold, VP sales & leasing, Commercial Properties Inc.

Office outlook

“During the first quarter of 2012, the Greater Phoenix office market failed to gain any notable momentum and similar performance is forecast for the remainder of this year. Vacancy ended the quarter at 22.1%, marking the 12th consecutive quarter where the rate was above 20%. While the local economy is showing signs of life, more sustained expansion will be needed to ultimately prompt developers to move new projects into the pipeline. The good news for the office market is the accelerating pace of employment growth in Metro Phoenix. The addition of more than 23,000 workers in the first three months of 2012 was the strongest quarterly growth in six years and forecasts for future expansion were recently revised higher.”

— Bob Mulhern, managing director, Colliers International

“All of the leading indicators — vacancy, rental rates and net absorption — were flat at the end of the first quarter. However, everyone agrees that we are seeing much more tenant activity in the market whether its calls, tours or proposals. Based on this increased first- and second-quarter demand, I believe we will look back at year-end and see significant leasing activity in the third and fourth quarters. Our sense is that the indicators will move from flat to positive as vacancy declines, net absorption increases and rental rates start to improve in the metro Phoenix office market.”

— Tyler Wilson, vice president, Cassidy Turley BRE Commercial

“The office market remains mired at 27% vacancy. After a reasonable 2011, net absorption reverted to negative in 1Q 2012. We continue to be bullish. Long term, however, we need job creation from basic industries to spur expansion and a lowering of the vacancy rates. As long as vacancy stays at this level, there will be downward pressure on rents. We are still surprised at some of the low terms we have been able to negotiate for tenants we represent. “One bright spot is Class A properties. They are leasing up (at the expense of Class B properties) and have been able to tighten their leasing criteria in select areas.

— Craig Coppola, principal, Lee & Associates

“To date, 2012 is showing a lot of positive signs. Tenants are certainly active relative to that of 2010 and 2011. Businesses seem to be gaining confi dence in the market as well as in their own industries and in turn are looking to relocate and expand. Distressed properties are being traded and struggling owners are being replaced with stable, healthy owners that are in a much better position to raise funds for capital and tenant improvements and to sign leases at rates in line with this environment.”

— Justin Horwitz, senior advisor, Sperry Van Ness

“Per square foot sale prices will increase throughout 2012, especially for assets in good locations with 80% occupancy or higher. We will experience cap rate compression due to a scarcity of good assets on the market and the influx of institutional investors that have been priced out of larger/coastal markets.

“Rental rates will remain relatively fl at through 2012 and incentives (free rent, higher fees, etc.) will likely remain unchanged. We should experience rental increases in 2013, as the vacancy for Class A and B spaces begins to fall, and incentives will begin to decrease.

“Over the next 12 months, we will see a handful of build-to-suits and pre-leasing of certain planned developments (in core markets), with limited speculative development taking place.”

— David Carder, senior vice president, CBRE

“The office market is still scraping along the bottom and will remain there until more jobs are created. Companies are taking advantage of this huge buying opportunity to own their space and reduce and control their occupancy costs.”

— Craig R. Trbovich, commercial real estate advisor, CPI

Today’s market

  • We are still experiencing a high number of well known companies searching for large, big box, distribution space in the West Valley. The amount of spaces more than 300,000 SF has severely decreased over the past 2 years leaving the user who is looking with a minimal amount of spaces to choose from. There are currently only 2 options left fora tenant that needs 300,000 SF or more.
  • There are 5-6 well known developers who are in various stages of design for speculative distribution style buildings ranging from 400,000 SF up to 1 MSF. All of these facilities are located in the West Valley.
  • Rental rates remain low in the West Valley but most anticipate a rise in the rates due to the increased volume of activity and the decreased number of functional spaces.
  • There are two build-to-suits underway in the West Valley, Dick’s Sporting Goods for 600,000 SF and TJ Maxx for 1 MSF. There are also a few on hold, a large boot company and a door company.
  • In the East Valley, the sales market remains strong for the owner/user type facilities with 11 buildings being sold of more than 40,000 SF in 2011 and a number of buildings in escrow of the same size range now.
  • Smaller facilities from 5,000 SF to 20,000 SF for sale are difficult to find. The sales prices have dropped but the inventory is also low.
  • The leasing activity in the East Valley is slow for the local and regional companies ranging in size from 5,000 SF to 25,000 SF. Most of these small companies have made it through the economic downturn and are now trying to recover. A large majority of them still rely on the “home-building” industry and as that market slowly returns so will their confidence.
  • Companies in the East Valley that are buying and leasing are in industries including aerospace, nutrition, technology and of course all of the contract work with Intel and its massive construction project in Chandler.
  • Overall, the sales activity for small buildings is up and trending that way. The product is hard to find for those buyers but most buildings that are for sale today have good activity.
  • Overall, the leasing activity for small space remains slow and the large distribution spaces remain robust.

Future market

  • Expect more build-to-suits by local and national contractors. While the market has a number of vacant buildings, the number of quality buildings available for sale is very low.
  • Expect 2-3 developers to break ground on speculative distribution facilities within the next year in the West Valley.
  • Expect to see a slight increase in rental rates in all sectors of the market, distribution, flex and multi-tenant.
  • The sales prices on buildings will increase faster than lease rates and outpace the leasing market.
  • Lenders will remain strict in underwriting, however, the SBA program will stay in place and allow the smaller buyers the ability to buy real estate.
  • Expect institutional investors to pay a premium for institutional grade product, as they are flush with cash and need to place it. Nationally, Phoenix is showing a turnaround and those who did not get in during the last cycle find themselves trying to get in on this cycle at a lower basis.
  • Source: Chris McClurg, principal, Lee & Associates

AZRE Magazine July/August 2012

valley partnership - AZRE Magazine May/June 2012

Valley Partnership Former Chairmen Discuss Phoenix Development – Part 1

Valley Partnership is celebrating 25 years as Metro Phoenix’s premier advocacy group for responsible development. In looking back – and also looking ahead – AZRE magazine brought together six former chairmen to discuss goals the group has successfully achieved and challenges that lie ahead.

With the commercial real estate industry making a slow recovery from the Great Recession, the advocacy role undertaken by a group such as Valley Partnership is magnified. “The surge in commercial real estate is evident,” says Richard Hubbard, president and CEO of Valley Partnership. “The comments from our past chairs provide great direction to Valley Partnership for the next several years. “With the increasing activity, it is imperative we re-energize our advocacy efforts with particular focus on the local communities while always monitoring our state and federal governments for any issue that affects our industry.” Participating were John Graham (JG), Sunbelt Holdings, chairman in 1989; Dave Scholl (DS), Westcor-Vintage Partners, chairman in 1990; Clesson Hill (CH), Grayhawk Development, chairman in 1997 and 1998; Jim Pederson (JP),  The Pederson Group, chairman in 1999; Pete Bolton (PB), CBRE/Grubb & Ellis (Newmark Grubb Knight Frank), chairman in 2004; and Charley Freericks (CF), DMB Associates, chairman in 2006. Rick Hearn (RH) of Vestar, the current chairman, served as moderator.

RH: During the past 25 years, has the level of economic development undertaken by local governments and the state been inadequate, adequate or exceptional?

PB: Frankly it’s all three. Over the years, it’s been inadequate, and it’s gone to adequate, and then I think in some cases it’s been exceptional. It also depends on which state we compare ourselves with because some states are exceptional and then some states are just barely adequate. And then you can go in the opposite direction, say inadequate, compared to Texas, and some of the other big ones across the country. Overall, we are doing a better job today.

CH: I would agree. I think there is lack of funding these days and I think that education has suffered greatly and that is a major infrastructure that needs to be rebuilt. Not just here but everywhere, and as we move forward and embrace new technology, it is a new way of life as we look toward the future.

DS: When I looked at this question, I really focused on the side of economic development and “are cities making investments?” I think that a lot of ways the cities have been trying to operate with their arm tied behind their backs. The constitution and our legislators have never really given our local government a whole lot of choices in their tool boxes. With the limited tools they have in there, they have done a pretty good job. I think that the industry I have been in has had a lot of city participation in economic development, and I think that they have been pretty aggressive about getting the most out of what limited tools the state’s constitutional statues have given.

RH: Charley, your company was impacted by this exact thing at Eastmark (in Mesa) in regard to Apple. What are your thoughts?

CF: Well it was not just Apple. It happened to us positively with First Solar. We were able to compete and win there. And with Apple, to be in the mix, I’m where Pete was. It is an evolution where economic development has come a long way since 1987. I had to think about 25 years, and I didn’t know I had been in the business that long. I look at what has happened now as the communication level of real prospects is very high and people know they’re coming and looking, which in the old days you would hear about it and it was here and gone. I’ve been in that side of the business almost my entire career chasing prospects from out of state. We come in second place to states that want to write checks. When we lose, we lose because somebody wrote a check and throws money at it to the prospect. I’ve never been a huge advocate at writing big checks. It’s a complicated business. I think we are doing a lot better chasing these deals and being in the running and again the tool kit is very limited.

JG: I’m actually optimistic about many things and this is actually one of them. My view is that being a young state one of the things that we did probably an amateurish job in early on was in economic development. I think that was a maturity problem not a “we didn’t quite get it problem.” With what we have now with GPEC and ACA and trying to address some of our structural and political and legislative problems, we got a really good pipeline of stuff that is being looked at and is being professionally handled.

JP: Certainly economic development depends on how you define it. A lot of people think that dangling a check in front of a major company is going to bring jobs into the state. But as Clesson mentioned, it’s more than that. It is infrastructure investment; it’s education and venture capital.

RH: Has Valley Partnership had a positive effect of creating a better image for developers?

Pete Bolton - AZRE Magazine May/June 2012

Pete Bolton

JP: There is a word that has been overused but I think that it is applicable. In this case, that is sustainability — the sustainability of our communities. It directly relates to our industry because we plunk down projects, neighborhoods or communities, and we depend upon a standard of living that is directly dependent on the rents that we get for our properties. During recession times, construction prices go down, land prices go down, but you have to achieve the rents if you are going to be successful at the end of the day. What Valley Partnership has done, by emphasizing how development relates to a sustainable lifestyle in the various communities where we live, is to look more beyond the block of where you are developing. It’s looking at your community, looking at your neighborhood. Looking at the various infrastructure investments that are critical to the kinds of things we do. We manufacture a product. And to manufacture the product, you need certain things, at least in the shopping center business. You need good tools. You need quality neighborhoods. You need good infrastructure investments. All of those things that directly relate to the level of rents we are going to get. In that regard I think Valley Partnership over the past 20 years has been excellent. I think it’s an organization that has emphasized the sustainability concept.

JG: I think the short answer is yes, that is has improved the reputation of how people view the development industry. The other part of that is the role that Valley Partnership will never go away because inherently we are in a conflict relationship with neighborhoods and other people. No matter how good of a job we did, it’s always going to be viewed that way. I think we have changed the conversation from one that was always in essence an adversarial, to at least everyone understanding that it is a two- or three-legged stool at a minimum, and that things have to be done by more than consensus. It has to be more by partnership and good conversation. That is why Valley Partnership will always have a role to the extent of how we want to have it because no matter how good a job we do, we will have different rubs with different constituency groups. But I think the role we need to continue to take is being the group that is not adversarial, rather constructive in those conversations for solutions.

CF: I was more optimistic on this one. My immediate reaction was absolutely that my focus was on the government. As an industry dealing with all of the city, town and county issues for regulations of our industries locally, I think Valley Partnership’s reputation really had a big impact because we have rational and moderate voices coming through consistently saying, “Gee, your regulation here is either irresponsible or maybe needs a little tune-up or maybe you missed a big idea here.” So from the professionals within our industry that we deal with, staff level government in particular, I think our reputation over the past 20 years has improved radically. I’m with the other guys here. The challenge we face will always be in conflict with residents and neighborhoods, and we need to keep doing our jobs well to keep doing that and not be controversial.

DS: I agree. I think that whenever you look at an image, you have to talk about which audience you are talking about. I think among consumers or neighborhood groups and homeowners, I don’t know if they have enough regular engagement to really understand who Valley Partnership is. I don’t know if the developers’ image among the average fellow on the street has improved that much. I agree with Charley. I think we are front of mind when a city or a local government says, “We need input, or we are thinking about changing this part of our code.” I think we are one of the first people they think of to come to the table and have the dialogue; whereas before Valley Partnership, it was a very splintered industry, and I don’t think there was a common voice and more importantly a common set of ears that listened to cities when they needed have that dialogue, too. So I think it has been vastly improved.

PB: What Valley Partnership has really accomplished with the local municipalities is to provide them with a dependable, educated voice. I remember sitting on a board and something would come up and a local municipality would ask, “Can you guys put something together on this billboard issue?”, and we would have six very educated voices at the table later that afternoon. That just doesn’t happen in any other organization. From my side of the business (brokerage), that has been extremely positive. As soon as we get the local municipalities on board, which they are, the neighborhoods rarely follow, but they don’t have much depth of voice anymore because if the politicos are truly believing the intelligent voices of the marketplace, they have a tendency to be more objective.

CH: I think part of the sustainability of 25 years of leadership is that Valley Partnership has been able to maintain frontline guys and women who are involved in development and kept them passionate about Valley Partnership. It has never faded away or lost its image in the cities to know that if we come, we will get quality people stepping up and get engaged and deliver some kind of end product. I think it’s a tribute to the leadership inside Valley Partnership to maintain that constant level of quality people.

Continue reading this article.

For more information on Valley Partnership, visit Valley Partnership’s website at valleypartnership.org.

AZRE Magazine May/June 2012

Steve Grauer - AZRE Magazine May/June 2012

Q&A: Vice President/Western District Manager Steve Grauer

Steve Grauer shares how he got started in the construction industry and what he thinks about the future of Hensel Phelps Construction in Arizona.

Q: How did you get your start in the construction industry?

A: As a young boy, I was constantly around the construction business. My father was a vice president of an interior subcontractor in the Northwest. During high school, my brother and I worked part time on residential projects doing laborer work and light carpentry. While attending college (University of Washington), I continued to work on commercial projects as well. I knew from an early age that construction was an industry that I wanted to be part of and that would provide a challenging career. Construction has certainly done that for me.

Q: Hensel Phelps has made its mark in Arizona for more than 30 years, with 30 projects worth an estimated $1.8B. How proud are you of that mark?

A: I am extremely proud to continue the legacy whose foundation was set in 1979. A repeat corporate client, IBM, brought us to Tucson from Colorado. Our continued success with IBM on their projects in Tucson created the opportunity to continue to work together and took us further West to California, where today we have two district offices. The construction market has changed greatly in Arizona since then. With the approval of Alternate Project Delivery Methods in the early 2000’s, the diverse portfolio of project types that Hensel Phelps undertakes, as well as the experience of our people on those projects, has allowed for growth and opportunities with many new owners. Regionalization and establishing a permanent presence here is key to developing longterm relationships with owners, subcontractors, designers, trade associations and the communities our people live in. We are proud to live and work in a community and state as great as Arizona.

Q: How did Hensel Phelps weather the Great Recession, which took its toll in Arizona on the commercial real estate industry?

A: This year marks Hensel Phelps’ 75th anniversary in business. From that first farmhouse in Northern Colorado that Hensel built, we have come a long way and seen many tough and challenging times. The Hensel Phelps organization and the Western District each had their 3 best years in our 75-year history during the Great Recession. We attribute this to our repeat clients that continue to entrust their projects to us, relationships in the Industry as a whole and the unparalleled performance of our people. We are grateful for all of them.

Q: Hensel Phelps is completing its portion of PHX Sky Train this year and embarking on another major project – the Solar Tower in La Paz County. How optimistic are you about Hensel Phelps’ presence in Arizona the next 10, 20 or even 30 years?

A: I am extremely optimistic and confident about our continued presence in Arizona in the future. In the construction industry, change is constant. Market sectors and economic conditions are always providing challenges to change. It is a matter of survival. While we may not look exactly the same 30 years from now, we will be here.

Q: You went to college in Washington and now live in Arizona. How important is the Western Division to the overall picture at Hensel Phelps?

A: The Western District, covering Arizona, Southern Nevada, New Mexico and Oklahoma, is extremely important to Hensel Phelps. Establishing a local presence, committing to the communities in which our families live and developing relationships is critical to our continued success. Prior to our corporate commitment of establishing a district office in Arizona, these states where covered by other district offices. Our CEO and President, Jeff Wenaas, is from Tucson and attended both UA and ASU. There is a strong commitment from the top. Arizona and the Southwest have been and will continue to be very important to us. We are the local contractor with the national reach!

Q: As Vice President and Western District Manager, what project (or projects) are you most proud of?

A: As a district manager, I am proud of all of our projects, but most importantly our people and performance on those projects. We are fortunate to get the opportunity to perform a wide range of project types for both public and private owners, utilizing a wide variety of project delivery methods. The depth of experience of our people allows them to seamlessly operate on these different projects and exceed our owner’s expectations in the overall construction experience.

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  • Number of years with HP: 22, with stints in Washington, California, Nevada, Utah and Colorado.
  • Number of years as Vice President/Western District Manager: 4
  • Family: Wife Stephanie and daughters Morgan and Skyla; and two Labrador Retrievers, Dakota and Mocha.
  • Hobbies: Traveling, fishing, hunting and shooting.
  • Favorite sports teams: Denver Broncos – and of course the Arizona Cardinals.


For more information on Steve Grauer of Hensel Phelps Construction, visit Hensel Phelps’ website at henselphelps.com.

AZRE Magazine May/June 2012

Post-Recession Employment Trends, Pew Research

Infographic: Post-Recession Employment Trends

Regarding employment trends, the sluggish recovery from the Great Recession has been better for men than for women, according to a new Pew Research Center analysis of Bureau of Labor Statistics data.

The post-recession trends are a sharp turnabout from the gender patterns that prevailed during the recession itself, when men lost more than twice as many jobs as women.

Employment trends during the recovery have favored men over women in all but one of the 16 major sectors of the economy, identified in the report. This infographic reveals the gender patterns of employment during the two years of economic recovery.

Post-recession employment trends:

Post-Recession Employment Trends




NAIOP, AZRE Magazine September/October 2010

NAIOP Roundtable 2010: Q&A With Members of NAIOP

NAIOP Roundtable 2010: Q&A With Members of NAIOP

Members of NAIOP-AZ sat down with AZRE magazine in a roundtable discussion, discussing the state of the local commercial real estate industry.

NAIOP Roundtable 2010 NAIOP Roundtable 2010 Participants

NAIOP Roundtable 2010 Participants:

1 — DW: Deron Webb, Managing Principal, Wentworth Webb & Postal 5 — BM: Bob Mulhern, Managing Director Greater Phoenix, Colliers International

2 — JB: Jodi Bailey, VP Property Management Services, Transwestern

6 — KR: Kurt Rosene, Senior VP, The Alter Group
3 — WS: William L. Spart, Senior VP & Manager, Middle Market Real Estate, Wells Fargo Bank 7 — TH: Todd Holzer, VP of Development, Ryan Companies US
4 — MH: Mike Haenel, Executive VP, Industrial Group, Cassidy Turley/BRE Commercial 8 — JD: John DiVall, Senior VP, Liberty Property Trust


TH: We are more than two years into the so-called “Great Recession.” How much longer will it last? Will Arizona pull out the same time as the rest of the nation? Since the commercial real estate industry is closely tied to the job market, it’s been a bumpy ride.

Q: What is different in July 2010 in our local commercial real estate industry than a year ago?

MH: The two biggest differences today compared to a year ago, are that tenant demand is on the rise and there are limited distressed industrial real estate opportunities available for sale. It’s important to note that, because we have not seen the oversupply of distressed real estate hit the market, values are higher than we thought they would be given the overall market conditions. This has translated into a significant and noticeable increase in tenant demand.

JD: It is marginally better. As part of the Arizona NAIOP, I wish I could say substantially better, but it’s not. There is more activity, but rates are still depressed, and we are now in the summer doldrums. We are clearly experiencing a jobless recovery. With no new construction on the horizon, we should gradually absorb space and improve.

WS: There are more lenders jumping into the market. We are seeing conduit, CMBS, life and other banks. A year ago we did not see much activity.

Q: How would you compare our Metro Phoenix commercial real estate market to other major markets throughout the Western U.S.?

BM: Phoenix’s metro commercial real estate market has been hit harder than most Western cities, with Las Vegas being the exception. At the end of the second quarter Phoenix vacancies for office (29 MSF/22.5%), industrial (41 MSF/17.7%) and retail (28 MSF/13.3%) were all in historically high ranges, and they remain significantly higher than other Western cities such as Denver (6.7% industrial/14.8% office), San Diego (8.7% industrial/16.2% office), and Los Angeles (not including Orange County and the Inland Empire — 5.0% industrial/12.7% office). Most of the basic fundamentals that draw people to the Valley are still in place, but the lack of job growth, coupled with the depressed residential housing market, are continuing to act as detriments to a commercial real estate rebound. Recognizing these realities, it should be noted that multi-family sales, for which purchase financing is available, are very strong, and that foreign investors, especially from Canada, are entering the market and helping create some velocity in the private client sales market.

JB: Phoenix is a very dynamic commercial real estate market with a highly skilled labor force, an abundance of labor because we are a right-to-work state with competitive wages, and reliable, lower cost energy sources for large users. Ultimately, this means that we attract a wide variety of users from semiconductor manufacturers, biotech/life science laboratories, aerospace and Department of Defense manufacturing, as well as back office and data center occupiers of space. Each building occupier has their reasons for choosing Phoenix over other markets, but we find ourselves to be very competitive as compared to other regional markets.

TH: Phoenix is in the infamous Bermuda Triangle of both residential and commercial real estate, which also includes Las Vegas and the Inland Empire of California. Because of the housing market dive, cities in this area went into recession mode before the rest ofthe nation, and the drop in our economy has been greater than most. Los Angeles, San Francisco and Seattle keep their economy above water due to Pacific Rim trade. Denver has energy and high tech, and Salt Lake City was not overbuilt. Texas has fared well due to energy and the George W. Bush presidency. It will be a long and difficult struggle for Metro Phoenix to pull out of the tough times it finds itself in.

Q: How are the boycotts and state public policies affecting our industry?

BM: I have not heard one comment about the boycott in our offices or from any of our clients, which is an indication to me that the boycotts, though serious issues, do not rank high in the commercial real estate priorities of concern. Shrinking rents and occupancies are a much bigger issue these days.

Regarding public policy, the inability of the federal and state governments to implement policies and programs to stimulate job growth is prolonging our recession. There will not be a jobless recovery so, until jobs are created, our industry is continuing to experience high levels of tumult.

Public policy toward banks is also prolonging our recession as the de-leveraging process is being allowed to be spread over time, preventing the painful, but inevitable total market reset necessary to stabilize the real estate market and allow it to begin to create some positive momentum.

TH: The boycotts are affecting the convention and tourist sector, but I do not believe that they have affected the office and industrial markets here in Arizona. Companies choose to come here due to the ease of doing business and quality of life, not due to our state’s policy on immigration. That being said, our state needs to make job creation and business attraction a primary focus. We need the Legislature and the governor’s office to make jobs our No. 1 priority. I suggest a formal jobs bill from our legislative leadership should come forward that includes a lower tax burden on hiring businesses and commercial property owners.

DW: After the initial national “knee jerk” reaction of higher deficit spending and dubious stimulus policy, leaders underestimated the outcry and we did not do a good job of getting the message out nationally. Projects have been stalled and some major players are taking a wait-and-see attitude. Any time there is substantial disturbance, those active in the market cool.