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Commercial Real Estate Market - AZRE Magazine March/April 2011

NAIOP: Commercial real estate strongest since economic recovery

The commercial real estate development industry grew at the strongest pace since the economic recovery began in 2011, according to an annual report on the state of the industry released today by the NAIOP Research Foundation.  The report, entitled “The Economic Impacts of Commercial Real Estate,” determined that the economic impact realized by the development process rose a significant 24.06 percent over the previous year, the largest gain since the market began to recover in 2011. Direct expenditures for 2013 totaled $124 billion, up from $100 billion the year before, and resulted in the following economic contributions to the U.S. economy:

·       Total contribution to U.S. GDP reached $376.35 billion, up from $303.36 billion in 2012;
·       Personal earnings (or wages and salaries paid) totaled $120.02 billion, up from $96.75 billion in 2012; and
·       Jobs supported (a measure of both new and existing jobs) reached 2.81 million in 2013, up from 2.27 million the year before.

The report says that the outlook for the remainder of 2014 and into 2015 is that the figures will continue to rise, with year-over-year growth expected in the range of 8-15 percent.

Commercial real estate development has an immense ripple effect in the economy, providing wages and jobs that quickly roll over into increased consumer spending.

“Commercial development’s economic impact is tremendous; simply put, a healthy development industry is critical to a prosperous U.S. economy,” said Thomas J. Bisacquino, NAIOP president and CEO. “As the uneven pace of the nation’s economic recovery continues, the industry seeks public policy certainty that bolsters investors’ and developers’ confidence. Despite this lack of assurance, we see positive indicators of a rebounding industry, but believe the industry could be more robust.”

Industrial, Warehousing, Office and Retail Show Strong Gains:

·       Industrial development posted a year-over-year gain of 48.5 percent due mainly to groundbreaking of energy-processing facilities.
·       Warehouse construction registered a third strong year of increased expenditures in 2013, gaining 38.1 percent in 2013. This is on top of 2012 growth of 28.4 percent and 2011 growth of 17.8 percent, showing a sustained increase in demand for warehousing space.
·       Office construction expenditures rose for a second year in 2013, up 23.3 percent from 2012.
·       Retail construction expenditures rose modestly for a third year in 2013, up 4.8 percent from 2012.

Operations and Maintenance Surge Even As Building Owners Cut Costs With Energy Efficiencies and New Technologies:

Through increased energy efficiency and advanced technology, building owners cut the average per-square-foot cost of operating building space in the U.S. by 14  cents, from $3.20/square foot to $3.06/square foot. Still, maintaining and operating the existing 43.9 billion square feet of commercial real estate space resulted in $134.3 billion of direct expenditures, and resulted in the following economic contributions to the U.S economy:

·       Total contribution to GDP in 2013 $370.9 billion;
·       Personal earnings (wages and salaries) totaled $116.8 billion; and
·       Jobs supported, 2.9 million.

Top 10 States by Construction Value for Office, Industrial, Warehouse and Retail:

1.     Texas
2.     Louisiana
3.     New York
4.     California
5.     Iowa
6.     Florida
7.     Maryland
8.     Georgia
9.     West Virginia
10.  Oregon

Four new states joined the list: Louisiana at No. 2, Maryland at No. 7; West Virginia at No. 9, and Georgia at No. 10. These states made the top ten list due predominantly to development of highly specialized and expensive energy-related processing facilities.

Illinois, Ohio, Massachusetts and North Carolina dropped off the top 10 list, slipping to Nos. 11, 14, 15 and 18 respectively. The report includes detailed data on commercial real estate development activity in all 50 states, and also ranks the top 10 states specifically according to office, industrial, warehouse and retail categories.

The report is authored by Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, and funded by the NAIOP Research Foundation.

Where Arizona ranks nationally in terms of value of construction:

>> Office……………………………… 10
>> Industrial………………………… 41
>> Warehouse ……………………… 8
>> Retail/entertainment ……..22

>> Overall..…………………………..22

The Maricopa County Court Tower in Downtown Phoenix exceeds the OEI criteria by more than 25 feet.

NAIOP Arizona urges FAA to retract proposed OEI procedures

The Arizona Chapter of NAIOP has urged the Federal Aviation Administration to retract the proposed One Engine Inoperative (OEI) Procedures in the Obstruction Evaluation Studies published in the Federal Register on April 28.

“While  NAIOP-AZ fully supports the FAA’s role to oversee aviation safety, we oppose this proposed OEI policy, note that it does not address safety, does not contain adequate justification, penalizes unfairly communities surrounding airports by impeding much needed economic development, and lacks rigorous cost-benefit analyses,” Tim Lawless, President of NAIOP Arizona, said in a letter to John Speckin, Airport Obstruction Standards Committee, Region and Center Operations, Office of Finance and Management in Washington, D.C.

The FAA is considering a substantial reduction in the maximum height limit of buildings near U.S. airports to ensure aircraft have clearance to continue an ascent should an engine fail at takeoff. The proposed policy would limit building heights of new commercial projects within 10,000 feet of the end of the runway to no more than 160 feet tall.

NAIOP Arizona is the largest commercial real estate trade association in the state and one of the 10 largest business trade associations in Metro Phoenix. It also represents the economic interests of those who construct commercial office and industrial buildings and advocates for policies that bring high-wage jobs to Arizona.

“We especially have a keen interest around one of the largest airports in the U.S., Sky Harbor International Airport in Phoenix where a number of our members have existing and planned buildings in multiple communities in relatively close proximity to the airport,” Lawless said in the letter. “In short, we are of the belief that if the policy determination outlined recently in the Federal Register is driven by economic considerations, we believe the policy will have a chilling effect on developers constructing new facilities and on firms and tenants who may want to own existing facilities for investment purposes should a facility be close to or exceed the lower height requirements.”

An independent study released  last year by New York-based real estate consulting firm Weitzman Group determined that a new FAA policy would impact existing and future developments around  almost 400 private and public airports across the country. About 4,000 proposed projects would be affected, the study said.

NAIOP Arizona’s letter states the proposed OEI policy would have significant impact on Tempe and Phoenix. According to an article on the Phoenix Business Journal’s website, about 60 projects Valley wide would be affected.

>> In Downtown Phoenix, the recently completed, $341 million Maricopa County Court Tower exceeds the OEI criteria by more than 25 feet, and the recently completed Virginia G. Piper Sports and Fitness Center at the Arizona Bridge to Independent Living would also be grandfathered-in under the policy, unable to add any height with roof-top equipment or signage without a new determination.

>> In Tempe, Zaremba Group’s West 6th apartments comprise two towers that exceed the policy’s limitation by 209 feet at maximum.

“We recommend that the FAA withdraw its proposed OEI policy,” Lawless said in the letter. “This is a proposed solution in search of a problem.  If it intends to move forward with such a fundamental change, the FAA should only so if it has conducted the necessary economic and efficiency analysis that would (a) justify shifting the economic burden from airlines to communities, and (b) justify a change in the underlying rule, with an adequate opportunity for the public to provide meaningful comments on the FAA’s justification for the proposed policy.

“Should the FAA move forward, any OEI policy should, at a minimum, provide for certainty to developers and communities who engage in long-term planning, take into account the impacts and views of all stakeholders – not just in the aviation community, and be subjected to robust legislative rulemaking requirements of the Administrative Procedures Act, including a full cost- benefit and Federalism analysis.”

Comments are due by July 28.

Ryan Companies promotes John Strittmatter to chairman

Ryan Companies US, Inc. CEO Pat Ryan announced today the promotion of longtime SouthWest Division President John Strittmatter to Chairman of the SouthWest Division. Strittmatter opened Ryan’s Phoenix office as its President in 1994 with just two employees.

John Strittmatter1Today the company employs 125 in its Phoenix and San Diego offices and has been responsible for the construction and development of more than 20 million square feet in Arizona and California.

“Ryan has been successful in Arizona and California because of John’s leadership and the relationships he has built and sustained,” said Pat Ryan. “He has maintained an unparalleled commitment to the company, its employees, our customers, our vendors and the community and his reputation is impeccable.”

In addition to his responsibilities as President of Ryan Companies SouthWest Division, Strittmatter has been actively engaged in the community and will continue to do so as Chairman. Currently, he is Chairman of the Brophy College Preparatory Board of Trustees, a Director of the Banner Health Foundation Board and an Advisory Board Member at US Bank in Phoenix. John and his wife, Pat, are also co-chairing the new Banner MD Anderson Cancer Center “Hope Starts Here” campaign.

“We are so grateful for John’s constant support of Brophy, its students, faculty and campus. His service to others is just remarkable,” said Father Eddie Reese, President of Brophy.

“John stepped up to co-chair the “Hope Starts Here” campaign at a critical time in the evolution of our cancer center,” said Andy Kramer Petersen, President and CEO, Banner Health Foundation. “His involvement already has saved lives and will continue to change the lives of cancer patients for decades to come.”

With Strittmatter at the helm, Ryan Companies in Phoenix has received numerous industry awards. In 2013 alone, Ryan Companies was named Owner/Developer of the Year, Firm of the Year and General Contractor of the Year by NAIOP. Ranking Arizona named Ryan Companies Developer of the Year in 2014, Ryan’s 12th year receiving this accolade. Strittmatter was honored with the Best of NAIOP Lifetime Achievement Award in 2010.

CBRE

CBRE Office Brokerage Team Wins NAIOP Award

A team of brokerage professionals in CBRE’s Phoenix office, Tom Adelson, Jim Fijan, Jerry Roberts and Corey Hawley, were awarded as the Office Broker Team of the Year by the Arizona Chapter of the National Association of Industrial and Office Properties (NAIOP). For Adelson and Fijan, who have worked together since 1983, this marks the 19th time in 24 years they have won this award. Roberts joined the company, and team, in 1988 and Hawley in 2004.

Executive Vice Presidents Adelson, Fijan, Roberts and Senior Associate Hawley are consistently among the top producing teams in CBRE’s Phoenix office. Since the beginning of their careers and partnership at CBRE, the team has been the most productive sales professionals with the greatest number of transactions in the Phoenix office. In 2013, the team completed 140 sale and lease transactions representing more than 3.55 MSF of office product and 2.7 acres of land.

“What’s most unique about this team is our ability to keep evolving over the years,” says Roberts. “Early on we realized that if we all focused on the parts of the business that came most naturally to us and enjoyed we’d be able to cover a lot more ground and touch a lot more clients.”

“Over the past 22 years that formula has worked well, but what is most important is that everyone on the team has our clients’ best interests in mind,” said Fijan. “Although we try not to overlap pursuits, we all know what the other team members are working on and we are constantly exchanging ideas and strategies to ensure our clients get the benefit of our team’s market knowledge and experience as a whole, as well as ensure all of our clients’ expectations are fulfilled. We’re all extremely knowledgeable about the office real estate market, but when you combine our individual skill sets the capabilities we have as a whole are quite impressive.”

Fijan, along with his associate Will Mast, focuses on office investment and land sales and consistently leads the market in transaction volume. Fijan has, thus far in his career, closed 90 million square feet in transactions for a total consideration of $9 billion. Adelson represents occupiers and corporate tenants looking for space in the market or around the world and maintains the status as the preeminent corporate services broker in Arizona and the country. Roberts, along with Hawley, provides landlord leasing services to owners and developers of commercial real estate throughout the greater Phoenix area. In 2013 alone, they leased over 1.6 million square feet and represented 18 different landlords in 48 lease transactions.

“Winning NAIOP’s ‘Best’ award is as much a testament to the high-level performance of the brokerage team as it is their ability to leverage CBRE’s extensive market reach and comprehensive platform of services,” said Craig Henig, senior managing director and Arizona market leader.  “But the big winners are our clients, who benefit from the local market knowledge and industry-specific expertise these individuals, and our company, provide.”

Bill Petsas, WEB

EastGroup Properties’ Bill Petsas Receives NAIOP Award

Bill Petsas, senior vice president at EastGroup Properties, received the Lifetime Achievement Award at the 2014 Best of NAIOP event held at the Arizona Biltmore.

Prior to joining EastGroup in 2000, Petsas was a VP with Prologis where he forged a career in the development, acquisition, leasing and management of industrial real estate. At EastGroup, Petsas oversees 34MSF of industrial space with a total market capitalization in excess of $2.8B.
The Lifetime Achievement Award is presented by the Arizona Chapter Board of Directors to an exemplary individual who has made a significant and positive impact on the office and industrial commercial real estate market in Arizona over a period of no less than 15 years.

It was also a big night for Ryan Companies US, Inc. and Marina Heights – Ryan’s $750M, 2MSF development in Tempe.  Marina Heights won the prestigious Transaction of the Year and Talk of the Town awards.  Ryan Companies was named Owner/Developer of the Year, Firm of the Year, and General Contractor of the Year. Ryan is the owner/co-developer and general contractor for Marina Heights. Sunbelt Holdings is the other co-developer and The DAVIS Experience is the project architect.

Winning top broker awards were Jim Wilson, Cushman & Wakefield of Arizona, Industrial Broker of the Year; Tom Adelson, Jim Fijan, Jerry Roberts and Corey Hawley, CBRE, Office Brokers of the Year; and Mindy Korth, Colliers International, Investment Broker of the Year.

Economic Impact Project of the Year went to Able Engineering – Phoenix-Mesa Gateway Airport. JLL was named Brokerage House of the Year.

The event, organized by NAIOP Arizona, was attended by 900 commercial real estate professionals.

Molly Ryan Carson, WEB

NAIOP-AZ Elects Molly Carson to Board of Directors

The Arizona chapter of NAIOP, the commercial real estate voice for the state, elected Molly Ryan Carson, Vice President of Development with the Ryan Cos., to the 2014 Board of Directors this month.

 

Carson joins the board leadership of NAIOP Arizona Chapter with a three-year term, after having been an active NAIOP member for more than 5 years.

 

Chairman Megan Creecy-Herman of Liberty Property Trust said, “Our Board of Directors is made up of a very esteemed group of commercial real estate leaders from throughout the Valley and we are proud to welcome Molly as the newest member of our leadership team.”

 

With over a decade of experience at Ryan as a developer, Carson offers unique insight into the varied aspects of real estate development. As Vice President of Development, she is responsible for site selection and acquisition, municipal use permits and approvals, design and construction coordination, financial packaging and lease or sale negotiation at Ryan Cos.

 

Carson brings extensive leadership with other local associations and philanthropic organizations to the existing 18-member board.

Keaton Photo 3.19.14, WEB

Legacy Capital’s Keaton Merrell Named NAIOP Outstanding Chapter President of the Year

Keaton Merrell, co-founder of Legacy Capital Advisors, Phoenix, was recently named Outstanding Chapter President of the Year for the National Association of Industrial and Office Properties (NAIOP) at the Chapter Leadership and Legislative Retreat in Capital Hilton, Washington, D.C.

 

As part of the 2014 NAIOP Chapter Merit Awards, Merrell was recognized for his 11 years of service and seven continuous years of active leadership with the Arizona NAIOP chapter, having served as program chair, treasurer, Developing Leader mentor, as well as significantly expanding the chapter’s philanthropic efforts. Through Merrell’s efforts, the chapter rallied the efforts of member firms to feed more than 10,000 homeless in Phoenix throughout the year.

 

He also was active legislatively to promote economic development and job creation and forged coalitions with like-minded organizations to advance the industry and provide greater industry education.

 

The Outstanding Leadership by a Chapter President award identifies contributions to the local chapter based on chapter growth during their term, new programs and events and legislative knowledge and involvement, as well as their commitment and capabilities as president. “Keaton’s leadership has taken our philanthropic activities to a higher level as he exemplifies giving back to the community.  We greatly appreciate his stellar service on behalf of our trade association and congratulate him for winning this prestigious national award.“ NAIOP Arizona Executive Director Tim Lawless stated.

Next Gen Industrial

Industrial Space Demand Could Approach Record Levels in 2014

A new report released by the NAIOP Research Foundation says that net demand for industrial space could reach 250 million square feet in 2014, surpassing the near-record level of 233 million square feet set in 2013. This significant level of absorption is due to the expected return of housing construction, which requires warehouse space for building materials, appliances and furniture; the continued expansion of e-commerce which shifts goods from retail stock rooms to fulfillment and distribution centers; and the improving economy expected to grow by more than 3 percent.

“Demand for all types of industrial space – warehouse, fulfillment/distribution center, manufacturing and flex – is robust,” said Thomas J. Bisacquino, president and CEO of NAIOP, the Commercial Real Estate Development Association. “An intense increase in e-commerce has steepened the demand for distribution and fulfillment centers, and companies are gobbling up space as a result.”

Study authors, Dr. Hany Guirguis and Dr. Joshua Harris, predict growth will most likely result from the construction and retail trade sectors. Increases in new housing starts, up 18 percent in 2013, will likely continue due to sustained population growth and lack of new housing currently available on the market. Falling unemployment rates and increased growth in the U.S. have enabled families to spend more, fueling gains in retail sales, which set another all-time high in December 2013. The combined forces of these two trends likely will result in continued growth in demand for warehousing and distribution facilities, specifically from the retail trade and housing construction sectors.

Report Highlights Include:

· 2013 industrial net absorption reached a near-record 233 million square feet.
· Fourth quarter 2013 industrial net absorption came in higher than expected at 70 million square feet.
· 2014 quarterly net absorption will range between 60 and 65 million square feet.
· 2015 quarterly net absorption figures will range between 61.5 and 75.2 million square feet, with a mean forecast of 68.8 million square feet.
· As consumers purchase items online versus in person at traditional stores, demand for distribution and fulfillment centers will increase.

“We see the return of housing as a significant part of the economy driving the need for industrial space, as building products and materials need to be warehoused and shipped across the nation to meet local demand. Further, each new housing unit will need to be furnished and will create demand for other household goods, which in turn fuels even more industrial space demand. These are long-term trends and thus partially explain the forecast of strong levels of industrial space absorption,” said Harris.

“While we are encouraged by this positive growth in industrial, it is important to recognize that the same demand isn’t being experienced across the industry,” said Bisacquino. “The commercial real estate industry as a whole has yet to reach its full potential, due to uncertainties about fiscal policy and an unsteady economy.”

Alexandra Loye, GPE, WEB

Alexandra Loye Joins GPE Commercial Advisors

GPE Commercial Advisors welcomed Senior Vice President Alexandra Loye to its brokerage team on Wednesday. Loye brings more than five years of commercial real estate experience throughout the Metro Phoenix area. She specializes in seller, buyer and tenant representation for medical office and office users.

Loye closely tracks the medical office and office market and measures the financial and economic trends affecting the Phoenix market.

Prior to joining GPE, Loye was with NAI Horizon where she worked with clients in the public and private sectors, investors and developers as well as servicers, receivers and REO asset managers. She serves as a committee member on the Developing Leaders Philanthropy Committee of NAIOP (National Association of Industrial and Office Professionals), is involved with AZCREW (Arizona Commercial Real Estate Women) and is a board member for the Epilepsy Foundation of Arizona.

Megan Creecy

Liberty Property Trust’s Megan Creecy-Herman Installed as NAIOP-AZ Chairman

A bit of history was made on Friday, November 22 when the first woman to serve as chairman of the Arizona chapter of NAIOP (National Association of Commercial Real Estate Development), Megan Creecy-Herman of Liberty Property Trust, was sworn in at the organization’s annual board retreat.
“Since the day she joined, Megan has brought a tremendous amount of energy and dynamism to NAIOP-AZ,” said organization president, Tim Lawless. “In 2009 she served as the founding chairperson of our Developing Leaders Group for commercial real estate professionals age 35 and under; in 2010 her peers voted that she be named the first recipient of the NAIOP Arizona Chapter Developing Leaders Award. Her work in developing continuing education, focus on increasing diversity in commercial real estate, and commitment to her profession make her a tremendous asset to NAIOP-AZ and we are excited for her as she begins her term.”
Creecy-Herman takes over with what Lawless calls a “clear agenda” for improving the chapter’s educational opportunities. One of her goals is to bring back a “signature speaker” series; another is to offer programs for CLE credit. She is an accomplished fundraiser who has spearheaded the raising of more than $500,000 to help pay for large-scale NAIOP-AZ networking events.
Creecy-Herman serves as Liberty’s director of leasing and development in Arizona and is responsible for marketing the company’s portfolio and working on existing and future development projects throughout the Valley. Since joining the company in mid-2012, she has been responsible for Liberty’s complete renovation of 2626 S. 7th Street in Phoenix, now known as Liberty Sky Harbor Center; lease transactions totaling more than 350,000 square feet; and assistance with the acquisition of two key properties: a nearly completed 593,600 square foot warehouse currently known as Liberty Logistics Center I, and, in a separate deal, 73 acres of land currently known as Liberty Logistics Center II, both in the highly desirable Southwest Phoenix Industrial submarket.
John DiVall, senior vice president at Liberty Property Trust and a previous NAIOP-AZ chairman noted that “Megan is a consummate professional and brings tremendous insight into what motivates individuals and groups. Her enthusiasm is contagious and it is exciting to contemplate what the organization will be able accomplish during her term as president.”
Before joining Liberty, Creecy-Herman served at EJM Development Co. in Phoenix, where she held various positions in leasing, acquisitions and development. A graduate of Arizona State University, Creecy-Herman earned her Bachelor of Science Degree in Business. She earned her Masters of Business Administration from the University of Arizona.
In addition to serving on the NAIOP Arizona Chapter Board of Directors, she is a past member of the NAIOP Corporate Board of Directors and is an active member of the Junior League of Phoenix, as well as the Arizona State University Real Estate Alumni Club.

sales.tax

Arizona Business Community Supports HB2111

The undersigned organizations and businesses want to express their strong support for the passage of HB2111 with the floor amendment that will be offered by Senator Steve Yarbrough. This final amendment represents major concessions to address concerns that have been expressed by the city representatives.

This final amendment reflects the cities’ request for a separate online portal for the collection of sales taxes in the 18 non-program cities. In addition, the amendment reflects the cities’ demand to maintain the authority to audit single-location businesses in their city. Lastly, the amendment removes all of the changes to prime contracting tax except for the trade and service contractors.

While the Yarbrough amendment reflects major concessions to the cities that undermine some of the important reforms recommended by the Transaction Privilege (Sales) Tax Simplification Task Force, we believe this final proposal still reflects historic progress that deserves final passage.

The Senator Yarbrough floor amendment will provide for the following:

* Single Point of Administration – the Department of Revenue (DOR) will become the single point of administration and collection of TPT. However, at the request of the cities, there will be a separate online portal for the 18 non-program cities. Despite this concession, the cities remain opposed because they want to continue to require businesses making paper sales tax remissions to pay the state and city separately. Their proposal provides most small businesses no administrative relief from making multiple payments to multiple jurisdictions each month.

* Single and Uniform Audit – DOR will administer a standardized state audit program where all state and city auditors are trained and certified by DOR. Despite major concessions from the business community to allow cities to continue to audit local businesses, the cities continue to push for further changes that will undermine much needed reforms to standardize state and local audits.

* Trade/Service Contracting Reform – Service contractors working directly for an owner to maintain, repair, and replace existing property would pay tax on materials at retail and not be subject to the Prime Contracting Tax. During Task Force deliberations, the cities repeatedly conceded that this area of the prime contracting tax was problematic and should be changed. However, after almost a year of study and discussion, they have offered a change to the taxation of service contractors that provides no administrative relief and couples that change with a request that the state give the cities $80 million from use tax collections.

Arizona’s chaotic and dysfunctional sales tax system has been the subject of considerable controversy at the Capitol for over 30 years. The creation of the Task Force, as well as the appearance for the first time that the cities recognized the need for reform, gave Arizona businesses great hope that this system would finally be reformed. We strongly encourage state policymakers to pass a sales tax reform bill that is grounded in sound tax policy and focuses on reducing the extraordinary compliance costs on Arizona businesses.

Kevin McCarthy, President, Arizona Tax Research Association
Michelle Lind, Chief Executive Officer, Arizona Association of REALTORS
Bas Aja, Executive Vice President, Arizona Cattlemen’s Association
Glenn Hamer, President & CEO, Arizona Chamber of Commerce
Steve Macias, Chairman, Arizona Manufacturer’s Council
Francis McAllister, Chairman, Arizona Mining Association
Courtney LeVinus, Arizona Multihousing Association
Michelle Allen Ahlmer, Executive Director, Arizona Retailers Association
Steve Chucri, President/CEO, Arizona Restaurant Association
Rick Murray, Chief Executive Officer, Arizona Small Business Association
Steve Zylstra, President & CEO, Arizona Technology Council
Greg Turner, Vice President, Senior Tax Council, Council On State Taxation (COST)
Lisa Rigler, President, Small Business Alliance AZ
Todd Sanders, President & CEO, Greater Phoenix Chamber of Commerce
Tom Franz, President, Greater Phoenix Leadership
Connie Wilhelm, President, Home Builders Association of Central Arizona
Tim Lawless, Chapter President, NAIOP
Farrell Quinlan, Arizona State Director, NFIB
Ronald E. Shoopman, President, Southern Arizona Leadership Council
Scot Mussi, President, The Arizona Free Enterprise Club
Matt Beckler, Vice President, Treasurer & Chief Tax Officer, Apollo Group, Inc.
Steve Barela, State & Local Tax Manager, Arizona Public Service
Steve Trussell, Executive Director, Arizona Rock Products Association
Michael DiMaria, Director of Legislative Affairs, CenturyLink, Inc.
Gayle Shanks, Owner, Changing Hands Bookstore
Michelle Bolton, Director of Public Affairs, Cox Communications
Nikki Daly, Owner, Flair! Salons
David Karsten, President, Karsten’s Ace Hardware
Reuben Minkus, Minkus Advertising Specialties
PetSmart, Inc.
Tina Danloe, General Manager, Pima Ace Hardware
Molly Greene, Senior Government Relations Representative, Salt River Project
Les Orchekowsky, President & Co-Owner, Sierra Ace Hardware, Inc.
Ann Seiden, Administrator/Corporate Public Affairs, Southwest Gas Corporation
Joseph Hughes, Director of Government Affairs, U.S. Airways
Walgreens Co.

Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry. The Arizona Chamber of Commerce and Industry is committed to advancing Arizona’s competitive position in the global economy by advocating free-market policies that stimulate economic growth and prosperity for all Arizonans.

CBRE - Rusty Kennedy

CBRE's Rusty Kennedy Receives National NAIOP Award

CBRE Senior Associate Rusty Kennedy has been named one of the recipients of NAIOP’s 2012 Developing Leader Award.

The annual award is presented to 13 exceptional young professionals from across the country based on their achievement in their field, as well as their outstanding contribution to the industry and the NAIOP organization.

Kennedy, who began his career at CBRE in 2007, focuses his business on the industrial market. Earlier this year, the Arizona NAIOP chapter recognized him among its Industrial Brokerage Team of the Year and named him its Developing Leader.

Kennedy is also active in industry and community organizations including vice chairperson of NAIOP Arizona’s Developing Leaders Steering Committee, a member of the Council of Supply Chain Management Professionals, Southwest region leader of CBRE’s National Associate Industrial Broker Network, Young Life leader at Camelback High School and a board member of the Junior Golf Association of Arizona.

The developing leaders will receive their awards at a presentation at NAIOP’s national conference, which will be held in October 2012 in Washington, D.C.

Megan Creecy-Herman

Megan Creecy-Herman Joins Liberty Property Trust

Liberty Property Trust today announced that Megan Creecy-Herman has joined the company as director of leasing and development.

Creecy-Herman will be responsible for marketing the portfolio and working on existing and future development projects throughout the Valley.

Creecy-Herman comes to Liberty from EJM Development Co., where she held various positions in leasing, acquisitions and development. That company specializes in the acquisition of unimproved land and the development and management of commercial/industrial projects in California, Nevada, Arizona, Utah and New Mexico.

“I’m extremely pleased to announce the addition of Megan to our Arizona team,” said John DiVall, senior vice president and city manager, Liberty Property Trust. “I met Megan through some of our mutual NAIOP responsibilities and was very impressed. She will play an integral role in helping me continue to grow our portfolio.”

In 2009, Creecy-Herman was the founding chairperson of NAIOP Arizona’s Developing Leaders Group for commercial real estate professionals age 35 and under. That year she was a recipient of first the NAIOP Arizona Chapter Developing Leaders Award and then the NAIOP National Developing Leaders Award.

In 2010, she became the youngest person elected to the NAIOP Arizona Chapter Board of Directors. She has also served as the co-chair of the NAIOP National Developing Leaders Diversity Task Force.

A graduate of Arizona State University, Creecy-Herman earned her Bachelor of Science Degree in Business.  She recently received her Master’s of Business Administration from the University of Arizona.

Creecy-Herman continues to serve on the NAIOP Arizona Chapter Board of Directors and the NAIOP National Industry Trends Task Force. She is an active member of the Junior League of Phoenix Leadership Team, and the Arizona State University Real Estate Alumni Club.

Maricopa County Court Tower Garners Awards

Maricopa County Court Tower Garners Awards

Good things come in pairs. The Maricopa County Downtown Court Tower (MCDCT) team, comprised of Gilbane Building Company in association with Ryan Companies US, Inc., can attest to that.

After winning the 2011 Best of NAIOP Economic Project of the Year Award, the MCDCT team also received a RED Award honorable mention in AZRE for Best Public Project. The tower was recognized for outstanding industrial or office economic projects that impact the county and the construction community in a beneficial way.

“The Economic Project of the Year Award is proof of the wisdom of the Maricopa County Board of Supervisors and Department of Public Works,” said Todd McMillen, Gilbane’s project executive.

The 700,000 SF tower opened on Arizona’s 100th birthday, Feb.14, with its long-awaited debut and a dedication by former Supreme Court Justice Sandra Day O’Connor.

Designed by Gould Evans Associates, the tower sits in the heart of Phoenix and houses more than 200 courtrooms. Not only is the tower Maricopa County’s first LEED Silver certified project, it has benefitted the economy through creating more than two million hours for employment opportunities.

Due to infrastructure improvements, and a land exchange between the city and the county, hundreds of thousands of dollars of annual deferred maintenance were omitted. The project created more than 1,600 jobs; 1,200 in the construction trades, 300 in professional, and 100 service jobs in such things as printing, delivering, and other areas.

Over the life of the project, the estimated local payroll benefit will be $110M in taxable income. In addition to local businesses benefiting, the vast majority of the tower was completed using Arizona businesses and Arizona workers, even more proof of the economic impact.

Local materials were purchased whenever possible: Schuff Steel provided the steel and fabrication; Coreslab provided the precast facade.

“This project was a major economic engine for construction in the greater Phoenix area for over three years,” said Steve Jordan, Ryan Companies director of construction. “Not only did it provide for a consistent source of income for many workers and their families, but because the project was paid for in cash, it also saved the citizens of Maricopa County nearly $200 million in financing charges that will never need to be collected in higher taxes.”

Arizona Commercial Real Estate Development

Arizona Ranked No. 5 In Commercial Real Estate Development In 2011

Arizona was ranked No. 5 in 2011 in direct spending in all three phases of development across all categories of commercial real estate, according to a report issued last week by NAIOP.

Arizona’s development accounts for $4.2B in spending and 74,117 jobs supported, up from No. 14 last year. Arizona’s development contributed heavily to 2011 being the first year commercial real estate (office, industrial and retail buildings) has posted gains since the recession, according to NAIOP’s report, How Office, Industrial and Retail Development and Construction Contributed to the U.S. Economy in 2011.

The NAIOP Research Foundation Study:
· Construction spending grew more than 12% from 2010 to 2011;
· 238.3 MSF built in 2011 was 2.5% more than in 2010;
· New projects provided capacity for 610,000 jobs;
· Commercial real estate development and construction contributed $262B to a GDP increase of 13% from 2010

Construction spending on commercial real estate totaled $92.3B, a more than 12% increase over 2010. This spending supported nearly 2 million jobs nationally.

“2011 was a transition year for the U.S. economy and the construction sector,” said the report’s author, economist Stephen S. Fuller, PhD, Dwight Schar Faculty Chair, University Professor and the Director of the Center for Regional Analysis at the George Mason University. “The U.S. economy shifted from a federal stimulus to private-sector driven growth pattern and construction spending grew accordingly.”

In addition to the advances made in 2011, forecasts for 2012 call for project construction spending to increase  and to accelerate further in 2013 and 2014, according to the report.

“For the first time we are seeing across the board increases in this sector,” said Thomas J. Bisacquino, NAIOP president and CEO. “We believe this is the most solid evidence yet of a strengthening recovery.”

The impact of the new spending was felt throughout the nation. The following states posted the highest amounts of direct spending in all three phases of development across all categories of commercial real estate (number in parenthesis refers to that state’s rank in 2010):

1. Texas (Previous rank: 2), $7.9B in spending, 150,102 jobs supported;
2. New York (1), $6.5B in spending, 83,762 jobs supported;
3. West Virginia (48), $5.9B in spending, 100,889 jobs supported;
4. California (3), $4.5B in spending, 70,817 jobs supported;
5. Arizona (14), $4.2B in spending, 74,117 jobs supported;
6. Utah (26), $3.6B in spending, 77,550 jobs supported;
7. Florida (4), $3.4B in spending, 64,970 jobs supported;
8. Illinois (10), $3.0B in spending, 50,136 jobs supported;
9. Massachusetts (21), $3.05B in spending, 41,382 jobs supported;
10. (tie) North Carolina (7), $3.05B in spending, 55,920 jobs supported.

Fountainhead Office Plaza

Fountainhead Office Plaza Earns Best LEED-Certified Development Of 2011

Fountainhead Office Plaza in Tempe, winner of the 2012 RED Award for Best Office Project, has been designated the Best LEED-Certified Development of 2011 by the Arizona Chapter of NAIOP.

The award recognizes the best new LEED development in the state of Arizona based on sustainable design, construction and operation.

NAIOP is a leading organization for developers, owners and related commercial real estate professionals, and provides industry networking, education and public policy advocacy.

KBS Real Estate Investment Trust II (KBS REIT II), a non-traded real estate investment trust based in Newport Beach, Calif., acquired the LEED-certified Fountainhead Office Plaza immediately upon its completion in 2011.

The two-building complex was designed and constructed per exact LEED standards and features an Energy Recovery Ventilator (ERV) that cleans incoming air, protects against pollutants and reduces energy costs.

Situated within the 140-acre master-planned Fountainhead Corporate Park, Fountainhead Office Plaza consists of 6- and 10-story buildings totaling 165,300 and 273,800 SF, respectively. Both buildings are 100 percent occupied through 2023 to the University of Phoenix, the nation’s largest accredited private university.

Developers of the project are USAA Real Estate Company and Metro Commercial Properties; general contractor is Sundt Construction; and architect is DAVIS, which won the 2012 RED Award for Architect of the Year.

Commercial Real Estate Industry - AZRE Magazine September/October 2011

How Legal Issues Will Affect The Commercial Real Estate Industry Recovery, 2012

How Legal Issues Will Affect The Commercial Real Estate Industry Recovery, 2012

Arizona legislators packed the recent regular session with 357 new bills covering everything from food stamps to firearms.

But barely a handful will directly impact the state’s commercial real estate industry in 2012, and even those not significantly, says Greg Harris of Lewis and Roca LLP.

Still, that doesn’t mean the recent doings of Arizona’s state government, whether dictated by seemingly non-real estate focused laws or budget issues, won’t make a difference to the industry in the coming year, Harris and other local legal experts predict.

The few commercial real estate-related bills which did make it through the recent session were aimed at easing or clarifying municipal regulations and procedures that otherwise could hamper new development, Harris says.

SB1525, which was the latest of a series of laws aimed at limiting development impact fees, and SB1598, which attempts to provide some uniformity in permitting procedures among municipalities, are examples he cited.

Snell & Wilmer partner Ron Messerly adds a few more. SB1166 creates a tax exemption for certain commercial lease structures, and SB1474 has the effect of restructuring insurance requirements on multi-housing projects, Messerly says.

But any or all of those are unlikely to make much of an impact, the lawyers said.

Nor is anything monumental blowing in the wind for the next legislative session.

“There is nothing bright and shiny on the horizon that will have a significant impact on the commercial real estate industry,” Messerly says.

And that is good news, adds David Kreutzberg of Squire, Sanders & Dempsey.

“The legislature was so absorbed with budget problems, it took energy from other issues,” he says.

Kreutzberg, who specializes in hotel real estate, says he was especially pleased that certain  laws which were proposed didn’t pass during the previous session.

He noted a chunk of immigration-related bills that were rejected by the legislature or vetoed by the governor.

“SB1070 was a disaster for the hospitality industry,” Kreutzberg says. “I think the legislature got the message that they were doing injury to the state.”

On another positive note, the legislature’s continued efforts to reform the business property tax structure is a hopeful sign, and the abolishment of the Commerce Department and establishment of the new Arizona Commerce Authority is “promising,” he says.

NAIOP Arizona chairman Mike Haenel echoed Kreutzberg’s concern about revising the tax structure to make Arizona attractive to potential new or expanding businesses.

Haenel says job generators will fuel the future of Arizona’s commercial real estate industry, and HB2001 may have more of an impact on the industry in the coming years than any of the actual real estate-focused bills passed during the recent legislative session.

All those legal issues help establish Arizona’s attractiveness as a place for businesses that might be looking to expand or establish new offices in the state, he said.

A legislative negative, however, is state budget cuts for public schools, Kreutzberg says.

“We’re losing our competitive edge. It’s one of the things that is holding Arizona back,” he says. “The governor and the legislature need to face the fact that it’s a big issue.”

And not all legal issues impacting Arizona’s business growth, and therefore it’s commercial real estate industry, are spawned by the lawmakers.

Harris is concerned less about what the legislature did than what local advocacy groups did or may do to restrict development.

Examples include recent litigation and unfavorable rulings on Phoenix’s incentives for upscale mixed use complex City North, and Glendale’s proposals for saving the Phoenix Coyotes, the centerpiece of the city’s vast commerce cluster.

“Even if you have a project that most think is a good idea, advocacy groups challenging (incentives) may have a chilling effect on investors moving forward,” Harris says.

[stextbox id="grey"]

For more information about the real estate industry and the firms mentioned in this story, visit the following links:

www.lrlaw.com
www.swlaw.com
www.ssd.com

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AZRE Magazine September/October 2011

 

November Commercial Real Estate Networking Events

November Networking Events

November Networking Events

Western Maricopa Coalition (WESTMARC)

Best of the West Awards
Nov. 3 & 5 p.m.
9495 W. Coyotes Blvd., Glendale

Come join the Western Maricopa Coalition for its 19th annual Best of the West Awards, which celebrates the best of Western Maricopa County, recognizing outstanding contributions to the image, lifestyle and economic development in the county. Business or cocktail attire is required at this event. The reception starts at 5:30 p.m., while the dinner and awards start at 7:00 p.m.


NAIOP

NAIOP Golf Tournament
Nov. 17, 8 a.m.
9998 E. Indian Bend Rd., Scottsdale

Show off your best athletic skills at the NAIOP Golf Tournament at the Talking Stick Golf Resort. The pre-reception and registration begin at 8 a.m., with the shotgun start at 9 a.m. and the post-reception at 3 p.m.


Valley Partnership

Friday Morning Breakfast
Nov. 18, Dec. 16, 7 – 9 a.m.
2901 N. 7th St., Phoenix

Come check out Valley Partnership’s annual holiday wreath raffle at this month’s Friday Morning Breakfast, held at the Phoenix Country Club. Members are strongly encouraged to donate a holiday wreath, which will be presented and raffled off during the event. All proceeds from the raffle tickets will be donated to Maggie’s Place, the charity chosen for this year.


American Subcontractors Association of Arizona

Holiday Open House
Dec. 14, 4 p.m.
4105 N. 20th St., #230, Phoenix


Arizona Commerce Authority

Board Meeting
December 13, 10 a.m.
333 N. Central Ave., Phoenix

ACA focuses on recruitment of quality companies and jobs for Arizona as well as the expansion of established, local companies already here and will hold a board meeting December 13.

AZRE Magazine November/December 2011

NAIOP Roundtable 2011 - AZRE Magazine September/October 2011

NAIOP Roundtable 2011

NAIOP Roundtable 2011

The commercial real estate industry is clearly recovering. Companies are absorbing vacant space, build-to-suit development is active and abundant capital is pursuing core real estate. The key question remains, however, how do we compare with the other major markets when it comes to job and population growth?
In short, when will the market justify new development and how will the state and our local commercial real estate industry assist in this effort? To be sure, the future remains bright in Arizona but the recovery will last longer before the next boom.

— Mike Haenel


NAIOP Roundtable Participants Key NAIOP Roundtable - AZRE Magazine September/October 2011

Roundtable Participants

 

1 — SB: Scott Bjerk
President
Bjerk Builders, Inc.

2 — MC: Megan Creecy
Leasing and Development Manager
EJM Development Co.

8 — JD: John DiVall
Senior VP
Liberty Property Trust

MH: Mike Haenel
Executive VP, Industrial Group
Cassidy Turley BRE Commercial
Chairman Profile

6 — TH: Todd Holzer
VP of Development
Ryan Companies US

5 — KM: Keaton Merrell
Principal
Legacy Capital Advisors

7 — BM: Bob Mulhern
Managing Director Greater Phoenix
Colliers International

3 — DW: Deron Webb
Managing Principal
Wentworth Webb & Postal

4 — CW: Clay Wells
Director, Business Development
McShane Construction Co.


Q: What is different in July 2011 in our local commercial real estate industry than a year ago?

BM: The short answer is that the market is stronger, but still burdened by vacancy rates that are high by historical standards, despite being lower than recent peaks. What is decidedly different, however, is that the outlook is considerably brighter than it was a year ago.

Last year at this time, uncertainty was the overriding theme and it plagued the market. The industrial market had posted just one quarter of positive absorption, and it was unclear whether that was a one-time burst in activity or a sign that tenants were more optimistic and the industrial market was beginning to turn a corner. Now we can see that tenant demand for industrial space has been sustained for more than a year, vacancy is tightening, and rents are stabilizing. We are also seeing headline-making announcements from companies such as Amazon and First Solar that not only improve the numbers, but also renew confidence in the market as a whole.

The office market has been slower to bounce back, but it is far more stable today than it was a year ago. A year ago, we were averaging negative net absorption of more than 500,000 SF per quarter, and the vacancy rate was shooting higher. While absorption has been mixed in recent quarters — up one quarter, down the next — the overall vacancy trend is essentially flat. The market hasn’t necessarily started to improve, but it’s no longer in free fall. We’re forecasting slightly positive absorption in the second half of 2011 and then positive absorption of nearly 1 MSF in 2012. We think rents will likely tick lower through the remainder of this year, because the high availability of space will continue to create competition in the marketplace.

MC: Activity is up, but it is still the quintessential “tale of two tenants.” National companies with 200,000 SF+ warehouse requirements are in the market. And, there are definitely more of those types of requirements (including build-to-suits) in the market today than there were last year at this time.

When looking, however, at say deals in the 5,000 SF to 20,000 SF range, there has been an increase in activity, but the regional and local tenants who comprise a large portion of that market segment are still facing a lot of challenges, such as difficulty obtaining financing, and economic uncertainty. These challenges result in a constraint on their ability to expand and the lack of confidence needed to make long term real estate decisions, which is why we are still seeing a number of these tenants in the smaller size ranges wanting only short-term extensions in their current spaces.

TH: I sense that we are now a local real estate industry made up of survivors. The attrition of firms is over for the most part. Those remaining have right sized for this “new normal” that we find ourselves in. Companies in our business have had to make changes in their business plans and doing activities that they did not anticipate 4 to 5 years ago. I think that this transformation has completed where a year ago it was still finding itself.

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

BM: At present, the characteristic that best describes the Phoenix commercial real estate market is the vacancy rate, which is among the highest, if not the highest of the major markets in the Western U.S. In the period immediately preceding the recession, development in Phoenix was fairly active, and when the economy cratered and companies slashed payrolls, there was a significant supply/demand imbalance.

The difference between Phoenix and the major California markets — where employment losses were nearly as dramatic as losses here — is that those markets didn’t have nearly as much speculative construction in the pipeline. As a result, vacancies rose in California, but not to the heights that they rose in Phoenix.

The other state that makes for an interesting comparison is Texas, where development has historically been quite active — just like Phoenix. The primary difference between Phoenix and the major Texas markets in the recession and thus far in the recovery is that the Texas markets weren’t hit nearly as hard by job losses during the downturn and the state has led the way with job gains during the recovery.

Looking ahead, the picture brightens significantly. Most forecasts call for Phoenix to rebound favorably once the economic recovery really gains traction nationally. Long-term forecasts call for annual population and employment gains in the 2.5% range, which should be similar to the major Texas markets and far outpace the California markets. This anticipated expansion is the primary source of optimism in the Phoenix market — now we’re just waiting for it to happen.

CW: The Metro Phoenix commercial real estate market has actually fared no worse or better than the other major Western U.S. markets. Retail and office continue to struggle in most markets while industrial vacancies for building over 500,000 SF have started to decrease. Recently a 500,000 SF speculative building broke ground in the Inland Empire and I believe if the economy stays as is we will see a speculative industrial building in Phoenix breaking ground by 3Q 2012. Where the Phoenix market differs from the rest of the Western U.S., with the exception of Las Vegas, is the residential real estate market. Metro Phoenix was too dependent on the residential construction market for creating jobs.

The reason this is so important until we create new jobs to replace these lost jobs, the retail and office sectors will continue to be slow to recover. People have to have a job, which allows them to have diposable income to spend at stores creating a need for new retailers. The same can be said for the office market. Until new companies locate to Metro Phoenix or are created here the need for office space will remain depressed. Most activity we are seeing in the office market are new investors coming to Metro Phoenix and buying distressed properties at a discount. This allows them to quote reduced rents forcing a downward pressure on existing landlords, who must rent space at a loss or lose a tenant. Office markets in some cities that have a more diverse economic base are recovering at a better pace than Metro Phoenix.

MC: While there has been increased activity across the Western U.S., the divergence is in the stage of recovery in primary markets such as the Inland Empire, vs. secondary markets like Phoenix.

The Inland Empire, for example, is one of the strongest industrial markets in the country with vacancy at 6.3%, which is the lowest vacancy rate in 14 quarters. By comparison, Phoenix’s Q2 2011 industrial vacancy rate was 13.9%, which was our 5th consecutive quarterly decline. But, I would say that the steady decline in vacancy we are experiencing here in Phoenix is a positive indicator, and it is only a matter of time before our recovery picks up speed.

AZRE, AZ Commercial Real Estate

AZRE | Arizona Commercial Real Estate

A bi-monthly publication that debuted in January 2005, AZRE | Arizona Commercial Real Estate is Arizona’s only publication dedicated to covering up-to-date happenings within commercial development, brokerage, finance, construction, architecture, real estate law and property management.

Additionally, Arizona Commercial Real Estate is an active voice within the commercial industry with local media partnerships to organizations such as NAIOP, ABA, ICSC AZ, AIA AZ and Valley Partnership.

Pulling together the multiple facets of the commercial real estate industry in Arizona, Arizona Commercial Real Estate reaches out to the largest local and national commercial real estate audience within the Grand Canyon State, West Coast and beyond.

Arizona Commercial Real Estate has gained not only local, regional and national attention from its pool of readers, but international attention as well.

With a 25,000 circulation, AZRE began publishing its own annual publication, People to Know, in 2008. PTK is an annual resource guide and a useful informative tool that further supports the local industry’s mission to build great communities throughout the state of Arizona. AZRE created this publication to open new lines of communication, better inform those who enter our state, as well as connect natives who have seen the state prosper and grow over the years.


Read articles from AZRE’s September/October 2011 issue, or pick up a copy today:

AZRE Magazine Nov/Dec 2011 Cover

In this issue of AZRE, find out how Arizona’s Native American tribes are diversifying their economic portfolios in our Development section of the magazine. In our Centennial section, we feature the biggest and best commercial buildings in Arizona history; and DPR, Cannon Design and Banner Health are teaming up — find out why.


AZREMagazine.com

AZRE’s website features everything you’d find in the magazine, including new to market projects, including education, hospitality, industrial, IT and more; newsmakers, including awards, new hires and promotions; economic development, events, articles about green and sustainability, breaking commercial real estate news and more.

If you’d like to contact the editor of AZRE and send him press releases, story ideas and more, please email Peter Madrid at Peter.Madrid@azbigmedia.com.


AZRE | Arizona Commercial Real Estate’s Archive


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

Economy

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.