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When Visions Diverge

When Visions Diverge: What Happens When Property Owners and Cities Want Different Land Use

The crack of the gavel thunders through the room over the buzz of hushed whispers. Alone at the podium, the property owner stands stunned by the city council action denying the vision for a property. The investment in preplanned designs, attorneys, consultants and engineering circles the drain.

Hanging above it all is the “vision.” A parcel of land, lines on a drawing, colors on a map and the ghost of a citywide vote. A document, called a general plan, presses down on the hope, the plan and the decision, “Motion to deny the development proposal passes. The council finds the project is not consistent with the general plan.”

Jordan Rose, founder of Rose Law Group

Jordan Rose, founder of Rose Law Group.

“During the recession, some investors looked at bargains and not zoning,” says Scottsdale land use attorney Jordan Rose, founder of Rose Law Group. “There was less diligence, and some acquired land without regard to what the general plan said about the property.”

Development plans have been stalled or blocked by recent Valley city zoning actions. Several cases―primarily in the East Valley―have brought the issue into greater focus. The recovery-driven interest in turning properties or resurrecting old plans causes some of the conflict.

In many ways, local governments are market-driven, but driven by a different market than commercial real estate. The Arizona legislature forces towns and cities to depend on sales tax for general fund revenues―the basic operating income for key community services. This in turn drives local governments to create retail and employment site opportunities through the general plan. Without revenue-generating undeveloped land, a city council is not going to have the wherewithal to fund future growth and the requisite public safety, parks and libraries.

The sales-tax dependence led to cities to be very protective of revenue-generating land set aside in the general plan. Retail business has significantly changed over the past decade, but local government funding mechanisms continue to use 20th century revenue models for a 21st century economy.

The General Plan
In Arizona, every city and county needs a general or comprehensive plan to provide a long-range blueprint of development patterns within current and future boundaries. Plans are supposed to be updated every decade and ratified by the voters. Several plans are slated for ratification this year―including Tempe, Scottsdale and Mesa.

“A general plan is a large and complex document, it carries a lot of implications that are not apparent when voting for ratification,” says Ralph Pew, member and manager, Pew & Lake, PLC, Mesa.

The comment “the plan can’t be changed because voters approved it” is often raised during a project hearing when there are proposals to amend the land use map. Pew says, “The plan itself contains the standards for approving major and minor amendments. Change is a planned part of the process.”

John Berry, founder of Berry Riddell & Rosensteel LLC, Scottsdale, says that preparation is the key, “When a client comes to us, we start with the staff, listen to neighbors and talk with elected officials to try to foresee any major issues. It’s incumbent on the developer to give the city the facts to support the project. Opinions and project economics alone are not going to gain an approval.”

Rose agrees, “We’ve seen clients with plans that just don’t fit with the general plan. This means a lot of work up front to move the project forward, but sometimes, we have to tell them, ‘it isn’t going to be approved.’”

Before the recession, development was moving so quickly that a zone change or general plan amendment denial just meant the developer moved on. “We don’t have a lot of land use litigation in Arizona,” says Pew. “Pre-recession, the pace of development and number of opportunities, made it possible for the developer to shrug off a denial and move on to the next project.”

It’s different in the planning pipeline now. “When the recession ended, we were tickled to get applications once again,” reminisces Mesa Planning Director John Wesley. “There was an appetite to make things happen, and most projects were approved. That’s different now.”

Developers are seeing the difference during the hearing process.

“Councils are busy and they don’t like controversy,” says Berry. “The key to success is to listen closely to any objections early in the process and eliminate as many issues up front. When I go before a city council, I want to be able to say we have many points of agreement and just a few points of disagreement, if any.”

Pew emphasizes that getting an approval requires more work on the facts up front, “The more information we can give a city with the application showing the need for change, the easier it is for the city council to ultimately say ‘yes.’”

All three attorneys say that they will provide economic analysis, traffic reports and other empirical facts to back up an application.

Wesley says that he’s seeing more of that too, “It used to be developers would come in and say the project doesn’t pencil without the changes being approved. That doesn’t show any benefit to the city, and today, the council is less likely to be persuaded.”

Converging Goals
Cities and developers are looking more closely at project and city objectives to see how the divergent goals can be brought closer together. “In Mesa, we had a pattern of putting commercial development on every major street corner. Recently, an owner showed us that the area was barely supporting existing commercial on two of the corners, and a third corner still had undeveloped commercial zoning. Their argument made sense and the city approved a residential rezone.”

Even with numbers and well-reasoned arguments, sometimes visions are irreconcilable. “There are some properties in cities where general plan amendments are just not going to be approved,” cautions Rose. “We see cities with long range plans for an area, and the council is not going to change their vision on a piece-by-piece basis.”

“In Mesa, we have some neighborhoods where there is flexibility, if an owner makes a case,” points out Wesley. “But there are some areas where we need to protect the city’s plans even if the land remains vacant for a while.”

A Need for Change
Some point to the success of the Price Corridor in Chandler where the city held firm on keeping land use for large corporate and single-tenant users. That is changing this year following a report by The Maguire Group the city commissioned. Changing economics and use patterns opened the door to maintaining the same corporate center feel, but now permitting smaller users and multi-tenant buildings. As soon as the amendment’s approval was imminent, the Douglas Allred Company filed plans for a hotel and mid-rise office on the Park Place campus.

Allred Park Place building five shell.

Allred Park Place building five shell.

“We’re starting to see cities, like Queen Creek, take a look at actual absorption rates and land use needs when considering general plan amendments,” says Pew. “Policy is starting to move away from the pre-recession rigidity that all commercial and employment lands needed to be preserved.”

Before the economy plunged, it was common for land owners to seek highest-and-best use zoning in order to better position the land for sale. The convergence of Internet shopping, the housing crisis and a push for infill development changed land use demand and affected patterns.

“Cities are becoming aware that we’re starting to run out of land area,” explains Wesley. “We’re looking more carefully at changes, because there is generally no going back.”

“As long as land remains undeveloped, it is possible and sometimes reasonable to change zoning again,” says Pew. “With the real estate market shift, owners start looking at what’s going to work. It’s possible cities are going to see requests to shift zoning to match market demand rather than market value.”

Finding Balance
Wesley talks about listening to developer ideas and goals, “Sometimes what’s wanted isn’t a perfect fit, but we’ve worked with owners to try and accomplish their objectives. We had a recent project where we mixed land uses so that both (Mesa) and developer goals were mostly achieved.”

“A lot of the time, the public is wed to the general plan,” reflects Rose. “The general plan is a vision for a community, it can’t just be simply dismissed. There are a lot of moving parts.”

In conversation with each of the three attorneys, one word is in their comments again and again: “understand.”

“Listen and understand what the neighborhood expects from a development,” Berry says.

Rose advises, “Understand what’s expected and be creative to bring ideas to the table.”

“Understanding the stakeholders and the project neighborhood is a big key to success,” counsels Pew.

Understanding city expectations can be the first step on the road to meeting an owner’s property objectives.

Screen Shot 2013-07-11 at 4.16.15 PM

A taste of Park Place in the Valley

Park Place homes can be placed just about anywhere, says Calvis Wyant of Calvis Wyant Luxury Homes.

The Scottsdale-based custom home builder recently completed four of the one- and-two-story homes at Silverleaf, the 2,000-acre gated home community in north Scottsdale. Because of their success — all four are sold and nearing completion — the company is offering them in other premium neighborhoods.

calvisw2The Park Place homes range from 3,500 to 5,200 square feet, in a variety of architectural styles and with exterior finishes including brick, stucco and stone.

Calvis Wyant expects new-builds to sell in the $1.5 million range to buyers who have already purchased land. “These homes, with their focus on taking full advantage of the indoor-outdoor lifestyle of Arizona, will work on lots from as little as 12,000 square feet up to a half acre or more,” says Scott Edwards, the company’s vice president. “We’d love to build more at Silverleaf, too; I wish I had 20 more lots.”

“We think that Park Place homes will work in many fine communities in the Phoenix area — neighborhoods like Arcadia, Scottsdale and Paradise Valley, in particular,” adds Tony Calvis, who handles marketing and sales for the 27-year-old design-build firm. His business partner, Gary Wyant, AIA, designed the Park Place homes as well as many of the company’s other projects.

“Empty-nesters, retirees, second- and vacation-home owners will find these homes uniquely attractive, with their spaciousness, flexibility in design and lifestyle amenities,” explains Calvis, whose experience in home-building began more than 30 years ago as a carpenter.

“Gary has an innate ability to design a space with volume, scale and proportion that invites light and maximizes views — all with a flow that suits a particular family’s lifestyle,” he adds.

Screen Shot 2013-07-12 at 8.31.53 AM copyUnique designs

Wyant notes: “One of the assets of these courtyard-style homes is that we customize them to our clients’ needs. While we offer a variety of floorplans, these can be changed. For example, a second office for her, an extra bedroom, a casita or any other room can be added where needed.

“We can also add a wall, a window, a set of French doors. We can even add a second floor, with an extra bedroom or two and game and media rooms. Or a wine room or barbecue patio. These are true custom homes, just more intimately sized.”

Calvis Wyant has built single homes at Silverleaf since owner DMB Associates opened the luxury golf community almost 12 years ago in 8,300-acre DC Ranch. Designed for 736 homes at high-desert elevations of 1,700 to 3,000 feet, Silverleaf is noted not only for its scenic setting against the McDowell Mountains but also for the community’s Tom-Weiskopf-designed 18-hole golf course and its 50,000-square-foot luxurious clubhouse, including a spa, restaurant, golf shop and other features.

The Park Place homes perfectly fit the Silverleaf niche and market needs. As the community was closing out the majority of its lot sales about two years ago, during the Valley’s four-year Great Recession, Calvis Wyant acquired DMB Associates’ Mediterranean-style sales office and transformed it into a high-end residence, eventually selling it to the current owners.

Across from the office was a large parking lot, which for a decade had accommodated potential buyers, brokers and Silverleaf staff. Here, Calvis and Wyant saw the opportunity to place four homes on spacious lots — homes that reiterated company standards for excellence and personal service as well as aligned with the luxury neighborhood style and active-lifestyle spirit that residents, and potential homebuyers, identify with Silverleaf.

Capitalizing on market

“Calvis Wyant’s Park Place models here at Silverleaf came out at just the right time when a down market needed a new and different product,” says Debbie Beardsley, associate broker for The Silverleaf Group, a division of the DMB Realty Network. “These were up-to-date homes with bright quality finishes and generous single-story square-footage. All the stars were aligned for these homes, and they have made a wonderful addition to the outstanding Silverleaf community.”

Screen Shot 2013-07-12 at 8.32.07 AM copyDavid O’Donoghue, senior vice president of Club and Resort Operations at DMB and the general manager at Silverleaf, adds: “The Calvis Wyant Park Place homes brought the Silverleaf community spacious living spaces, such as light-filled kitchens and bathrooms. These homes, in particular, fit the unique high-end lifestyle niche that Silverleaf represents.

“We’re not a second-home, vacation-home community like some of the areas farther north in Scottsdale,” he explains. “In the 11 years since Silverleaf opened, we have found that our owners are engaged in every facet of life.”

“They enjoy the neighborhood spirit our homes offer, the parks that surround them, the welcoming streetscape. You’ll see them hiking early in the morning, taking children to our Copper Ridge School, biking, golfing, enjoying our magnificent clubhouse. These are active families with a great deal of social connectivity. They like to open up their homes, entertain friends and family.

“Silverleaf is not your ‘typical’ exclusive gated community, and companies like Calvis Wyant not only build great houses here but great spaces where people want to live robustly,” O’Donoghue adds. “With these homes, Tony Calvis and Gary Wyant really took a visionary leap when they built them in the spirit of our very connected neighborhoods.”

Suited to lifestyle

Curt and Cathy Stoelting moved into one of the Park Place Silverleaf homes in March. This is a second home for the couple, who live outside Chicago in Aurora, Ill.

He’s a golfer, she’s a get-up-and-go morning person; both are bikers and hikers. “We would visit the Phoenix/Scottsdale area but got tired of staying in hotels but adore the weather and friendly people,” she says. So, they began searching for a second home in the Valley, a place to live seasonally and visit when the desert called.

“After four or five days looking at everything in the area, I walked in the model home next door and said, ‘I’m done.’ This was the perfect thing — clean lines, amazing quality and lots of indoor and outdoor space.”

Screen Shot 2013-07-12 at 8.32.38 AMOne daughter is attending the Arizona Culinary Institute — inspired by Cathy, a chef with a culinary degree. She does restaurant consulting, developing menus and blogging on food.
“That was one of the reasons we chose this home,” she says. “We immediately loved the combination kitchen and great room. Curt and I love to cook, and cook with friends. The kitchen and the outdoor living space are going to be great for entertaining.”

The Stoeltings were assisted by the Calvis Wyant team throughout the process. “Designing and building custom homes is very personal,” Calvis says. “It’s a people business, a service business.”

A vision realized

Cathy and Calvis Wyant also coordinated with Mesa-based interior designer, Caroline Decesare, who provided a light and bright interior: “We have heavy Mediterranean in Chicago, and we wanted something very different here,” she says.

Their home, as with the three others, offers features such as mountain views, eight-foot paneled doors, a swimming pool, a light-filled great room with ceiling beams and large clerestory windows and a home-control system featuring Lutron and Savant systems.
At the same time, they added glass to the front door for more light and, also for additional welcome, a water feature at the entry courtyard. “Our guests love to keep the guest bedroom windows open to listen to the water falling,” she says.

Inside, they added a sliding barn door from the great room to the study, and Calvis Wyant customized the cabinets to accommodate their washer and dryer. Cathy asked that the doors be deleted; in place are stylish baskets to hold sundries.

Says Cathy: “I had a vision of what I wanted the house to look like, and Calvis Wyant was amazing in making that happen.”

The pitch and the product appealed to the Stoeltings’ new wall neighbor as well. In April, Calvis and his family moved into the home just east of theirs. “We really enjoy the Silverleaf lifestyle — and we already knew how great the neighbors on all three sides would be,” he says, with a big smile.

Supplying The Demand

Supplying The Demand

As vacancy rates shrink, new industrial and office developments could break ground in the Valley

Plans for a 600,000 SF spec industrial warehouse in Southwest Phoenix and a 92,000 SF, 2-story office building in Chandler’s Price Corridor are signs that those two property types are making a comeback in Metro Phoenix, some industry experts are cautiously predicting.

In January, California-based Doug Allred Company broke ground on Park Place, the Valley’s first post-recession spec office complex to be built since 2009. In October, The Alter Group breaks ground on a 605,700 SF spec warehouse at the Buckeye Logistics Center.

And according to those in the trenches, the reason could be as simple as supply and demand.

“Developers are responding to the lack of (industrial) supply available in the market by revving up activity, particularly in the Southwest Valley,” says Bob Mulhern, managing director for Colliers International. “By the end of this year, multiple developments totaling approximately 4 MSF are forecast to be under way, with other projects likely to enter the development pipeline in 2013.”

With regard to office, the market is still very weak for that property type, says Clay Wells, director of business for McShane Construction Company. However, he does add that news of the new office building in Chandler is encouraging.

“The street buzz is that they may already have a tenant who will take the entire building,” Wells says. That rumor, in fact, became reality in June when software maker Infusionsoft announced it would move its headquarters from Gilbert to Park Place in Chandler.

“The other real activity is in Tempe where the next tower at Hayden Ferry will come out of the ground when there are enough leases signed, and that could be a while,” Wells adds. “Downtown is the last submarket where both RED (Development) and Colliers (International) are making noises about new towers. A clue there could be the tower crane at CityScape is in the air and the hotel opens in two weeks.”

According to Cushman & Wakefield research, strong absorption levels driven by trailing 12-month job growth through March of 43,200 jobs are positively influencing both industrial and office vacancy and rent levels. Industrial vacancy levels crested in 2009 at 15.9% and currently are near 12%.

Industrial has been very hot over the past year, especially for users looking at 500,000 SF to 1 MSF buildings. While there is one building (it’s in the West Valley) remaining that fits that criteria, there are three to five developers talking about doing a “spec building in the 300,000 to 600,000 SF range that could be expanded to more than 1 MSF,” Wells says.

There is optimism from the brokers as well.

“The developers who have land holdings that we meet with are now busy with construction preparation and plans in response to an emerging warehouse demand, coupled with a thinned out inventory,” says Isy Sonabend, senior vice president at NAI Horizon. “When we see the first warehouse walls being tilted, it will be the leading indicator that our economy is recovering.”

Office vacancy levels spiked in 2010 at 25% and are more slowly inching their way down. Except for “one-off ” projects, it will be 3 to 5 years before the office market witnesses new development, says Chris Toci, executive director, Cushman & Wakefield of Arizona.

Uncertainty will cloud most business decisions for small- to medium-sized companies where 70+% of all jobs are created in this country, says Mark Singerman, Regional Director – Arizona for Rockefeller Group Development Corporation. This will restrain demand for office space until after the presidential and congressional elections, he adds.

“Larger companies will continue their efforts to consolidate or down size to become more efficient to reduce operating overhead,” Singerman says. “They will represent the majority of office demand until smaller companies feel that they can project their costs for at least the next 2-3 years.

“Hopefully, after the elections, enough uncertainty will be removed so businesses can plan and make strategic moves to grow their businesses, regardless of who or which political party wins in November. Business can adapt to almost any set of circumstances, except uncertainty. This freezes everything.”

On the industrial side, Singerman says, changes in consumer buying patterns that include more purchases via the Internet will continue to impact retailer’s capital investment plans.

“It makes sense for national retailers to allocate some of their investment capital to warehouse/distribution facilities to service their e-commerce business,” he says. “Th is has been driving a lot of the industrial demand in the Southwest Valley. I believe this will continue with national companies. But as with office space, the small- to medium-size users of industrial space are afraid to make real estate decisions until the future is less uncertain.”

A lot of what happens in the Valley depends on what happens to supply and demand for industrial buildings in the Inland Empire of California, namely Riverside and San Bernardino counties. If the spec buildings being developed in that market do well, which reports from brokers in that market indicate that they will, that will bode well for the Southwest Valley, which has traditionally been a viable yet less expensive alternative for users looking to service southern California, Arizona and other Southwestern states.

If, however, the Inland Empire struggles to find tenants for all of their spec buildings, that is a good indicator that demand is not strong enough to warrant spec inventory in the Southwest Valley.

“For the rest of this year, I see build-to-suit continuing to dominate industrial development activity in the Phoenix area,” Singerman says. “Long term, spec buildings will return as demand firms up.”

AZRE Magazine July/August 2012

2012 Annual Economic Outlook

Industry Experts' Forecast On 2012 Economy

Recovery is on the horizon, but industry experts are cautious in their forecast as the 2012 economy slowly bounces back. 

Looking at Arizona’s recession-starved commercial real estate industry as a whole, 2011 was flat and 2012 is trending just slightly better. So say local experts.

But broken down into its various components, there is a wide divergence of attitude and optimism for the rest of this year.

AZRE tapped key players from a variety of real estate-related disciplines to check their crystal balls and predict whether commercial real estate will soar, slump or stagnate in 2012, and what factors could turn the tide.

Investment
A plethora of CMBS properties will come due in 2012, and private owners of distressed properties may be more willing to sell, says Jennifer Pescatore, who oversees commercial real estate loans for Bank of Arizona.

There is plenty of money available for the right property in the right submarket and investors with the right credentials, she says.

But except for the multi-family sector and some industrial opportunities, Pescatore isn’t sure values have slipped enough to generate a significant number of sales or new development in 2012.

She’s anticipating relatively small loans — $2M to $15M — on income properties as standard 2012 fare.

But substantial job growth and improvement in the global economic picture could change that relatively pessimistic outlook, says Ryan Suchala, Bank of Arizona president.

“Arizona offers a unique opportunity, and it’s a great place to do business,” Suchala says.

This year could be better than expected, Suchala notes, but for measurable improvement in real estate values and transactions, 2013 is a more realistic time frame.

Economic development
Economic development directors by nature are always upbeat about the future, and Chandler’s Christine Mackay has reason to be.

“Activity level since the first of the year has gone through the roof,” she says.

Intel is constructing a new fabrication plant scheduled for completion in 2013 but already keeping a virtual army of construction workers busy. And when Intel ramps up, so do the tech giant’s customers and clients, Mackay adds.

Other healthy growth signals: EBay/PayPal is expanding, building out the fourth floor of its Chandler facility.

In January, San Diego-based developer Doug Allred Company broke ground at the NEC of Price and Willis roads in Chandler for Park Place, the Valley’s first spec office complex to rise from the dust of the recession since 2009.

Phoenix has a lot more old office properties to fill up before any spec projects are likely to appear on its planning agenda, but virtually all the big warehousing/distribution center space has been snapped up, and the city is actively looking for “shovel ready” spots where developers can build more, says Bruce MacTurk, deputy director for economic development.

It’s a good news-bad news scenario, he says.

By mid-January, five large industrial users were looking at Phoenix, but the city had only two buildings with more than 500,000 SF of space available.

There’s even some good news about Phoenix’s languishing retail centers as owners are renovating to reposition the sites, MacTurk says.

While economic development leaders like MacTurk and Mackay are focused on job creation, the fallout from job growth is a healthier, more vibrant residential and commercial real estate scenario, they say.

Construction
“Compared to this time last year, it feels much better,” says Bo Calbert, McCarthy Building Cos. Southwest president. “There are a lot more opportunities to pursue.”

McCarthy’s revenue is up 10%, he says. Key drivers for that spike are healthcare, renewable energy, schools and Native American projects, especially in hospitality and gaming.

But Calbert says he believes there is “more pain to come” before Arizona’s construction industry is back on a solid uphill track.

“To be an Arizona-only contractor is not sustainable,” he says. “There is promise, and more opportunities are coming, but not enough.”

D.P. Electric vice president Scott Muller says he has a backlog of healthcare and military projects to keep workers busy in 2012 — primarily technology upgrades.

And the company is detecting more interest from local property owners and developers, some hoping to entice California data centers and manufacturing operations ready to make a move.

“We’re excited about 2012,” Muller says.

“Those in the real estate and construction industry understand that the current market, compared to three or four years ago, has created a great opportunity to build, move or expand at a significant cost savings,” he says. “In 2012, we’ve seen an increase in our Design-Build/Design-Assist projects because this is where the best value is brought to the owner/developer.”

Architecture
Data centers, specialized healthcare facilities and military installations are also on Mike Medici’s 2012 hot list.

“Technology is constantly pushing the limits of existing buildings,” says Medici, managing director of SmithGroupJJR Arizona Architects. “And a lot of hospitals are positioning for the future or catching up from the past.”

Architects are tapped for new projects at the conceptualizing stage, and Medici sees good news coming for all commercial real estate sectors, even if the bounty won’t happen in 2012.

“We are seeing several developers looking at mixed-use office/retail/multi-family, especially along the light rail line,” he says. “It’s not as much activity as in 2004, 2005 and 2006, but there are opportunities bubbling up. For two years previously developers were not talking to us. Now modestly they are coming out of the woodwork.”

LEO A DALY architectural firm just completed the Casino Del Sol Resort in Tucson and is currently working on a project with Davis-Monthan Air Force base, says senior architect Rod Armstrong.

There is no pent-up demand for shopping centers or new office buildings, Armstrong says, but the international architecture firm is “always in business development mode,” and the signs are positive.

“We feel the increased level of commitment with potential clients. People are loosening up, and things will happen quickly. We’re hopeful for 2012,” he says.

Multi-family
While interest in and financing for new development remains limited in Metro Phoenix, one sector finding favor is multi-family, fueled by a limited supply and the single-family housing market collapse, says Tom Simplot, Arizona Multihousing Association president.

“Apartment owners are cautiously optimistic due to a rebound in values and rents,” Simplot says.

He doesn’t envision a lot more product coming online in 2012, but in select markets — in Scottsdale, Ahwatukee, and along the light rail line — some projects are moving forward and could be under construction this year and available by 2013.

Luxury condo developer Optima is betting Scottsdale is ready for more downtown-living opportunities.

“Optima Sonoran Village is in an advantageous position because it is the first new residential development in several years and builds on the economic, architecture, and marketing success of Optima Camelview Village,” says David Hovey Jr., Optima vice president. “Construction has started on Optima Sonoran Village with occupancy second quarter of 2013.”

Hovey says financing is still tight and mixed-use projects are iffy because of existing over-supply of office and retail components, but, if there is “only a gradual increase in new product over the next few years, the luxury unit market will remain healthy.”

Healthcare
Medical facilities needing upgrades or expansions to keep up with changing technologies, aging baby boomer needs and unsettled health coverage issues, are providing work for local real estate trades — a trend that will continue throughout 2012.

Cancer- and pediatric-focused projects are already in progress, as are several clinics and rehabilitation centers aimed at bringing cost-effective healthcare into communities, says Sundt Construction’s Russ Korcuska, who has been piloting hospital construction projects in Arizona for two decades.

Still, some of the big players will “sit on the sidelines until the (November) election because of the tremendous effect that could have on healthcare and Medicare. The new congress will be pivotal,” Korcuska says.

Some upgrades can’t wait.

“Healthcare construction is tied to population, and there is a great need to accommodate the baby boomer generation,” says Steve Whitworth, Kitchell’s Healthcare Division manager.

Healthcare construction will see a “slight increase in 2012, as larger organizations prepare for healthcare reform,” he says.

Whitworth predicts a sharper focus on cost-cutting delivery methods and energy efficiency in 2012 both in new development and upgrades to existing facilities.

“Healthcare will remain healthy,” he says.

Solar
Solar power was Arizona’s red-hot growth topic a year ago, with government leaders proffering incentives and touting the state’s virtues to the clean-energy companies looking for a place to grow and prosper.

Then mid-year, solar panel makers Solyndra and Stirling Energy Systems failed, and in December industry giant First Solar said it would slow progress of its under-construction Mesa plant.

So how do some of the state’s solar experts envision their industry’s 2012 prospects?

SRP sees strong demand for solar upgrades in both commercial and residential uses even though it “slowed somewhat” from 2011 when monetary inducements were greater, says Debbie Kimberly, director of customer programs and marketing.

“It’s encouraging to see this demand even at reduced incentive levels,” Kimberly says.

She says she expects interest in solar to continue apace throughout 2012, especially in leased rather than purchased systems.

And APS’ 2012 outlook for solar is “overwhelmingly positive” based on continued strong customer demand, says Barbara Lockwood, the utility company’s director of energy innovation.

“We asked our customers,” she notes. “The customers want solar.”

Installers could second that.

“Our forecast is 100 percent growth over last year,” says Gary Held, Harmon Solar sales and marketing manager. “And last year was the biggest year we ever had on the commercial side.”

But that’s from the perspective of the companies that purchase and distribute solar energy.

While solar demand remains strong, supply is growing faster as solar producers and manufacturers ramp up, boosting competition and sending prices plummeting, Lockwood says.

The growing global glut in solar manufacturers is squeezing the industry from that perspective, she says, as evident by First Solar’s slowdown and some companies folding.

Lockwood predicts prices will stabilize in 2012, and solar supply and demand will reach equilibrium.

Brokerage
Nobody has a handle on the intricacies of the local commercial real estate industry like the brokers who buy, sell, market and lease properties. Their outlook for 2012 is guardedly upbeat, depending on the type of property and its location.

Phoenix’s overbuilt office market remains too over-supplied for new development, says Craig Henig, CBRE senior managing director.

In 2011, 1.8 MSF of office space was absorbed, dropping the vacancy rate to 25.5%, Henig adds.

And overall there was 5.9 MSF of “gross activity,” as plummeting rents prompted tenants to move to classier digs.

Most of the Valley’s Class A offices filled up in 2011, and Class B and C space could see an occupancy boost in 2012, whittling away at the surplus supply, says Chris Jantz, Cassidy Turley/BRE Commercial vice president of research.

But neither Henig or Jantz envision a big drop in overall office vacancy this year.

Empty industrial space was gobbled up in 2011, and that could spur development, Jantz says, but new properties likely won’t come online until 2013.

Retail real estate has been the big laggard throughout the recession, and while Henig doesn’t expect much overall absorption in 2012, he foresees “musical chairs” as retailers reexamine their footprints based on recent consumer trends. For example, the surge in online sales may result in smaller, or at least different, brick-and-mortar space usage and bigger warehousing needs.

Henig also predicts that Phoenix area retailers will take advantage of still-sinking rents to move into better locations in 2012.

Tucson’s prospects are rosy.

“All signals are pointing up for Tucson in 2012,” says CBRE Tucson managing director Tim Prouty. “Our vacancies have improved. We see a positive absorption in industrial certainly, office probably, and some improvement in retail as well.”

A recent University of Arizona study predicting 2.35% average job growth in Tucson for the next five years — a boost of more than 52,000 jobs overall — is nurturing Prouty’s confidence.

And Tucson’s successful wooing of biotech businesses, such as Roche Group’s planned major expansion, “will be a big story in 2012,” Prouty says.

Land
After bottoming in 2009, land sales nationally picked up modestly in 2012 and remained level in 2011, according to Grubb & Ellis.

Through 3Q 2011, land sales were just about even with the same period in 2012 at $13.6B, but the sales mix was different. Through 3Q 2011, industrial land sales were up 133% as the industrial leasing and user-sale market improved to the point where developers began ramping up for the next expansion cycle.

In 2012, according to Grubb & Ellis, expect a modest increase inland sales led by development sites for multi-family projects and distribution centers, which are further along the recovery cycle.

Key concerns
While all the players envision a slight, if spotty, up tick in Arizona’s commercial real estate market, they say job growth and the global economy are key concerns determining 2012′s prospects.

A couple of local legislative issues also factor into the mix, says Nick Wood of Snell & Wilmer.

Tax assessments paid in arrears for commercial structures built in the mid-2000s that experienced severely plunging values in recent years could hamper sales and renovations of languishing real estate, Wood says.

“If you look at values for 2007, some offices have lost 60% to 70% of their value, and there hasn’t been a corresponding reduction in taxes,” Wood says.

And recent revisions to government property lease excise tax (GPLET) rates for new commercial structures can act as a deterrent to economic development, especially in downtown areas, he says.

AZRE Magazine March/April 2012