Tag Archives: real estate

buyers market

Real Estate Companies Are Seizing Opportunities During The Bust

With dark clouds hanging over the country’s economy and property prices tumbling, many people consider the idea of buying real estate absurd. Yet Valley real estate experts contend right now is the best time to buy.

Jeff Pavone, principal of Commercial Plus in Scottsdale, says smart, experienced commercial real estate investors only buy property when the market is down and no one else is buying. Buyers today are sophisticated, have cash and are looking to pay a good price for quality, he says.

“A year ago everyone could buy real estate and get financing,” Pavone says. “But today, it’s only qualified buyers with a strong portfolio, which puts the buyer at an advantage.”

In spite of economic hurdles, Commercial Plus is still closing deals weekly and getting financing done for clients. It recently closed a deal on a property on Seventh Street and Camelback Road that sold for 20 percent less than last year. Pavone says the buyer was qualified to close, so he obtained 80 percent financing and closed right away.

UTAZ founder Craig Willett says his company stopped buying properties four years ago because prices were too high. Now they are back in the game and in negotiations to buy a number of parcels near hospitals in the Southeast and West Valley. UTAZ specializes in developing professional office villages for small businesses. Since many small business owners have a hard time getting financing, UTAZ offers a lease with option to purchase. Willett says that model used to be 15 percent of the company’s business, but is now 45 percent.

“Leasing with the option to purchase makes a lot of sense in today’s market,” Willett says.

Pollack Real Estate Investments in Mesa is also buying again after taking a three-year hiatus. Founder Michael Pollack is shopping around for multiple commercial properties from single sellers in California, Arizona and Nevada. The company’s focus is redevelopment and renovation projects. Pollack Investments currently owns, operates, manages and leases its own portfolio of more than 100 commercial and industrial properties in California and Arizona.

“Investors are getting more for their money right now than a year or two ago, so it’s a good time to buy,” Pollack says. “But it’s harder to get loans unless you have good credit and put down more money, which I support wholeheartedly.”

Pollack says great buys exist today on land in Arizona and in all sectors of real estate. However, buyers need to look hard for quality opportunities and analyze the numbers, since many sellers want the same price today that they could have gotten three years ago.

“We put a property in Mesa up for sale a couple months ago and sold it the same day,” Pollack says. “So, if a property is priced realistically and reflects the conditions of 2008, it sells.”

Local experts agree that residential property is also a good investment right now, especially homes being sold by banks and by homebuilders forced to sell standing inventory. Greg Vogel, chief executive officer of Land Advisors Organization, says many of these properties are back to pre-boom prices, so they’re a real bargain.

Phoenix-based investment firm Najafi Companies bought Trend Homes in June for $86.5 million. The deal allowed the homebuyer, which reorganized under Chapter 11 bankruptcy, to grow and expand its Valley operations. CFO Tina Rhodes says Najafi is committed to homebuilding in Arizona and looks to invest in companies with strong management teams and long-term potential.

Paradiso Development Corporation is moving forward on development plans for Paradise Reserve, a 40-acre, exclusive, luxury residential enclave bordering the Phoenix MountainPreserve on Lincoln and 40th Street in Paradise Valley. The desert retreat has 14 hillside estate lots ranging in size from one to three acres. Lot prices are $2.7 million to $5.4 million.

“The 14 lots at Paradise Reserve are the crown jewels of our project,” says Scott Schiabor, principal of Paradiso Development. “They are rare and unique, and that will help maintain their value and attract investors. A big part of our market is also immune to economic changes, so while we expect some downturn due to the economy, based on the rarity of the lots, location and our target market, we expect sales to go extremely well. For many people it is still a good time to buy real estate and make quality investments.”

Luxury Home - AZ Business Magazine November 2008

Housing Crash Hurts The Valley’s Luxury Home Market

High-End Distress: The housing crash is now hurting the Valley’s luxury home market


A meticulous five-bedroom, remodeled home sits nestled in one of Paradise Valley’s most beautiful neighborhoods. But the most remarkable thing about this home is not its one-acre lot, new flooring or up-to-date kitchen. It’s the “For Sale” sign that has graced the front yard for two years.

Two years, two different realty companies and several price reductions later, the home finally is generating some energy and a contract is in the works. But, according to information from Coldwell Banker’s luxury home experts with The Walt Danley Group, that never would have happened if the price hadn’t dropped 20 percent in one year and 40 percent from the time it first went on the market.

This scenario is playing out to varying degrees throughout the Valley’s high-end home submarkets, from the Biltmore area to Paradise Valley to North Scottsdale. Real estate professionals say that while wealthy clients clearly are insulated from some of the economic hardships that face production-home buyers, they are not completely immune from them.

Inventory is high, homes are sitting on the market longer and Realtors must convince sellers to lower their expectations on price.

“What’s happening in the marketplace,” says Sandra Wilken of Sandra Wilken Luxury Properties, “is we are trying

to get our sellers to be extremely realistic on their list price. The ridiculous prices of three years ago are not going to happen.”

In 2007, Wilken says buyers in Paradise Valley purchased 133 properties worth $2 million or more. The most expensive ho

me sold for $8.8 million. This year, 62 homes have been sold in that range, with the highest fetching $7.62 million.

Information from the Arizona Regional Multiple Listing Service in two high-end zip codes, Paradise Valley’s 85253 and North Scottsdale’s 85256, shows inventory climbing through 2007 and the first half of 2008 compared to accepted offers. The average price for a property sold in Paradise Valley in September 2006 was $2.328 million. This past August it was $1.606 million.

Break it down
It is important to understand that in the luxury home market, different segments are performing in different ways.

Buyers who can afford a $2 million to $4 million home, or higher, are more insulated from current market conditions.

Tom Fisher calls them “program buyers,” successful and affluent business people who are on track to build homes that some call “family resorts.”

Fisher, owner of Fisher Custom Homes, builds houses that start at $2 million. His clients’ income or cash flow often is tied to the stock market, and while that has bred caution in their spending, in his experience it hasn’t derailed many building plans.

Walt Danley agrees there still is activity in the high-end market, but poor economic conditions fostered by sub-prime lending have, in a sense, trickled up.

Credit crunch
Credit in the form of jumbo loans, or loans for more than $417,000, has dried up as well. Several years ago, buyers could purchase a $1 million home with as little as 5 percent down, says Dean Bloxom, president of iMortgage Services in Phoenix. Some banks asked for 10 percent on $2 million.

Today, loans are available but banks want at least 20 percent down, and clear, documented evidence of someone’s assets and income — a correction that should have happened earlier, Bloxom says.

There are indications the market may pick up some velocity, says Cionne McCarthy, an agent with Russ Lyon Sotheby’s International Realty.

The Luxury Home Tour, which showcases homes in Paradise Valley and the Arcadia and Biltmore districts, recently released figures that show homes in August spent less time on the market.

From Aug. 8 to Sept. 6, homes spent an average of 151 days on the market, compared to an average of 223 days between August 2007 and August 2008.

Arizona Business Magazine November 2008

The Long View 2008

The Long View

By Melissa Bordow

In real estate, as in love, beauty is in the eye of the beholder. So when you ask major players in the Valley’s office-condominium market how attractive it is, you’ll get wildly divergent answers.

long view 2008

On one hand, brokers, bankers and economists can tell you what the numbers say: Office-condo sales have lost velocity, slowed by a struggling housing market and banks that have reined in credit to commercial and residential borrowers.

On the other hand, you have developers who know that even during slow economic times, there always is growth on the Arizona horizon. They see beauty in the Valley’s long-term prospects and say they are committed to a long-term relationship.

Growth that occurred three years ago during the freewheeling days of the housing boom, they say, has produced enough roof tops in far flung areas of the Valley to still require their services.

What happened
Four years ago, office-condos were an up-and-coming niche market, and real estate advisory firm Grubb & Ellis touted Phoenix as “the office-condo capital of the nation” in a survey of 41 cities. With plenty of property available and under construction, Phoenix was “ground zero” for office-condos, according to the survey.

Today, construction has slowed and transactions are down, figures compiled by commercial brokerage firm CB Richard Ellis show.

“It’s kind of like a bouncing ball, what goes up must come down,” says Kelley Ahrens, a director in the brokerage side of CBRE’s office-condo division. “It’s down now, but like a ball hitting cement it will bounce back up.”

According to CBRE’s figures, between 2005 and 2006, developers added 3.69 million square feet of office-condo space for a total of 10.93 million square feet.

Calculations show absorption that year was about 3.3 million square feet. By the fourth quarter of 2007, with 2.63 million more square feet added, absorption was 1.4 million square feet. By the second quarter of this year, only 360,000 square feet was added to inventory, with about 330,000 square feet sold.

Figures from commercial brokerage firm Lee & Associates show the vacancy rates are hovering around 29 percent in the East Valley and 24 percent in the West Valley. Scottsdale vacancies are at 17 percent.

“Is the market overbuilt? I would consider it overbuilt, but not grossly,” says Andrew Chaney, an associate at the firm. “You need to get that vacancy number down close to 12 (percent) or the mid teens before you get people excited to build.”

Developers and brokers say less activity is due in part to banks tightening credit and underwriting requirements.

“It’s just harder to come by capital,” Ahrens says. “Developers still believe in the office product. It’s getting someone on the financial side to believe in the product.”

Valley bankers, on the other hand, say they are willing to lend, but potential buyers must show they have a viable business plan with enough potential earnings to withstand the economic downturn.

“If I have a real good, strong buyer, I’m going to finance that office-condo,” says Kevin Kinerk, vice president of Western National Bank.

There simply is not the same demand, as many small businesses that bought office-condos were affiliated with the construction and housing industries, Kinerk says.

“The last thing they’re going to do right now is buy a piece of real estate,” he adds.

In the last six months, Kinerk says he’s approved financing for 20 office-condos, about half of what he approved in the first six months of 2007. Valley wide, transactions dropped from 410 in 2007 to 130 in the first two quarters of this year, according to CBRE figures.

Troy Toolson, vice president of Valley Capital Bank in Mesa, agrees that well-established businesses that meet due-diligence requirements should be able to get a loan. Startups, though, may have a tougher time.

“We’re really positive about office condos, particularly end-users, right now. It’s just the tough economy. People are a little gun-shy right now, but there are loans available,” Toolson says.

Bob McGee, president of Southwestern Business Financing Corporation, a nonprofit corporation that partners with banks to administer Small Business Administration loans to commercial borrowers, says conventional lenders are analyzing businesses more closely and asking for more equity, historic cash flow and cash flow to debt service.

Location, location, etc.
Office-condo developments that were strategically placed and well constructed still are luring small business owners who want to own their own space.

Sales are occurring in areas where housing is built-out, but necessary amenities have yet to reach, developers say.

“It’s a good time to be strategically aggressive,” says Terry Tobey, senior vice president of business development for UTAZ. Pinal County and Queen Creek, she says, are prime locales for office-condos designed for the professional doctor, dentist or insurance agent.

“Not everyone is in a recession,” Tobey says. “There is no recession for death and taxes and health. People still need to go to the doctor.”

And they would prefer to do so, she says, close to home.cover october 2008

The medical end of the office-condo market has held up better than most, Tobey says, and UTAZ has projects under construction across from the Banner Ironwood Hospital under construction at Combs and Gantzel roads in Queen Creek, and Mercy Gilbert off the 202 Freeway and Val Vista Drive, among others.

“We’ve always picked great locations and we are still getting people wanting to purchase,” she says.

Siting an office-condo well is the key to maintaining sales, agrees Steve Beck, a vice president at COBE Development.

COBE does extensive research on an area’s demographics,schools, hospitals, traffic patterns, freeway systems, and potential growth before building. That has helped thecompany absorb 20,210 square feetthis year, says T.J. Zaharis, vice president of sales and marketing, an increase of 50 percent from 2007.

“As the market has its ups and downs, location will always pull you through,” Beck says.

www.cbre.com
www.lee-associates.com
www.wnbank.com
www.vcbaz.com
www.swbfc.com
www.utaz.com
www.cobedevelopment.com

ForeclosureFallout

As More People Lose Their Homes, Banks Are Left Holding The Keys

Acquiring real estate through foreclosures is not exactly the type of transaction banks relish. That’s especially true in a down market that is overloaded with raw land and homes — and a paucity of potential buyers.

Estimates of the amount and value of acquired real estate through foreclosures are difficult, if not impossible, to come by, an industry insider says. A lot of the banks don’t want to talk about it.

“It’s ugly for everyone involved and you can’t even get the Federal Reserve to talk about it,” the insider says.

Anthony B. Sanders, professor of finance and real estate at Arizona State University’s W. P. Carey School of Business, sums up the somewhat dismal situation: “Banks are not in the business of being portfolio managers, either vacant land or housing.

“The way they’re trying to get rid of properties is that most banks are doing packaging. They sell packages of defaulted properties to investors around the United States,” he continues. “They started with national lenders, but there was very little interest in that. Then they went to regional packaging. That didn’t work either. Let’s face it, nobody really wants a Detroit-area loan or housing package.”

What’s happening is that hedge funds and equity funds are looking for very specific types of properties. Raw land value is highly dependent on where the land is.

“That’s why they don’t want to buy large portfolios,” Sanders says. “Because on the urban fringe, when you get way out west or southeast of Phoenix, some of that land they cannot literally give away. The reason is there is no foreseeable development going on in those areas.

“They’re looking for anything related to water rights or mineral rights — anything with natural resource implications still has a positive value,” Sanders says.

Until housing makes a comeback, banks are not finding a lot of interest in 40-acre tracts of desert that someday could be converted into a housing development, Sanders says. Some banks have defaulted single-family homes, often in remote areas.

“During the boom, and until fairly recently, a lot of starter homes were built in areas near Queen Creek, where land prices were fairly inexpensive for the Phoenix market,” Sanders says. “That market has really gotten beaten up pretty hard.”

National and regional bidders for those packages are few and far between.

“It brings back the old adage of location, location, location,” Sanders says. “If you’re planning properties located on major golf courses, or some properties in Scottsdale, there’s interest in that. In the classic subprime neighborhoods, which tend to be lower income, there’s not a lot of interest.”

In the meantime, banks are running around trying to peddle their packages. It’s more feasible to sell packages instead of marketing individual properties, because bank real estate portfolios are overflowing.

“Packages provide a good indication of which areas of Phoenix are likely to keep dropping like a rock,” Sanders says. “It’s those areas where there isn’t any interest in bank packages, which means the market doesn’t think they’re near the bottom. In some areas of Phoenix, the bottom may be a little ways away.”

With packaging of perhaps as many as 200 properties at a time, come discounts.

“The nasty part is that some of these properties are being offered at a big discount and they still can’t get rid of them,” Sanders says.

Even so, there continues to be interest in Ahwatukee, Scottsdale and Paradise Valley, which Sanders says means the housing market is showing some signs of life. But he adds this ominous observation.

“This is very reminiscent of the RTC (Resolution Trust Corporation) fiasco after the savings-and-loan debacle. It’s just like when the RTC was putting together packages. That’s the tipoff. Anytime you see packaging, that should make the hairs stand up on the back of your neck.”

At the Arizona Department of Financial Institutions, which regulates state-chartered banks and none of the large national ones, Tom Wood, division manager for banks, also recalls the S&L collapse.

“We had a lot of raw land in the 1980s,” he says. “Thank goodness we don’t have much of that now.”

Most of the real estate banks are trying to get rid of consists of single-family homes, Wood says.

“Very rarely do we see raw land,” he says. “Some banks don’t want to own it because it takes longer to get rid of. If they foreclose on raw land, they probably sell it at a sheriff’s sale.”

Wood expects a continued uptick in bank acquisitions of real estate, but sees very little of that among state-chartered banks. He suggests that some larger banks might be bundling foreclosed properties and attempting to dispose of their holdings through auctions or developers.

Depending on which economist you talk to, a substantial housing turnaround won’t happen until 2010. Some say 2009; and yet, as Sanders says, there are signs of life in 2008.

“For certain areas, recovery is there,” Sanders says, “but if I’m sitting in Buckeye, Avondale, Queen Creek and parts of Gilbert, I wouldn’t look for a speedy return.”

Majerle-Cover-2

Cover Story – He Shoots

He Shoots…

Will former Sun Dan Majerle
score in real estate?

Photography by Brian Fiske

Dan Majerle’s left ring finger is broken. It’s wrapped in a small black cast, the result of some aggressive play in a pickup basketball league he plays in. Ironically, the same finger on his right hand was broken in a hoop-playing battle called the NBA. “I went too hard after the ball, go figure,” he smiles as he relays the cause of his most recent injury. This late summer day, he’s sitting at a Starbucks in Phoenix sipping an iced coffee, wearing jeans and a cool blue T-shirt. He’s sporting a thick black leather watch and looking tan and relaxed — probably because he’s been playing golf and, well, playing basketball.

Dan Merjerle

But this day, Majerle’s thoughts aren’t too much on the sport that brought him wealth and fame. Several people will stop by for an autograph during our chat, which he always obliges with that Thunder Dan white-tooth smile. He’s got a couple things on his mind today: first up, it is his son’s fifth birthday.
“Getting ready to cut some cake,” he says.

Most days, however, Majerle, purple and orange No. 9 to most of us, is thinking about something beyond basketball and birthday parties. Like many sports stars, he is searching for the next big thing following his professional career. Sure he’s got a successful namesake restaurant, Majerle’s Sports Grill in downtown Phoenix and another one opening soon in Chandler, but No. 9’s thoughts are now on the No. 1 industry in the Valley and how he can partake in it, make a name for himself and maybe score a buck or two. Yep, today, Thunder Dan is a real estate man.

He Shoots, He Scores
The Dan Majerle Group will soon break ground on its first real estate project and already this former power forward is thinking about how he can score his next big deal.

“It’s been a great learning opportunity for me,” says Majerle, 42, who played pro ball for 14 years, eight of those with the Phoenix Suns. “I have surrounded myself with some great people and I think we can do great things. I don’t attach my name to anything but something that will be first-class.”

Majerle’s first commercial real estate venture will be a retail project at McDowell and Dysart roads called The Shops at Palm Valley. The two-and-a-half acre project is a slice of a SunCor 30-acre project and master-planned community, Palm Valley.

“We’ve been meeting people, getting into the groove and figuring this thing out,” says Majerle. “We’ve got our architect and we’re selecting a contractor. We should be up and running sometime by early next year.”
If anything, Majerle smells the sweet nectar of real estate: the planning, the vision, the design, the build-out, and of course, the payday. But for Majerle, it is much more than a power play. It is something his name is tied to, so it has to be great.

“Because of my name, my career and the like, I get approached by all kinds of people offering some sort of a great deal, a ‘sure thing,’” he says. “But I am careful. I will not put my name on something that isn’t good for me, the community and those who have placed their trust in me.”

Riding the Wave
Majerle has been a professional athlete, national spokesperson for various products, restaurant owner, as well as a color commentator with the NBA. So it begs the question: why real estate?

“Over the past 18 years in the Valley I have seen the tremendous growth and I thought with some of the relationships I’ve developed I could leverage to get involved in some projects,” says Majerle. “The projects that we are involved in are at different stages from negotiations to design, and up to construction.”

As Maricopa County continues to add more than 100,000 residents per year as it has for the past decade, real estate — both commercial and residential — has been a far better investment than the stock market. It is because of these real estate deals, grocery-anchored retail centers, mixed-use urban living complexes and more rural strip malls that many-a-fortune has been made. It is also where Majerle has found his calling.

“We are involved with all kinds of clients from nail salons, day spas, tanning salons, health food stores, sandwich shops, dry cleaners and vitamin stores — if you see it at a commercial retail site, we work with them,” says Majerle. “The community has welcomed me with open arms and I am excited about working with them. With any opportunities come different levels of challenges that one needs to overcome to be successful. With my sense of discipline and commitment, I have been fortunate to be successful up to this point in my life.”

No doubt, as it does in professional sports, practice produces results at the end of the day. However, a little luck, strategic planning and a quick elbow or two thrown in the heat of battle goes a long way. While the first of The Majerle Group’s projects will be in the West Valley, he isn’t limiting his company’s anchors to any single area of town, or region for that matter.

“There are so many real estate opportunities here in the Valley — and really the Southwest — that brokers are showing us on a daily basis, that we are looking at numerous sites from Buckeye all the way down to Queen Creek,” he says.

Even though Arizona’s residential real estate market has become mired, as has the nation’s, in a glut of oversupply, overzealous pricing, aggressive mortgage contracts and investor speculation, Arizona, and specifically Maricopa and Pinal counties, remain some of the strongest long-term plays in the national real estate market. Further, the region from Prescott Valley to Arizona’s border with Mexico has been tagged as a “Super Metropolis,” one of only a handful of mega-metropolitan urban areas in the nation that millions of residents and businesses will continue to call home. And of course, there are the retail and mixed-use centers that will surely follow.

Many areas have experienced an enormous growth in housing, but the retail/office market is underserved in new neighborhoods around town, notes Majerle, sounding more like Donald Trump than a physical education major from Central Michigan.

“If they stopped building houses today, we would need to build commercial development projects for the next five years to catch-up,” he says

Everyone Knows Your Name
As in sports, teamwork is key, and Majerle is certainly the go-to guy. He says he analyzes every deal that crosses his desk and knows real estate is a long-term play, not a fourth-quarter sprint.

“Development is all about relationships and with my 18 years in the Valley, I have relationships with a lot of influential people that we work with or complement us in the development game,” he says.

Here’s another intriguing piece of the development game in the Valley: Majerle’s former boss and Phoenix icon, Jerry Colangelo, now dabbles in the real estate game. Colangelo is part of the group developing Douglas Ranch, one of the largest master-planned communities ever to be built in the state. So will the two become business partners?

“At this time Mr. Colangelo and I have not talked about partnering in any deals,” Majerle admits. “I have the greatest respect for him, not only as a business man, but as a person. From day one when I came to the Valley in 1988, he treated my family and me wonderfully. I would love to be associated with him in any aspect.”

Meanwhile, away from the development game, the former Phoenix Suns’ player keeps busy with Majerle’s Sports Grill. The Phoenix location, now in its 15th year, has been so successful, it has spurred Majerle to open a second location in Chandler. The same hands-on, know-every-detail philosophy will be a part of the new Majerle’s Sports Grill.

“The best part of what I have been able to do lately is get more and more involved with the restaurants,” he says.

The Chandler location will mirror the downtown Majerle’s with about 5,000 square feet, a big bar, an indoor/outdoor patio with seating for lunch and dinner, as well as state-of-the-art audio/visual systems with flat screens throughout the restaurant.

Arizona Business Magazine Oct-Nov 2007“With the bigger kitchen size, we expect to expand the menu to include pizzas, fish, steaks and other daily specials that we cannot do at the downtown location,” Majerle says. “Besides that, we expect to bring the same friendly ‘Cheers’-type feeling from the downtown Majerle’s, and to make it both a satisfying and fun experience for everyone who comes in.”

If Majerle’s broken finger is any indication, the real estate industry has a true competitor on the scene. He’s proven throughout his career that he has the determination and smarts to be a major player on the court. Can he transfer this success to real estate?

“I know I can do this,” he grins as he signs another autograph for a fan, who is probably wondering why Thunder is talking about real estate and not hoops. “It’s time for another chapter in my life. I can’t wait to get rolling.”

www.majerles.com

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