Vision, patience and an ability to take calculated risks are some of the enduring traits of a successful developer, but as the Phoenix market evolved developers adapted new modes of thinking about the industry, what’s next and how it impacts them.
Today’s developers are casting bigger nets with a broader range of expertise and personalities from diverse backgrounds and experience levels to collaborate on best practices, innovations, teaming and idea creation.
Overall, developers are eagerly looking at ways to combine new skills with tried and true knowledge in efforts to better understand what it means to be a 21st century developer.
What worked 30 years ago is not guaranteed to work today, which is why developers are faced with the decision to adapt for future viability or become relics of Arizona’s development history.
Defining the 21st century developer
Where and what developers are building has changed as well as how they are building it.
New innovations, technologies and trends are disrupting the industry every day. Navigating what those means to you and your business is the only way to remain successful.
Tim Brislin, vice president at Harvard Investments, says, the 21st century developer can’t solely rely on what worked in the past, which is why he identified a few other skills needed to be successful in today’s development world.
First, developers need to re-learn the acquisition processes of their buyers for both commercial and residential projects. He explains, “What was once a 30-page purchase and development agreement is now 300-plus pages and contemplates every contingency imaginable.”
Secondly, precision is needed in developer’s acquisition and execution, he says, because it’s costly to be wrong and there isn’t enough market demand to smooth over a subpar deal.
Lastly, developers need to utilize all the new research and data that’s available to better understand their markets, sectors and target demographics.
For Todd Chester, principal at WDP Partners, that means 21st century developers “need to be able to quickly adapt to changes brought about by technology” like how brick and mortar retail is being forced to adapt to e-commerce retail.
Brandon Dillingham, director of Arizona development at Hines, says, “The shift over time for 21st century developers have been the ability to implement long-term strategies to penetrate and expand into multiple markets/cities, allowing for better risk mitigation against changes in both macro and micro economic cycles.”
In turn, this attracts capital on both the equity and debt side of the business because the developer is seen as a predictable partner in executing its investment goals. This is increasingly important especially because developers face greater challenges today as a result of elevated land prices and unrealistic seller expectations, adds Dillingham.
What’s hot and where
Over the last 30 years, both retail and single-family segments have experienced the most profound multiplier of growth throughout the ’80s, ’90s, and early 2000s in Arizona, which have combined to define many of the state’s suburban nodes.
While development hotspots change every couple of years, Chester says, “apartments and infill retail have been on a roll for a while and now you’re hearing about the industrial boom.”
Developers are shifting their focus away from the periphery of Metro Phoenix and back to urban core markets and infill opportunities for new developments or adaptive reuse projects.
Dillingham points to urban multifamily as a strong asset class right now in Phoenix and most major markets. He predicts, “We still see fundamentals staying strong in the near-term and believe there are profitable development opportunities for well-located dynamic sites with quality mass-transit options and walkability to amenities and seasoned retail.”
In residential real estate, there are several distinct hotspots that Brislin identifies as providing high quality, entry level communities to meet an increasing demand for affordable first time product. He mentions the Southeast Valley with Queen Creek and San Tan Valley, the Northwest Valley stretching from Interstate-17 to North Surprise, the reinvigorated Loop 303 corridor and the Southwest Valley with Laveen and Buckeye.
He predicts, “30-years from now, there will be rush hour traffic on the Sun Valley Parkway,” which is a 30-mile stretch of road through the mostly undeveloped desert west of the White Tank Mountains in Buckeye.
All developers, both residential and commercial, wish they knew what will be the hot product type and location in 30-years, but looking ahead, Dillingham thinks, “It’s safe to assume that mixed-use will further define itself and ideally we’ll have a larger sampling of good execution on this type of real estate, which will create a more proven formula for developers and city planning committees to model after.”
With automation advances, drones, driverless cars, virtual reality, technology is rapidly changing the ways the industry thinks and operates.
Looking 30-years down the road, Brislin says, you must be a futurist, which means identifying ways certain disruptions and innovations might impact the industry such as driverless cars, 3-D printed homes, virtual reality and the potential for another Great Depression. “The disruptions will continue to be epic,” he says.
For instance, the large scale master-planned communities from before the recession are old news. “Today and going forward,” Brislin explains, “there is a strong move to a ‘right-sized’ master-planned community that can provide amenities, diversity of product and commercial opportunities, but is not a multi-cycle project.”
In commercial real estate, Dillingham says, “Walkability and live/work/play continue to be important attributes investors look for,” which coincides with a growing focus on access to transit.
However, he says, “In the long-term this pendulum could swing back the other way as more employers embrace work-from-home programs, Uber-based platforms continue to grow in convenience and applicability, and as new technology like driverless cars come into play.”