Valley Partnership Past Chairmen Discuss Phoenix Development – Part 2
Valley Partnership is celebrating 25 years as Metro Phoenix’s premier advocacy group for responsible development. In looking back – and also looking ahead – AZRE magazine brought together six former chairmen to discuss goals the group has successfully achieved and challenges that lie ahead. This is part 2 of this discussion.
Go to page one of this article.
RH: We asked this question more than 20 years ago: Do you feel the local and state government officials have a good understanding of the current real estate and banking problems in Arizona? Can that same question be asked today?
JP: I think they understand it because it is affecting their revenue significantly. Development to cities is a mixed blessing. They appreciate all of the sales taxes and the fees paid by the developers, but they have to contend with all of the complaints. Charley made an interesting point dealing with cities. Sometimes what I call the newer cities, the ones on the outskirts, don’t have the staff , the continuity or the maturity that some of the older cities have, so it’s sometimes more difficult to deal with the smaller cities. But most governments are strapped right now. That’s due to the economy and a city that is accustomed to the fees and the taxes that are derived from development. I don’t think we are ever going to have the kind of economy we did between 1994 and 2006-2007. We all have to make adjustments. Our industry has to make adjustments in terms of what we do and how we do it. We have a product to produce. Cities are going to have to make adjustments. Should cities be totally sales tax dependent? Shopping centers produce a lot of sales tax, and they welcome us with open arms. Car dealerships produce a lot of sales taxes. Shouldn’t we have a more level playing field in regards to tax generation? Just because Scottsdale has more commercial than an adjoining city, does that mean that they are going to have more revenue to support their services? I think that it is a global approach, and our cities are going to come together and address some of those concerns.
JG: I don’t think there is any question that they understand the depth of our problems. It’s all the way from their fiscal problems to the operational issues of not seeing zoning cases and their staff being cut down to skeleton-type levels. I think it is obvious that they understand that part of it. I think that when something bad or negative happens, something good comes out of it. One of the things that we are all going to benefit from in the future is that the cities are more reticent to restaff and go back to business as usual. I think from the standpoint of processing procedures, processing costs, processing time frames, and some of our worst enemies over the last decades, some of those will see some level or relief. We are also seeing some of the cities are courting us to do something in their communities. Not that they have much to give us, other than a friendly hand and encouragement to do something. But it is nice to see that they are reacting to figure out how to jump-start their own economies and their own development of their communities.
CF: I gave this question a lot of thought. We are in these long-lived projects; 20-plus years projects so you are guaranteed to have cycles. It was early in my career somebody gave me the analogy of real estate cycles. When you’re on the downhill slide, no one ever believes that there will ever be an uphill again. So the reaction is that when I talk to most of my peers, like you guys, we are starting to observe that our days are spent on positive activities or improving activities, whereas a year ago we were slugging through tenant failures, defaults and bank loans and all of that stuff . The cities are still in that downhill-looking position, so their reaction time is slower, which is frustrating. At the other end of it nobody ever thinks there is going to be a downhill again. So I love the industry. We have a balancing act; you want to take advantage of those mood swings when they work for you. But when you step back as a responsible player in this industry, you’d like to see a little more perspective and a little less reaction on the staff level. We have been fortunate. We have been in very difficult cities to deal with, which is a blessing because their staff level thinking is very good. Mesa has been through an amazing evolution with its entire team — from mayor down through the ranks. Scottsdale is a very challenging city, but it is very sophisticated and a lot of time they have a really good point. I like being held to that higher standard, even on the days I’m complaining about it. It’s nice to have lots of examples to refer different towns and cities to, and it’s nice to have Valley Partnership as a sounding board for some of those revolving towns, too.
DS: I think when the savings and loans crisis hit, maybe because it was my first downhill cycle, it seemed that more people were sort of “deer-in-the-headlights-look” than when this crisis hit. A lot of people said, “I know what mode to go into,” and even the cities knew that it was going to be a tough 4-5 years to get through. At least for me the memories of the late ‘80s early ‘90s, those that are veterans knew what you had to do and what was required at that point in the cycle.
CH: I’m going to go on a little twist. I thought Pete was going to go there first, but I’m going to the first one to throw a question back. The question is good. We talked about local and state, but what about the Feds? Is it different now than 20 years ago with the Fed? I know that for the homebuilders and mortgage regulation, it has been a lot harder on them.
PB: John made a comment about the municipalities understanding current real estate. That hit pretty solid. I don’t think what anybody understood is the way the banking system has changed and how many assets that were initially were held under the CMBS, and it is daunting to look at the RTC days and look at the special servicers of today. The banks play a role in the recovery in the downturn, and the bank’s FDIC, but the real power is coming out of Wall Street. You know what, the fascinating part of this is that they are just rebranding and heading back into something else. I mean it really is amazing to watch that place operate. And 90% of the population does not even know what is even going on in those four city blocks.
RH: What are the greatest challenges that lie ahead for Valley Partnership?
PB: Wall Street financing and the influence they have on our businesses. I think it would be a great seminar sometime. Bring in people who know how to chat about it. It’s something that now. As far as greatest challenges, I think nimbyism is right up there. We got to go vertical. The density is an issue. The economics of density is an issue. What Scottsdale has been doing lately is almost unbelievable with the 6-, 7- and 8-story apartment buildings. I thought I’d never see this. I think the downturn has some fascinating outcomes much to so many people’s dismay. But from the standpoint of Valley Partnership, how do we start switching that mentality? I don’t know if all of you agree with this, but I think that horizontal development has got to take a leap vertically, forward. And we need the politicos to support us with that.
CH: I agree with that sentiment. What you’ll find is that you’ll get a number approved and then they’ll shut the door. I think it is erratic. I don’t think that they will be consistent necessarily when they determine density. I’ve already seen just in Scottsdale, with apartments, it’s a four-letter world. Even though they have enough planned, everybody is getting afraid of what’s planned, even though they won’t all show up. I think that when you have erratic behavior in a city, it’s impossible which direction. It is an opportunity to keep them educated and keep in front of them as it relates to what are the benefits.
DS: Most of the built environment that you see every day in this town has happened in the past 60 to 65 years. One of the biggest challenges that Valley Partnership has is that its membership must go forward, make a change and start addressing vertical construction. Our industry will have to start becoming better at harvesting tougher deals. I think that the days of “blow and go” at the surface is coming to a stop. In 1985, we all decided to pass a bill that we invest billions and billions into a freeway system and I don’t see a next super giant equivalent economic development dump of money like that was. I do think one of the biggest challenges for our membership, and therefore for us, is this change that is going to have to take place and really look into more sophisticated ways to do a better job.
CF: John and I were talking at a ULI gathering, saying we have a foot in each camp because we are both in very urban projects in Downtown Tempe. Pete’s right that vertical development is here to stay and it is the wave of the future. It’s complicated because the infrastructure in the cities was not sized to take on big vertical projects, so it really drives a complicated bargain for the cities and the municipalities. It has been really fun the past 5 to 6 years watching Phoenix, Scottsdale, Tempe and Mesa. When they get into that infill, they have to throw their zoning codes out and go to form-based management or some type of regulatory procedure. It is really fascinating to watch because some of these old style, stodgy cities have brought in these new-style thinkers and they’re throwing the books out and starting over. It’s really what it requires. They are going to have address the infrastructure because most of it is not sized right to go that dense.
JG: I have a general answer that I give to any organization to start with. I think that anybody that doesn’t continually evaluate purpose, value and leadership will go the way of a dinosaur at some point. The thing that Valley Partnership has actually done a good job over the past 25 years is constantly asking those questions and generating legacy-type leadership. First and foremost my hope is that we continue to adapt – as an organization. I do think, and Charley is right, that we have talked about it a lot. One of the interesting things that we can and should weigh in on is this more densification of the city and change the urban form. I think it is going to happen and if it is not done thoughtfully, the result is going to be much less fulfilling and rewarding.
JP: Maybe we are using the wrong words. I have heard vertical. What about the context of urban? Urban applies to a lot more things than verticality. It applies to design. It applies to use. It’s a small example, but look what has happened on 7th Avenue and McDowell. By converting the property, it’s jobs. It’s a planners dream. Jobs, housing, entertainment, and shopping in one spot. I don’t think that if you have a well-conceived project like that, then maybe they (cities) will have to redo their codes and maybe they might have to redo their outlook. But they get it. It’s what they were taught in school and if you can generate that excitement not only on the city level but on the community level, I think most people would get it instead of being absolutely terrified.
RH: What are the greatest opportunities that lie ahead for Valley Partnership?
JP: We are going to have to understand that our industry is going to change, I think, drastically. I don’t think we are going to Buckeye or Queen Creek anytime soon. We are necessarily talking about infill development; we are talking about the more urban concepts. That is going to involve a transformation of thinking and that is going to involve everyone in our industry. I’m excited about it. I can see opportunities within 4 or 5 miles from where we are sitting now. Same thing in Downtown Tempe. Same thing in Downtown Glendale. The same thing in any area that has a great mass of density. Hopefully an income level that would sustain a good quality development that needs the services that I provide; the need for services that all of us provide. That is the exciting challenge. It was pretty easy back in the day. You go out and buy 20 acres and put down a grocery store, some shops, and a couple of paths and you go on your way. But 6 months later you have Walmart pouring footings across the street. Our experience with infill, once is happens, it is tougher to do. You’re dealing with land assembly. You’re dealing with environmental remediation. You’re dealing with high-priced land. If you can get it done, your competition is limited.
JG: The issue is – and I have seen this a lot recently – is who is waiting for the momentum play versus things just getting better regardless of what you do? Prosperity versus the creativity play. I do think that this urbanism issue is one that will give us more lengths to recovery; a better place to live. It isn’t the only thing that Valley Partnership should focus on, but I think it is uniquely qualified to do a lot in that discussion just because of the cross section and the diversity it has in its membership.
CF: There is another dimension of redevelopment that we haven’t really touched on. Our first big project as a company was Centerpoint in Downtown Tempe. When I was going to ASU there was a lot of old, rundown stuff there. It is immensely rewarding to just go see a re-creation of things that have deteriorated and were once rundown. My personal experience, I was on the front of what was the old Caterpillar Tractor Desert Proving Grounds, and now we are doing Eastmark. We are taking these vast pieces of really underused infilled properties.
CH: There may be the need to guide the committee structure and leadership toward urban redevelopment and higher density issues. How do you back fill for infrastructure? Water lines need to be this big. There needs to be more priority put on the types of issues that Valley Partnership needs to focus on. Valley Partnership has never been a self-policing type of situation. If there was a way to get a grassroots raising of the bar in our industry, have a position and a dialogue that causes the membership to say that they want to operate at a higher bar than they are used to, a lot of good leadership could come out of it. Valley Partnership could drive the message of its own.
DS: When I look at the greatest opportunity or challenges, I have two thoughts. One is I continue to believe that the best work that Valley Partnership does is at the grassroots levels and what it does with all of its cities and towns and educating the staff and working with them to write new ordinances. Urban infill is a green field. They are going to have a lot of homework to do. In the job of being the communicator and sharer of great ideas, Valley Partnership can really play a great leadership role. I think that the challenge and opportunity is to make sure that you have the right staff and have the right committees and have people who are committed and engaged to get in there. I have been blessed to see the impact we have on city managers and planning directors and staff people by just having a dialogue and saying this doesn’t work and let me tell you why. I think that there is great opportunity.
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5 Most Important Advocacy Issues
1. Passage of Proposition 303 in 1998, which created the Growing Smarter Act and allowed for municipalities to purchase Arizona State Trust Land for Conservation. This combined with the all-out effort to defeat a Portland-Style Growth Boundary Proposal, Proposition 202, which was on the ballot at the same time.
2. Collaborated with the City of Phoenix to draft the “Big Box Ordinance,” which protected the ability of retailers to operate facilities larger than 100,000 square feet.
3. Revised the Arizona State Statutes, which regulate municipality’s ability to use sales tax revenue to reimburse commercial real estate developers for the installation of public infrastructure.
4. Revised the Arizona State Statutes to preserve the Government Property Lease Excise Tax (GPLET) to promote redevelopment in blighted areas of municipalities.
5. Supported the City of Phoenix at the Arizona Supreme Court by filing an Amicus Brief in Turken v. Gordon. The Amicus Brief helped persuade the Supreme Court that a municipality’s use of sales tax to reimburse developers for the cost of public infrastructure was not in violation of the Arizona Constitution.