AZRE: Arizona Commercial Real Estate

JANUARY-FEBRUARY 2013 2014

THIS IS THE FUTURE

2014 OUTLOOK

INSIDE 2014 OUTLOOK:

Industry experts' market predictions p.18

BOXED OUT: A retail space the recession built p.34

COMPANIES TO WATCH: CRE's movers and shakers p.28

When You Need Direction Today’s dynamic commercial real estate environment presents real estate owners, managers, developers, lenders and investors with exciting opportunities. Buchalter Nemer real estate attorneys offer sound professional advice and guidance, when you need direction.

In Arizona, please contact

Paul M. Weiser, Esq.

480.383.1823 pweiser@buchalter.com 16435 North Scottsdale Road, Suite 440 Scottsdale, Arizona 85254-1754 www.buchalter.com

Here's looking at you, 2014

W

elcome to the first issue of the new year!

I’m all for the shiny, new possibility that comes with a new year — I mean, the Arizona Center for Law and Society rendering you see on the cover is going to be not only a valuable asset to the community as a large nonprofit law firm and learning facility but also a really great spot to take my lunch breaks.

However, after talking to a few of the industry’s movers and shakers for this year’s annual commercial real estate outlook, it seems more appropriate to greet 2014 with: “In with the old!”

Shopping centers all over Arizona are getting longoverdue makeovers to match the changing times, as you can read all about in our International Council of Shopping Centers section. GPEC's Barry Broome also calls for creative and bold minds to take on challenging in-fill projects through downtown Phoenix in the outlook.

Within the next 40 pages, you’ll read about great projects in the pipeline and get acquainted with companies worth watching over the next 12 months in our "40 Companies to Watch" feature.

We also interview some people who we think will do great things; check out our Q-and-A with the first female NAIOP chairman in Arizona, Liberty Property Trust’s Megan Creecy-Herman.

And, before I go, I want to wish you all health and happiness in 2014. I'm excited to see what's in store.

President and CEO: Michael Atkinson Publisher: Cheryl Green Vice president of operations: Audrey Webb EDITORIAL Editor in chief: Michael Gossie Associate editor: Amanda Ventura Interns: Lauren Gephart | Sara Healy | Meg Krivanec | Alexa Renfroe ART Art director: Mike Mertes Graphic designer: Lillian Reid DIGITAL MEDIA Digital manager: Perri Collins Web developer: Eric Shepperd MARKETING/EVENTS Manager: Whitney Fletcher AZRE | Arizona Commercial Real Estate Director of sales: Steve Koslowski OFFICE Special projects manager: Sara Fregapane Executive assistant: Mayra Rivera Database solutions manager: Cindy Johnson Az BUSINESS MAGAZINE Senior account manager: David Harken Account managers: Ann McSherry | Shannon Spigelman AZ BUSINESS LEADERS Director of sales: Jeff Craig RANKING ARIZONA Director of sales: Sheri King Scottsdale Living Director of sales: Marianne Avila EXPERIENCE ARIZONA | Play Ball Director of sales and marketing: Zoe Terrill AZ BIG MEDIA EXPOS SCOTTSDALE HOME & GARDEN SHOW/MARCH SCOTTSDALE HOME & GARDEN SHOW/NOVEMBER Exhibit directors: Kerri Blumsack | Tina Robinson

Enjoy the issue,

Amanda Ventura Associate editor, AZRE amanda.ventura@azbigmedia.com 2 | January-February 2014

AZRE: Arizona Commercial Real Estate is published bi-monthly by AZ BIG Media, 3101 N. Central Ave., Suite 1070, Phoenix, Arizona 85012, (602) 277-6045. The publisher accepts no responsibility for unsolicited manuscripts, photographs or artwork. Submissions will not be returned unless accompanied by a SASE. Single copy price $3.95. Bulk rates available. ©2013 by AZ BIG Media. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from AZ BIG Media.

CORRECTION: In the top office leases list in the “Big Deals” section of the November issue, the tenant broker for the Discovery Business Campus was incorrectly identified. It should have listed John Pierson of Jones Lang LaSalle.

CONTENTS FEATURES 02 Editor’s Letter 06 New to Market

Projects in the pipeline

08 Planning & Zoning

P&Z updates throughout Arizona

09 Project News

COVER

10 Executive Q&A

Four faces of industry leadership

11

After Hours

Brooke Garduno, AME Landscape Companies

12 Big Deals

06

09

11

16

18

34

Top sales and leases since October, and the brokers who made them

16 Public Projects

The grass looks greener for

public parks

18

2014 Outlook

Industry experts' market predictions for 2014

28

Companies to Watch

Arizona's top companies to watch this year

34 International Council

of Shopping Centers

Shopping centers see a shift in demographics, make new from the old

On The Cover: Rendering of Arizona

Center for Law and Society; Architect: Ennead Architects with Jones Studio Photo: ©ATCHAIN for Ennead Architects

4 | January-February 2014

NEXT ISSUE RED Awards

Construction in Indian Country

CoreNet Global Arizona

Free AZRE app for android online with this QR code

3101 N. Central Avenue Suite 1070 Phoenix, Arizona 85012 (602) 277-6045 azBIGmedia.com

DEDICATION IT GOES BOTH WAYS.

TPC SCOT TSDALE | JANUARY 27 - FEBRUARY 2, 2014 W M P H O E N I XO P E N . C O M | # G R E E N E S T S H O W

New to Market EDUCATION

1 | Western Maricopa Education Center (West-MEC) Developer: Western Maricopa Education Center General contractor: McCarthy Building Companies Architect: DLR Group Location: 1617 W. Williams Dr., Phoenix Size: 84,000 SF remodeled, 40,000 SF constructed Value: $18M Start/Completion: October 2013 to July 2014

The West-MEC Northeast Campus is one of four planned projects for the career and technical public school district funded by a $74.9M voterapproved bond. The Northeast Campus will host programs for veterinary assisting, medical assisting, HVAC-R and auto collision industries. The district will also provide programs such as construction technology, electrical, plumbing, and pharmacy assisting at the Northeast Campus.

Construction began in October and will be complete in July 2014. This includes remodeling two existing 71,000 SF and 13,000 SF buildings as well as adding two new buildings, totaling 23,000 SF and 17,000 SF. The larger existing building has two stories and will be transformed into classrooms, teacher spaces and technical labs. The smaller building will be remodeled into an auto repair training facility with vehicle lifts, classrooms and working labs. The new 23,000 SF building will house a veterinarian program with lab space, animal holding rooms, surgery and waiting rooms.

The new 17,000 SF building will house training programs for auto repair with a paint booth, classrooms, technical labs and workspace.

The campus will be incorporating energy-efficient components to reduce operating costs. An upgrade to a more effective lighting system will increase the light output while decreasing the wattage and energy consumption. The district will be receiving a rebate from APS for its energy-saving efforts.

6 | January-February 2014

2 | Estrella Mountain Community College Performing Arts Center Developer: Maricopa County Community College District General contractor: Adolfson & Peterson Construction Architect: Orcutt Winslow Location: 3000 N. Dysart Rd., Avondale Size: 30,000 SF Value: $9.7M Start/Completion: December 2013 to November 2014

The new performing arts center is a 30,000 SF free standing fine arts space at the heart of the Estrella Mountain Community College campus. The new building will serve as a bookend to the student mall at the center of the campus master plan. In addition to the 300-seat performance area with professional style crossover orchestra pit and pit lift platform, the state-of-the-art building features a comprehensive performing arts support space including a black box performance studio complete with pipe grid and theatrical accessories such as digital projection; a dance studio with Marley dance surfacing; a costume design and fabrication lab; a tech lab for digital audio, video and digital scene production; performer support areas and dressing rooms; backstage support space and a scene shop for complete theatrical production, scenery construction and stagecraft.

3 | Great Hearts Academy - Cicero Campus Developer: De Rito Partners Development General Contractor: Chasse Building Team Architect: Gensler LOCATION: NWC Loop 101 & Indian Bend Road, Salt River Pima-Maricopa Indian Community Size: 85,000 SF Brokerage Firm: Keyser/Mulhern Development Team Value: $10M Start/Completion: December 2013 to July 2014

This K-12 charter school will cater to 1,200 children in an area that was once occupied by a Chuck E. Cheese at the Pavilions Shopping Center. Phase I will accommodate students in grade K-7 and Phase II to 12th grade. The non-profit tuition-free charter school will open in August 2014 for fall semester.

New to Market

4 | ASU Law School Developer: Arizona State University General Contractor: DPR Construction ARCHITECT: Ennead Architects and Jones Studio Location: Taylor and First streets, Phoenix Size: 260,000 SF Value: $129M start/Competion: TBD to 2016

The Arizona Center for Law and Society is dedicated to educate students and citizens on the importance of the law in shaping civil society. The six-story, 260,000 SF complex will have its main entry at the corner of Taylor and First streets. State-of-the-art facilities include academic classrooms, a law library, legal clinics, a Great Hall for public events, and a nonprofit “teaching” law firm dedicated to helping to bridge the gap students face in the transition from law school to law practice.

Photo courtesy / ©ATCHAIN for Ennead architects

Office

INDUSTRIAL

5 | NextFort Chandler Data Centers Developer: NextFort Ventures General contractor: SunState Builders Architect: Butler Design Group Location: 2600 W. Germann Rd., Chandler Size: 130,000 SF Brokerage Firm: CBRE Value: $30M start/Competion: Q3’2012 to Q4’2013

The NextFort Chandler Data Center is a tier-3 facility with innovative designs in power distribution, cooling and facilities architecture to achieve up to 40 percent better energy efficiency than traditional data centers. Unlike conventional data centers that deploy cages on a raised floor area to secure each customer, NextFort provides a concrete and steel dedicated data center suite (NextFort HCSSM) to provide security and isolation to each customer. Tenants have the capability to control the following in the data center suite through a secure portal: temperature, humidity, outside air control, physical access, security cameras and power usage.

6 | FNB Fountainhead Developer: FNB Fountainhead, LLC General Contractor: TBD Architect: DPA Architects, Inc. Location: SWC of Alameda Drive and 55th Street, Tempe Size: 967,000 SF Brokerage Firm: Cassidy Turley Value: $225M

The proposed development includes four Class-A contemporary office buildings at various heights (three, six, nine and 12 stories) totaling 967,000 SF along with two parking structures totaling 3,600 spaces positioned on 25 acres. The location is adjacent to the existing Fountainhead Park Office Park paralleling the I-10 freeway.

7

Planning and Zoning The City of Tempe has launched new interactive maps showing its General Plan’s projected land use and residential density in an effort to help residents better understand Tempe’s General Plan 2040 and how it affects the way the city grows and changes over the next three decades. The maps are available at tempe.gov/gp2040maps.

The Council voted Nov. 21 to continue the public hearing on the city’s General Plan 2040 to allow more time for council members to evaluate public comments. If the council approves the plan in its December session, Tempe voters will have the chance to vote on General Plan 2040 in May 2014.

Since the Nov. 21 hearing, several modifications were made to General Plan 2040 text, modifying the plan’s land use and development, circulation (aviation element), conservation and open space, recreation and cultural amenities chapters, to address issues raised by residents and business owners during the public hearings. Public comments, staff response and changes may be found at tempe.gov/gp2040changes.

´´City of PHOENIX

´´City of PHOENIX

Previously, when developers or engineers wanted a Fire Flow Test for fire hydrants in new developments the City of Phoenix allowed them to contract the test with private companies. The city has recently changed this policy and requires the test be performed by the city’s Water Services Department that will issue a required new department form indicating the results of any such test. This new policy is in strict adherence to ARS ss 32-101(B)(11), and the city’s fire code, as well as with the requirements for the Arizona Board of Technical Registration .

´´City of Chandler

The City of Chandler is preparing an update to the System Development Fee program that includes revised Land Use Assumptions and a new Infrastructure Improvement Plan. System development fees, better known as impact fees, are charges assessed on new development to

8 | January-February 2014

´´City of PEORIA

In recent months, the City of Peoria has begun to draw up new rules and price structure for development impact fees. This process is in response to Arizona State Bill 1525, new legislation passed last year, which redefines this practice for municipalities within the state. The bill adds new requirements on how impact fees are calculated and places greater restrictions on some fee categories by redefining necessary public services. Other changes include limiting eligible facilities, setting compliance deadlines and establishing service areas, service units and service standards. Municipalities are also required to lock in fee schedules for 24 months following development approvals. The city is also required by SB 1525 to have an updated capital improvement plan and impact fee structure in place by Aug. 2014.

´´STATE OF ARIZONA

With the ultimate goals of boosting Arizona’s economy and its status as a transportation hub connecting Dallas, Mexico and Los Angeles, as well as connecting the various economic hubs within Arizona, a broad coalition group of business, construction, contractors and political interest leaders are in the first stages of creating a plan to address the state’s transportation infrastructure needs. This new operation is known as iArizona and is headed up by Mesa Mayor Scott Smith. Smith has stated that iArizona, unlike similar past initiatives, is a disciplined effort that is strictly focused on transportation project funding, creating jobs and connecting Arizona communities. Smith also states that although there were five or six options that have been discussed on how the plan would raise project funds, it is still too early to say which or how many of those options would be used by the organizers.

The P&Z column is compiled by Dave Coble and George Cannataro with Coe & Van Loo Consultants, cvlci.com

s w e N tc e j o r p

The city’s Electronic Plan Review (EPR) is up and running but, starting Jan. 1, EPR will be required for self-certification projects. User group meetings that will allow customers an opportunity to ask questions about the system and associated plan review process are scheduled periodically. For more information, contact Renie Macias at renie.macias@phoenix.gov.

cover the costs of capital improvements needed to accommodate growth. The Land Use Assumptions and Infrastructure Improvement Plan serve as the basis for those anticipated impact fee changes on new development and are proposed to become effective by July 2014. The document is available on the city’s website, chandleraz.gov, for public review. A public hearing on the plan is scheduled in January.

project News

´´City of Tempe

ABOVE: Pima County Court Complex in Tucson

➤ Terminal 2 to be phased out, Terminal 3 expanded

In late October, the Phoenix City Council awarded an $18M design-build contract to Hunt Construction and Austin Industries to expand Terminal 3 at Sky Harbor International Airport. While Terminal 3 sees expansion, the 52-yearold Terminal 2 will be phased out. Over the span of five years, the airport will add 25 gates to Terminal 3. ➤ Pima

County project gets contract expansion

Sundt Construction, Inc. recently entered the second phase of the $42M tenant improvement and parking structure build at the Pima County Downtown Court Complex. Originally contracted in February 2012 to complete the core and shell of a 290KSF courts

tower, Sundt received the contract expansion in September 2013.

Construction on the courts building and 240KSF, 706-car parking garage are expected to wrap up in 2015. The project architect is AECOM and GLHN. Visit azremagazine.com for a full list of subcontractors. ➤ American Family Insurance build-out, renovations wrap up DPR Construction announced the expected February completion of a third-floor build-out and multi-floor renovations at the American Family Insurance building located at 225 N. 45th St. in Phoenix. The $1.4M project began in August 2013 and covered 68,400 SF in the five-story office building. Additional work

includes lobby and acoustical revamping on the first and second floors. ➤ John C. Lincoln Sonoran Health and Emergency Center opens On Dec. 9, John C. Lincoln’s Sonoran Health and Emergency Center, located on 22 acres in north Phoenix, opened to the public. The 40KSF, $18M medical facility was built by DPR Construction, with road and water infrastructure placed by Macerich. A 120-bed hospital will be built on the site as well as additional medical office buildings developed on a need-basis. ➤ McCarthy

Nordburg completes two projects

The 55KSF OnTrac call center, located at Continuum

in Chandler, was completed in late November. McCarthy Nordburg announced the completion of a 17KSF tenant improvement of an ASU HR Department in Decemeber. ➤ UA Mckale memorial center renovations NEED FUNDING The University of Arizona's athletic department is attempting to raise $80M for renovations of its McKale Memorial Center, where the school's basketball, volleyball and gymnastics teams compete. AECOM is the architect assigned to the project, which will start on the remaining Phase I aspects in May 2014. Proposed changes include upgrades to locker rooms, concessions, restrooms, seating, lighting and playing floor.

9

Executive q&A Megan Creecy-Herman

John Fortini

Years in CRE: 11 Years at company: 1.5

Years in CRE: 17 Years at company: 15

What attracted you to the industry?

MCH | The excitement of building a career

What attracted you to the industry?

JF | When I was a kid, I loved Tonka trucks

Senior Director, Leasing & Development, Liberty Property Trust

in an industry where I knew that no two days would be the same. Our industry is dynamic and constantly evolving with the broader economy as companies’ logistics and office needs change and become more sophisticated. It is really the dynamic nature of our industry that first attracted me to commercial real estate, and it has been the excitement of watching our industry evolve that has kept me in the industry for more than 10 years.

How has the industry changed since you started?

MCH | I entered the industry in 2003 and to say that things have

changed since then would be an understatement. Our industry has evolved in many ways, not only due to the economic downturn we experienced from 2008 to 2011, but also due to changes in the way companies do business. Since the beginning of the last recession in late 2008 we have seen many themes including a flight to quality, tighter lending standards and a sharp decrease in the velocity of new development.

Of what professional achievement are you most proud?

MCH | I would have to say my Master of Business Administration

(MBA), which I received from the University of Arizona. I pursued my MBA through a 20-month accelerated program while working full-time and serving in leadership roles in NAIOP Arizona, NAIOP National and the Junior League of Phoenix. The experience was invaluable.

Gregory Valladao

Senior Managing Direct/Market Leader, Cushman & Wakefield Arizona Years in CRE: 17 Years at company: 3.5

Managing Member, Silver Fern Companies/Silver Fern Capital

and building things. As I grew older, I was intrigued by how things come together. So, I started with houses, then subdivisions, and now I get to put entire projects together. There is something very satisfying about seeing the tangible proof of our efforts.

How has the industry changed since you started?

JF | In one word, regulation. There is now a tremendous amount

of documentation, regulation and up-front work that needs to be completed before you turn any dirt.

Of what professional achievement are you most proud?

JF | In 2012 I was diagnosed with an aggressive form of cancer. The past

22 months have been about setting priorities and taking care of what’s important. While I am still fighting, I feel like I have achieved a new appreciation for life that has translated into how I manage business.

Dan Puente

Owner/President, D.P. Electric, Inc. Years in CRE: 33 Years at company: 23 What attracted you to the industry?

DP | I was very young when I first started

in this industry. I learned quickly that this industry offers opportunity; you get out of it what you put into it. You can rise through the ranks working for someone or you can carve your own path and work for yourself. This industry is also filled with good, hardworking people who are always willing to help others succeed.

How has the industry changed since you started?

DP | There are three things that come to mind: technology,

were, and I was hooked. Seriously, in the mid-1990s I was grinding out billable hours as a litigation attorney when I had a relative suggest I look into commercial real estate. Knowing that Phoenix was going to continue to grow, I was intrigued by the idea. After quickly realizing how entrepreneurial the business was, I was convinced it was the place for me. Within a matter of days I left my well-compensated law firm job to take a runnership at Grubb & Ellis that paid $16,000 a year. It was one of the most frightening, but best decisions I ever made.

improving efficiencies and contracts. When I started, my method of communication was a pager, a roll of quarters, pay phones and a fax machine with that rolled paper that turned black in sunlight.

Today, our field managers use iPads as a common tool in the field.

Technology has also helped with improving efficiencies. With everything at your fingertips, it has helped pave the way for lean construction and IPD delivery methods. The only negative in my opinion is the advancement of contractual legalities. When I first started, contracts were a couple of pages long and now they are two inches thick. Contracts today deflect all the responsibilities onto the subcontractors. Fortunately, there are a lot of good people in this industry, and we rarely have to refer to the contracts when issues arise; we just talk them out and the responsible partner steps up.

How has the industry changed since you started?

GV | The industry has become more data driven than it was

Of what professional achievement are you most proud?

DP | I would have to say the growth of the people in DPE...With

What attracted you to the industry?

GV | I heard how great “closing dinners”

originally. Real estate decisions today are often made based upon pure “metrics” rather than the gut instinct that many developers tended to rely upon. This has been driven by the large amount of available data on the internet as well as the lending institution demands. While personal relationships still play a large role in the industry, these changes have forced everyone to become a little smarter, which is great for the industry.

10 | January-February 2014

the dynamic people at DPE, the company has grown to be known as one of the premier electrical contractors in the commercial industry. One other thing that comes to mind is how the DP team handled the adversity of the recession. We all made sacrifices, changed and adapted to the new normal and stayed positive doing it. I have no doubt that someday when the DP at DP Electric retires, this company will live way beyond me. I am proud of that.

After hours Brooke Garduno Music // I love it all - country, rock and roll and hip-hop.

Destinations // I love NYC, but my favorite vacation spot is

Coronado. It reminds me of the small military towns I grew up in. I’m looking forward to traveling to Europe but am going to wait until the kids are a bit older. It’s never fun to be on an airplane with a screaming toddler for 12 hours.

Activities // Spending time with my family, finding a new restaurant with my husband, volunteering at my son’s school and working out.

What did you think you’d be when you were growing up?

I grew up around airplanes. I considered following my father’s footsteps and attending the Air Force Academy, but I realized that this was not a choice about which college I was going to go to and would be a career choice with a minimum 10-year commitment. I realized that was not my calling.

OF What accomplishment are you especially proud?

BROOKE Garduno

Marketing Director — AME Landscape Companies, Gilbert With AME for 5 Years Member of BOMA, IREM, NAIOP DL’s Born: Williams Air Force Base in Mesa, Ariz.

Education: Received a bachelor's in finance from ASU Spouse: Michael Garduno, Jr. Son: Grant, 5 Daughter: Isabelle, 2

Favorites Sports Teams // As a former Arizona

Cardinals cheerleader, my favorite team is the Arizona Cardinals all the way! The rest of the family are Dallas Cowboys fans. We are a house divided.

Personally, I’m proud of the ability to balance my professional and personal life. I love being involved in the growth of AME Landscape Companies yet don’t want to miss a precious moment with my kids and/or husband. Professionally, I am excited that I have taken a company that has been around for 40-plus years and have gotten it involved in social media and teaching an old dog new tricks. Most companies around this long don’t understand the importance of social media, but AME Landscape Companies embraces and encourages it as part of its culture.

What would people be surprised to know about you?

I’ve been involved with the film community since college. I starred in my first movie last year and can be seen in various commercials for companies throughout the Valley.

ADVICE Received // Sincere relationships are golden. When you are

sincere with people and you are genuine, the rest will fall into place.

To Share // Never let someone stop you from reaching your

goals! Experience different facets of real estate. The more you know, the more valuable you are to any company. You can then relate to more people and have a broader understanding of the big picture.

Knowing more about the people we work with is the fun side of the business. It helps start conversations and strengthens business relationships.

To nominate a colleague, request an After Hours form from Amanda Ventura, amanda.ventura@azbigmedia.com or suggest a cool colleague via Twitter @AZREMagazine 11

There’s no such thing as a “small” deal in this industry, coming out of a recession.

However, it’s the big deals, and the brokers who make them, that make the market an interesting one to watch.

In every issue, AZRE publishes the top five notable sales and leases for a period of 60 days (one month out from publication) based on research compiled by Cassidy Turley and Colliers International with CoStar.

Retail/Sales

Glen Smigiel

Bob Young

Steve Brabant

Rick Abraham

1. Fountain Hills Plaza, Fountain Hills

Top 5 Notable Leases (October 1 to November 30, 2013) Soure: Cassidy Turley Research Department, Colliers International and CoStar Top 5 Sales of an individual property (October 1 to November 30, 2013) Source: Cassidy Turley Research Department, Colliers International and CoStar

Office/Sales

David Fogler

Steven Nicoluzakis

Don Arones

1. Stetson Plaza, Scottsdale

2. Safeway, Peoria 57,795 SF; $14.36M Buyer: SAR Enterprises Seller: Pacific West Land Listing BrokerAGE: CBRE

89,700 SF; $18.5M Buyer: Alliance Residential Company Seller: Triyar Companies, LLC Listing BrokerS: David Fogler, Steven Nicoluzakis and Don Arones, Cassidy Turley 2. Missouri Falls, Phoenix 187,648 SF; $13,801,858 Buyer: ICIC Commercial Investments, LLC Seller: For 1031 Missouri LLC LISTING BROKERAGE: CBRE

3. LA Fitness, Casa Grande 45,000 SF; $9M Buyer: The McNaughton Company Seller: Vanderbilt Group, LLC Listing BrokerAGE: Retail Investment Group, LLC

3. Sky Harbor Towers, Phoenix 273,623 SF; $12.1M Buyer: Orsett Properties, Ltd. Seller: LNR Partners, Inc. Listing BrokerAGE: Cassidy Turley

4. Ashley Furniture/Oasis Bedrooms, Mesa 53,312 SF; $6.1M Buyer: Ashley Furniture Seller: Developers Diversified Realty Listing BrokerAGE: Marcus & Millichap

4. Arcadia Gateway Center, Phoenix 89,811 SF; $10,555,000 Buyer: MIG Real Estate, LLC Seller: Bible Education Legacy Fund I Listing BrokerAGE: Cushman & Wakefield

5. Palm Valley Pavilions East, Goodyear 35,199 SF; $4.8M Buyer: Claxton Real Estate LP Seller: John & Cathy Monson Listing BrokerAGE: CBRE

5. 1511 N. Project Dr., Tempe 61,807 SF; $7.8M Buyer: SRP Seller: Altier Credit Union Listing BrokerAGE: Colliers International

111,289 SF; $20.5M Buyer: Whitestone REIT Seller: The Pederson Group Listing BrokerS: Glenn Smigiel, Bob Young, Steve Brabant and Rick Abraham, CBRE

12 | January-February 2014

Industrial/Sales

BIG DEALS Multi-Family/Sales

Michael White

Sean Cunningham

Jim Wilson Tyler Anderson

1. First Solar Factory, Mesa

1,328,075 SF; $113.6M Buyer: Everest Apple Inc. Seller: First Solar, Inc. Listing BrokerS: Michael White, Jim Wilson and Nathan Zoucha Cushman and Wakefield 2. Coldwater Depot, Phase I, Avondale 603,853 SF; $39.65M Buyer: Lake Washington Partners Seller: Clarion Partners Listing BrokerAGE: CBRE 3. Mountain Vista Commerce Center, Phoenix 126,263 SF; $11.36M Buyer: Stockbridge Capital Seller: Buchanan Street Partners 4. Lincoln Sky Harbor, Scottsdale 126,807 SF; $7,525,000 Buyer: Pacific Office Furnishings Seller: Lincoln Property Company Listing BrokerAGE: CBRE 5. McDowell Mountain Business Center III, Scottsdale 79,720 SF; $7M Buyer: Matthew Wykoff Seller: R T Shell, Inc. Listing BrokerAGE: Shell Commercial

1. Camden Sierra, Peoria

679,620 SF; $64,950,000 Buyer: Archon Group SELLER: Camden Property Trust Listing BrokerS: Sean Cunningham and Tyler Anderson, CBRE 2. 44 Monroe, Phoenix 1,075,241 SF; $56,086,044 Buyer: Winthrop Realty Trust Listing BrokerAGE: ST Residential 3. Ninety Degrees, Phoenix 255,946 SF; $51M Buyer: CBRE Global Investors SELLER: Prudential Real Estate Investors Listing BrokerAGE: CBRE 4. Casa Santa Fe, Scottsdale 407,028 SF; $50.5M Buyer: New York Life Insurance Company SELLER: HSL Properties, Inc. Listing BrokerAGE: Apartment Realty Advisors 5. Indigo Palms, Phoenix 402,726 SF; $40M Buyer: Incom Apartments, LLC SELLER: Mercury Investment Co. Listing BrokerAGE: Berger Investment Group

13

Big deals Industrial/Leases

Retail/Leases

Office/Leases

Tom Louer

Stein Koss

Trent Rustan

Josh Gosnell

1. 6850 W. Morelos Pl., Chandler

1. Greenway Village, Phoenix

126,251 SF Landlord: Eastgroup Properties, Inc. Tenant: Arizona Nutritional Supplements Landlord and Tenant Brokers: Tom Louer and Stein Koss, Lee & Associates

94,500 SF Landlord: McKinley, Inc. Tenant: HobbyTown USA Landlord Broker: Trent Rustan, Arizona Partners Retail Investment Group LLC Tenant Broker: Josh Gosnell, Commercial Properties, Inc.

2. 1901 W. Fillmore St., Phoenix

42,444 SF Landlord: Phoenix Freeway Partners Tentant: The Sutta Company, Inc. Landlord BrokerAGE: Harrison Properties Tenant BrokerAGE: Cresa 3. 51 Bells, Glendale

40,650 SF Landlord: 51 Bells Limited Partnership Tenant: Empereon Marketing Landlord BrokerAGE: Cassidy Turley 4. 5010 S. 48th St., Phoenix

30,240 SF Landlord: Northcom 44 LLC Tenant: National Restaurant Supply Co. Landlord BrokerAGE: Cassidy Turley 5. 7239 N. El Mirage Rd., Glendale

23,500 SF Landlord: AZCO Mining, Inc. Tenant: Vision Air America, Inc. Landlord BrokerAGE: Sorensen & Black Tenant BrokerAGE: Cassidy Turley

2. Broadway Dobson Center, Mesa

42,303 SF Landlord: MGF Property, LLC Tentant: Call It New, Call It Antique Landlord BrokerAGE: Rein & Grossoehme Tenant BrokerAGE: LevRose Real Estate 3. 140 N. Country Club Dr., Mesa

33,438 SF Landlord: A & S Capitol, LLC Tenant: J Levine Auctions Landlord BrokerAGE: Menlo Group Commercial Real Estate Tenant BrokerAGE: Menlo Group Commercial Real Estate 4. Chandler Festival, Chandler

31,906 SF Landlord: Cole Real Estate Investments Tenant: Conn’s Landlord BrokerAGE: RED Development, LLC 5. Glendale Market Square, Glendale

28,909 SF Landlord: Kimco Realty Tenant: EJ’s Auction Landlord BrokerAGE: Kimco Realty

14 | January-February 2014

Ashley Brooks

Jim Bayless

Jenny Aust

Steve Corney

1. Desert Canyon 200, Phoenix

68,554 SF Landlord: Washington Capital Management, Inc Tenant: Matric Absence Management Landlord Brokers: Ashley Brooks, Jim Bayless and Jenny Aust, CBRE Tenant Broker: Steve Corney, Jones Lang LaSalle 2. Camelback Esplanade II, Phoenix

42,787 SF Landlord: Metropolitan Life Insurance Company Tentant: Tiffany & Bosco, P.A. Landlord BrokerAGE: Cushman & Wakefield Tenant BrokerAGE: Cushman & Wakefield 3. Perimeter Gateway 101, Scottsdale

25,000 SF Landlord: Desert Troon Companies, Inc. Tenant: Accolade Landlord BrokerAGE: Lee & Associates 4. University Offices, Phoenix

15,044 SF Landlord: Three Strands, LLC Tenant: ComTrans Landlord BrokerAGE: Sperry Van Ness

5. Papago Park Center, Tempe

13,926 SF Landlord: Phoenix Investors #13 Tenant: AdOn Network Landlord BrokerAGE: Lee & Associates

Public Projects

Park Life

By Amanda Ventura

The Seen and Unseen Advances of Public Parks

L

arge curving pipes rising and falling in large sweeps across a field sounds more like a piece of abstract art parents would get red-faced about having to ask their kids to stop climbing up than it does a main play structure at a public park. However, that’s exactly what developer DMB Associates wants you to think.

The future of public parks lies in the appropriately dubbed orange monster — a cluster of giant, parallel pipes curving up and back into the grounds of Eastmark’s 106-acre park in Mesa.

The point is to attract adults to the park, says Dea McDonald, DMB’s Senior Vice President and Eastmark’s General Manager.

Kids will always find a way to play on something, he says, but the adults have to want to be there too. A compelling environment is one way to ensure that happens.

The regional park finished its first phase of development in May 2013 will begin its second phase of construction in August 2014.

Public parks may be a setting of simpler times for many people, but their complexity is something Haydon Building Corp’s Fritz Behrhorst says is underestimated.

“It looks like grass and trees, but there’s a lot that goes into those,” says Haydon’s vice president of pre-construction. “They’re expensive to build.”

Public projects, such as libraries, were put on hold during the recession, but Behrhorts says cities were able to get more park for their pennies when construction prices dropped between 2008 and 2010.

Now that construction prices are on the rise, Behrhorst says he is an increase in repurposing of properties in dense environments.

Mesa passed a bond program in 2012 that proposed 18 park projects at the total cost of $70M, with $2.25M operational costs In Mesa, the now-closed Mesa Junior High and Powell/Mesa Education Center are being bought by the city and converted into parks — a $8.7M expense funded by a bond program passed in 2012. This is just $2M shy of the budgeted amount for building three new park systems.

The aforementioned Eastmark park is Mesa’s first Communities-Facilities District, which is a system that taxes 16 | January-February 2014

ABOVE: A rendering of the Orange Monster, which will be added to Eastmark's 106-acre regional park in 2014.

Eastmark residents over a span of 30 years to pay for the infrastructure and is then reimbursed by the city as development is finished. The city will also manage and Fritz Behrhorst Dea McDonald operate the park.

Outside of construction costs, one of the biggest concerns for park developers and the cities that maintain the properties is water. Behrhorst and Haydon Construction Corp have engaged in significant research in water usage and technology, which is applied to their park development.

Haydon just completed the 90-acre Pioneer Park in Peoria, which has what Behrhorst called a sophisticated irrigation system. The system makes use of water-monitoring technology that can save the city up to 40 percent in maintenance costs.

Sprinkler heads in the park’s fields can detect how much water is needed in a certain area of the field and deliver just that amount from a single head. The use of effluent water to water the park’s fields or fill a lake is being explored by Haydon Construction and DMB Associates alike.

Although Eastmark is not yet using reclaimed water, McDonals says Eastmark has an agreement with the City of Mesa that when it completes a water line with the CAP canal, the park will be irrigated by raw water. It’s deemed to be effluent and is exchange it with Gila community.

Choosing the right project delivery method can make or break a project, writes Justin Kelton, vice president of education services at McCarthy Building Companies, in his online column for AZREmagazine. com Alternative project delivery methods – especially those that offer financing solutions – are gaining popularity. He breaks down the pros and cons of design-build-finance and public-private partnerships.

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17

2014

OUT

By Amanda Ventura

18 | January-February 2014

Experts predict slow recovery leading to better 2015

I

n the '90s, the joke was that the state bird was a construction crane, says AAED’s Executive Director Joyce Grossman. She motions out the window of her downtown Phoenix office and says, “You look around here, and you see cranes in the air. That means jobs.”

Arizona isn’t seeing the growth it did in the '90s, Gorssman continues, but at least we’re not going backward. Arizona is slated to be one of the fastest growing states over the next five years, and GPEC CEO Barry Broome predicts 2014 will see a lot of creative and risky development.

“It’s going to be a developer’s paradise around here for the ones who are really smart and creative, and it’s gonna take some guts,” says Broome. “So, if you’re waiting for your building to be 50 percent leased before you break ground, you’re going to miss a lot of opportunities.”

Phoenix is running out of space, as far as large-scale investment goes, but Broome says that will be cause for in-fill and urban development. Also, next year will bring spec business development opportunities to people who own land in the West Valley.

“If you have a building, it’s going to go off the market,” Broome says. “If you don’t’ have a building, you might not be in business. In the next two years, there’s going to be so much capital moving from the balance sheets of corporations and into the economy that you’re gonna see a lot of large-scale appetite for buildings.”

Another prediction, looking 25 years ahead, is the importance of transit-

OUT

ABOVE: Marina Heights, a 2MSF, $600M development of Class-A office space, broke ground in 2013 and will continue construction through 2014, with the first buildings expected to be occupied by 2015.

oriented development — particularly that along the light rail and Loop 303.

“The old model is going to be in business, but the new model is where the action’s going to be,” Broome says. “My concern is the Valley is an increasingly more complicated market to understand.”

Rural America is growing at a faster rate than the urban areas, and Mignonne Hollis, executive director of the Sierra Vista Economic Development Foundation, suggests the state is headed in the right direction with Arizona Commerce Authority’s rural grants.

The East Valley has seen significant increase in development and business attraction — “I can point to almost any point of the city and say, ‘There’s the growth,’” says Mesa’s Director of Economic Development Bill Jabjiniak. “It’s just a matter of figuring out how the city helps.” (See page 26 for more details on SE Valley development.)

LAYING A NEW FOUNDATION The economic developers aren’t the only ones touting innovation. Construction costs and a labor shortage meant a modest year of growth in 2013.

“Twenty-thirteen was a year of reinvention,” says Weitz Executive Vice President Mike Bontrager of the construction industry.

The recession and evolving technological tools were the two major incentives in expanding the company’s services.

“We took a big, hard look at how we were building and how we could add more service and more value to our customer base.”

For Weitz, that meant expanding its front-end services, from site selection to in-house designing and equity and debt prototypes.

“The cautionary forecast is that if (construction costs) go up too much and rents and revenues do not go up to match that, building stops and so construction stops. Some inflation on the material side is being seen but it goes up and down.”

The labor shortage is an issue, Bontrager says.

“In some cases, projects will have to be redesigned,” he says, adding, “Arizona is a race horse in the gate; We just need to get the gate open.”

Next year will be one of recovery. Bontrager forecasts that in the fourth quarter the construction sector may see some pickup in projects.

“I don’t think 2014 is going to be the breakout year a lot of people have forecasted,” Bontrager says.

“Last year was another modest growth year coming out of the recession,” says McCarthy Building Companies Southwest President Bo Calbert. “I say modest, but we were up 20 percent in revenue from last year. We’re experiencing a trend back to normalcy. There’s 19

2014 outlook John Bonnell

Mike Bontrager

Barry Broome

Bo Calbert

Dennis Desmond

Larry Downey

Joyce Grossman

Mignonne Hollis

Bill Honsaker

Bill Jabjiniak

Bob Mulhern

Pete O'Neil

Steve Sayre

Charles Steele

ABOVE: The 3MSF mixed-use Rivulon development will double the office space in Gilbert.

nothing booming. There’s nothing really taking off. It’s just slow steady growth in a lot of different market sectors.”

Similar to Weitz, McCarthy diversified its company. McCarthy is taking interest in utility-scale solar work and wastewater treatment plants.

“There’s a lot in planning, and I think the commercial developers are seeing that and there are some projects being planned now we won’t see for a year or two.”

As far as education goes, Calbert says, K-12 development is at the mercy of bonds and most of the opportunities remain in community college expansion. Calbert also foresees a slowdown in healthcare projects.

McCarthy has found success in developing its job order contracting market and may see more P3 opportunities due to lack of funding.

“It’s still important to be diversified geographically because of the size of the market out there,” Calbert says. “Most people will tell you it’s going to be that way for another two or three years. You really have to have some market penetration outside of Arizona.”

“The only way we’re going to attract the workforce to Arizona is to raise wages,” Calbert says.

FROM THE MOUTHS OF BROKERS It’s tale of several submarkets, says Colliers International researcher Pete O’Neill of the Valley. There will be some vacancy challenges in the East Valley and north Phoenix retail markets, he says, adding that some submarkets — Chandler, Tempe and 44th Street — are seeing better absorption.

“Because of so many mixed messages in the national marketplace, it’s hard to deal with uncertainty (and gage demand),” says Colliers International Managing Director Bob Mulhern. “It tends to work against clear decisions.”

Ultimately, brokers expect more of the same in 2014 — industrial and multi-family 20 | January-February 2014

will be strong participants, retailers may circle around in the pro-business climate and with the exception of a few submarkets office is still dragging its feet.

“An interesting event recently occurred in the office market,” Mulhern says. “There’s no trend yet, since it’s just a one-quarter trend.

Rent has decreased every quarter for the last five years. In the (3Q, 2013), action has picked up a bit.”

Based on absorption numbers to date, and with companies such as Apple and State Farm coming to the Valley, Cushman and Wakefield’s Vice Chairman Larry Downey predicts Tempe will be the next big employment hub and where users will look to buy.

“Where there is activity in the office submarket, there will be gains,” Downey says. “Right now, that’s the Southeast Valley.”

As for markets that will need some more time to recover, Downey looks to retail and office within some submarkets.

“Retail needs to shed some inventory before any new product can come online,” he says. “Office in some suburban submarkets will continue to decline or bounce along the bottom.”

“The difference between 2013 and 2014 is going to be from large users to medium and small users taking advantage of the market who are feeling comfortable expanding in the market,” says John Bonnell, managing director of office at Jones Lang LaSalle.

Dennis Desmond, senior managing director at JLL, says coastal cap rates are below those in Phoenix, which makes the Valley more attractive.

“We’re seeing a shift back to Phoenix,” Desmond says, adding that JLL recently sold a building at the aggressive rate of 6.15 to a German investor. “Investors realize the worst is behind us now, housing’s going up, we’re getting strong employment numbers again, so from a macro-perspective, acquisition

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2014 outlook directors can come to Phoenix and go back to their investment committee and say this is why (we should invest).”

Desmond is also excited by the prospect of core product coming back onto the marketplace. Concessions, he said, are also beginning to diminish. Desmond suggests that educating investors about lesser known, burgeoning markets such as those in the East Valley is going to be an important step in office.

The industrial market had a great 2013, says Steve Sayre, executive vice president of industrial services at JLL. He adds the Valley has announced the kind of spec development that hasn't been seen in years taking the form of the 900KSF industrial business park planned for development near Sky Harbor Airport by a ClarionWentworth Property parternship. Sayre predicts more build-to-suits in the Southwest Valley from businesses moving out of Los Angeles.

Bill Honsaker, managing director of industrial at JLL, is seeing more confidence in the market.

“I tell people there is more good money out there looking for good product than there is good product,” he says, adding that lease terms are lengthening and more specialized, large spaces are coming to the Valley.

Multi-family will see year-end numbers just under 2012’s $2B for 4,000 units. JLL's Vice President of Multi-family Investments, Charles Steele, says 2014 will see a bigger influx of delivers between 5,000 and 5,500 and at rents that haven’t been introduced to the Valley before.

22 | January-February 2014

“Most are being built at $200 per SF, which is very expensive for Phoenix,” he says. “Typically, we’re asking for rents that haven’t been achieved previously in Phoenix.”

The Broadstone on Camelback is close to 50 percent occupied with rents close to $2 a SF, which is about 50 cents higher than rent prices previously in the submarket. Steele rhetorically asks, if there are enough people making more than $100,000 a year who want to rent in north Tempe and Scottsdale; it takes nine jobs to absorb one unit in Phoenix over the last 25 years, he says.

One of the biggest challenges brokers will face in 2014, Downey says, is the price of land. As it continues to escalate, he says, it will be difficult to break ground on new projects.

Multi-family has already started to adapt its construction from garden-style apartments to podium or wrap projects built around parking garages. Before this cycle, there were less than 10 structurepark apartments, at the end of 2013 there were 25.

About half of the units in 2014 will be structure-park apartments.

“This is uncharted territory,” Steele says. “Houston went through it last cycle. We’re hoping we will go the same way. So far it’s been wellreceived. The question is how deep is that pool?”

Read more from AZRE online at AZREmagazine.com

23

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2014 outlook

By Amanda Ventura

Boiling Point: The SOUTHEAST Valley HEATS UP 2013 Arizona’s development is expected to have a hot few years ahead of it, but no place is more on fire right now than the East Valley.

General Motors announced its move to Chandler last March, with the promise of 1,000 tech-related jobs. GoDaddy broke ground in May on a Global Technology Center in Tempe. On July 30 and 31, more than $1B in economic development projects, with the Marina Heights and USA Place headquarters, were announced along Tempe Town Lake, and Grand Canyon University announced a second campus to be built in the master planned community Eastmark in Mesa, bringing thousands of jobs to the Valley. Before the end of the year, the state squeezed in another deal — Apple bought a former First Solar factory in Mesa, which will bring with it 2,000 jobs.

TEMPE

LEFT: Cubs Park in Mesa RIGHT: Continuum in Chandler

early on,” explains Mesa’s Director of Economic Development Bill Jabjiniak. “As we’ve come out of this, we’ve been able to handle projects people are a little surprised about.”

The city self-funded the aforementioned $84M stadium and spring training complex plus the $15M infrastructure and park leading to the stadium. The park will have a $137M impact on Arizona. Another big player is the Phoenix-Mesa Gateway Airport, which generates $1.3B in economic benefits and 10,470 jobs in or around the airport, according to a report by ASU’s W. P. Carey School of Business.

The city is now home to five “legacy” institutions, which consist of satellite campuses for established liberal arts schools, and Grand Canyon University announced its intent to build a 160-acre, second campus at the master planned community, Eastmark expected to open in 2015 with a seven-year build-out.

CHANDLER

“Capital investment and the number of jobs increased substantially over (2012),” Tempe reports in its mid-year 2013 economic development budget plan for 2014, “and economic developers participated in locating companies to Tempe resulting in 12,503 jobs, with 3MSF of Class-A office space being developed and/or absorbed with a capital investment exceeding $704M.” The city also announced two developments totaling $950M in summer. Marina Heights, a 20-acre, $600M development is the largest office development in the state and is anchored by 6- to 16-story buildings. The home of the new State Farm regional headquarters is expected to attract thousands employees. Within 24 hours, the city also announced the $350M development of USA Place headquarters, which will include a 330-room luxury hotel, a 30,000SF conference center, apartments, office and retail space as well as five full basketball courts and a 4,500-seat event center. It’s estimated this attraction will annually bring 300,000 people to Tempe.

When Motorola left a 152-acre hole in Chandler’s Price Road Corridor, the city had to decide between a “quick fix” or staying true to the space’s identity as an innovation hub equipped for technology.

“We were at a crossroads 10 years ago,” Mayor Jay Tibshraeny says. They had the option to convert the space to residential, but the mayor adds, “Our vision is not to do what’s easy but to maintain it as a job-creator and an employment center.”

That site is now Continuum — a 152-acre campus primed for business and tech with a capacity for thousands of employees.

Chandler has added 4,800 jobs since the recession. It has the largest data center in Arizona, and in August 2012, Intel invested more than $300M to build an R&D facility near its existing Chandler campus, which now employs 10,000 people. Wells Fargo broke ground in December on a 410,000 SF expansion at its downtown campus. This would nearly double the existing structure, providing an estimated 2,500 new jobs to the area.

General Motors will add another 1,000 jobs to the city this year.

MESA

GILBERT

When the recession hit Mesa, the city made cutbacks that included giving up $100,000 in capital and decreasing the economic development staff by 40 percent. The city filled a budget gap and continued to invest in the infrastructure for key projects and took advantage of lower cost construction; the Cubs spring training facility, known as Cubs Park, was contemplated at the bottom of the recession in 2009, and development of State Highway 24 has been expedited with the knowledge that the state will reimburse Mesa.

“We have a strong bond capacity because we made those cuts 26 | January-February 2014

The Town of Gilbert is one of the fastest growing metros in the Valley. It has seen a consistent increase in commercial permits since 2010 and 3MSF of development since it came online the Loop 202 five years ago. The town also added 10,000 jobs in that time and $1.1B in capital among 200 companies. Gilbert has also seen significant development off U.S. Route 60, with Banner MD Anderson Cancer Center's expansion. Gilbert also will welcome its first four-year and graduate institution in Chicago-based St. Xavier University.

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T

By Amanda Ventura

he Arizona commercial real estate industry saw some exciting announcements in 2013 — from Apple moving into the former First Solar facility in Mesa to the State Farm campus and USA Basketball headquarters moving $1B of development to Tempe. Additionally, thousands of square feet of existing builds have been repurposed in Arizona. From company growth of as much as 80 percent to 150-year anniversaries of being in business and announcements of

28 | January-February 2014

4 1 0 2

innovative building techniques and public offerings, the local industry has taken optimistic leaps in 2013 and proven a knack for adaptability that will sustain in 2014. If this is what the state's brightest and most resilient can achieve when the economy is still in stages of recovery, imagine what’s on the drawing tables waiting to be unveiled this year or next.

Every year, AZRE recognizes the companies that have made a mark on the industry and will continue to do so.

40 COMPANIES TO WATCH IN 2014

ADOLFSON & PETERSON: The Lofts at Hayden Ferry is a $50M luxury apartment project expected to break ground in 2014.

Adolfson & Peterson was awarded a pre-construction contract development for Lofts at Hayden Ferry and recently broke ground on Residencies at Fountainhead Corporate Plaza.

AME Landscape Companies until December 2013, was better known as AME Southwest. Since AME started in 1973, it has grown from two to 100 trucks with 250 employees. Expect to hear from the new and improved AME in 2014.

Butler Design Group, winner of Architectural Firm of the Year at the RED Awards in 2013, plans to expand its staff in 2014 and see its plans for the 10 Lincoln business park, measuring in at 1MSF on 72 acres, come to life.

Chasse Building team constructed more than $85M in 2013, including three multi-family projects and a two-year renovation of Mohave Middle School.

Two of the projects included urban in-fill for Native American Connection. Future construction includes a 37KSF office in Goodyear and learning facility at West-MEC.

Caretaker Landscape and Tree Management saw record-breaking revenue in the landscape construction marketplace in 2013, and approved projects for 2014 already match its 2013 revenue numbers. Caretaker’s landscape maintenance and tree management divisions report 2014 looks more promising.

Clear Title expects growth of 10 to 15 percent in 2014 as the market continues to contract. Clear Title will reportedly add two new branches in 2014 with intent to outpace its competition with growth in revenue and market share.

Coreslab Structures has increased its workforce by 80 percent since January 2013. It also fabricated and erected 100KSF of architectural precast for two projects in 2013. Looking into Corelab’s 25th year, expect to hear about its architectural precast for office and commercial buildings (which comprises 35 percent of the company’s work).

Cushman & Wakefield of Arizona forges into 2014 riding the momentum of its capital markets group, which totaled almost $420M in sales in 2013. Major deals included the Cigna Corporate Campus at Norterra and Biltmore Commerce Center.

DAVIS Architecture in 2014 equates to the continual cultivation of its client relationships and on-going standard for design, cost optimization and technical acumen. DAVIS will broaden its presence in other market sectors as well as focusing on the expansion of the DAVIS brand, according to a company spokesman. It also designed the 2MSF, $600M Marina Heights project in Tempe.

De Rito Partners has 31 brokers exclusively representing more than 220 shopping center owners and 60 national and local retailers. It is currently redeveloping 1.1 MSF at The Pavilions at Talking Stick, manages 32 properties totalling more than 725,000 SF and recently purchased 47 retail assets.

DIRTT, the “technology company that happens to be in the construction business,” went public on the Toronto exchange at the end of 2013. It’s revolutionizing the way offices and healthcare facilities are designed — adaptable, multi-purpose and cost-effective with as little of a footprint as possible. (DIRTT may be one of the cleanest companies out there.)

DMB Associates executed 28 leases totaling 142,319 SF and four sales totaling $83.48M in 2013. Grand Canyon University announced last year its intent to build a 100-acre, $150M satellite campus that’s scheduled to open in 2015 on DMB’s Eastmark master planned community. Also at Eastmark, Apple purchased a former First Solar plant, renovations of which are underway. Looking forward, Eastmark, with Phoenix Commercial Advisors, plans to develop its first commercial development at the community. Eastmark will also see additional developments enter new phases and completition throughout the year.

DNG Construction may only be eight months into operation (it opened for business in April 2013), but the 100 percent cloud-based firm has 70 years of construction experience between its key personnel and put it to use in 2013 with a construction management contract with a national organization and design-build projects. In 2014, DNG will focus on recruitment.

D.P. Electric completed more than $20M in contracts in 2013, including projects at Continuum, Aetna and CyrusOne. The company also saw growth in its mission critical and renewable energy departments. The goal for 2014 is to maintain steady manageable growth while supporting our current backlog of more than $10M. 29

40 COMPANIES TO WATCH IN 2014 DPR'S Regional Manager Dave Elrod says, “As we round out 2013, completing ASU’s McCord Hall W.P. Carey School of Business, along with breaking ground mid-year on ASU’s Arizona Center for Law and Society, and completing the Banner MD Anderson Cancer Center Phase II, we expect the upcoming year to be a robust sales year.”

Evergreen Development celebrates its 40th anniversary this year. Evergreen managed 2MSF last year and broke ground on multiple restaurants and Walgreens throughout Arizona. Expect the same voracious development in 2014, including a 27-acre mixed-use development in Flagstaff and a 150-unit Phoenix apartment community. It plans to sell Goodyear Centerpointe and multiple residential developments in Phoenix.

Gensler will unveil the 130KSF Block 12 Project and new home to the Del E. Webb School of Construction before ASU’s 2014 fall semester. The project will give a whole new meaning to “buildings are living things,” as its walls will contain sensors that monitor the way the building interacts with its surroundings.

GPE, which has more CCIMs per capita than any other firm in Arizona, had more than $2.5B in transactions in 2013, represented 9MSF, saw 1.6MSF absorbed and 90 percent tenant retention. GPE reported that it executed more than 700 leases, valued at $225M, in the last three years.

Healthcare Trust of America manages 13.6 MSF within 27 states and is the largest owner of MOB in Arizona. HTA invested approximately $272M in 2013 — a 10 percent expansion of its asset base.

Johnson Carlier saw 42 percent growth in 2013 and is counting on more opportunities in 2014. This 93-year-old company plans to stay in market sectors such as automotive, industrial and public works projects while developing others such as healthcare, retail and higher education.

Haydon Building Corp more than

doubled its staff over the course of three years.

In 2014, Haydon will complete the Morenci Community Center, Copper Sky Recreation Complex Park, and Papago Readiness Center, and break ground on the Casa Grande Community Center and NAU Center for Aquatics and Tennis.

BUTLER DESIGNS: Winner of Architectural Firm of the Year at the RED Awards in 2013. Skysong in Scottsdale, pictured above.

Jones Lang LaSalle added 13 licensed brokers to its roster in 2013 and increased its transaction volume by 22 percent over 2012, including 13 property sales. In December, JLL was named a "Best Places to Work" for the fourth consecutive year.

Land Advisors had a notable year in 2013, closing more than $1.5B in land transactions across the country. In 2014, Land Advisors plans to expand its brokerage capabilities, open two to three new locations and strengthen its presence in both the site selection and capital markets segments.

Layton Construction’s 26year history in the Valley includes the ups and downs of the economy, but there is new economic life, symbolized by completion of a Marshalls Distribution Center, a Macy’s expansion and other private and public sector work, such as the MCC performing arts center.

Liberty Property Trust broke ground in early December on the first of 11 planned buildings at Liberty Center at the 100-acre Rio Salado business park in Tempe.

The company owns and manages 2.8MSF of space in Arizona.

McCarthy Building Co., for 150 years, has made a point to construct essential projects that communities rely on, as well as by helping those in the communities who need assistance. Knowing how to build from pre-construction through completion is a tradition McCarthy will continue as it endeavors to advance the value of its expertise and final project costs. "At McCarthy, we’re just getting started," writes press representative Patty Johnson.

Lincoln Property Company is bringing 5,000 jobs to the Valley. As of October, only 10 percent of Goodyear Airpark’s 189-square miles are developed, but it has the potential to bring 4,000 jobs. Business park 10 Lincoln is expected to bring 1,000.

LIBERTY PROPERTY TRUST owns and manages 2.8MSF of space

and recently broke ground on the 100-acre Liberty Center at Rio Salado business park in Tempe.

30 | January-February 2014

Michael Pollack celebrated his 40th anniversary by

purchasing and transforming shopping centers. Most will be finished in 2014, including the Pollack Gilbert Ray Plaza, which should resemble an old western town when completed.

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31

40 COMPANIES TO WATCH IN 2014

RED DEVELOPMENT: In Flagstaff, RED brought REI to the mixed-use Aspen Place at The Sawmill.

NAI Horizon has provided a range of commercial real estate services for 23 years. In 2014, it will continue to expand in all areas, including opening an additional office in Tucson.

NorthMarq has provided mortgage banking and

commercial loan servicing in Arizona for more than 30 years. Its notable recent Arizona transactions include State Farm Tempe Operations Center, Pinnacle Peak Commerce Center and Stetson Village. The Phoenix office has completed transactions totaling $400M in the last 12 months.

Parkway Properties is a premier owner-operator of office buildings throughout the Sunbelt, leasing more than 1.8 MSF during the first three quarters of 2013.

Parkway expects to continue its expansion in 2014 through its recently closed merger with Thomas Properties Group, and in Arizona specifically with the planned development of Hayden Ferry III, a 260,000 SF Class-A office tower.

clients’ transactions in excess of 6MSF in 2013, including the sale of a 73-acre parcel to accommodate an 850,000 SF Winco Foods Distribution Center and two new locations for Burlington Coat Factory totaling more than 134,000 SF. SRS Phoenix represents in excess of 3.5 MSF in landlord representation and supports 75 clients in tenant r epresentation, including NextCare, PetSense, Café Rio and 18/8 Men’s Salon.

RED Development built on a year

of new promise in Arizona in 2013, from new residential units at CityScape — set for move-in this January to The Shops at Hilton Village. In Flagstaff, RED brought REI to the mixed-use Aspen Place at The Sawmill.

For 2014, opportunities include elevating two well-positioned properties, Camelback Colonnade and Town & Country.

Rosendin Electric cemented its position as the largest privately held electrical engineering and contracting firm in North America this year. With revenues projected to surpass $1B in 2014, Arizona remains one of its key markets with local backlog of several hundred million dollars headed into 2014. Rosendin the general contractor and electrical engineer of record on the much publicized retrofit of the former First Solar site in Mesa.

Ryan Companies and its co-developer Sunbelt Holdings have a big few years ahead of it. Marina Heights, the 2 MSF multi-use office development owned by Arizona State University, became the largest office development deal in Arizona history. The construction costs are $600M, and thousands of jobs will be created.

32 | January-February 2014

SRS Real Estate Partners’ Phoenix office represented

DIRTT: Revolutionizing the way offices and healthcare facilities are designed — adaptable, multi-purpose and cost-effective with as little a footprint as possible.

Sunbelt Holdings will

co-develop the 2MSF, $600M Marina Heights project with Ryan Companies as well as the masterplanned communities La Estancia, Laveen Vistas, Windrose and has invested in a condominium development Portland in the Park.

Suntec was named

No. 1 specialty contractor in the Southwest by ENR Southwest. With a young employee base of 500, it plans to develop the next generation of builders.

Velocity Retail Group grew its leadership team with industry veterans during the past year. A record amount of big box space was leased in 2013, and the company is representing an influx of new retailers entering the Phoenix marketplace.

Wells Fargo announced its Chandler campus expansion of 410KSF this year, which broke ground in December and will double the bank’s prescence along the Price Corridor. Expected job growth is 2,500 employees.

Willmeng Construction, Inc. won NAIOP Office Project of the Year for InfusionSoft and continued its commitment of multiple charities in 2013. Its goal of supporting transactions, big and small, from pre-letter-of-intent to certificate of occupancy will continue to be the 37-year-old company’s focus in 2013.

Find out who had the BIGGEST, BEST and MOST NOTABLE projects of the year.

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33

International Council of Shopping Centers

tenants turn right-sized Up

By ERIC JAY TOLL

Creativity is filling post-recession spaces outfitted for tenant needs

A

s the market shifts, more retailers are trying to find the most efficient balance of inventory, staff and size, according to Anita Blackford, senior vice president of leasing for Carlyle Group’s Metrocenter Mall. She’s seeing the theory in practice as Metrocenter fills its voluminous 1.3 MSF. “We’re seeing strong opportunities for local businesses to get a foothold in a mall environment,” she reports.

“We’re seeing smaller stores, and that’s a reflection of lingering economic concerns.” For Metrocenter, this creates opportunities to more closely align with its changing market. The mall’s owner is also opening space to community groups and non-profit organizations. The 34 | January-February 2014

changes in space demand helps facilitate this unique service.

Traffic in Metrocenter is up 10 percent over last year. “Our shoppers are different than some other areas of the metro,” Blackford says. “I’m seeing three generations of families coming into the mall together to shop and be entertained.”

“Right-sizing for efficiency” is what experts are calling the shift in store sizes working its way through shopping centers and malls across the nation.

“While retailers are cautiously optimistic about the coming year, their customers are still worried about jobs and the economy,” Blackford says she hears merchants say.

“The thing about ‘right-sizing,’ is that it doesn’t always mean ‘getting

smaller,’” says Steve Helm, assistant vice president, property management for Macerich. Helm is responsible for managing Scottsdale Fashion Square.

“Some stores are growing.”

Bath & Body Works and The Limited, Helm says, know space needs and customer demands. The stores reduced footage, which allowed Scottsdale Fashion Square to convert the space for another store. On the other hand, Victoria’s Secret moved its spin-off, Pink, into a space opening up when another store resized, then Victoria’s Secret grew to take over Pink’s former space. Other changes include Hugo Boss relocating across the mall into a flagship-sized store to make way for its women’s clothing line. Then, lulu

Anita Blackford

Gordon Keig

Steve Helm

Jennifer Davis Lunt

lemon leased the former Hugo Boss store.

A resized Ann Taylor store left a space for Pink and the new Johnny Was. The right-sizing trend is something other shopping center managers and owners are seeing across the state.

In one extreme version, Kornwasser Shopping Center Properties LLC is going to tear down more than 200,000 SF of an obsolete enclosed Yuma mall.

“Southgate Mall will be more a valuable property in a smaller, reconfigured design,” says Gordon Keig, senior vice president for the mall’s owner.

Right now, Southgate has nearly 350,000 SF. After the demolition and new construction, Keig says the total square footage will be closer to 310,000 SF. Right-sizing for efficiency is so crucial in this effort that a new lease for the retained 50,000 SF former Dillard’s will not be signed until the old mall is gone.

Kornwasser’s Yuma tenants are not necessarily down-sizing in the conversion.

A space holding a former J.C. Penney’s store is now home to an expanded Burlington Coat Factory.

“Reducing the square footage of a property is sometimes necessary to meet a changing market,” says Keig. “It actually makes the property more inviting and will generate more sales per square foot.”

“The future for shopping centers is shifting,” says Blackford. “We’re going to see different mixes of uses where once was once just shopping.”

She expects to see medical clinics taking space in malls and in the space around malls, residential or assisted living developments, possibly even hotels.

Jennifer Davis Lunt, president and managing partner of Davis Enterprises, has seen a different type of “right-sizing” trend.

“Some smaller businesses are coming back from working out of homes and garages with confidence to lease space,” she says.

However, she says that in many cases, the businesses are taking less space than they might have before the recession.

“The square footage a store leases is creditdriven,” she says. “Local businesses are leasing, but the size of the store is affected by equity—a number the recession impacted for many. On the corporate side, we’re not seeing down-sizing, but we are seeing additional locations leased.”

Just as Kornwasser sees more value from less space, Davis does as well.

“At our Seventh Avenue and McDowell

Road (Phoenix) property, we had to demolish an old convenience store,” explains Lunt. “Even though the renovated historic building didn’t change its size, we needed additional parking for new tenants Starbucks, Pei Wei and Side Bar. Losing the footage from the other store made the project feasible and more valuable.”

Davis Enterprises has another example of right-sizing, an old fast food and floral shop at 4700 N. Central Ave. in Phoenix. The area wouldn’t support a casual-dining or fast food outlet in that configuration.

By adding new dining space in an addition — and maintaining historic character with its unique front window — the building was right-sized for a sitdown restaurant.

“The property had character, but its size and configuration were not usable in today’s market,” Lunt explains. “With the increased space, Hulu was able to open and has been quite successful. We fit the space to the tenant’s needs.”

The biggest impact of “right-sizing” comes from the excessive number of empty big boxes in Arizona — the national leader in big-store vacancies.

“Some big boxes are being divided,” explains Dave Cheatham, president of Velocity Retail Group. “But it can be difficult to divide a big box. The rent drives that decision. With per-foot rents still depressed, a landlord may do better renting less than the full space and leaving a portion of the building vacant.”

“We did that with a couple of Mervyn’s for Hobby Lobby,” says Cheatham. “At Paradise Village, for example, Hobby Lobby pays for 50,000 SF of the 73,000 SF space.

It did not make economic sense to divide off the remaining space and lease it.”

This is causing creative uses for former boxes. Velocity sold an old Albertson’s in Gilbert to Leading Edge Academy, which is now constructing a second floor and converting the grocery into a charter school. In Tempe’s Emerald Center, a former furniture warehouse store is now a day spa on one side and a shooting range on the other.

“We’ve got to be creative with the big boxes,” says Cheatham. “And get them off the market.”

Creativity is the watchword for shopping center owners as store spaces are resized to the right fit for the postrecession tenants.

35

INTERNATIONAL COUNCIL OF SHOPPING CENTERS

By Eric Jay Toll

the magic's in the Makeup The shopping centers of the past are the future

From fresh paint to new market positions, shopping centers are pumping in deferred dollars to greet the returning retail dollars.

“When things stay the same, that’s scary,” says Stan Sanchez, president and partner of De Rito Partners, about the shift in the Arizona shopping center marketplace. “There’s no doubt that location, location, location is still most important for retail site selection. The difference is that the market for the location is shifting.”

Sanchez and his company recognized the shift in the markets surrounding properties they own and manage, and post-recession activity is freshening those properties.

“There’s two parts to all the activity going on,” says Dave Cheatham, president of Velocity Retail Group. “It’s not a wave of renovation; it’s a combination of catching up with deferred maintenance and updating properties for the market.”

Gordon Keig, senior vice president at Kornwasser Shopping Center Properties, LLC, agrees, but with a slightly different take.

“Building in a growth area ties up your money for as much as three years,” he says. “Finding a good value in an older property and turning it around is a lot more appealing because you are working with a current cash flow.”

Although the proverbial “location, location, location” is still good, the property’s market has changed. Demographics shifted in Arizona markets from the time many shopping centers were built. Throughout 2013, the media bemoaned the plight of aging shopping centers or predicted the scraping and redevelopment of obsolete retail corners.

“I don’t see that happening,” says Cheatham. “In the Phoenix and Tucson markets, we have challenges with empty big boxes, and those are being adapted to alternative uses. Shopping centers, even distressed centers, are changing to match the market.”

Kornwasser bought the Southgate Mall late in 2012 and has plans to tear down the main building in the 346,000 SF mall then rebuild it with smaller, contemporary outward-facing stores.

“There is shrinking demand for retail space," he says. "Even with the reduced square footage, we’ll have a more functional, efficient and valuable property.”

At the other end of the spectrum are looks.

“Lipstick,” chuckles Sanchez, “Some properties just need a little lipstick – painting, landscaping and a facelift.”

Dave Cheatham

36 | January-February 2014

Stan Sanchez

From De Rito’s platform, Sanchez is involved with upgrading its properties, overseeing enhancements of properties managed and in some cases, running the redevelopment efforts.

“It was more than lipstick for Pavilions (Loop 101, Indian Bend and Pima roads in Scottsdale),” he says. “It was a large-scale redevelopment of the property.”

Countering the downsizing trend, De Rito Partners took the center from 900,000 SF to 1.4 MSF. “Redevelopment in this market requires innovation and creativity.

We changed paving, landscaping and facades,” Sanchez lists the upgrades to the Valley’s original power center. “We’ve got a modern look and changed the property to fit the changing market.”

This may be the most important mantra for retail property owners for the second half of the decade: changing the property to fit the changing market. Keig, Sanchez and Cheatham all spoke of how the market has shifted in the past 10 years.

“We have an interesting situation in the market," says Cheatham.

Velocity is one of the largest retail brokerages in the state in terms of square footage represented. "We have more big box vacancies than anywhere else in the nation, and we’re the best place in the country for small-space leasing activity.”

Small store leasing is going to be very healthy in 2014, he says.

Rental rates are still very competitive for lessees, but there are going to be fewer new retail spaces developing. Sanchez sees single-digit retail vacancy rates in 2014. For Keig, the investment is in alreadydeveloped neighborhoods.

“In-fill is finally beginning to happen,” he points out. “We’ve heard of it for years, but with financing challenges today, it’s easier to back a project where there is some existing cash flow from current tenants.

The project moves faster.”

It’s not just the small shopping centers undergoing facelifts and cosmetic surgery. “We’re going to be re-shaping (Scottsdale Fashion Square)” reports Steve Helm, assistant vice present, property management for Macerich and manager of the 1.9 MSF tri-level Fashion Square. Once city approvals are locked down, Macerich plans construction of a nearly 100,000 SF addition that replaces the current, aging Harkins theaterplex on the lower level by raising a new 12-screen complex to the second level. About 50,000 SF of retail space will be opened up under the new theater.

“Redevelopment is exciting and rewarding,” concludes Keig. “It’s an opportunity to invest in neighborhoods, and the neighbors return the favor when you do it well.”

37

INTERNATIONAL COUNCIL OF SHOPPING CENTERS MEMBER PROFILES Courtney Auther

Jim Edwards

Matt Morrell

Mary Ridberg

Traci Russell

Associate Director Cushman & Wakefield

Senior Associate Velocity Retail

VP of Leasing De Rito Partners, Inc.

Director of Leasing Sperry Van Ness

VP of Brokerage and Retail Services CBRE

Years with company: 2 Years as ICSC member: 9

Years with company: 1 Years as ICSC member: 7

Years with company: 10 Years as ICSC member: 6

Years with company: 6 Years as ICSC member: 9

Years with company: 2 Years as ICSC member: 12

What is the biggest issue facing shopping center real estate?

We’ve seen a few larger tenants close or downsize their business due to the competition of internet sales and a decrease in consumer spending. This left many big boxes available with little business options to backfill the spaces.

What is the biggest issue facing shopping center real estate?

While the Phoenix market is improving, vacancy rates are declining, and leasing activity is up, we still have an abundance of vacant big boxes. More than 275 big boxes are vacant in the Phoenix area. Many of these are not viable for retail use any longer.

What is the biggest issue facing shopping center real estate?

The big question mark is still the economy and public policy.

Small businesses are the heartbeat of the shopping center world - the mom and pops. When they feel uncertainty, it impacts our leasing world.

How have consumer attitudes affected the retail market?

As consumer confidence returns, the retail market demand increases, urgency for locations increase, leasing volumes increase and vacancy decreases. The tipping point in this equation leads to the need for future development, which occurs with pre-leasing to meet the demands of lenders funding development...

The consumer attitude is positive for daily needs and soft goods, technology retailers, and specialty items due to the consumers’ desire to see, feel, touch and experience the product prior to purchase.

What is the biggest issue facing shopping center real estate?

Some of the major issues shopping centers face today are lack of new tenant concepts, rightsizing of prototypes, storefronts and reconfigurations. While this list might look long and daunting, I think each of these issues come back to a central issue of retailers still trying to navigate the post-recession retail market.

How have consumer attitudes affected the retail commercial real estate market?

Consumers have moved to online shopping, which is one of the reasons for the downsize in business size as well as store closings.

Locally, we’ve seen an increase in adaptive re-use projects due to the consumers moving to in-fill areas and wanting a unique experience while shopping/dining.

What was your most significant deal in 2013?

The deals we’re doing in Fiesta Mall. It’s significant because I’ve never leased a mall before...leasing mall space during the holiday season has been a great learning experience.

38 | January-February 2014

How have consumer attitudes affected the retail market?

When consumer attitudes are positive, retail sales increase.

During the recession, spending was down, and this has an obvious effect on retail sales.

With improvements in the job market, economy and local housing values, we should see improvement in leasing.

What was your most significant deal in 2013?

Our company recently was awarded 1,534,276 SF of retail owned by Northstar Realty Finance Group. I am part of the team responsible for marketing and leasing this portfolio.

How have consumer attitudes affected the retail market?

While there are still question marks, there is a positive trend in consumer confidence in regards to leasing and shopping center leasing. We are seeing established businesses that have made good solid decisions in the past five years now able to take advantage of an improving marketplace.

What was your most significant deal in 2013?

Our complete turnaround on the 120,000 SF San Tan Village Furniture Center. It was a foreclosed property and 50 percent vacant when acquired in June 2012.

It is now 100 percent leased and a big win in my leasing efforts.

What was your most significant deal in 2013?

My largest deal in 2013 was a combination of two spaces for Origami Owl at 10 Chandler.

We secured 81,238 SF in its production facility and 66,248 SF for corporate offices.

This was not simply a real estate “deal” but a mission critical project for my friend.

How have consumer attitudes affected the retail market?

Consumers have learned to be much more frugal and value-oriented. Also, they are willing to go much longer between big-ticket item purchases. I also think that consumers will continue to look for convenience; e-commerce and the internet are ways they can achieve that convenience.

What was your most significant deal in 2013?

I’ve partnered with Scott Kaplan and Erik Westedt in Newport Beach, Calif., to provide consultative retail solutions for the 260,000 SF Westgate Entertainment District in Glendale.

39

Announcing

AZCREW’s 2014

BOARD M E M B E RS

40 | January-February 2014

Vicki Williams

Christine Olson

President

President Elect

Christie Veldheizen

Christina Heide

Treasurer

Secretary

Jackie Orcutt

Shirley Hawley

Membership Chair

Sponsorship Chair

Karen Halpert

Alisa Timm

Programs Chair

Special Events Chair

Krystal Dill

Karen Scislowski

PR/Comm. Outreach Chair

Golf Chair

Valerie Marciano

Christine Hughes

Governance

Director At Large