INSIDE: CRE Law p. 26 | Downtown Phoenix p. 48 | Valley Partnership p. 65
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The Valley heats up
’m not just talking about rising temperatures. I’m referring to the amount of activity taking place throughout Arizona’s commercial real estate market, especially in Greater Phoenix. In the Trendsetters section, you’ll read about the people, projects and trends worth keeping an eye on, like new net zero energy housing projects and a local startup that’s disrupting the commercial lending industry. There’s a breakdown of prominent commercial real estate law firms and the issues currently facing the development industry, which includes insights about what to do if a tenant’s business is found to be, or becomes, illegal (i.e. medical marijuana dispensaries). Towards the back of this issue, you’ll find a collection of stories about Valley Partnership’s instrumental role in advocating for responsible development by bridging the gap between the private and public sectors through effective collaboration and education. The stories look back at Valley Partnership’s impact since being founded 30 years ago and its plans for the next 30 years. Also inside this issue: - An update on projects in Downtown Phoenix and ways different development cycles influenced the area’s evolution. - How the $418 million Banner-University Medical Center Phoenix project saved millions of dollars. - A look at the new leadership and business model leading a local REIT’s comeback following a 2014 accounting snafu. In the next issue, we explore innovative technologies disrupting the commercial real estate industry and identify the most influential women in commercial real estate.
President and CEO: Michael Atkinson Publisher: Cheryl Green Vice president of operations: Audrey Webb EDITORIAL Editor in chief: Michael Gossie Associate editors: David McGlothlin | Jesse A. Millard Interns: Madison Arnold | Bayne Froney | Kennedy Scott Contributing writers: Keyvan Ghahreman | Tim Lawless Mark Minter | Deb Sydenham ART Art director: Mike Mertes Graphic designer: Bruce Andersen MARKETING/EVENTS Marketing & events manager: Cristal Rodriguez Marketing coordinator: Kristina Venegas 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: Jennifer Heberlein | April Rice AZRE | ARIZONA COMMERCIAL REAL ESTATE Director of sales: Ann McSherry AZ BUSINESS LEADERS Director of sales: Sheri Brown RANKING ARIZONA Director of sales: Sheri King EXPERIENCE ARIZONA | PLAY BALL Director of sales: Jayne Hayden
David McGlothlin Associate editor, AZRE firstname.lastname@example.org
CREATIVE DESIGNER Director of sales: Joe Freedman AZ BUSINESS ANGELS Director of sales: Brit Kezar
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. ©2017 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.
2 | May-June 2017
FEATURES 2 Editorâ€™s Letter 6 Trendsetters 10 Executive Profile 12 After Hours 14 New to Market 16 Big Deals
20 Legislative Update
26 CRE Law
32 Healthcare Building 44 Senior/Assisted Care Facilities
48 Downtown Phoenix
52 Master-Planned Developments
On the cover: Banner University Medical Center Phoenix Photo courtesy of HKS Inc.
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â€œ L EGENDARY. GALVANIZING. E DGY. â€” Scott Conant, Chef and Food Network Personality
LGE Design Build has been perfecting the conception and construction of the Valley's most iconic projects for more than 23 years. But, don't take our word for it. Listen to how clients, influencers, and officials define our work. And there's more to come as we plan out LGE's thrilling future. Look to our next defining moment this summer.
The Priceline of commercial lending
Local start-up launches cyber matchmaking website for commercial real estate lending
hink of what Travelocity has done for the travel industry, what Match.com has done for the dating world and how Opendoor revolutionized home buying. By using those platforms as examples, CommLoan, a Scottsdale-based startup, has launched a new technology that is disrupting the commercial real estate lending marketplace. Nicknamed “The Priceline of commercial lending” by Mitch Ginsberg, CEO and co-founder of CommLoan, the goal is to change the way borrowers shop for commercial real estate loans, expedite the process, lower costs for borrowers and save time for lenders. He admits implementing innovative technology to create an online marketplace isn’t a new idea, but the application for commercial real estate lending is novel, new and has not been done before. Ginsberg says, commercial lending is a $3 trillion industry that’s complex, highly inefficient and hasn’t changed much in 30 years, making it one of the last areas in the financial services industry to embrace technology.
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Before CommLoan, the marketplace was dominated by banks and mortgage brokers, but CommLoan’s platform puts the borrower in the driver seat by giving unprecedented access to the capital markets. The infinite number of loan options, institutions and different lending standards makes the market increasingly difficult to navigate for borrowers searching for the best deal to meet their needs. Ginsberg explains, CommLoan provides the tech and the concierge service to guide them through the process and find the best product to match their needs. Described as the cyber matchmaking website for commercial real estate lending, the platform is ironically called CUPID for short, which stands
for Commercial Underwriting Pricing Index Data. Using CUPID, borrowers fill out an online application and general overview of the project such as location, Mitch Ginsberg product types and minimum/maximum loan sizes. Unlike Lending Tree that sells the leads to lenders, Ginsberg says, CommLoan is not a lead generator, and consumers deal with one loan officer throughout the process even though they have access to the nearly 400 lending institutions currently enrolled on the platform. Ginsberg sees enormous growth potential and predicts CommLoan will have up to 1,000 lenders enrolled by the end of 2017. Since the company first started closing loans late last year, Ginsberg adds, “We have closed $100 million and are projecting $1-2 billion this year.”
Phoenix retail construction
reaches highest level since 2009
n 2016, Phoenix retail completions reached the highest levels since 2009 with deliveries surpassing 1.3 million square feet. “At the end of 2016, less than one million square feet was under construction compared to pre-recession levels that were above six million square feet,” says Jessica Glick, senior research analyst in CBRE’s Phoenix
office. “The still relatively low level of construction activity, combined with a positive economic outlook, will support improving market fundamentals.” The majority of new projects are concentrated in the Southeast and West Valley, where household formation and rising incomes are driving consumer demand and attracting retailers, particularly grocers.
Retail Completions (SF) Per Year
2009 2010 2011 2012 2013 2014 2015 2016
3,666,831 732,032 362,590 727,175 512,000 285,400 582,733 1,316,670
Source: CBRE Research
Get the net Phoenix-based housing developer proves viability and sustainability of net zero energy housing
ast year, MODUS Development, the eco-friendly housing developers responsible for bringing the first net zero energy multifamily housing to the United States, completed Arizona’s first net zero energy multifamily complex called Equinox Apartments. This year, the company will break ground on three new net zero energy housing projects including: a residential townhome community in Scottsdale, an urban residential community in Tempe and the second phase of its first nationally acclaimed net zero energy project, MZ Townhomes in Scottsdale. Net zero energy means the total amount of energy used by the building
ECLIPSE: The threestory luxury townhome community, located at the southeast corner of McDowell Road and Granite Reef Road in Scottsdale, will feature 20 townhomes.
on an annual basis is roughly equal to the amount of renewable energy created on the site. “Accomplishing net zero energy living in multifamily housing was something many didn’t think was possible, and we figured out how to accomplish it with little to no added cost while also obtaining higher rent and sales prices,” says Ed Gorman, founder of MODUS Development. He explains significant technological advances have enabled larger scale net zero energy projects to become more commercially viable, and resulted in greater cost savings for sustainable building products.
Looking forward Gorman says, “Now, having the formula, and with eco-friendly building soon becoming a requirement in some states – California, for example, will require community residences be net zero by 2020 – it is my goal to help create a more earth-friendly and budgetfriendly way to live without sacrificing style and comfort.” When designed and engineered correctly, these sustainable buildings can be built for essentially the same costs as traditional buildings, and when factoring in the energy savings, they are even more affordable than the competition, he adds.
MZ TOWNHOMES: Phase 2 of the project, located just east of Scottsdale and Camelback roads, will feature 11 townhomes within two threestory buildings, which is slated for completion in Q1 2018.
WHAT MAKES THESE PROJECTS POSSIBLE?
THE ROOSEVELT: This urban community, located next to Downtown Tempe and immediately west of the Mill Avenue District, will feature 32 three-story residences.
8 | May-June 2017
ED GORMAN: “The reason that these net zero energy projects are economically viable is that we can use energy modeling tools to determine the impact of various sustainable elements. For example, energy modeling may show that by using spray foam insulation it will reduce the demand for heating and cooling equipment. This translates into cost savings that can be used to offset the cost premium of the insulation and for other sustainable products, such as LED lighting. We have created a proprietary database of sustainable building products that determines the impact on the Home Energy Rating System (HERS) score, which then enables us to quickly make building product cost/benefit decisions.”
INDUSTRY SPOTLIGHT: SELF-STORAGE FACILITIES
he Valley has experienced a surge in self-storage activity including modernization efforts, selling of existing facilities, development of new ones and conversation of other buildings into self-storage facilities, but what’s fueling the trend? “The laws of supply and demand have certainly had an impact on self-storage facilities, both from the acquisition and development sides,” says Denise Nunez, senior vice president at NAI Horizon. Dave King, senior vice president at Wentworth Storage Company, thinks the same thing fueling selfstorage activity is also what makes it attractive to investors and developers. “Self-storage is a recession resistant product type,” he says. “People have shown a need for storage space in good and bad times.” On the development side, the Great Recession stalled new builds, creating a pent-up demand by users. During the downturn, self-storage real estate investment trusts like Extra Space, CubeSmart and Public Storage eliminated their development departments, and turned to merchant builders and joint ventures in order to feed the pipeline for Class A institutional quality assets. “This frenzy has created a pipeline of 40-plus new self-storage projects throughout Maricopa and Pima counties,” says Nunez. “However, many are yet to come online in 2017 with the larger majority opening in 2018 and 2019.” On the acquisition side, self-storage facilities have become one of the most-watched real estate asset classes. While the public companies are always looking to place shareholders’ capital, says Nunez, the mid-size and mom-and-pop operators have built portfolios over the past four years, capitalizing on value add and deferred maintenance deals where a 6-7 cap can quickly turn into a 9-10 cap within two years.
She adds, “Competition for low supply has certainly pushed pricing with sales over the past 12 months dipping down to low five-caps for stabilized assets and to sub-five in the case of portfolio acquisitions or value add deals.” Unlike other commercial space, King says, self-storage facilities have a historically high occupancy rate and it only takes a broom and hose to re-tenant the unit for the next renter.
Renovations to the rescue Facelifts to outdated buildings in high-demand office submarkets will boost office supply in near term
he Phoenix CBRE research team reports more than one million square feet of space — the majority of which is former back-office/ flex space — is being renovated in Greater Phoenix to keep up with today’s office market standards. “The Valley has some of the highest office activity we’ve seen in years and currently there is not enough useable space in the market to meet demand,” says CBRE Vice President Corey Hawley. Thus, developers looking for repositioning opportunities are purchasing outdated buildings in areas with high barriers to entry, with high parking ratios and immediate access to the Valley’s best amenities.
That’s good news for office users trying to relocate into the Valley’s prime submarkets where office demand is high but high-quality supply is low and available land for development is scarce. Like in the Downtown Phoenix Warehouse District at 411 S. First St., where a former packaging warehouse is being transformed into a two-story, fully modernized, creative office environment. But how will one million square feet of renovated office space affect the existing 1.5 million square feet of office space already in the construction pipeline? “Even with the addition of this renovated supply, strong demand for well-located, high-quality space will continue to put downward pressure on vacancy and support rent growth,” Hawley explains. “The reality is user demand is high right now, so renovation projects will help boost office supply in the near term.”
2701 E. Ryan Rd., Chandler
1665 W. Alameda Dr., Tempe
1515 Corp Center
1515 W. 14th St., Tempe
6310 E. Thomas Rd., Scottsdale
2727 S. 48th St., Tempe
Central Palm Plaza
2005 N. Central Ave., Phoenix
411 S. First St.
411 S. First St., Phoenix
Source: CBRE Research
Signs of success
Local sign maker reaps benefits after re-imagining business model
downturn despite the majority of his clients going out of business, which mainly consisted of small, local startup companies. McCloskey says business was booming until 2009 when he was admittedly faced with his biggest challenge to date, which required him
By MADISON ARNOLD
Tim McCloskey, president of Display Solutions Group in Chandler, welcomes challenges with a positive attitude and ambitious spirit. Display Solutions specializes in the design and production of illuminated corporate signage, wall signs, large format graphics printing, fleet graphics, hanging banners and more for customers in Chandler, Mesa, Gilbert, Tempe, Phoenix and Tucson. Since starting the design and manufacturing company in 2006, McCloskey successfully navigated his company through the best and worst of times before, during and after the financial downturn. Describing himself as “challenge oriented,” the sign maker survived the
“If you do a good job you’re going to be one of the crowd. If you do an exceptional job, people may remember you. Of course, if you do a bad job, they’ll never forget you and that’s a really bad thing.”
10 | May-June 2017
to transition the company from a locally focused business to corporation driven business. “We had to change gears,” he explains. “We had to change the business model from something that was very interactive to something that was more assistance oriented.” Despite treading water for several months while waiting for the new
business plan to gain traction, McCloskey’s model has been working. In fact, overall revenue and employment has more than doubled since 2009. The new model allows the company to serve the needs of the market in good and bad times. Today, the firm does everything from designing and manufacturing new monument signs for corporate centers, like the 3300 Tower in Midtown Phoenix, to for lease signs, which help secure tenants in those corporate centers. “The leasing business acts in a contrarian fashion,” explains McCloskey. “When business gets bad or the economy gets bad, people vacate their suites because they can’t pay their rent and owners and real estate corporations have to get new tenants in there. Therefore, they have to buy these for lease signs.” Looking ahead, McCloskey understands the importance of quality work to maintain and grow Display Solutions’ customer base and looks forward to leading his company through any and all potential challenges that may loom ahead.
COMING NEXT ISSUE IIDA: Pride Awards Most Influential Women in CRE AZCREW ABA-Arizona Builders Alliance
602.277.6045 • azBIGmedia.com
Exploring the Gender Gap in CRE Guest Speakers:
Councilwoman Kate Gallego Karrin Taylor
Using CREW’s most recent white paper “Closing the Gap” - which explores gender biases - discover how two successful women have navigated these waters and what they have learned that could help your career and to close that gap.
Exploring the Gender Gap in CRE
MISSION: Mid-year new Councilwoman Kate Gallego represents District 8, a diverse Champion the advancement & success Exploring the Gender Gap in CRE Up area that includes everything from one of theto world’s membership of womenGuest in commercial real estate airports to the world’s largest municipal park.pricing As Using CREW’s most recent white paperoff “Closing the starts Speakers: busiest 50% Using most recent white paper “Closing the soon! the Phoenix City Council, Kate has focused Guest Speakers: a member Gap”CREW’s -ofwhich explores gender biases - discover how two locally & nationally through leadership, Gap” which explores gender biases discover how two on economic development and improving Councilwoman Kate her energy successful women have navigated these waters and what Councilwoman Kate Phoenix’s successful women have navigated these waters and what transportation system. led the campaign to Gallego relationships, education &they excellence. have learned that couldShe help your career and to close Gallego they have learned that could help your career and to close pass Proposition 104, the city’s transportation plan through
that gap. Karrin Taylor that gap. She also spearheaded the successful effort to develop Karrin Taylor 2050.
Phoenix Equal Pay Ordinance, working to make sure women
Kate For information & qualifications, visitpay www.arizonacrew.org. receive equal for equal work. Gallego
Councilwoman, City of Phoenix District 8
Councilwoman Kate Gallego represents District a diverse Councilwoman Kate Gallego represents District 8, a 8, diverse area that includes everything from one of the world’s area that includes everything from one of the world’s
Empowering education equality Husband and wife share passion for improving Arizona's education system By MADISON ARNOLD
appily married for six years and counting, this husband and wife pair have a great time together doing just about anything. Whether it's cooking great food, finding good happy hours, skiing, watching football, hiking with their dogs, gardening or volunteering at a local nonprofit, it doesn’t take much for this duo to have a good time. By day, Jerry Barnier is the founder and principal at Suntec Concrete, one of the premier concrete contractors in the Southwest, and his wife, Julie Johnson is a principal for Avison Young, working with healthcare real estate leasing and sales. After hours, they dedicate their time to improving the lives of youth through Teach for America (TFA), a nonprofit organization that recruits and sponsors individuals to help bridge the education gap and work towards equality and excellence in public schools. Barnier became hooked on TFA about 15 years ago after being introduced to it by Bob Hardison of Hardison Downey Construction who hosted a “meatball party” for about 20 contractors to raise awareness. “It was the first time that I heard how underfunded, and how short of great teachers Arizona schools were,” he explains. “But the closer was seeing the passion that they had for making a difference for their kids. It was impossible not to get on board.”
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Johnson got on board with TFA after meeting Barnier 11 years ago. Since then, Barnier and Johnson have sponsored on average of five teachers every year through TFA. Q: What is your favorite part of TFA? Jerry: It’s just fun being around inspired people and when you know that energy is making a difference for our youth - it’s a game changer. Julie: Meeting and hanging out with our corps members! They are so special and unique, from all over the country, and graduates from every major that I can imagine, who all have the common purpose of bridging the education gap. Q: Why did you choose to become involved with TFA? Jerry: I was fortunate to get a great diverse public K-12 education in Washington State that provided me so much opportunity. That education opportunity for everyone is what TFA is about and as an employer, we want to do our part in this community to continue that. Julie: Because the mission of TFA is needed now more than ever. Arizona needs to increase the efficacy of its education system and get more resources to its students. Q: What is one experience through your time with the organization that resonates with you?
FROM LEFT TO RIGHT: Lindsay Wheeler DeFrancisco, executive director of Teach For America-Phoenix in 2016; Jerry Barnier, founder and principal at Suntec Concrete; Julie Johnson, principal at Avison Young.
Jerry: Our employees have great stories about the extra classroom time that teachers at North High School and Metro Tech put in for them. And I was a believer when one of their kids told me, ‘at North, you can be anything you want to, if you want to work that hard.’ Julie: Almost every year we have pizza parties for our corps members and invite others who might be interested in learning more about TFA. The one on one times with our corps members are times that we really enjoy! Q: How would you describe your partner’s involvement with TFA? Jerry: Julie is just great at reaching out to people and making good stuff happen for the people around her. So TFA is really a natural fit for her, and we are a great team together. Julie: Jerry wants to make an impact on education in our community and the TFA program has proven to be very effective but needs to be broader and deeper with more corps members.
NEW TO MARKET A
RETAIL A FLIX BREWHOUSE DEVELOPER: DT Chandler GENERAL CONTRACTOR: LGE Design Build ARCHITECT: Cawley Architects LOCATION: Arizona Avenue and Chandler Boulevard, Chandler SIZE: 36,000 SF VALUE: WND START: April 2017 COMPLETION: February 2018
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OFFICE B 901 LAUNCH DEVELOPER: Norris Design GENERAL CONTRACTOR: Southwest Architectural Builders ARCHITECT: Norris Design LOCATION: 901 E. Madison St., Phoenix SIZE: 12,600 SF VALUE: WND START: March 2017 COMPLETION: August 2017
HOSPITALITY C HAMPTON INN & SUITES PHOENIX DOWNTOWN DEVELOPER: Mortenson Development GENERAL CONTRACTOR: Mortenson Construction ARCHITECT: PK Architects LOCATION: First and Polk streets SIZE: 124,000 SF VALUE: WND START: March 2017 COMPLETION: May 2018
MIXED-USE D ENTERPRISE DEER VALLEY DEVELOPER: Davis Enterprises GENERAL CONTRACTOR: Sun State Builders ARCHITECT: Winton Architects LOCATION: 20th Avenue and Deer Valley Road SIZE: 77,795 SF VALUE: $9.3M START: March 2017 COMPLETION: Q4 2017
EDUCATION E CLOUD SONG CENTER DEVELOPER: Maricopa Community Colleges GENERAL CONTRACTOR: Okland Construction ARCHITECT: Architekton LOCATION: 9000 E. Chaparral Rd., Scottsdale SIZE: 33,000 SF VALUE: $11.2M START: April 2017 COMPLETION: Fall 2018
HOSPITALITY F MOXY HOTEL BY MARRIOTT DEVELOPER: 5N5th Hotels GENERAL CONTRACTOR: TBD ARCHITECT: FORs Architecture + Interiors LOCATION: Fifth Avenue and Congress Street, Tucson SIZE: 74,000 SF VALUE: $24M START: 2018 COMPLETION: 2019
Joint venture to recapitalize $142.5M Galleria Corporate Centre By DAVID MCGLOTHLIN
tockdale Capital Partners and Jasper Ridge Partners have formed an institutional joint venture to recapitalize ownership of the Galleria Corporate Centre in Scottsdale, marking the first partnership between the two firms. Stockdale purchased the 537,110-square-foot facility in 2013 and is about to complete a multimillion-dollar renovation of the building’s lobby and common areas. Originally constructed in the 1990s as a retail mall, the Galleria was converted to offices in 2000. Major tenants currently include Yelp, SAP and McKesson. The recapitalization includes the addition of more than two acres of land, adjacent to the Galleria, currently entitled for construction of up to 220,000 square feet of office. “We have a great deal of conviction in Stockdale’s vision for the Galleria and in their operating capabilities, and we are looking forward to partnering
16 | May-June 2017
with the team in the next phase of the property’s evolution,” says Owen DeHoff, partner at Jasper Ridge. Jasper Ridge is a discretionary investment manager with more than $15 billion in assets and offices in California and Texas. Los Angelesbased Stockdale Capital Partners is a vertically-integrated real estate investment firm with a 60-year family office heritage focused on owning and operating commercial real estate over multiple asset classes throughout the West and Southwest.
Steven Yari and Shawn Yari developed Stockdale Capital Partners out of their 30-year predecessor real estate family office. Over the last six years, the firm has continued to build a significant presence in West Coast real estate markets via direct investing, development and through several programmatic joint ventures and separate accounts focused on niche investment opportunities on behalf of institutional partners globally. “We are excited to share the same vision with such a highly regarded investor as Jasper Ridge and gratified that they have the confidence in us to want to invest directly alongside us in this signature asset,” says Steven Yari, managing principal at Stockdale Capital Partners. “Stockdale has a long history of investing in Scottsdale’s Downtown Entertainment District,” adds Shawn Yari, managing principal at Stockdale Capital Partners. “We thank our prior partner Oaktree Capital for working diligently with us to acquire and reposition this asset and look forward to building on that success in its next phase of growth with our new partner, Jasper Ridge.” “We continue to see significant upside in the Phoenix-Scottsdale market and believe the newly-renovated Galleria offers the absolute best location for employers to experience the tremendous growth and rich amenities of Downtown Scottsdale”, says Daniel Michaels, managing director at Stockdale Capital Partners.
It’s the big deals and the brokers who close them that make the market an interesting one to watch. Here are the Top 5 notable sales for the months of February and March. Sources: Cushman & Wakefield and Costar.
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NORTHWEST BUSINESS CENTER 9014-9034 N. 23rd Ave., 9013 N. 24th Ave. & 2310-2440 W. Mission Ln., Phoenix 226,645 SF; $17.2M BUYER: BKM Capital Partners SELLER: TA Associates BROKERAGE: Cushman & Wakefield THE PAPAGO 4405 W. Roosevelt Rd., Phoenix 187,611 SF; $11.96M BUYER: MS International SELLER: Annaly Commercial Real Estate Group BROKERAGE: Colliers International RIVERPOINT - BUILDING 4 4150 S. Riverpoint Pkwy., Phoenix 132,880 SF; $8.35M BUYER: West Second Street Associates SELLER: LNR Partners BROKERAGE: Newmark Grubb Knight Frank 2021 E. JONES AVE., PHOENIX 94,885 SF; $7,068,932 BUYER: Bullfrog SELLER: Cohen Asset Management BROKERAGE: Lee & Associates PAPAGO WEST 1120 N. 47th Ave., Phoenix 104,042 SF; $6.15M BUYER: Exeter Property Group SELLER: Phoenix Holdings BROKERAGE: REMAX
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THE GALLERIA CORPORATE CENTRE 4301 & 4343 N. Scottsdale Rd., Scottsdale 538,074 SF; $142.5M BUYER: Stockdale Capital Partners SELLER: Oaktree Capital Management CBIZ PLAZA 3101-3111 N. Central Ave., Phoenix 282,693 SF; $26M BUYER: 3101 N. Central LLC SELLER: LNR Partners BROKERAGE: Cushman & Wakefield 2777 E. CAMELBACK RD., PHOENIX 104,531 SF; $24.56M BUYER: Lincoln Property Company SELLER: DRA Advisors BROKERAGE: Cushman & Wakefield US AIRWAYS CENTER 111 W. Rio Salado Pkwy., Tempe 225,000 SF; $19,617,885 BUYER: Cousins Properties Incorporated SELLER: American Airlines Group TALAVI TECH CENTER 5551 W. Talavi Blvd., Glendale 185,000 SF; $17.245M BUYER: Alaska USA Federal Credit Union SELLER: West Coast Capital Partners BROKERAGE: CBRE
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IMAGERY ©2017 GOOGLE
E. INDIAN BEND RD. & N. MOCKINGBIRD, PARADISE VALLEY 1,039,017 SF; $45M BUYER: Shea Homes SELLER: Five Star Development Resort Communities
REGENTS ON UNIVERSITY 1949 E. University Dr., Tempe 264,555 SF; $52.975M BUYER: Preferred Apartment Communities SELLER: Consolidated Investments Group BROKERAGE: CBRE
DC RANCH Thompson Peak Rd., Scottsdale 256,189 SF; $26M BUYER: DMB Associates SELLER: Cypress Development Group
SCOTTSDALE HIGHLANDS 15255 N. Frank Lloyd Blvd., Scottsdale 302,150 SF; $48.5M BUYER: Olen Commercial Realty Corporation SELLER: Bascom Arizona Ventures BROKERAGE: CBRE
BLUE HORIZONS PKWY., BUCKEYE 6,316,200 SF; $18M BUYER: MPC BHE SELLER: Lennar Communities Development 2300 S. SANTAN VILLAGE PKWY., GILBERT 371,615 SF; $14,803,814 BUYER: 2300 SanTan Village Parkway SELLER: Ryan at San-Tan ELLIOT NE Loop 202 & Elliot Rd., Mesa 5,575,680 SF; $11,888,520 BUYER: FAE Holdings 477376R LLC SELLER: El Dorado Holdings BROKERAGE: Phoenix Commercial Advisors
SONORA CANYON: LivCor purchased the 388-unit apartment complex, built in 1985, for $40.7 million from Sonora Canyon Venture. The deal was brokered by Tyler Anderson, Sean Cunningham, Asher Gunter and Matt Pesch of CBRE in Phoenix.
18 | May-June 2017
SONORA CANYON 265 N. Gilbert Rd., Mesa 312,952 SF; $40.7M BUYER: LivCor SELLER: Security Properties BROKERAGE: CBRE 505 WEST APARTMENT HOMES 505 W. Baseline Rd., Tempe 286,168 SF; $37.25M BUYER: Aragon Holdings SELLER: Fowler Property Acquisitions BROKERAGE: Transwestern TIERRA DEL SOL APARTMENTS 1711 S. Extension Rd., Mesa 257,196 SF; $31.05M BUYER: Bridge Investment Group Partners SELLER: Acacia Capital Corporation BROKERAGE: ARA Newmark
RIDGEVIEW PLAZA 6740 & 6744 E. McDowell Rd., 2824-2920 N. Power Rd., Mesa 143,151 SF; $21,748,438 BUYER: Furst Jacobs SELLER: MDC Property Services BROKERAGE: CBRE WALMART - DESERT PALMS POWER CENTER 3721 E. Thomas Rd., Phoenix 191,878 SF; $14.4M BUYER: B4 Desert Wal LLC SELLER: Sarofirm Realty Advisors NATURAL GROCERS 2151 E. Baseline Rd., Gilbert 15,000 SF; $5,971,374 BUYER: Vereit SELLER: Oxbow Crossing Properties BROKERAGE: Stan Johnson Company NATURAL GROCERS 1625 E. Williams Field Rd., Gilbert 15,000 SF; $5,971,374 BUYER: Vereit SELLER: Leadership Circle BROKERAGE: Stan Johnson Company WALGREENS 2024 W. Main St., Mesa 14,490 SF; $5,631,580 BUYER: RPM Investments SELLER: Ridgetop Mesa BROKERAGE: Pharma Property Group
ARIZONA’S AUTHORITATIVE MID-YEAR UPDATE & FORECAST AZRE magazine will host a panel of Arizona’s top commercial real estate experts, yielding in-depth discussions of economics, development and state of the industry. Highlights include market analysis, all-star broker panels, networking and a cocktail reception.
Save the Date! August 3, 2017
Call to Sponsor
ATTORNEYS DENVER L AS V EGAS N OGALES PHOENIX R ENO TUCSON
How Arizona stacks up
ach year Site Selection Magazine issues its “State of the States Report.” This report ranks each state according to several key metrics that site selectors use as they evaluate business locates. These metrics are: • Rank in the Tax Foundation’s annual State Business Tax Climate Index • Rank in annual higher education R&D expenditures • Rank in total ACT National Career Readiness Certificates earned per capita among working-age adults • College degree attainment (percentage of working-age population ages 18-65 holding a two-year degree or higher) • Rank by lowest industrial electric power cost • Fiscal Condition Index as determined by the Mercatus Center at George Mason University Leading the nation in these six indicators are North Carolina, Washington, Tennessee, Texas and Florida.
HOW DOES ARIZONA STACK UP? In the most recent report, Arizona is generally in the middle of the pack, ranging in scores from 19 (higher education R&D expenditures) to 35 (college attainment percentage), with an average overall score of 26. The report also lists Arizona as 22nd in GDP with a projected population growth of 1.21 percent over the next five years. This spring, Tom Rex with Arizona State University’s Office of the University Economist and Center for Competitiveness & Prosperity Research presented to the Arizona Chapter of Lambda Alpha International. The presentation focused on the economic development impacts stemming from statewide demographic changes, including the alarming lag in the college-educated population behind the national average, coupled with the 20 | May-June 2017
Keyvan Ghahreman AAED
relatively slow growth of the younger population (ages 20-35) compared to the senior population (ages 65-80). These statistics are alarming because today’s business ecosystem is fueled by educated and skilled workers. While Arizona is headed in the right direction with expenditures in higher education
research, we need to focus on the fundamentals of increasing both high school and college graduation rates. As Baby Boomers continue retiring in large numbers, we all play a role in developing a strong labor pool. Through its stated policy priorities, the Arizona Association for Economic Development actively supports statewide efforts to ensure a qualified workforce and workforce pipeline. By engaging in such efforts, we must build a robust primary and higher education system that attracts and grows a quality workforce, ultimately enhancing Arizona’s competitive position among the nation’s site selectors. Keyvan Ghahreman is AAED’s governmental affairs vice chair and senior manager at Holder Construction Company.
(GPLET), which re-invigorated blighted parts of the state. This system has helped to incentivize many developers to invest in run-down parts of our cities, but has been a target of tax watchdog groups because of the tax shifting that occurs, and the unequal treatment of similar properties. This year, HB 2213 was introduced, which severely limits developer’s ability to utilize GPLETs for future projects. The ABA and others worked to find a compromise, and the legislation was signed into law by Gov. Doug Ducey in March. The bill will return school taxes to the assessment and limit the time period for all abatements.
SB 1188 Over the years, the ABA has worked to create a fair and open public works procurement system, and contractors were shocked when SB 1188 was introduced. The legislation would allow public agencies to conduct simultaneous price negotiations with multiple contractors. The bill came from the Department of Administration, which publicly stated the desire to wring about 25 percent out of contractor, architect and engineering fees. After opposition from contractors and design professionals, the billed failed to make it to the Senate floor.
he Arizona Legislature has been in session since January 9, and bills are finally starting to arrive on Governor Doug Ducey’s desk. Several bills are of particular interest to the Arizona Builders Alliance (ABA).
Other legislative outcomes tracked by the ABA this session include:
HB 2217 — Prevents third party solar panel operators from charging more than cost to schools that have panels. The ABA opposed and the bill was not heard.
HB 2521 The ABA continues to seek the elimination of the prime contracting tax classification in Arizona, which stipulates how and which contractors will pay tax on materials. The current law is a combination of amendments and missteps over the last five years, and the confusion surrounding the tax causes many contractors to not understand their potential tax liability. As part of the ABA’s efforts in support of the bill, the association worked with Representative Regina Cobb in recommending an industry move toward a “point-of-sale” system within HB2521. The ABA supported an excise tax that would be shared among cities based on level of construction.
Arizona Builders Alliance The move to point-of-sale has been opposed by the Arizona League of Cities and Towns, who fear tax loss in cities where construction activity occurs. In February, the bill failed to move forward after passing the House Ways and Means Committee, but will probably be back in 2018 with further refinements.
HB 2213 Arizona is one of many states that has a tax abatement system known as the Government Property Lease Excise Tax
SB 1008 — Raises handyman
exemption to $2,000. The ABA opposed and the bill was not heard.
SB 1020 — Reduces the experience
requirement to receive a contractor’s license. The ABA opposed and the bill was not heard.
SB 1246 — Cleans up expired language
on the “minimum elements of a contract.” The ABA supports the bill, which was signed into law by Gov. Ducey in March. Mark Minter is the executive director of Arizona Builders Alliance. 21
The transformative power of education
hange is not only a constant – it is a necessity. The pace of change continues to accelerate, and leaders at all levels need to act with common purpose to improve educational opportunities and performance across the board. A recent Brookings Institution project, “Skills for a Changing World,” noted, “Considering the societal and economic changes taking place globally, education needs to equip young people with the skills and competencies that will help them succeed. These skills go beyond the traditional academic skills of numeracy and literacy to a broader set that includes interpersonal, intrapersonal and technological skills.” To many teachers, keeping students engaged in a learning environment is among the biggest challenges. A 2015 Gallup Student Poll of students in grades 5-12 determined that only 50 percent of students were engaged in school. What do schools need to be doing to create a foundation for students to be successful in a global economy? Arizona is long-known as one of the worst states in the nation for investment in education, which creates an obstacle even before reaching the starting gate. Education has become a lightning rod for emotional and partisan vitriol that constrains forward progress. Most agree that educational opportunity and quality will impact Arizona’s economic future. National surveys on the best places for business in the U.S. clearly demonstrate the
22 | May-June 2017
ULI Arizona District Council critical importance of education and workforce development as leading indicators of future success in attracting businesses and employment as communities and regions strive to build thriving, sustainable and competitive economies. A past ULI Arizona program featured Jaime Casap, chief education evangelist for Google, who pointed out the need to realign traditional philosophies and rather than asking children, “What do you want to be when you grow up?” We should be asking them, “What problem do you want to solve?” What are the potential pivot points that could affect the way Arizona does business? How do we create a comprehensive educational framework that sets rational goals, uses all the tools necessary to work towards the goals, measure progress, make adjustments, and then raise the bar once the first set of goals are attained? A strong educational platform has the power to transform the Phoenix
Metropolitan region and the state, and grow Arizona’s national and global competitiveness - as long as we don’t give up. The emotional debate over ESAs (Empowerment Scholarship Account) vouchers to pay for students to attend private schools clearly illustrates that no silver bullet exists to improve Arizona’s educational system. Open enrollment has long been the primary mechanism for parents to exercise school choice. Should taxpayer dollars be used to pay private school tuition if there is not a specific need or extenuating circumstance? What’s the return on investment for the state? Do we need more choices? Or do we need better choices? In reviewing 32 diagnostic categories analyzing math, reading, science and writing, Arizona does not score higher than the national average in any category, according to the U.S. Department of Education's National Assessment of Educational Progress, and the state is dead last in median annual teacher salaries. Historically, low per capita spending on students demonstrates the lack of state legislative investment in Arizona’s future by not making education a true priority. Decisions
“Life is exponentially more complex than it used to be, and thriving in the 21st century requires a wider range of skills than what was regarded as sufficient in the past.” — excerpted from “Skills for a Changing World,” Esther Care & Helyn Kim, Brookings Institution, April 2017.
made today will shape the economic landscape for decades to come and education is at the heart of the state’s ability to develop a qualified workforce, attract new business and strengthen the economic vitality of our communities. Education affects all industries. Get involved, be a leader, and create unprecedented partnerships that are nimble and capable of turning possibility into reality. Working together we can transform the future. Deb Sydenham, FAICP, is the executive director of ULI Arizona District Council.
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What passage of GPLET reform means for industry
n March 29, our top priority for this state legislative session, HB 2213 (GPLET Reform; K-12 Taxes), unanimously passed the State Legislature and was signed into law by Governor Ducey on March 30. As explained more below, the compromise that we helped cobble together and lead is designed to both retain the GPLET tool more indefinitely in our economic development toolbox while also being responsive to critics who feel the program unduly impacts K-12 school funding. In light of the Goldwater Institute lawsuit that was filed by the Angel’s Trumpet establishment against an apartment project in the City of Phoenix, it is agreed by all parties, including the City of Phoenix, that HB 2213 better protects our industry from any public benefits test legal challenge to GPLET.
24 | May-June 2017
Tim Lawless NAIOP-AZ
It is interesting to note that not only did the League of Cities support our compromise, but so did the City of Tempe and the City of Tucson. Chandler and Phoenix were neutral. As originally introduced, HB 2213 contained a number of reforms to
significantly pare back the benefits of the Government Property Lease Excise Tax program (GPLET). The legislation was a response to a December 2015 Auditor General’s report, which found that few beneficiaries of the program were utilizing the “new” 2010 rates, and were instead using more generous pre-2010 grandfathered rates with development agreements between developers and the cities. The most serious provision in the original legislation was having future projects remove the property tax abatement savings from K-12 school costs, which was anywhere from 50-73 percent of the eight-year abatement benefit depending upon where a project is located. Many in our industry viewed that as a “gutting” of the tool’s benefit. Because GPLET is one of the few economic development tools that the
"Because GPLET is one of the few economic development tools that the state has, especially related to property taxes, NAIOP-AZ led opposition to the bill when it was heard on Jan. 25 in the House Ways & Means Committee." - Tim Lawless
state has, especially related to property taxes, NAIOP-AZ led opposition to the bill when it was heard on Jan. 25 in the House Ways & Means Committee. Although the bill passed committee, we were successful in advocating that a stakeholder process ensues to negotiate changes to the bill before it proceeded to the floor of the House and this is what resulted in the compromise. At that stakeholder meeting held on February 9, we convinced policymakers that having a clean eight-year abatement was the key to maintaining the effectiveness of the GPLET program, and offered to instead, sacrifice the “tail” (years 9-25), which is an excise fee rate schedule designed in 2010 to better approximate a property tax. Because the 2010 rate schedule was being avoided per the Auditor General, we thought it better to just put
properties on the rolls after eight years rather than continually face criticism from the Legislature and taxpayer groups regarding the calculation of the rates in exchange for maintaining a clean eight-year abatement, which is the crown jewel benefit of the program. Our proffered compromise was accepted because it was deemed a win/ win to all parties. A win to developers and economic development advocates as it kept the eight-year abatement sacrosanct; a win for the cities and state as it put properties on the rolls sooner; a win also for the schools who would now recoup some savings by putting properties back on the rolls sooner; and a win for taxpayer watchdog groups who wanted greater equity regarding property tax treatment. In the process, we also effectively argued that we needed to continue to
grandfather projects within the 10year window enacted in 2010 to avoid potential lawsuits against the cities and the state over the issue of vested rights. This was important as the original bill effectively closed the window on these projects as of Jan. 1 of this year. Originally, there were also a number of provisions to narrow the definition of “slum and blight” in the legislation but that has been now deferred to a study committee after the session is over. This also would have seriously lessened the use of the tool but because of the complexity of the topic, was deemed better to not rush. The narrowing of the definition was strongly supported by the Arizona Tax Research Association (ATRA) and the Goldwater Institute, but strongly opposed by the cities. Tim Lawless is the president of NAIOP-AZ. 25
The right firm for the job CRE law firms identify the issues facing commercial development By DAVID MCGLOTHLIN
hen the development of a new project comes to a halt, attorneys specializing in real estate get to work in addressing the problem and finding the best path to an effective solution.
26 | May-June 2017
In an industry where the problems can be as diverse and complex as the solutions, finding the right commercial real estate law firm for a particular set of needs can be half the battle. To help, AZRE identified some of the Valleyâ€™s top commercial real estate law firms and asked experts from each to elaborate on their firmâ€™s real estate practice and issues facing commercial development.
BUCHALTER NEMER buchalter.com Paul Weiser Managing partner at Scottsdale office
With attorneys, clients and referral sources going back decades, this firm has handled almost all aspects of commercial real estate law such as purchases and sales, financings, leasing for office, retail, industrial and medical spaces, as well as lease enforcement, construction, brokerage and other related issues. TOP ISSUE: “Population is not increasing as fast as it once did. Businesses are more cautious as to their leasing needs. When coupled with high vacancies and rental rate pressure, new developments will find it harder to obtain financing without significant pre-construction leasing.”
BERRY RIDDELL berryriddell.com Wendy Riddell Founding partner
With a talented bench of all tenured lawyers that came out of the best mid-to-large sized firms, the attorneys at Berry Riddell have experience in all aspects of a real estate transaction from entitlements, purchase and sale to finance and litigation where necessary. The firm also has two city planners on staff to assist clients with the development approval process. TOP ISSUE: “An increasingly adversarial political climate puts more pressure on city councilmembers to meet every wish of their constituency, so we find a greater need for creativity in balancing the wants of the neighborhood with the plans of the developer when presenting projects for approval.” NOTEABLE WORK: After two other zoning attorneys tried and failed, the team at Riddell fought for nearly two years, and eventually won approval for rezoning a parcel of land to become an auto dealership in Mesa. Faced with passionate neighborhood opposition, the site plan was reworked eight times to suit the needs of the developer and accommodate the neighbors’ wishes.
NOTEABLE WORK: The firm negotiated a single-building lease transaction for over 200,000 square feet for an office building landlord that involved getting the existing tenant to vacate the space sooner than it had anticipated while simultaneously negotiating for the purchase of a co-landlord’s interest in the building and the subsequent closing of escrow in regard to that purchase.
BURCH & CRACCHIOLO bcattorneys.com Ed Bull President
Burch & Cracchiolo has 10 experienced real estate, zoning and construction lawyers, including six with over 25-years of experience in Arizona and four State Bar Certified Specialists in real estate. They assist the firm’s real estate, developer and builder clients with a practical, problem-resolving, get it done attitude that runs the gamut from purchase and sale agreements through title review, financing, zoning, platting, construction-related agreements, leasing and beyond. TOP ISSUES: “The increasing costs and availability of labor and materials, and the corresponding cost of construction; the pros, cons, benefits and challenges of infill development; infrastructure availability and cost; flexibility in financing; and finding the marketplace’s balance between supply and demand.” NOTEABLE WORK: “The repurposing and integrated redevelopment of The Henry Restaurant and Fox Restaurant Group’s corporate headquarters within a previously vacant building on Camelback Road, east of 44th Street in Phoenix, which included a wide variety of zoning-related entitlements, leasing and other real estate matters that are among the necessary and sometimes tedious, but always fulfilling, challenges of infill redevelopment.” 27
CRE LAW CLARK HILL
clarkhill.com P. Douglas Folk Member of construction law group Clark Hill utilizes an integrated approach to client services through its depth of talent and breadth of practice. It has experience with all types of commercial and real estate development, including sports and entertainment venues, multifamily, education, healthcare, government, resort and industrial facilities. From negotiating a purchase or sale, to assisting with permits and site assessments, to project finance and investment needs, to managing lease and rental needs, Clark Hill has a lawyers for any and all of a project’s needs.
FENNEMORE CRAIG fclaw.com Joe Chandler Director and chair of real estate practice group
Fennemore Craig’s real estate practice group is one of the largest in the Mountain West and encompasses all aspects of real estate from acquisition and finance through development, leasing and sale. Clients include developers, investors, large landowners like federal and state agencies as well as Indian tribes and allotees. TOP ISSUE: “Technology – the need to adapt to and anticipate new technologies that will prepare today’s real estate professionals to more efficiently and effectively assist their clients, manage deals and generate new business now and in the future.” NOTEABLE WORK: The OdySea Aquarium, a 200,000-square-foot oceanic and freshwater aquarium, containing two levels and holding 2,000,000 gallons of water, which is the largest aquarium in the southwest and located on the Salt River Pima-Maricopa Indian Community. Acquisition, entitlement, development, financing, and operation of a full-service boutique resort located in Paradise Valley, consisting of 175 hotel rooms, 31 hotel-condominium units, a restaurant, market, fitness facility and the rehabilitated Mountain Shadow Executive Golf Course, which will include single-family homes and villas.
28 | May-June 2017
TOP ISSUE: “Our clients are interested in urban infill development, repurposing underutilized retail centers and big box stores, and finding creative ways to finance and build new mixed-use projects with multiple development partners.” NOTEABLE WORK: “We are quite experienced in putting together design/ build teams that are able to fast track a project on the client’s schedule. Clients retain Clark Hill for representation for their commercial real estate needs because we take the time to understand their needs, define the development objectives, and then provide the right mix of services for a successful project.”
GAMMAGE & BURNHAM gblaw.com Grady Gammage, Jr. Founding member
The firm’s practice spans the entire range of the development process from purchase and finance through construction and leasing as well as land use entitlement. It also develops new niche specialties for areas such as State Land Department transactions, water policy and the Government Property Lease Excise Tax system based on the modification or creation of real estate laws at the Legislature. The firm is currently working on ASU’s Stadium Facilities District, which will result in major mixed-use developments on the ASU land surrounding the Town Lake and the current athletic facilities. TOP ISSUE: “The relationship between the public and private sectors with regard to development approvals, financing and incentives is probably the single most challenging and difficult issue facing commercial real estate development projects today.” NOTEABLE WORK: For nearly 40 years, the firm has been deeply involved with the development around Tempe Town Lake, which started with a public/private partnership that helped finance and build the lake and led to the development of Hayden Ferry Lakeside, the initial Marina Heights PAD, Papago Park Center, Tempe Marketplace, Playa del Norte and multifamily developments by SunCor, Pulte, Lennar and others.
CRE LAW JENNINGS, STROUSS & SALMON jsslaw.com Bruce May Chair of real estate department
For the past 75 years in Arizona and the Southwest, Jennings, Strouss & Salmon has represented regional and national developers in large scale high-rise multiuse projects, large apartment complexes, office and residential condominiums, golf courses and resorts, power centers, high-end retail projects, developments on tribal land as well as sophisticated commercial real estate financing and lending projects. TOP ISSUE: “What happens when a tenant’s business is found to be, or becomes, illegal? For example, although state law permits the sale of medical marijuana through licensed dispensaries, it is still prohibited by federal law. If the landlord does not include provisions in the commercial lease for such an event, it may not have recourse to collect monies owed under the terms of the lease should the tenant’s business be forced to close.” NOTEABLE WORK: Most recently, the firm represented a client in the multimillion-dollar purchase of a large golf club in Arizona, a transaction that involved, among other tasks, complex taxes, lending and corporate issues, including mezzanine financing and the commercial lease of an office building by the purchaser.
QUARLES & BRADY quarles.com Stan Johnson Partner and chair of real estate practice group
Quarles & Brady offers a full range of legal services with more than 50 attorneys nationwide, including real estate attorneys in its Phoenix, Scottsdale and Tucson offices that collaborate in an integrated multioffice platform. The firm’s primary areas of service include: acquisitions and dispositions, commercial leasing, development, real estate finance, real estate investment trusts (REITS) and tribal real estate. TOP ISSUE: “Unfortunately, economic incentives for real estate development can sometimes be a challenge in Arizona. The state does not allow tax increment financing (TIF) and, although the landmark CityNorth case was decided several years ago by the Arizona Supreme Court, there remains uncertainty as to what types of incentives a municipality can provide for real estate development. This uncertainty adds risk for both the municipality and the developer, which necessarily has a negative impact on development.” NOTEABLE WORK: “Quarles & Brady represents Liberty Property Trust in the acquisition, development and leasing of Liberty Center at Rio Salado in Tempe, which is located on an 80-plus acre construction landfill site formerly owned by the City of Tempe. To date, Liberty has built and leased five office buildings and one industrial building at the site, which is years ahead of the development schedule set out in the development agreement.” 30 | May-June 2017
WITHEY MORRIS witheymorris.com Jason Morris Founding partner
A high degree of specialization and the strength of the firm’s relationships with city staff and elected officials helps it give clients greater certainty for what can otherwise be a very unpredictable process, especially as it pertains to land use. TOP ISSUES: “The top issues facing our clients would be increased government regulations of land use, neighborhood opposition, the increasing cost of development and the unpredictable nature of zoning approvals. With a combination of these factors, coupled with the risk of a development cycle, our clients rely on us to provide a road map for success.” NOTEABLE WORK: “Our portfolio ranges from Agritopia in Gilbert to the Ritz Carlton in Paradise Valley and includes The Continuum Office Industrial Project in Chandler, The Heritage District in Downtown Gilbert, The Cityspace/Block 23 in Downtown Phoenix, The Entertainment District in Downtown Scottsdale, Conair Corporation in Glendale and American Furniture Warehouse in the West and East Valley.”
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HEALTHCARE BUILDING TRENDS
Putting the project first Effective collaboration saves time and money at $418M hospital project By DAVID MCGLOTHLIN
32 | May-June 2017
t has been said that two minds are better than one. This concept holds true for Banner Health, which has saved millions of dollars and precious time by utilizing an integrated project delivery (IPD) process for two of its latest multimillion-dollar developments. An IPD is defined as a collaborative approach that combines systems, business structures, practices and experts from a multitude of different fields during all phases of design, fabrication and construction that harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste and maximize efficiency. Steve Eiss, senior project manager for Banner Health, describes it as a “never-ending idea process.” He says, Banner first used an IPD on phase two of the $60 million Banner MD Anderson Cancer Center in Gilbert, saving $1.5 million and accelerating the delivery date of the project. In fact, phase two was built two times faster and for eight-percent less than phase one of the project. Banner has already saved millions more by again using an IPD at the $418 million Banner-University Medical Center Phoenix (BUMCP), which began construction in March 2014 and includes a new emergency department and 16-story patient tower.
Banner University Medical Center Phoenix
Like the $60 million project in Gilbert, Banner teamed up again with HKS Architects and DPR Construction along with 29 subcontractors for the BUMCP project. “Just having an IPD doesn’t make a project successful though,” says Charlie Thompson, senior project manager with DPR Construction. “You need the collaborative component.” He attributes the success of Banner’s IPDs to its leadership style that encourages innovative ideas from everyone regardless of their role on the project. “This tends to be more of a team approach with informed design,” Thompson explains. “Anybody in the room can have a voice and ask questions to try to get a better product, which becomes a cultural piece.” That room is actually a trailer located on the job site that serves as the headquarters and new offices for all parties involved on the IPD team, which is commonly referred to as the “big room.” “We had about 55 people working in the big room from 9-10 different companies,” explains Eiss, which includes the owner, general contractor, architects, engineers, and subcontractors for structural steel, electrical, mechanical, fire sprinkler, framing/drywall and other designassist partners. All of whom were brought in on the
Charlie Thompson 33
HEALTHCARE BUILDING TRENDS
BUMCP Emergency Department Lobby
front end of the project, and required to work in the big room every Tuesday through Thursday to brainstorm and flush out ideas. “Part of having a successful IPD is not stopping innovation no matter where you are on the project,” says John Niziolek, principal and director of HKS Architects’ Phoenix office. “We keep pushing each other to come up with better ways to do things.” Everyone on the IPD team understands the intent and vision of the project and collectively work towards that goal. “We all put the project before our companies,” explains Eiss. “If you make decisions on behalf of the project all the time, then it will be successful and in turn make your company successful.” 34 | May-June 2017
PROJECT OVERVIEW Banner University Medical Center Phoenix completed its campus masterplan in 2010 and one of the critical projects prioritized by that plan was the construction of a replacement emergency department for BUMCP which, as Banner’s flagship hospital, is home to the organization’s only Level-1 Trauma Center and operates Banner’s only teaching program for physician training. Project includes: - Demolition of an owned, aged building (909 E. Brill St.) - Construction of an approximately 1,100 car parking garage - Demolition of an existing 600+ car physician parking garage (west side of the campus) - Construction of a new, single-story emergency department with 60 private beds - Construction of a new generator building with two new generators and a utility bridge - Construction of a new 16-story bed tower - Construction of a new loading dock, supply chain building - Renovation of two floors in the existing main tower Developer: Banner Health General Contractor: DPR Construction Architect: HKS Architects Location: 1111 E. McDowell Rd., Phoenix
Size: 752,000 SF Cost: $418M Start: March 2014 End: June 2020
HEALTHCARE BUILDING TRENDS
BUMCP Utility Bridge
EXAMPLES OF SAVINGS Millions of dollars have already been saved at BUMCP through successful collaboration, which the IPD team tracks through an innovation log that shows cost savings. All of those ideas and solutions, however, are figured out before finalizing the project’s budget, says Eiss. Then on a biweekly basis, the design-assist trade partners must prove the project is trending well from a budget standpoint. Overall, Eiss, Niziolek and Thompson agree that without using an IPD, some of the project’s most innovative features would have never happened. 36 | May-June 2017
For instance, the original project plans called for running the facility’s utilities underground, but a mechanical contractor pointed out that every elbow needed for the underground pipe would cost $10,000 each. “If we were not an integrated project team, we would have absolutely run our utilities underground,” says Eiss. Instead, the team built a bridge to run the utilities through, which saved approximately $4.5 million and will allow Banner to open the building four-months earlier than the original plans projected. The old plans also called for the relocation of the hospital’s existing
computer hub, but the team collectively figured out a way to leave it in place and build on top and around it, saving the project an additional $5 million. Another unique aspect to BUMCP, says Eiss, is how the IPD team is able to look at the construction process a little bit more like a manufacturing process. By turning portions of the work into a manufacturing process instead of an unique build process, it helps from a safety, cost and schedule standpoint, he adds. “We are all experts in our own fields,” says Thompson, “and it helps to have those experts in the room to help make sure you make those right decisions.”
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HEALTHCARE BUILDING TRENDS
Analysis & outlook Phoenix medical office market healthy for the foreseeable future By DAVID MCGLOTHLIN
olitical uncertainty and the proposed replacement of the Affordable Care Act have many in the healthcare industry wondering what’s next. Despite the current quandary, Metro Phoenix’s medical office market is expected to remain healthy for the foreseeable future following a strong 2016 that produced re-assuring sales and leasing numbers. Sharing their analysis and outlook of last year’s numbers, Trisha Talbot and Kathleen Morgan, both managing directors at Newmark Grubb Knight Frank in Phoenix, are the exclusive agents for almost 1.5 million square feet of medical office properties in Phoenix. On the leasing side, Morgan says, “Medical office building (MOB) product in Phoenix continues to be healthy
40 | May-June 2017
with the vacancy dropping over 200 basis points from the first quarter 2016 through the end of 2016.” Sales for MOBs also remained strong throughout last year with the closing of 43 transactions, totaling 858,660 square feet at an average price of $155.64-per-square-foot. Talbot notes, “Although the volume of sales decreased slightly in 2016 from the first quarter to the end of the year, the price per square foot for MOBs steadily rose and the capitalization rates compressed.” Morgan adds, “From an investment
standpoint, healthcare product is often considered ‘recession proof,’ and I expect healthcare product sales to remain strong in 2017.” In addition to sales and leasing, the healthcare duo also notes an uptick in new medical office development, which is the byproduct of hospital growth and need to support an increasing patient base. Following the implementation of the ACA, hospitals began purchasing practices, explains Morgan, “And much of the existing space has either been absorbed or is no longer functional for multidisciplinary practices, which
PARK 10 MEDICAL CENTER: Located along the I-10 within the Avondale Health Corridor, it will offer an 87,000-square-foot MOB as well as two potential PAD sites, which is expected to be delivered in Q3 2018.
The Metro Phoenix medical office market finished 2016 on a high note with 257,623 square feet of positive absorption, the biggest quarterly gain of the year pushing the year-end total to a positive
456,560 square feet. The vacancy rate declined each quarter in 2016 finishing the year at 16.1 percent. As vacancy rates declined, rent rates rose to $22.47 PSF on a triple net basis. 41
HEALTHCARE BUILDING TRENDS
TREND TO WATCH: MICRO-HOSPITALS Micro-hospitals are dedicated to deliverying specialized healthcare services such as women’s care, cardiac or orthopedic treatments. “Micro-hospitals are an attempt to deliver efficient and streamlined healthcare services pertaining to specific procedures,” Talbot says. “They can focus on higher quality of care to a greater number
require larger floorplates than are available in legacy healthcare product.” Since MOB activity follows hospitals, which follows population growth, some submarkets in the Valley are hotter than others like the Town of Gilbert, one of the fastest growing suburbs in Metro Phoenix. Talbot notes, “The Dignity Health Mercy Gilbert Medical Campus has spurred the development of medical office product surrounding it, including Spectrum Medical Commons, a 44,000-square-foot MOB expected to be delivered in Q4 2017.” The strongest activity of new product underway and active pre-leasing for new medical office developments, she says, is west of the Interstate 10 corridor in Phoenix, Avondale and Goodyear, and extends north on the Loop 101 to Glendale and Peoria. That includes 200,000 square feet of MOB space currently under 42 | May-June 2017
of patients, reducing costs and offering a larger profit margin for the healthcare operator.” Last October, Dignity Health and Kindred Healthcare opened a new $25 million, 58,000-square-foot microhospital called Dignity Health’s East Valley Rehabilitation Hospital in Chandler.
Medical office sales activity during Q4 2016 tallied $29.1 million, nearly matching the Q3 total and bringing the year-end total to $136.7 million. construction at the Westgate Healthcare Campus in Glendale. Talbot and Morgan are actively representing the campus to attract national companies and local providers to the state-of-the-art outpatient healthcare campus that’s strategically located next to Dignity Health St. Joseph’s Westgate Medical Center and near other surrounding hospitals operated by Abrazo Community Health Network and Banner Health.
This reflects the current demand of MOB users seeking to occupy space that’s strategically located near a major hospital or medical campus. Looking ahead, Talbot says, “The need for multidisciplinary practices won’t change, and increasing population growth — as well as a growing patient base — ensures a healthy healthcare market for the foreseeable future.”
SENIOR/ASSISTED CARE FACILITIES
44 | May-June 2017
Providing quality care at an affordable price By DAVID MCGLOTHLIN
New senior/assisted living facilities utilize housing tax credit for seniors with low-incomes
lack of affordable senior/assisted living facilities in the Valley prompted the development of new projects that will offer residents the same level of care as other market-rate products, but at an attainable price for seniors with a fixed low-income. Scottsdale-based Solterra Senior Living manages, owns and operates independent, assisted living and memory care communities in Colorado and Arizona, which will include three new developments coming down the pike: Bridgewater Deer Valley, Bridgewater Midtown and a third facility in Avondale, which will break ground later this year. While the Valley is a hotspot for senior/assisted living facilities, the latest Bridgewater projects are unique because it targets an underserved market segment, which consists of seniors with fixed incomes that rely on pension, social security and veteran aid payments. On average, it costs between $1,400-$7,000 in Arizona for a one-bed, single-occupancy, market rate assisted living apartment, according to the â€œ2015 Cost of Care Surveyâ€? conducted by Genworth Financial. The Bridgewater communities will accept Medicaid residents and offer seniors quality care that they can afford on limited incomes by utilizing programs like the Veteran Pension/Aid & Attendance, a relatively unknown program, in which veterans and their widowed spouses may be eligible to receive $2,126 per month, tax free.
BRIDGEWATER MIDTOWN: Street view
Steve Jorgenson 45
SENIOR/ASSISTED CARE FACILITIES BRIDGEWATER MIDTOWN
“To qualify for low income at either community,” the projects’ developer Steve Jorgenson, president and CEO of J-Bar Companies, says, “residents’ annual income must not exceed 60 percent of the area median income or $26,460 for individuals and $30,240 for couples.” Another unique feature to the Bridgewater properties are its “community benefit advocates,” which Jorgenson says, are individuals that make it easy for families to maneuver the low-income qualification process and also share information on Medicaid and Military Veteran Wartime Pension, Aid & Attendance. The first facility to be completed this April was Bridgewater Deer Valley, a former Plaza Inn and Suites Hotel, that was redeveloped into a new low income assisted living community offering all the amenities one would find in a market rate private pay community, but at a much lower cost. Located at Interstate 17 and Union Hills Avenue, Bridgewater Deer Valley, is a 100-percent low-income assisted living community with 150 studio units and 16 one-bedroom units. “It’s really focused on the market that maybe wouldn’t be able to afford traditional market rate product,” says Greg Corns, vice president of development and acquisition for Solterra Senior Living. “The other side to this is that individuals are living longer and many didn’t plan to live as long as they have. Bridgewater will allow these individuals to live in a quality community and reduce their annual spend down, providing that security that so many seniors crave.” The other building currently under construction at Third Avenue and Indian School Road, Bridgewater Midtown, will be 85-percent low income and 15-percent market pay. 46 | May-June 2017
Last October, Solterra leased 1.93-acres to build the seven story, 164-bed senior/assisted living facility, which will conclude construction by the end of 2017 and open in early 2018. “Nobody was really focusing on this modest income tier,” explains Corns. “The Midtown project’s feasibility study showed a need in the urban center for this product type.” Will French of Cushman and Wakefield, represented the owner, Cooper Companies, a private real estate company from Scottsdale, in the land lease for the Midtown project. The deal took more than a year to close but French says, the property had a lot of pluses. “This site is extremely well located, close to the light rail,” he explains. “The area itself is mixed-use, mixed-income, close to amenities and hospitals.” Unlike older senior living communities located in the peripherally of the metro area like Sun City, Bridgewater Midtown is centrally located making accessibility to amenities and family more convenient. “Proximity is important,” says Corns. “Typically you want to be close to a hospital, amenities, stores, doctors, but people like to get out still even though they may need some assistance with their daily living.” Looking ahead, Jorgenson predicts more affordable senior/assisted living facilities that are certified under the Health Care Cost Containment System coming down the pike in the years to come, including J-Bar Companies’ Avondale property that will break ground later this year.
PROJECT SPOTLIGHT Bridgewater Deer Valley Developer: J-Bar Companies General Contractor: Caliente Construction Architect: Devney Group Location: 2641 W. Union Hills Dr., Phoenix Size: 90,841 SF Value: $8.2M (existing building); $7M (improvements) Start: 8/16/16 End: 4/15/17 Bridgewater Deer Valley will inlcude 150 studio units and 16 one-bedroom units and will provide a full-service restaurant, bistro, theater room, fitness center, laundry rooms/service, library, business center, secured center courtyard with lush landscaping, putting green and shaded seating areas. The interior has been completely renovated with all new windows, doors, flooring, additional activity areas, fresh paint and carpet. Bridgewater Midtown Developer: J-Bar Companies General Contractor: Kitchell Architect: Orcutt Winslow Location: Third Avenue & Indian School Road, Phoenix Size: 115,600 SF Brokerage firm: Cushman Wakefield Start: October 2016 End: December 2017 Bridgewater Midtown’s amenities will include a full-service restaurant, bistro, theater room, fitness center, laundry rooms/service, library, business center and designated exterior patios with city views.
Retool your businessâ€¦
The evolution of Downtown Phoenix Different stages of development created a downtown neighborhood unlike any other By DAVID MCGLOTHLIN
48 | May-June 2017
owntown Phoenix is where history meets the future. Over the last couple decades and especially in the last five years, a combination of factors, investments and new developments have aided in the revitalization of Downtown Phoenix and its continued resurgence into the future, which fosters a livework-play environment unlike any other urban market in the Valley of the Sun. Between 2005 and 2016, the broader 1.7-square-mile redevelopment area in downtown experienced more than $4.8 billion in investments for things like transportation, office, residential,
BLOCK 23: Slated for completion in 2019, it will include approximately 330 apartments, 200,000 square feet of creative office space, restaurant and retail uses along with above- and below-grade parking.
education as well as research, arts, culture, sports and hospitality. Today, Downtown Phoenix is a hotbed for new projects, most notably new multifamily developments and redevelopment of older spaces into creative, open offices or trendy bars, restaurants and event venues. The Downtown Phoenix Partnership has played a fundamental role in this process since being created in 1990 as a nonprofit organization dedicated to strengthening development within the 90-square-block area known as the Downtown Phoenix Business Improvement District. Dan Klocke, executive director of Downtown Phoenix Partnership, says, “We’ve seen a real acceleration in the last 5-7 years,” which he attributes to a combination of different development stages in the area that created a one of a kind downtown neighborhood. HOW IT GOT STARTED The focus in the early 1990s was on large, critical projects like the Arizona Center, Phoenix Suns’ stadium, Renaissance Square, Arizona Diamondbacks’ stadium and the convention center, which were created to bring people downtown, says Klocke. “Then in the 2000s,” he adds, “there was a flurry of activity around the ‘meds’ and ‘eds,’” meaning the development of the Phoenix Biomedical Campus and Arizona State University Downtown Campus. Since then, the Phoenix Biomedical Campus has grown to 1.6 million square feet and now includes facilities for ASU, NAU and UA with more planned in the coming years. Meanwhile, the ASU Downtown Campus has also grown with more than 12,000 students attending class there each day. With more bodies, employees and visitors coming to downtown, the next development stage included a wave of new restaurants and bars, which Klocke says, “tend to be the life-blood of downtowns because they bring people in.” Then, he adds, “The nightlife from restaurants and bars began to
RECENTLY COMPLETED DEVELOPMENTS: 2016 ASU Beus Center for Law and Society 2016 Capitol 11 & 12 Place (292 apartments) 2016 Coronado Commons (20 townhomes) 2016 EnHance Park (49 condominiums) 2016 Linear and Illuminate (215 apartments) 2016 Monroe Hilton Garden Inn 2016 Proxy333 (118 apartments) UNDER CONSTRUCTION/DELIVERY DATE: 2017 Luhrs City Center (320 rooms) 2017 Bioscience Partnership Building 2017 Union @ Roosevelt (80 apartments) 2017 Portland on the Park (149 condos) 2017 Alta Fillmore (224 apartments) 2017 Boardstone Arts District (280 apartments) 2017 The Muse (367 apartments) 2017 Broadstone Roosevelt (316 apartments) 2018 Hampton Inn (210 rooms)
stimulate people thinking about living in downtown, which has led to the residential explosion.” An explosion totaling more than 3,600 new apartments currently under construction or planned in Downtown Phoenix, according to a report by ABI multifamily. “When you look at all the different stages that we have gone through, we have actually created a neighborhood,” Klocke says. The people coming to Downtown Phoenix to live, work and play today are a mix of Baby Boomers and Millennials with different interests and hobbies, adds Klocke, but they all share a desire to be in a true urban core environment. “We’ve created an atmosphere down here that’s appealing to a lot of people now,” he explains. “It’s an atmosphere we didn’t have five years ago.” WHAT’S MISSING IN DOWNTOWN? Downtown Phoenix boasts an extensive amenity package located right outside a resident’s front door, but the area still lacks convenient access to goods and services like a grocery store, which is a critical component to any community – urban, suburban or rural. Block 23 will be home to the area’s first grocery store, a Fry’s Food Store, which has long been sought after by residents and city leaders. Slated for 49
DOWNTOWN PHOENIX PROJECT TRACKER Phoenix Ballpark Granite Capital Investments plans to break ground this year on a 276-unit mixed-use project near Third Street and Buchanan Street. The project will include apartments, office and retail space. Broadstone Roosevelt Alliance Residential Company is developing a four-story, 316-unit multifamily project that will include a two-story podium garage, retail and recreation space. Union @ Roosevelt MetroWest Development is currently developing the mixed-use project at First Avenue and Roosevelt Street, which will feature an 80-unit rental project and ground floor restaurant and retail space.
THE VAN BUREN THEATRE: The redevelopment of the former Phoenix Motor Company's auto dealership into a 2,000-person concert venue is slated for completing in June.
completion in 2019, Block 23 will also include approximately 330 apartments by StreetLights Residential, 200,000 square feet of creative office space, restaurant and retail uses along with above- and below-grade parking. Block 23 marks the third phase of the CityScape project, which Jeff Moloznik, vice president of development at RED Development, says, created a precedent for large mixed-use projects that didn’t exist previously in Downtown Phoenix. “What we have today by the way of the first phase of CityScape is a very strong comparable rent model to support this type of high density, high-rise mixed-use development,” he explains. “We are starting to witness a pent up demand for this type of lifestyle and I think that will only increase as we add more goods and services to downtown.” HISTORIC BUILDINGS GET NEW PURPOSE The changes to Downtown Phoenix over the last half century have been remarkable, just ask Pat Cantelme, a Phoenix native who grew up downtown witnessing the changes first-hand. Today, he is active in rehabilitating the historic buildings in the area as the managing partner for Welnick Marketplace LLC and SoHo on Van Buren LLC. 50 | May-June 2017
He currently has four buildings under construction in Downtown Phoenix, which combine the iconic look and feel of historic properties with re-imagined uses, giving it new life and purpose. Two of those buildings share a common wall on the southeast corner of Fourth Avenue and Van Buren Street. Originally built in 1927, it was home to the historic Welnick Brothers Market and the Liefgreen Seed Company. After completing renovations to both buildings, Cantelme says, both are ready for occupancy and the potential tenants already showing interest include breweries, restaurants, a wine bar and hair salon. He is also redeveloping two historic buildings, dating back to 1930, on the opposite side of the street with the duo behind the Crescent Ballroom and Valley Bar. The plans call for redeveloping the former Phoenix Motor Company's auto dealership into a 2,000-person concert venue called The Van Buren Theatre, which should finish construction in June and already has big events booked for September, adds Cantelme. “These projects will change the outlook of West Van Buren and I think it will be the catalyst to continue development further west,” says Cantelme. “That will really become a destination for dining and entertainment in Downtown Phoenix.”
Derby Roosevelt Row Transwestern Commercial Real Estate is developing a 21-story micro-unit apartment complex that would consist of about 210 units averaging 400 square feet near McKinley and Second streets. Muse Located on a longtime vacant parcel at the northwest corner of Central Avenue and McDowell Road, Lennar is currently building 367-market rate apartments, which are expected to be finished by mid-2017. Portland on the Park Habitat Metro, developer of Portland Place, is building an additional 149-luxury condominiums on Portland Street between Central and Third avenues, which will range from 745 to 2,300 square feet with 21 different floor plans. Luhrs Marriott Courtyard/ Residence Inn Construction concluded in April on the $80 million dual-brand hotel housing both a 120-room Courtyard by Marriott and a 200-room Residence Inn by Marriott. Hampton Inn The Mortenson Company started construction on an 11-story, 210-unit Hampton Inn in February. Covering a quarter of a block at the southwest corner of Polk and First streets, it is expected to open in 2018.
The women of Cadence at Gateway
THE SQUARE: Located in the heart of Cadence, the 12-acre community center will include a cafĂŠ, visitors center, great room and meeting rooms, event and sport lawns, resort-style pools, tennis and bocce courts, open areas, a garden area and multiple indoor and outdoor fitness areas. Developer: Harvard Investments General Contractor: Silver Fern Companies Project Manager: John Fortini, Silver Fern Companies Architect: Bing Hu of H&S International Landscape Designer: Wendell Pickett of Greey Pickett Interior Designer: Kim Anderson Design 52 | May-June 2017
Cross-discipline female leaders provide strong voices for Mesa’s newest master-planned community By DAVID MCGLOTHLIN
fter more than six years, Cadence at Gateway in Mesa is taking shape and creating buzz as the latest epitome of what a modern, fully-amenitized master-planned community should be. Cadence is a 464-acre masterplanned community entitled to build up to 3,500 residences and will include a charter school, retail and office space plus other commercial areas. Arizona-based real estate investment and development company, Harvard Investments, anticipates building approximately 1,800 single-family homes and approximately 400 attached homes – such as apartments or condominiums – by completion. To help ensure the project’s success and viability, Harvard Investments, gathered extensive insights and assembled a team that both understands and reflects who will be an essential decision maker - women. “This should come as no surprise to anyone,” says Craig Krumwiede, president of Harvard Investments. “Women tend to lead the way in this area. But what we’ve done to respond to this is new and refreshing.” Anticipating that many of Cadence’s future residents will come directly from the East Valley, extensive research has also indicated women will lead the way in weighing the merits of a community, evaluating floor plans, touring models, selecting
elevations and finishes and ultimately spearheading the decision-making. “So we’ve made it a priority to see that all aspects of Cadence, from the larger details such as the diversity of amenities, to the smaller details in how we best communicate and respond to their needs,” adds Krumwiede. Some of the project’s influencers included: • Katherine Astrom, chief financial officer of Harvard Investments • Susan Demmitt, attorney at Gammage & Burnham • Claudia Sieb, principal of The Sieb Organization • Christine Zielonka, director of development services for the City of Mesa Each of these leaders bring a unique set of skills that have positively impacted the project's development. As the CFO of Harvard Investments, Astrom has been involved in the development of Cadence at Gateway since the beginning, six years ago. “This is a milestone project for Harvard Investments and the significant time and money invested before breaking ground indicates the commitment Harvard has for the East Valley and local families.” she explains. “From extensive research and ongoing collaboration with the City of Mesa, to the world-class talent assembled, we’re working to create a unique and interconnected master-planned
Christine Zielonka 53
MASTER-PLANNED DEVELOPMENTS community complementing the lifestyles of our buyers that will stand the test of time.” She describes Cadence at Gateway as an integrated and cohesive place to live and play that will be abundant in parks, trails, amenities, and open spaces, all accessible by foot or bicycle, including a 12-acre community center called The Square. That’s all good news to the ears of Zielonka with the City of Mesa, who is in charge of analyzing how Mesa residents want to live now and in the future so that her team can create the best infrastructure to prepare for sustainable, positive growth. “We work to create a foundation that encourages healthy lifestyles, walkable communities, higher quality development, connectivity between neighborhoods, plus the flexibility to change as homeowners’ needs change,” she explains. “Working with Harvard Investments the past five years, we see they share our commitment, and through Cadence at Gateway are creating a more defined sense of space.” Helping define what that sense of place means is Sieb, who specializes in the research, branding, marketing and communications for masterplanned communities both nationally and globally. She complimented Harvard Investments for its willingness early on to discuss what research indicates was an important direction to take for the project to be successful. That included preferences relating to the importance of community connectivity, health, wellness and fitness, indoor-outdoor living, neighborhood design, and creating an extremely high quality of life for every variety of family. “New ideas with thoughtful, analytical back-up has been the hallmark of Cadence,” Sieb explains. “The fresh array of amenities, neighborhoods and home types will
CHUTE RESORT POOL: Located within the 12-acre community center, the resort pools feature two chute-style slides, fountains, lap pool, play pool, spa, nearby fire pit and outdoor dining area with TV and resort-style furniture. 54 | May-June 2017
allow a variety of households — from empty nesters like me, to young families, couples, single parents, multiple generations under one roof, as well as individuals — to find their place at Cadence.” Before officially adding any of the amenities and features, each component must fit seamlessly within the zoning and legal framework developed by the city, which is where the expertise of Susan Demmitt, attorney at Gammage and Burnham, comes into the equation. The mother of three says, “The long-term creative problem solving skills used to raise a family are the same skills that I use every day with developers, municipalities, neighborhood organizations and political actions groups.” Demmitt adds, “Harvard had the wherewithal to work through all the technical details before we broke ground, and thereby creates the regulatory framework that allows better solutions such as turf-lined streets, an interconnected series of parks, and other amenities driven by knowledge of what our buyers prefer.”
WHO’S BUILDING WHAT? • Pulte Homes will build three neighborhoods totaling 193 homes, which will consist of one- and twostory homes from 1,800 to 3,700 square feet with 15 floor plan options. • Lennar will build one neighborhood consisting of 68 homes near the entrance of Cadence with homes ranging in size from 1,800 to 2,900 square feet. • Cal Atlantic will build two neighborhoods totaling 139 homes with multiple one- and two-story floor plans. • Gehan will build one neighborhood totaling 54 homes with one and twostory options and front patios.
Road to recovery New leadership and business model guide local REIT’s comeback
etting a multi-billion company back on the right track can be a long and complex process, but having the right leadership and strategies in place can make all the difference. Case in point, Phoenix-based VEREIT where new leadership’s emphasis on four key pillars is producing positive indications that the real estate investment trust is again headed in the right direction after recouping from an accounting irregularity in 2014. VEREIT ranks among the five most valuable Arizona-based companies in terms of stock-market capitalization with shares worth $8.5 billion. Formerly doing business as American Realty Capital Partners, it faced numerous lawsuits after the 2014 accounting problem, which led to the departure of top-level executives and steep drops in the company’s stock prices. After it restated financial reports for fiscal year 2013 and the first two quarters of 2014, Glenn Rufrano was hired as the new chief executive officer in April 2015 and promised a fresh start. After immersing himself to understand the company’s needs and strengths, Rufrano took steps immediately to develop a business model aimed at addressing the company’s debt and portfolio, which included a name change and rebranding to VEREIT in July 2015. Five-plus year employee, Kristy Lubeck, vice president of human resources for Vereit, attributes the company’s comeback to a renewed commitment by Rufrano and the management team to work together in redefining VEREIT’s culture, behavior and business approach. “With these areas clearly defined,” she says, “it became a road map of
56 | May-June 2017
how we could achieve our goals on a day to day basis, which in turn has helped foster a results driven and collaborative atmosphere.” In August 2015, Rufrano announced VEREIT’s new business plan consisting of four key pillars that focus on enhancing the portfolio, supporting Cole Capital, achieving balance sheet investment-grade metrics and establishing a sustainable dividend. Since the announcement, Rufrano, says the company has delivered on all four pillars and even exceeded original projections. A company update on VEREIT released by Goldman Sachs’ Global Investment Research Division in August 2016 states, “VEREIT has already made dramatic improvements towards being an investable company.” “VEREIT has already made great strides in terms of leverage, debt duration, tenant concentration and Cole Capital,” the report explains. “We believe 2017 will be a watershed year where VEREIT will complete the final steps needed in order to regain appeal to institutional REIT investors; we also believe that investors who invest ahead of this could be rewarded.” In August, Goldman Sachs reiterated its “Buy rating” for VEREIT stock and raised its 12-month price target to $11.90 with 20-percent total return potential. “As VEREIT prepares for growth,” Rufrano says, “the company is evolving into a capital provider for corporate America where we have the ability to monetize the real estate that houses their respective businesses, allowing them to reinvest back into their operations.” DIVERSIFYING THE PORTFOLIO As a full-service real estate operating company with the infrastructure to
buy, sell, finance, property manage, asset manage and lease net lease properties, VEREIT owns and manages a 4,142-property real estate portfolio of retail, restaurants, office and industrial assets worth $15.6 billion, including 74 properties in Arizona and 41 on behalf of Cole Capital. While Rufrano admits the company’s biggest strength is the diversification of its portfolio, he wanted to diversify it more and ensure its long-term stability as part of the new business plan.
PETSMART CORPORATE HEADQUATERS: Located in Phoenix, the campus includes three mid-rise towers and a six-story parking structure. The 356,000-squarefoot campus serves about 1,200 employees and includes a preschool and daycare center, fitness facility and full-service cafeteria.
BY THE NUMBERS
“We [VEREIT] wanted to be 15-20 percent office, 15-20 percent industrial and 60-70 percent retail,” explains Rufrano. The company also didn’t want any single tenant to be worth more than five-percent of the company’s income or one geography to be more than 10 percent of its income. Thus, VEREIT identified non-control owned joint ventures, flat lease assets, office assets and none core assets to sell, which included selling a portion of its Red Lobster portfolio that once made up 11-percent of VEREIT’s annual revenue. The company sold $425 million worth of Red Lobster properties in 2015 and over $248 million in 2016, bringing the total percentage of revenue down to eight percent. In total, $2.6 billion worth of assets were sold at an average cap rate of 6.85-percent over the last two years, says Rufrano, which is $400 million more than VEREIT’s original projections. 57
UPGRADES TO COLE CAPITAL The second pillar of VEREIT’s road to recovery focused on the re-establishment of the value and brand of Cole Capital, the company’s investment management segment, which sponsors and manages five publicly registered REITs, three of which have ongoing public offerings. Based on current industry market share, Rufrano says, “We believe we have certainly exceeded expectations.” In 2015, the company made up 2.7-percent of total market share, but has increased exponentially since to nearly 11 percent by the end of 2016. In 2016, Cole increased its capital raise 56 percent to $629.7 million, including $142.6 million worth of dividend reinvestment plan proceeds, which is $265 million more than the year before. The increase in capital raise was due to new broker-dealer relationships, as well as certain broker-dealers lifting the suspension of their selling agreements from the accounting scandal of 2014. Since then, Cole Office & Industrial REIT (CCIT III) has secured 16 new selling agreements, and Cetera Financial Group recently resumed selling Cole products. IMPROVING THE BALANCE SHEET The goal was to improve the balance sheet and get VEREIT back to an investment grade rating. In 2016, VEREIT experienced two capital events that were extremely important to achieving those goals. First, it needed to find a way to pay off a $1.3 billion bond issue that was coming due in February 2017, which at the time made rating agencies very wary about the company’s ability to refinance. Thus, in June 2016, VEREIT raised $1 billion in bonds and borrowed $300 million from a bank consortium that was then used to pay off debt. After what happened in 2014, there was doubt that the bond market would support Vereit, but the company proved it would. “We showed the rating agencies that we had access to the U.S. public bond market - the most liquid, largest pool of capital in the world,” explains Rufrano. The second event occurred in August 2016 when VEREIT successfully raised an additional $700 million through public equity to pay down debt. Rufrano explains, “The result of the refinancing of the bonds and paying down of the debt was that Standard & Poor’s gave us investment grade rating on our bonds last year and Fitch gave us an investment grade rating as a company.” Both received a BBB- rating. This translates to better margins as a result of lower cost of funds, which coincides with better investment grade ratings, he adds. PAY SUSTAINABLE DIVIDENDS REITs, by their very nature, must pay dividends to its income investors. 58 | May-June 2017
Thus, the fourth pillar focused on establishing an annualized dividend of $0.55 per year and prove its longevity. After cutting its dividends in 2015 as a result of the previous year’s accounting woes, VEREIT reinstated its dividends later in the year. VEREIT currently pays its common stock shareholders an annual dividend of $0.55 per share. “We’ve paid it consistently,” adds Rufrano. “The sustainability of that dividend has been substantiated.” IT TAKES A TEAM Looking back, Rufrano attributes the company’s recovery to the successful work of his peers. “It’s truly a team effort between all of us,” he says. VEREIT’s new dream team is comprised of new executives brought in by Rufrano as well as senior members from different departments within VEREIT, which created a mix of longtime industry professionals with different core competencies that Rufrano says, “were complimentary to the business.” By leveraging everyone’s unique talents and expertise, Lubeck says, “He created a best in class team and worked with them to focus our strengths and ensure that there is transparency and accountability on every level.”
CERTIFIED COMMERCIAL INVESTMENT MEMBER
Power of the pin CCIM provides the tools for success By DAVID MCGLOTHLIN
60 | May-June 2017
n an industry fraught with competition, it pays to have a x-factor that can distinguish you from the rest of the pack, which is one of the reasons why the Certified Commercial Investment Member (CCIM) Institute was established 50 years ago. Since being founded in 1967, the CCIM Institute has proven itself to be an influential commercial real estate organization providing realworld education, tools, best practice strategies and networking opportunities needed for aspiring professionals to be successful in this industry. With more than 50 chapters around the world, the CCIM Institute has evolved to include more than 13,000 members, in addition to 7,000-plus professionals currently pursuing the CCIM Designation, which makes the Institute one of the largest commercial real estate networks in the world.
CCIM TOP: Central Arizona CCIM Chapter President Rick Padelford takes a picture with the fellow CCIM Designees. BOTTOM: Panelists at this year's 10th Annual Economic Forecast presented by CCIM and IREM discuss the trends, projects and people impacting the industry.
CCIM’s influence on the industry can largely be seen in two forms: local chapter membership and, perhaps its most well-known and coveted calling card, the CCIM Designation. Both offer unique benefits and opportunities that local chapter members and CCIM Designees describe as priceless. To better explain the mission of CCIM and the immeasurable value of chapter membership and the designation, three CCIMs who were also past presidents of the local Central Arizona CCIM Chapter shared their experiences and insights. “You have to experience it both locally and nationally to truly understand it,” says Rick Padelford, CCIM, with Realty Executives Commercial, who is also the current Central Arizona CCIM Chapter president. He first heard about CCIM in 1992 when he was working for a developer who was also a CCIM and recommended he get involved. It wasn’t until 2002 when Padelford started working on his designation, which he later completed in 2008. During that time, he quickly realized, most, if not all the top professionals that he regularly worked with had their CCIM Designation and could tell at least one or two stories about the advantages of obtaining it. That includes brokers, leasing professionals, investment counselors, asset managers, appraisers, corporate real estate executives, property managers, developers, institutional investors, commercial lenders, attorneys, bankers and other allied professionals. Padelford sees CCIM’s real value is in its ability to convert education and networking opportunities into dollars. THE POWER OF THE PIN According to studies conducted by the CCIM Institute, people of similar age and experience in the industry with 62 | May-June 2017
the CCIM Designation make between 25-30 percent more than a likened individual without the designation. Described as the equivalency of a master’s degree in commercial real estate, the CCIM Designation is earned by completing an extensive curriculum of 200 classroom hours, a comprehensive resume of qualifying experience and a six-hour exam. Upon completion, designees are given their CCIM pin and may use the CCIM accolade in their professional titles. Bobbi Lorraine Mastracci, CCIM, principal of Phoenix West Commercial, says, “Any professional involved in the commercial real estate industry should have their CCIM Designation if they want to excel in their careers.” She was invited to become a member
of the Central Arizona CCIM Chapter in 2006 after attending a breakfast meeting and later earned her CCIM Designation in 2008. She went on to serve as the chapter president twice, including last year, and is currently the chairman of the education committee. “You get out what you put in,” she says, which for her translated to credibility and respect throughout the industry, education and knowledge of multiple disciplines as well as networking opportunities and increased business. Earning a CCIM Designation proves someone is engaged and invested in taking the right steps to advance their credibility, industry expertise and knowledge while opening the door to opportunities to explore other markets.
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The The value value of in of involvement involvement in CCIM CCIM is is immeasurable. immeasurable. CCIM is not only the most coveted and respected CCIM is not only the most coveted and respected name real estate, estate, namein incommercial commercial investment investment real but membership also gains you access to the the but membership also gains you access to premier networking premieronline online business business services, services, networking and educational resources in the industry. and educational resources in the industry. Visit more. Visitwww.ccim.com www.ccim.com to to learn learn more.
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CCIM CCIM Designation at a glance CI 101: Financial Analysis for Commercial Investment Real Estate This course is a prerequisite for CI 102-CI 104 and provides candidates a foundation of practical financial analysis skills needed to succeed in subsequent courses. CI 102: Market Analysis for Commercial Investment Real Estate Here, participants analyze individual investment factors for four major property types: office, industrial, multifamily, and retail. In addition, eight hours of training on the CCIM Interest-Based Negotiations
“Often times when a CCIM enters an unfamiliar market, they seek out a fellow CCIM Designee in that region because they trust their ability to properly analyze the economics of a piece of real estate,” explains David Miller, CCIM, vice president of national accounts at Chicago Title Company and two-time Central Arizona CCIM Chapter president. “There’s a comfort level there knowing you’re dealing with someone who has been through the same schooling as you and truly understands the building blocks of real estate,” he adds. Earning the designation gave Miller the skillset to do more transactions, which automatically raised his profile in the Valley. “It’s like sports,” he explains. “If you’re successful, people want to hear how you do it.” Regardless of age or discipline, Miller, Mastracci and Padelford, recommend all new comers to the industry take CI 101 in order to gain a foundation of practical financial analysis skills. GETTING INVOLVED WITH LOCAL CHAPTER MEMBERSHIP Arizona consists of two CCIM 64 | May-June 2017
Model is required before going on to CI 103 and CI 104. This requirement can be completed through the online Preparing to Negotiate course, the one-day classroom course Commercial Real Estate Negotiations, or the two-day classroom Advanced Negotiation Workshop. CI 103: User Decision Analysis for Commercial Investment Real Estate Candidates will utilize market and financial analysis skills for user space decisions, and apply cost-of-occupancy models for ownership and leasing.
Bobbi Lorraine Mastracci
CI 104: Investment Analysis for Commercial Investment Real Estate This course explores how to optimize investment returns and effectively forecast investment performance by quantifying real estate risk. Online Ethics Course This free training covers the CCIM Code and Standards of Practice of the CCIM Institute. The electivecredit requirement can be fulfilled with courses offered by the Ward Center for Real Estate Studies.
chapters: Central Arizona and Southern Arizona. The focus of each chapter around the world and Arizona is on providing quality educational programs and local networking opportunities while promoting the merits of the CCIM Designation. Miller says, “Membership in the local chapter affords you access to education and networking opportunities like breakfasts and lunches where top quality speakers are brought in to speak about things that are happening in the commercial real estate world that are topical, meaningful and often times impactful.” He goes on to explain that
Rick Padelford individuals can be members of a local chapter without the CCIM Designation. They are referred to as “marketing members,” adds Miller, which means they are there for local networking opportunities and chapter programs. “It’s an opportunity to talk for business while expanding your social network and getting to know about other potential opportunities, resources and trends that may be taking place in the industry,” explains Miller. Moving forward, Padelford wants the local Central Arizona CCIM Chapter to remain nimble and a leading force in navigating the inevitable changes facing the industry in a way that’s proactive instead of reactive.
Brett Hopper Chairman Q&A By DAVID MCGLOTHLIN
ritical thinker. Problem solver. Dedicated. Selfless. Approachable. Straightforward. Those are some of the words used to describe Brett Hopper, Valley Partnership’s newly appointed chairman. Throughout his 25-plus year career in commercial real estate, he has worked as an attorney, homebuilder, investor, developer and commercial title insurer, but nowadays his day job is as senior director of real estate development at The Opus Group. He is also an adjunct professor in Arizona State University’s Masters of Real Estate Development program, and is a frequent lecturer on real estate law, real estate development and title insurance matters. These roles in addition to career experiences have prepared Hopper for his duties as chairman in staying true to Valley Partnership’s core mission of promoting and advocating for responsible development. We caught up with Hopper to discuss what Valley Partnership has meant to him and his vision for the organization as the newly appointed chairman. Q: What’s next for Valley Parntership? A: First, we will pro-actively advocate for public policies that advance the interests of the commercial, industrial and master-planned real estate development industries at all levels of government by creating strategic alliances, public/ private partnerships and cooperation within the industry. And second, we will build a legacy for the future of development with educational events, leadership development programs, stakeholder engagement and community action. Q: What’s one goal you want to accomplish as chairman? A: My desire is that Valley Partnership continues to be the “go to” organization for responsible development that coalesces the real estate and business community and our governmental leaders on the most pressing issues affecting Arizona, including the preservation of economic vitality tools, maintaining secure water supplies, ensuring a well-educated workforce, funding for transportation and infrastructure, and the creation of high-paying jobs, all of which will allow our state and the economy to grow in a sustainable, responsible and balanced manner. I am committed to doing all we can to realize that vision. Q: What’s the value proposition of being a member? A: Our members join Valley Partnership for a variety of reasons, whether it be advocacy, professional networking, sponsorship, access to particular member-only events, participation in the young advocates program, involvement with our annual community project and etcetera. Being a
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member or sponsor of Valley Partnership is above all else an opportunity to show support for the mission and values of this organization. Q: Favorite part of Valley Partnership? A: Our membership is committed to giving back and enriching our community through organizing and participating in our annual community project. For me, the most touching and emotional experience was seeing the young kids at Sunshine Acres cutting the ribbon and running onto the playground of the newly created park. Our committed members made that happen and there is nothing more rewarding than that! Q: Message to members? A: If you are not yet a member of Valley Partnership, we need you and now is the time to join. If you are already a member, I strongly encourage you to step up your involvement by attending one or more of our various committees. If your experience is like mine, you will find that as you serve on a committee, you will develop close relationships with your fellow Valley Partnership members that will enrich your life both personally and professionally. Q: What keeps you up at night? A: We can’t take this reviving economy for granted. It’s still fragile and requires commitment from our stakeholders, all levels of government and the community at large to ensure that the proper economic incentives and development tools are in place to allow our community and state to thrive in the years to come.
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THE POWER OF COLLABORATION
From left to right: Jim Kenny of El Dorado Holdings, Cheryl Lombard of Valley Partnership, Brett Hopper of The Opus Group, U.S. Senator John McCain, Tim Brislin of Harvard Investments, Heidi Kimball of Sunbelt Holdings, Jill Kusy Hegardt of DMB and Arizona State Land Commissioner Lisa Atkins.
Valley Partnership advocates for responsible development by bridging the gap with education and awareness By DAVID MCGLOTHLIN
ince its inception in 1987, Valley Partnership’s mission to advocate for responsible development has remained the same, but its strategies, platforms and effectiveness have evolved alongside the organization over time. For the last 30 years, Valley Partnership and its members have worked to engage and collaborate with Arizona’s cities, public and elected officials on strategies to establish public policies that advance the
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interests of the commercial, industrial and master-planned real estate development industries at all levels of government by creating strategic alliances, public/private partnerships, forums for educational discussions and cooperation within the industry. “It’s not something that happened over night,” says Rick Hearn, current vice president of leasing at Vestar and former Valley Partnership chairman in 2012. “It’s taken those three decades
with obvious ups and downs through the process.” Having weathered two major economic recessions when so many companies in the development community were forced to close their doors, Valley Partnership’s resiliency and evolution is a testament to its role as a trusted industry resource and partner as it continues to cultivate its relationships with cities, public and elected officials and the development community.
VALLEY PARTNERSHIP 30 YEARS OF BRIDGING THE GAP Founded in 1987, Valley Partnership was created out of demand, necessity and the forward thinking of five founding members: Grady Gammage Jr. from Gammage & Burnham, John Graham from Sunbelt Holdings, Ron Haarer from Westes Homes, Lee Hanley from Vestar and Paul Johnson, the former Mayor of Phoenix. “When Valley Partnership started it was about how do we work out a more cooperative arrangement between the real estate community and public side of regulation,” says Gammage. It was a time when the development community wasn’t too popular in Arizona. In fact, during the recession of the late 80s, the atmosphere and culture around commercial real estate develop was at a major low. People felt like developers were coming in and not taking into consideration the well-being of its communities and citizens, says Johnson. There was an overall disconnect between the private and public sectors regarding new developments compounded by a general lack of awareness and understanding around the potential economic development benefits. On top of that, Gammage says, “There was a further problem with the fragmentation of the development community between residential developers, retail shopping center developers and office and industrial developers.” While each had a national association representing it, Valley Partnership became the umbrella organization where all the parts of the development community came together under a powerbase
Valley Partnership is founded and establishes its first Board
comprised of members in the development community
1987 72 | May-June 2017
Hired executive director and increased
political and legislative advocacy efforts
MONTHLY BREAKFAST: U.S. Sen. John McCain spoke at the October monthly breakfast about national issues impacting Arizona like water, infrastructure and then-candidate Donald Trump.
membership category for
Arizona established Government Property Lease Excise Tax (GPLET)
worth of new projects under construction or starting throughout Metro Phoenix
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VALLEY PARTNERSHIP of informed individuals and constituency members centric to the state of Arizona. “From 1987 going forward,” Hearn says, “there was a concerted effort to figure out ways to grow the collaborative spirt by sitting down with legislatures, community leaders, planners and developers.” That first took shape as part of a regular process where Valley Partnership’s leaders routinely met with groups, associations, public and elected officials, residents and stakeholders to talk about issues such as infrastructure, infill development, skilled labor shortage and all sectors of commercial development. Gammage says, “The really important insight that the original founders of Valley Partnership had was that if you can create an organization where both the development community and the cities were actually at the same table in a meeting or committee meeting to “Having all of the right partners at the table is critical to Phoenix’s ability to develop balanced policies and laws that, when implemented, create great places that benefit the community,” says Alan Stephenson, planning and development director for the City of Phoenix. “Valley Partnership provides the critical industry perspective, ensuring that the proposals that affect the commercial development industry are fully vetted before they become law.”
work on issues, you’d be much more likely to find common ground.” Over the years, Valley Partnership, its leaders and membership identified the best way to effectively
communicate the benefits of commercial development is by showing residents and businesses the potential benefits it can have on them. By educating opponents to a project on the economic development advantages connected to it such as sales tax revenue, employment opportunities and synergistic development opportunities, it gives them evidence as to why it’s worth supporting. “There needs to be an education process that gets everyone thinking about the bigger issue and what we can do to solve it,” explains Johnson. “It takes the architect, engineer, developer, land owner, site selector, neighborhoods, everyone to fully grasp the complexity of the issues.” For example, “There was a period of time when people believed the single most important thing we needed to do was keep low density,” adds Johnson. “Overtime that’s changing,
Defeated Prop 202, Supported Prop 303, the Growing
Smarter Act that provided guiding principles to aid in future development
1999 74 | May-June 2017
the Growth Management Initiative that mandated growth rings around most Arizona municipalities
HEALTHCARE PANEL: Julie Johnson, principal at Avison Young, moderated a healthcare panel with experts about new innovations and disruptions to keep an eye on.
people are beginning to recognize the benefits of density.” Today, the latest buzz is around infill developments, mixed-use projects and market demands for higher densities in urban cores. “There are all types of ways to bridge those gaps but the beginning of it is communication,” says Johnson. To facilitate that communication, Valley Partnership hosts a multitude of educational forums, committees and programs throughout the year to help spread awareness and understanding and bridge the gap between the private and public sides of the development debate.
Established the Valley
Passed Prop 400, supporting expansion of AZ’s transportation system
Partnership Action Committee (VPAC)
Assisted RED Development in the planning and construction of $900M CityScape mixed-use project
Grady Gammage Jr. Rick Hearn VALLEY PARTNERSHIP 2.0 “One of the evolutions that happened at Valley Partnership is its presence at the State Legislature,” says Gammage. “Since the last downturn, there’s been a shift in the dialogue at Valley Partnership where it is more plugged into the economic development side of things than just the regulatory side.” Early on the focus was on cities and changes to things like zoning regulation, ordinances and review codes. “In the last few years, the people at Valley Partnership have realized that the way the development community and cities relate to each other doesn’t just have to be about regulation,” explains Gammage. “It can also be about how do we use the power of government to encourage economic development.” That conversation is one of many taking place every month at Valley Partnership’s monthly breakfasts, which draws sellout crowds in the hundreds and special guest speakers the likes of congressmen, state senators, city officials, mayors, community leaders and industry experts. Gammage says, “It’s not just that
Valley Metro light rail begins operation
76 | May-June 2017
you're there with members of your industry trolling for business, you’re also there to learn about what changes are coming down the pike and you wind up talking to other people in the industry about what’s going on in the program that morning.” Each breakfast is given a theme with a specific predetermined topic or issue to focus on such as development “Valley Partnership is well known for being a solutions-oriented advocacy organization,” says Heidi Kimball, senior vice president at Sunbelt Holdings. “When the City of Tempe was looking for options to fund the Street Car, Valley Partnership stepped up to work with city staff and the development community to ensure that an appropriate source of funding was identified.”
of tribal lands, selling of state lands, emerging development trends, projects and issues like water, energy and the impact of new innovations. Last August, U.S. Sen. Jeff Flake spoke at the monthly breakfast about Arizona’s industrial and manufacturing sector. The next month,
former U.S. Sen. Jon Kyl spoke to members followed by U.S. Sen. John McCain in October to name a few. “When you’ve got state senators, the governor, legislature, all wanting to speak to our audience,” Hearn says, “that’s when you know that you’ve created that collaborative spirit and culture.” Johnson adds, “Over the years, Valley Partnership played a role over and over again in bridging the gap. The role they play is very important if we are going to continue this type of growth, and do it in a way that is the most cost effective for the public while protecting and building on our inner city areas.” Today, Valley Partnership’s conversations with its members, cities, public and elected officials focuses on how to best position Metro Phoenix to compete with other metro areas outside of Arizona. Hearn says, “The Valley of the Sun is a term coined years ago and its one that doesn’t single out one community because of that, no matter where you are in Arizona, you have an equal seat at Valley Partnership’s table. It’s not based on per capita size.”
Revised the Arizona State Statutes for GPLET to ensure its integrity while implementing needed reforms and transparency
Cheryl Lombard is hired as new CEO and President
Longtime Valley Partnership leader and member, Gregg Alpert passed away
Moving in the right direction The relationship between economic development and infrastructure funding By DAVID MCGLOTHLIN
his year, America’s overall infrastructure was awarded a D+ grade, according to the American Society of Civil Engineers’ “Infrastructure Report Card.” Arizona’s infrastructure may be relatively newer by comparison but it is starting to show signs of wear and tear as indicated by the C grade that it received from ASEC. While the state of Arizona’s infrastructure may not be in as dire of shape as other urban areas, the need for new and repaired infrastructure is widely talked about, especially at Valley Partnership.
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For 30 years now, Valley Partnership has been the rational voice at the table whenever important policy issues such as infrastructure needs are being discussed whether it's transportation, aviation, dams, bridges, railways or any of the state’s other infrastructure systems, most of which received C grades or lower in the ASEC report. “While we can identify many areas that are the biggest concern,” says Jill Kusy Hegardt, vice president of entitlements at DMB Associates, “the true biggest concern is really how to prioritize and fund all the projects that are important to build.”
For Jim Rounds, president of Rounds Consulting Group, it’s a matter of funding, implementation, collaboration and groups like Valley Partnership discussing transportation economics as part of what they do in their everyday work. He says, “The next chapter in Arizona’s infrastructure story is about spreading awareness and showcasing how infrastructure relates to commerce and economic development,” which is one of Valley Partnership’s specialties. Because Valley Partnership has such a broad coalition of members, it affords the organization a unique access to resources, research as well as the decision makers
and influencers on both the public and private sides of the development community. Once Valley Partnership assesses the points of view and conerns from both sides, it works on strategies to better educate and inform all parties. Molly Ryan Carson, vice president of development at Ryan Companies, says, “Valley Partnership helps explain the return on investment for infrastructure projects as it relates to overall commerce and economic development impact that’s beneficial for not only the industry, but the cities and state as a whole.” For example, the proposed construction of Interstate 11 in the
BY THE NUMBERS • 6.7 million people - Arizona’s population • 59 public-use airports in Arizona • 8,035 bridges located in Arizona • 214 bridges (2.6%) are structurally deficient • $49,318,852 spent on Arizona bridge capital projects in 2013 • 1,643 miles of rail across the state • 66,122 miles of public roads, with 15% in poor condition • $481 per motorist per year in costs from driving on roads in need of repair
• $25.7 billion – estimated need for capital and operating costs for transits services • 98,099,021 annual unlinked passenger trips via transit systems including bus, transit and commuter trains • $1.7B worth of construction is currently underway on Arizona’s highways • $3.25B worth of highways projects planned over the next 10 years SOURCE: American Society of Civil Engineers Infrastructure Report Card
Jill Kusy Hegardt
West Valley, which would connect metropolitan areas in the United States to Mexico and Canada. “Aside from the concrete things that it will do,” says Carson, “it will enhance the perception and reality of what you can do as a company in and through Arizona. It makes us a couple fonts larger on everyone’s white papers,” especially site selectors and planners. Over the next year or two, Rounds would like to see continued education and awareness efforts to show the public the different things that make the economy tick and how effectively managing the state’s limited resources can produce the biggest returns on investment. “Once you show the public the potential return of investment,” explains Rounds, “they will buy into the big picture plan and be more
Molly Ryan Carson
trusting of how the government is spending their tax dollars.” For instance, along the 26-mile Valley Metro Rail line there has been nearly $9 billion in economic investment including residential and commercial development since start-up of service in December 2008, says Scott Smith, CEO of Valley Metro. The planned 66-mile high capacity transit system operated by Valley Metro allows for future growth and mobility as Arizona's population expands and its communities become denser. “Light rail has been a major contributor to an upward spiral of assets including an expansion of the local arts and culture scene, relocation of businesses who choose to be positioned near rail and the connection to education that supports our overall economy and quality of life,” Smith adds.
Eric Anderson, transportation director of the Maricopa Association of Governments, compares the success of the light rail to new freeways like the Loop 303, which created new access and led to the development of another transportation, employment and commerce corridor in the West Valley. “Light rail does the same thing on the transit side,” he says. When you have new investments, it means increased tax revenues from sales and property taxes and the areas become more dynamic so people and businesses are attracted to those areas. “Transportation investments are extremely important to the economic vitality of the region,” explains Anderson, “which is why Valley Partnership and its members are key to our continued success in making investments to transportation.”
ARIZONA INFRASTRUCTURE REPORT CARD AVIATION | C- By 2030
TRANSIT | C+ Over the next 25 years,
WASTEWATER | C Over 20 years
DAMS | C-
LEVEES | C-
DRINKING WATER | C-
58% of commercial 87% of reliever airports will not have sufficient operating capacity
$25.7 billion will be required statewide in order to attain “good” or “better” condition rating
High-hazard Dams on the rise Owners lack funding for proper maintenance
ROADS | D+
Over 2,600 miles of pipes need rehabilitation or replacement
$2.2 billion in locally identified facilities are exposed to a “high” flood hazard
RAIL | C+ ADOT estimates over the next 25 years, a minimum of $24 billion will be needed to maintain current assets
$2.3 billion needs to be invested in Arizona wastewater facilities
BRIDGES | B $1.3 billion will be required over the next 25 years
50% more than 40 years old 19% functionally obsolete 4% structurally deficient
SOURCE: American Society of Civil Engineers Infrastructure Report Card 80 | May-June 2017
Water & energy How do we continue to develop and make better use of both? By DAVID MCGLOTHLIN
ater, energy and real estate development are all interconnected and dependent on each other like three legs of a tripod. If one leg falters, the other two soon follow. Valley Partnership’s mission in advocating for responsible development coincides with advocacy for the responsible management, delivery and advancement of Arizona’s water and energy resources because one cannot exist without the others. For that reason and more, Valley Partnership has collaborated with the state’s top producers of water and energy for years now on ways to make better use of both in order to support the continued growth, development and prosperity of Arizona and its metro areas. While APS, CAP and SRP all play critical roles in maintaining the quantity and reliability of Arizona’s water and energy in order to support continued development, Valley Partnership plays an important role in
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spreading awareness and educating the public and businesses about how water and energy issues affect them as well as ways to get involved. WATER – LEARNING TO LIVE WITH LESS Arizona is known for being a responsible steward of its water supply, which has other states turning to Arizona for policy ideas, innovations and best practices. For instance, the passing of the historic 1980 Groundwater Management Act, the first of its kind in the nation, set restrictions on pumping the state’s groundwater and developed conservation goals. Despite Arizona’s proactive, forwardthinking practices and policies, the state is still plagued by an 18-year drought in the Colorado River Basin
and the over allocation of Lake Mead to California, Nevada and Mexico by 1.2 million-acre-feet per year. Ted Cooke, general manager at CAP, describes the current state of Arizona’s water supply as an imbalance and not a crisis, but he warns it will become one if we do nothing. “We have to learn to live with a little bit less and we need to do that in an agreed to and managed way ahead of time rather than react to a crisis,” he explains. “We have to work together to conserve and learn to deal with having less of a supply so we can keep the value of what we have.” This requires a two-pronged approach that looks at conservation measures
NAMES TO KNOW Arizona Department of Water Resources (ADWR): Steward of Arizona's water future ensuring longterm, reliable water supplies. Arizona Public Service Electric Company (APS): Arizona’s largest and longest-serving electric company. Central Arizona Project (CAP): Arizona’s largest water provider. Salt River Project (SRP): Metro Phoenix’s largest provider of water and power.
GLEN CANYON DAM: built between 1956 and 1966 as part of the Colorado River Storage Project, it stands 710-feet and holds back 26,215,000-acre-feet of water when Lake Powell is full. 83
VALLEY PARTNERSHIP FUTURE WATER SOLUTIONS Gila River Water Storage LLC (GRWS): SRP’s joint-venture with the Gila River Indian Community, called Gila River Water Storage LLC, makes available numerous long-term storage credits for municipal and industrial users, 100,000 acrefeet of water for drought mitigation over the next 15 years and 30,000 acre-feet per year of direct supply to meet new demand during the next 100 years.
SRP-Goodyear delivery agreement: This year the Goodyear City Council and SRP’s Board of Directors approved a long-term transaction with SRP for Goodyear to use SRP’s delivery system to wheel the city’s highpriority CAP water and additional CAP supplies leased from the Gila River Indian Community. The agreement will be implemented when Goodyear completes construction of a future water treatment plant and a pipeline to connect to the SRP system.
and longer term supply solutions like desalination, cloud seeding, more efficient water reclamation and underground storage facilities. It also includes the Governor’s Water Augmentation Council, which was established to look at additional water conservation and augmentation strategies because of rising concerns about declining groundwater levels. This created 22 planning areas around the state designed to coalesce areas with common problems and the potential ability to create common solutions, says the Council’s Chairman Tom Buschatske, director of Arizona Department of Water Resources. He explains, “The idea with the planning areas is to work with stakeholders, educate them and update our water use information to build up a 84 | May-June 2017
FUTURE ENERGY SOLUTIONS Desalination: SRP and the Arizona Department of Water Resources are among those agencies working on a future desalination plant in Rocky Point on Mexico’s Sea of Cortez. Water managers envision a trading system in which Arizona buys into a plant for Californians in exchange for Colorado River credits. A cheaper but less plentiful option is to cleanse groundwater that has run off farm fields and picked up salt.
SRP DataStations: SRP intends to deploy BASELAYER’s modular data center technology, the first of its kind in the world, in locations near SRP’s existing electrical infrastructure, where they can be connected directly to the energy grid. SRP sees the new concept as a solution that would allow for high enterprise scale data center growth with minimal impact to the community in relation to new power line construction.
consensus base of solutions that may be implementable through new policy or legislation.” To represent the real estate development industry, Gov. Doug Ducey appointed Cheryl Lombard, Ted Cooke president and CEO of Valley Partnership, to the Council. ENERGY – POWERING THE FUTURE While energy may not get as much attention as water issues in the desert, it is equally important to supporting real estate development, the daily routines of residents and operations of businesses. Gretchen Kitchel, executive analyst for economic development at SRP, says, an innumerable number of companies are interested in locating to Arizona, especially data centers, because Arizona is natural disaster free and SRP is top-five in the nation for reliable power delivery. Right now, she explains, “We have a big evolution of technological advancements in energy.” She likens it to landlines moving to cellphones in
SRP/Apple agreement: In September 2016, SRP’s Board approved an agreement to purchase the energy produced from Apple’s new 50-megawatt photovoltaic solar power plant, located in Pinal County, east of its data command center in Mesa. Apple has completed construction of its Bonnybrooke PV solar plant and is finalizing the commissioning of the large-scale solar array, so that clean power can feed into SRP’s grid that supports Apple.
terms of the innovative tech causing major disruptions. For example, in August 2015, SRP and BASELAYER unveiled the first SRP DataStation modular data center at SRP’s Corbell Substation in Gilbert. The first of its kind in the world, these DataStations will provide an innovative approach to supporting the addition of critical data centers in the Phoenix Metro area through making them more efficient and less expensive. Kitchel says, “We have countless numbers of other people interested and fascinated with it because it’s a big technological change in how we do data centers,” including the United States Department of Energy. Between new technology that allows people to self-generate energy and efforts to create a battery storage system to power a home, Kitchel foresees another big leap forward in the energy sector through new innovations and disruptions. “Everybody thinks utility companies are older, but we like to think of ourselves as quite innovative,” Kitchel says. “Our data center stations are an example as to how we are looking to remain on the cutting edge of innovation.”
GPLET reform bill passes but the debate wages on By DAVID MCGLOTHLIN
ouse Bill 2213, the Government Property Tax Lease Excise Tax (GPLET) reform bill, unanimously passed both bodies of the Legislature in its final format before receiving Governor Doug Ducey’s signature on Thursday, March 30, which signified a major win for the development industry in Arizona after a hard-fought journey. Getting to this point was no simple task, requiring coordination and compromise between several parties and interests. Helping lead the dialogue and debate regarding HB 2213 on behalf of Valley Partnership was its current President and CEO Cheryl Lombard, who recognized GPLET’s significance to the economic development and improvement of the state. Valley Partnership’s goal was to pass a bill that preserved the integrity of GPLET while making much needed reforms to the program and increasing transparency. As the only economic development tool is Arizona, GPLET is vital in attracting new businesses and companies to the state. It allows for cities, towns, counties and stadium districts to lease property to private parties for nongovernmental uses by providing a property tax abatement for those projects that generate needed economic activity and help revitalize “slum and blighted” areas. The definition of “slum and blight” is controversial. Slum and blighted areas can be vacant land that’s unmaintained or has other health or safety issues that preclude development. Opponents of the program want a narrow definition while supporters believe there needs to
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GOVERNOR DOUG DUCEY: Signing HB2213
be flexibility due to a number of health and safety issues that can preclude the development of property. The GPLET reform bill was put forward by the Arizona Tax Research Association (ATRA) following a December 2015 report by the Arizona Auditor General. ATRA argues the GPLET program creates an uneven
playing field where similar properties are taxed differently, creating higher taxes for other non-city jurisdictions including a fiscal impact to the state. Yet, Valley Partnership believes GPLET is an opportunity to expedite development and bring new companies to an area, which in turn creates sales tax revenue, employment
VALLEY PARTNERSHIP TEMPE MARKETPLACE: Before receiving GPLET from the City of Tempe, developers wouldn't touch the 1.3-million-square-foot brownsfield site because of environmental issues and high costs to clean up the site.
“It was incredible to see all the stakeholders — many having differing opinions on GPLET — work together to improve the program. I applaud Rep. Leach [the bill’s sponsor] for his leadership on the bill and helping us reach a compromise that Valley Partnership was proud to support.”
– Cheryl Lombard
opportunities and synergistic development opportunities whether its retail, office or residential. The bill as introduced would have changed the rules on existing projects and essentially eliminated the program going forward. Recognizing the detrimental impact that may have on commercial and economic development, Lombard tapped the legal expertise of Jay Kramer, attorney at Fennemore Craig with 30 years of commercial real estate experience. The two worked closely with Valley Partnership’s partner cities, ATRA, other real estate development organizations and legislative leadership to reach a compromise that preserved the integrity of the tool while improving its functionality. The revised HB 2213 fixes technical and procedural aspects that make the GPLET process work better in terms of who collects information, makes payments and ensures the process ran more smoothly, which were all noncontroversial issues. “After numerous meetings with stakeholders, we reached a compromise that only made adjustments to the abatement period — limiting the full abatement to eight years within the Central Business District,” 88 | May-June 2017
explains Lombard. “Recognizing the complications behind changing the definitions of slum and blight, all parties agreed to work on this issue during the interim.” Previously, GPLET provided an eight-year full-tax abatement plus another 17-year agreement for reduced taxes. HB 2213 eliminates the reduced tax abatement during years 9-25. Although, outside the Central Business District where properties get a reduction instead of a full abatement, those properties are still eligible for up to the 25-year tax reduction. Lombard adds, “It was incredible to see all the stakeholders — many having differing opinions on GPLET — work together to improve the program. I applaud Rep. Leach [the bill’s sponsor] for his leadership on the bill and helping us reach a compromise that Valley Partnership was proud to support.” A good example of GPLET is Tempe Marketplace, which at the time was
considered a blighted area that poised environmental challenges for new developments. Here, Kramer says, the City of Tempe successfully used GPLET to incentivize the project, expedite its completion and re-gentrify the area. Before committing to a multimillion dollar project, developers want to know if they are eligible for a tax abatement, which can’t happen if new GPLET reform bills are introduced and debated each year at the Legislature. If this persists, site selectors will most likely look towards other markets with more certainty and incentives for its new developments. Although HB 2213 was passed and signed into law by Gov. Ducey, the Goldwater Institute has already filed a lawsuit to challenge the GPLET bill, which means the debate over GPLET isn’t finished yet. Valley Partnership is closely monitoring the lawsuit and is working with partners on Arizona’s vision for responsible development.
Being a 21st century developer A look at where we’ve been and what’s next
ision, patience and an ability to take calculated risks are some of the enduring traits of a successful developer, but as the Phoenix market evolved developers adapted new modes of thinking about the industry, what’s next and how it impacts them.
THE GRAND AT PAPAGO PARK CENTER: Located on 60-acres north of the Red Mountain 202 Freeway in Tempe, the project will total approximately 3.2 million square feet of mixed-use office, retail and hotel uses, as well as multiple above-ground parking garages at full build out. 90 | May-June 2017
By DAVID MCGLOTHLIN
Today’s developers are casting bigger nets in adopting a broader range of experts and personalities from diverse backgrounds and experience levels to collaborate on best practices, innovations, teaming and idea creation. Overall, developers are eagerly looking at ways to combine new skills with tried and true knowledge in efforts to better understand what it means to be a 21st century developer. What worked 30 years ago is not guaranteed to work today, which is why developers are faced with the decision to adapt for future viability or become relics of Arizona’s development history. DEFINING THE 21ST CENTURY DEVELOPER Where and what developers are building has changed as well as how they are building it. New innovations, technologies and trends are disrupting the industry every day. Navigating what those means to you and your business is the only way to remain successful. Tim Brislin, vice president at Harvard Investments, says, the 21st century developer can’t solely rely on what worked in the past, which is 92 | May-June 2017
SEVENTH STREET MIXED-USE PROJECT: The first of its kind in the area, Opus is developing a trendy mixed-use enclave on the edge of Arizona State University in Tempe, featuring two high-rise apartment towers, walk-up city homes and flats wrapping the first four stories of the tower, all connected to 31,000 square feet of retail and restaurant space.
why he identified a few other skills needed to be successful in today’s development world. First, developers need to re-learn the acquisition processes of their buyers for both commercial and residential projects. He explains, “What was once a 30-page purchase and development agreement is now 300-plus pages and contemplates every contingency imaginable.” Secondly, precision is needed in developer’s acquisition and execution, he says, because it's costly to be wrong and there isn’t enough market demand to smooth over a subpar deal. Lastly, developers need to utilize all the new research and data that’s available to better understand their markets, sectors and target demographics. For Todd Chester, principal at WDP Partners, that means 21st century developers “need to be able to quickly
adapt to changes brought about by technology” like how brick and mortar retail is being forced to adapt to e-commerce retail. Brandon Dillingham, director of Arizona development at Hines, says, “The shift over time for 21st century developers have been the ability to implement long-term strategies to penetrate and expand into multiple markets/cities, allowing for better risk mitigation against changes in both macro and micro economic cycles.” In turn, this attracts capital on both the equity and debt side of the business because the developer is seen as a predictable partner in executing its investment goals. This is increasingly important especially because developers face greater challenges today as a result of elevated land prices and unrealistic seller expectations, adds Dillingham.
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WHAT’S HOT AND WHERE Over the last 30 years, both retail and single-family segments have experienced the most profound multiplier of growth throughout the 80s, 90s, and early 2000s in Arizona, which have combined to define many of the state’s suburban nodes. While development hotspots change every couple of years, Chester says, “apartments and infill retail have been on a roll for a while and now you're hearing about the industrial boom.” Developers are shifting their focus away from the periphery of Metro Phoenix and back to urban core markets and infill opportunities for new developments or adaptive reuse projects. Dillingham points to urban multifamily as a strong asset class right now in Phoenix and most major markets. He predicts, “We still see fundamentals staying strong in the near-term and believe there are profitable development opportunities for well-located dynamic sites with quality mass-transit options and walkability to amenities and seasoned retail.” In residential real estate, there are several distinct hotspots that Brislin identifies as providing high quality, entry level communities to meet an increasing demand for affordable first time product. He mentions the Southeast Valley with Queen Creek and San Tan Valley, the Northwest Valley stretching from Interstate-17 to North Surprise, the reinvigorated Loop 303 corridor and the Southwest Valley with Laveen and Buckeye. He predicts, “30-years from now, there will be rush hour traffic on the Sun Valley Parkway,” which is a 30-mile stretch of road through the mostly undeveloped desert west of the White 94 | May-June 2017
“We still see fundamentals staying strong in the near-term and believe there are profitable development opportunities for well-located dynamic sites with quality mass-transit options and walkability to amenities and seasoned retail.”
– Brandon Dillingham
Tank Mountains in Buckeye. All developers, both residential and commercial, wish they knew what will be the hot product type and location in 30-years, but looking ahead, Dillingham thinks, “It’s safe to assume that mixed-use will further define itself and ideally we’ll have a larger sampling of good execution on this type of real estate, which will create a more proven formula for developers and city planning committees to model after.” WORTH WATCHING From automation advances, drones, driverless cars, virtual reality, technology is rapidly changing the ways the industry thinks and operates. Looking 30-years down the road, Brislin says, you must be a futurist, which means identifying ways certain disruptions and innovations might impact the industry such as driverless cars, 3-D printed homes, virtual reality and the potential for another Great
Depression. “The disruptions will continue to be epic,” he says. For instance, the large scale masterplanned communities from before the recession are old news. “Today and going forward,” Brislin explains, “there is a strong move to a ‘right-sized’ master-planned community that can provide amenities, diversity of product and commercial opportunities, but is not a multi-cycle project.” In commercial real estate, Dillingham says, “Walkability and live/ work/play continue to be important attributes investors look for,” which coincides with a growing focus on access to transit. However, he says, “In the long-term this pendulum could swing back the other way as more employers embrace work-from-home programs, Uberbased platforms continue to grow in convenience and applicability, and as new technology like driverless cars come into play.”