AZRE magazine September/October 2014

SEPTEMBER-OCTOBER 2014

4 1 OFFICE MATES: 0 2

T H G IA I R D Y E P M O C BIG Z A

OBSOLESCENCE & CONSTRUCTION IN A SHIFTING MARKET

Inside: Dwelling in the Future Multifamily sector progresses

NAIOP ROUNDTABLE

Analysis of industrial, office sectors

BALANCING ACTS

Inaugural legislative update

Hayden Ferry Lakeside III

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T H G IA I R D Y E P M O C BIG Z A

When You Need 4 1 0 Direction 2

T H G IA I R D Y E P M O C BIG Z A

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

In Arizona, please contact

Paul M. Weiser, Esq.

480.383.1823 pweiser@buchalter.com 16435 North Scottsdale Road, Suite 440 Scottsdale, Arizona 85254-1754 www.buchalter.com 1

Out of Office

President and CEO: Michael Atkinson Publisher: Cheryl Green Vice president of operations: Audrey Webb

E

arlier this year, I was at a conference where the keynote spent a good portion of his speech poking fun at Millennials.

One of the highlights of the speech had to do with a claim that people between the ages of 18 and 33 are an exceptionally demanding group of employees.

The Generation Y subgroup needs fun around every corner, stimulating workspaces that allow focus as well as collaboration and are, essentially, turning the modern office space concept on its head. Many Millennials work remotely when we can, and on the occasions when we do come into the office, we like working in a versatile environment — one that, as the speaker pointed out, has billiard tables that double as a cot for our nap times. His claim may be a stretch, but while researching the September cover story about this rapidly changing office sector that’s leaving many offices around town vacant, I saw my fair share of creative hacks that can keep a hefty percentage of our buildings, namely those in Midtown, from becoming functionally obsolete (page 72).

Another sector seeing a surge of Millennial influence is multifamily. We have the scoop on the paradigm shift taking over the sector and where industry experts see the trend moving in the next few years (page 42).

Also in this issue, AZRE introduces its inaugural legislative update, featuring a look at the hot button topics being handled by the industry’s organizations (page 20), including NAIOP, which makes quite the appearance in the latter half of this magazine.

NAIOP and its members are making huge waves across the Valley, featured in dozens of large industrial and office projects you can see on page 84. Its “Dream Team” members also find time to feed thousands of homeless every year in a charity program that has a waiting list longer than a year’s worth of volunteer work can accommodate. For the first time in two years, AZRE presents the annual NAIOP roundtable, which you can read on page 50.

EDITORIAL Editor in chief: Michael Gossie Associate editor: Amanda Ventura Interns: Meryl Fishler, Elizabeth Joyce, Jesse Millard, Stephanie Romero, Kaleigh Shufeldt

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Az BUSINESS MAGAZINE Senior account manager: David Harken Account managers: Ann McSherry | Shannon Spigelman

T H G IA I R D Y E P M O C BIG Z A ’Til November,

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

ART Art director: Mike Mertes Graphic designer: Shavon Thompson Intern: David Robles DIGITAL MEDIA Web developer: Eric Shepperd Digital manager: Perri Collins MARKETING/EVENTS Manager: Angela Vaughn

OFFICE Special projects manager: Sara Fregapane Executive assistant: Mayra Rivera Database solutions manager: Cindy Johnson AZRE | Arizona Commercial Real Estate Director of sales: Steve Koslowski AZ BUSINESS LEADERS Director of sales: Mark Blum RANKING ARIZONA Director of sales: Sheri King

EXPERIENCE ARIZONA | Play Ball Director of sales: Carla Baran

AZ BIG MEDIA HOME SHOWS SCOTTSDALE HOME & TRAVEL SHOW Exhibit directors: Kerri Blumsack | Tina Robinson

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. ©2014 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.

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CONTENTS FEATURES

02 Editor’s Letter 06 New to Market

Projects in the pipeline

10 Project News

12 After Hours

Darwyn Harp, parking advocate

16 Big Deals

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

20 Legislative Update The hottest issues tackled by

leading organizations

28 Top 10 Offices in Arizona

The coolest, most unique and best workplaces

49

NAIOP Roundtable (back to front, left to right): Chuck Vogel, Bob Mulhern, Molly Ryan Carson, Steven Schwarz, Keaton Merrell, Anthony Lydon, Megan Creecy-Herman and Tom Johnston.

36 Downtown Phoenix At the intersection of adaptive

reuse, rebirth

42 Arizona Multihousing Association What dwelling in the future looks like 49 NAIOP-Arizona NAIOP’s guide to the industrial and

10

28

36

42

office sectors

NEXT ISSUE

Urban Land Institute East Valley Update Building Owners & Managers Association

On the Cover: Hayden Ferry Lakeside III; Owner: Parkway Properties; General Contractor: Ryan Companies US, Inc.; Architect: DAVIS. 30 YEARS OF EXCELLENCE

4 | September-October 2014

Free AZRE app for android online with this QR code

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

Quality Makes All The Difference 14

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T H G IA I R D Y E P M O C BIG Z A Commercial Real Estate Finance

Quality People | Quality Processes | Quality Relationships THIS IS THE WALKER & DUNLOP DIFFERENCE

(602) 283-1455 | www.walkerdunlop.com California loans will be made pursuant to a Finance Lenders Law License from the Department of Business Oversight.

New to Market INDUSTRIAL

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Lux Air Goodyear

OWNER: Lux Air Jet Centers Construction Manager: BSI Construction Services General contractor: Adolfson & Peterson Construction Architect: Larson Associates Location: Phoenix-Goodyear Airport – 1658 Litchfield Road, Goodyear, Ariz.

Size: 67,290 SF Value: $8.2M Start/Completion: July 2014 to April 2015

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Southwest Industrial Center

DEVELOPER: Hillwood, A Perot Company General contractor: Hillwood Construction Services Location: 7775 W. Buckeye Rd., Phoenix Size: +/-684,420 SF (Expandable to 1,251,608 SF) Brokerage Firm: CBRE Start/Completion: March to October 2014 SUBCONTRACTORS: Ace Asphalt, Aero Automatic, Bell Steel, Canyon State Electric, Levake Construction, Markham Contracting, Panelized Roof, Suntec Concrete

T H G IA I R D Y E P M O C BIG Z A The Lux Air Goodyear location will be a fixed-base operator (FBO) facility for Lux Air Jet Centers at the Phoenix-Goodyear Airport. The new FBO includes three pre-manufactured metal airplane hangers and associated office space.

Phase I of this development is a 684,420 SF cross-dock distribution facility delivered in October 2014. Phase II will be 567,188 SF, though could be added to Phase I to create a 1,251,608 SF facility. Phase I features 32-foot clear height, 126 dock doors, 52-feet-by-50-feet column spacing, an ESFR fire suppression system, 384 parking stalls, 180 trailer parking stalls, office to suit and concrete truck courts.

MEDICAL

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Broadway 101 Commerce Center Park - Phase 3

DEVELOPER: Property Realty Advisors General contractor: TBD Architect: Euthenics Architecture & Interiors Location: NWC of Broadway and Dobson roads, Mesa, Ariz.

Size: 211,505 SF Brokerage Firm: Cassidy Turley Value: WND Start/Completion: December 2014 SUBCONTRACTORS: Parsons Design Studio, CaliChi Design Group

Phase III features two buildings totaling approximately 211,505 SF on the remaining 115,500 acres of vacant land at the Broadway 101 Commerce Park. The buildings have an east/west orientation which places a 148-foot concrete truck court area on the north side of building one and a 120-foot truck court along the south side of building two. Each building will have approximately 20 percent office build out with the remaining space calculated for warehouse and industrial uses.

6 | September-October 2014

4 | 90th Street Medical Campus

Developer: Healthcare Development Group/Grosvenor General contractor: TBD Architect: Proteus Group Location: NEC 90th Street and Loop 101 Size: 43 acres Brokerage Firm: GPE Commercial Advisors Start/Completion: December 2014 with build out over next several years

This destination for specialty healthcare providers is less than two miles from a 433-bed acute care hospital. The campus will feature a hospital, outdoor healing garden, helicopter pad, multi-tenant medical office building, multiple-building condominium plaza and behavioral health hospital.

RETAIL

5 | SkySong, Retail Building Developer: Plaza Companies General contractor: TBD Architect: Butler Design Group Location: Scottsdale and McDowell roads, Scottsdale, Ariz.

Size: 10K SF Brokerage Firm: SRS Real Estate Partners Value: $5M Start/Completion: Q4 2014 to Q1 2015

MULTIFAMILY

7 | Broadstone Lincoln

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DEVELOPER: Alliance Residential Company General contractor: Alliance Residential Builders Architect: ORB Architecture Location: 7100 E. Lincoln Dr., Scottsdale, Ariz.

Size: 219KSF (net rentable area) Value: $50M Start/Completion: 3Q 2012 to 2Q 2014

T H G IA I R D Y E P M O C BIG Z A SkySong, The ASU Scottsdale Innovation and its development team are now leasing a planned 10,500 SF retail building to be built on the NEC of Scottsdale Road and SkySong Boulevard.

It’s part of the overall mixed-use vision for SkySong, which will include 1.2MSF of development when completed.

MIXED USE

Broadstone Lincoln is a 264-unit community on 5.31 acres of land adjacent to a future 110-acre, master-planned Ritz Carlton development. The community features a mix of high-end finishes and amenities, such as upgraded fixtures and appliances, gas cooktops, hard-surface counters, climate-controlled interior corridors, direct-access elevators, underground parking, private garages, a state-of-the-art fitness center, common areas for entertaining and a separate flex studio to coordinate fitness functions and host events. The property is pursuing LEED for Homes Platinum Certification.

HOSPITALITY

6 | Allred Park Place

DEVELOPER: Douglas Allred Company General contractor: Willmeng Construction Architect: Balmer Architectural Group Location: Price Road & Loop 202, Chandler, Ariz.

Size: ±100KSF Brokerage Firm: CBRE, Inc. Value: WND Completed: April 2014

Park Place, a preeminent mixed-use development in Chandler, Ariz., provides more than 2MSF of mid-rise and mixed-use office with Class-A sophistication. Strategically located within the Chandler submarket, Park Place is desirable for its expanding working population and accessibility to greater Metropolitan Phoenix and the Sky Harbor International Airport.

8 | Chateau Luxe

Developer: Eeshvar, LLC General contractor: Arizona Design Limited Architect: Chavez & Associates Location: 7th Street and Deer Valley Road, Phoenix Size: 50KSF Value: $9M Start/Completion: September 2013 to December 2014

This 50KSF venue will be used as a wedding, reception and conference hall.

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Planning and Zoning

´City of Coolidge

In early June of this year, the Coolidge City Council approved the 2025 Coolidge General Plan (2025 CGP). It is now ready to for public vote in the general election ballot on Nov. 4. The 2025 CGP process started in 2013 and after 18 months of hard work and many public meetings the plan was completed.

As reported in May, one of the major elements of the plan is that the number of land uses was reduced from 17 to six in the current plan. Other major and unique elements of the plan include a major expansion of the planning area and the fact that the plan is a more visual document than it was previously. The city’s planning area has expanded to include 182 square miles of an area believed by city council members as key to economic development. The city had a major goal of creating a more visual document by creating and adding numerous maps, graphics and photo-incorporated designs with the intent of helping readers see the proposed changes to their city as well as read about them.

´City of Scottsdale

With the Scottsdale City Council’s action in July 2014 to lengthen the general plan process until November 2016, the Scottsdale General Plan 2014 title seemed confusing and inaccurate. Many cities title their general plans using a future date based on its economic and land use forecast.

To reduce confusion and reflect Scottsdale’s land use and economic forecast expiration date of 2035, the plan is now called “Scottsdale General Plan 2035” (SGP 2035). SGP 2035 is a state-mandated update to Scottsdale’s general plan - a document that guides how the city will evolve over the next 20 years. It is a process that will be accomplished with extensive opportunities for community participation and involvement. Scottsdale’s last attempt to update the plan, in 2012, was not ratified by the voters. Subsequently, the 2001 General Plan remains in effect until a new general plan is adopted and ratified. The General Plan Task Force released its second draft of General Plan 2035 on June 27 for public review and comment on the city’s website. The task force will review and consider all submitted comments. All task force meetings are open to the public. They take place on varying Mondays at 5:30 p.m. at the Community Design Studio, 7506 E. Indian School Rd.

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T H G IA I R D Y E P M O C BIG Z A ´Town of Oro Valley

The town had previously adopted an “Economic Expansion Zone” (EEZ) within Innovation Park in 2012. The intent was that the EEZ would be used to promote economic development by providing potential developers with a streamlined process where development review and approvals could be accomplished administratively. The elimination of a major portion of the process previously needed in order to develop, so long as all the standard guidelines were met, was meant to be an enticement to developers. The town council has now directed staff to look into other areas to expand this concept throughout the town and to look into improving and fine tuning the process in certain areas that the developers are finding continuously cumbersome.

´Town of Florence

The town is in the process of annexing 320 acres of State Trust Land referred to as “Lookout Mountain II.” The property is bordered by Arizona Farms and Heritage roads on the north and south, respectively. Hunt Highway traverses the property across its southwest corner. Typically, when a municipality annexes a parcel of land it must assign zoning to it that is comparable to what the zoning was before it was annexed. For this particular parcel that zoning would be the town’s single-residential ranchette zoning, which allows for single-family residential development on one and a quarter-acre lots. However, the State Trust Land department has asked the town to rezone the land again to a mix of different uses. The state is requesting zoning districts that would allow commercial frontage along Hunt Highway and the option for high density, multi-family apartment development on other acreage.

8 | September-October 2014

´City of Tucson

Recently, the Tucson City Council began its public hearing process on new development impact fees. The city has failed in meeting a deadline for adopting an update of how it charges and spends the money it collects from impact fees on new development. The result of this failure is that the city is forced to stop collecting these fees as of August 1 and stands to lose approximately $3.2 million in fees in the time it will take to get new fees in place. The update requirement is mandated by the state, and state law also requires that monies collected need to be spent in the same area where the new construction projects that generate the fees occur. It allows that the fees can only be used to fix current and newly generated problems as opposed to previously generated and existing ones. Developers have indicated that the city’s new proposal does not comply with either of these restrictions in that monies from one area are to be used for existing improvement needs in another district. Another concern voiced by opposition groups involves higher fees that would stifle development. The city has proposed to increase fees by approximately 35 percent.

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

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T OPEN H

G IA I R D Y E P M O C BIG Z A 9

PROJECT NEWS

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T H G IA I R D Y E P PROJECT NEWS M O C BIG Z A ➤ THE NEW SCHOOL Kitchell, Haydon Building Corp. and SmithGroupJJR have broken ground on a new building for the Foundation for Blind Children’s Phoenix campus. The 36,600 SF single-story building will replace several outdated facilities planned for demolition. Its main campus will continue to serve adults who are visually impaired.

10 | September-October 2014

➤ WHERE THE ‘BELL’ TOLLS The P.B. Bell Companies purchased 2,759 apartment units throughout the Phoenix Metro. The $168.5M, seven-property transaction was brokered

by Colliers International of Greater Phoenix’s mother and son team of Cindy and Brad Cooke. P.B. Bell plans to perform cosmetic upgrades to the properties and will continue acquiring multifamily properties.

➤ SAM FOX STRIKES AGAIN Fox Restaurant Concepts and development partner, Brian Frakes, plan to open the first East Valley Culinary Dropout location in October 2014 on First and Farmer avenues in Tempe, Ariz. The restaurant will be built in a warehouse constructed in the 1960s for Thorens Showcase and Fixtures. The 14,757 SF development is the first of many schedule projects meant to revamp the Farmers Arts District.

➤ PHASING OUT Harvard Investments has partnered with Lincoln Property Company to develop its second and final phase of Riverview Point, a Class-A office project adjacent to the 250-acre mixed-use Mesa Riverview property. The phase includes two Class-A office buildings, one is a three-story, 150KSF building. The other is a twostory, 105KSF building.

Left, Culinary Dropout planned for Tempe, Ariz. Below, top to bottom, left to right, Foundation for the Blind, Riverview Point and West Valley Resort

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T H G IA I R D Y E P M O C BIG Z A ➤ FAIR PLAY After months of diligent negotiation, the Tohono O’odham Nation and the City of Glendale have finalized an agreement ensuring that the $400M West Valley Resort and casino project has the city’s full support. The nation will supply annual funding to Glendale over the next 20 years in excess of $26M. The construction team includes Hunt Construction Group, recently purchased

by AECOM, PENTA Building Group, Rider Levett Bucknall and Summit Project Management.

➤ SPEC-TACULAR GROWTH Wentworth Property Company/Clarion Partners and the Phoenix office of JLL secured a 63KSF tenant lease commitment with Anixter International, Inc., at the Airport I-10 Business Park — one of the largest speculative industrial developments in Phoenix history.

➤ DEVILS’ DETAILS It was announced in early August that Arizona State University’s $162M renovation of Sun Devil Stadium will be designed

by Gould Evans Associates and HNTB Corporation and constructed by the AECOM-acquired Hunt Construction Group and Sundt Construction.

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AFTER HOURS

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T H G IA I R D Y E P M O C BIG Z A Darwyn Harp

Property Manager, Hines Years at HINES: 17.5

Darwyn Harp handles property management and business development services for Hines by day. By night, however, Harp is Tempe’s biggest parking advocate.

AZRE caught up with the Aggie alum to see just what keeps his meter running for Tempe’s 8,500 parking spots.

WHAT DOES IT MEAN TO BE A parking advocate?

It is one who understands the importance of having an excellent parking management system along with the necessity of appropriate parking inventory for the desired functionality. It’s more than

just shouting from the mountain tops that we need more parking; rather, it’s understanding that in fact we may just need better communication about where available parking is located.

How did you get into this cause?

I was recruited by the Downtown Tempe Community (DTC) to help with parking because, at the time, I managed one of the larger parking structures in the enhanced services district in the DTC. It was a natural fit as I had a vested interest in protecting my client and being a good neighbor.

What are some of the most important advances Tempe has made?

Honestly, one of the best decisions by the

PHOTO BY MIKE MERTES, AZ BIG MEDIA

DTC has been hiring its present Director of Operations Adam Jones. Adam is a consummate parking professional, and he has consistently brought new ideas to the table that have served to advance the cause of well-managed parking in downtown Tempe.

What’s a surprising parking fact ?

If you have a destination with very limited, parking and nearly always full parking at your front door and limited, frequently full, overflow parking a block away, people will generally not let that deter them from patronizing your destination if they like what you offer.

Read more online at azbigmedia.com/azre

Jerry Thomas

Superintendent, Wespac Construction

As a superintendent at Wespac Construction, Jerry Thomas handles on-site supervision of day-today construction activities, including quality control, material delivery, subcontractor schedules, daily reports, safety meetings, detailing, project closeouts and project meetings for owners, architects and subcontractors. After a long day of work, though, Thomas is known to put in a few extra hours at the gym to train for extreme activities, including one of the most eccentric and challenging races in the country — Escape from Alcatraz, which he completed last April with his 10-year-old godson. Training for the race includes weekly jumps into Bartlett Lake in the middle of winter to get used to swimming in 50-degree water. Read more about Thomas’ experience at azbigmedia.com/azre READ MORE ONLINE AT AZBIGMEDIA.COM/AZRE-MAGAZINE 12 | September-October 2014

COURTESY OF JERRY THOMAS

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T H G IA I R D Y E P M O C BIG Z A

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13

EXECUTIVE VOICES Incentives for Sale

Don Rodie Senior Director Global Tenant Advisory Services Data Center Advisory Group

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Digital Realty’s Chandler DATA CENTER, Courtesy of LEWIS PR

he predictable Arizona weather may not be for everyone, but there’s at least one group that can appreciate it for what it is — data center owners.

Last September, Arizona’s House Bill 2009 went into effect, offering data center owners tax incentives for investing in the state. Twelve months later, there hasn’t been a rush, per se, to construct data centers. However, experts believe that with rising real estate costs and good PR, Arizona’s incentives will catch on.

“The incentives have not been a direct catalyst for new data center leasing demand in multi-tenant facilities over the past year,” says Cushman & Wakefield Senior Director Don Rodie. “However, the new incentives do keep Arizona competitive for companies seeking significant power load requirements and single-tenant data center requirements...the incentives also make Phoenix attractive to new, thirdparty market entrants and...existing third-party operators like CyrusOne and Digital Realty Trust.”

San Francisco, Calif.-based, Digital Realty established its Arizona presence in 2006. Though it has not built in Arizona since the tax incentives were established in 2013, its Vice President of Global Marketing, Pamela Garibaldi, says customers and companies in the East, West and Midwest have expressed interest in outsourcing data centers to Arizona, particularly now with tax incentives in the mix. The incentives exempt equipment purchased by a qualified tenant or data center owner from local and state sales tax. There are also savings opportunities within Arizona’s property tax structure that, through accelerated depreciation, allows a five-year write-off on equipment, says Russell Smoldon, of B3 Strategies, an affiliate of Jennings, Strouss and Salmon Law Firm.

There is a 10-year exemption for investing $50M in urban Arizona and $25M in rural Arizona. Owners can also get a 20-year tax break for building a sustainable

14 | July-August 2014

Pamela Garibaldi Digital Realty

Russell Smoldon B3 Strategies

center or by retrofitting a building that has been vacant for six months. This is, for instance, what Digital Realty did with the old Arizona Republic print building on Van Buren Road in downtown Phoenix.

Garibaldi says the tax incentive program can create savings of 90 percent or more attributable to the purchase and use of data center equipment.

“With real estate costs rising and in nearly every tech hub worldwide, data center providers like Digital Realty want to be able to offer alternative, less expensive locations, like Arizona, to clients,” she says. “Arizona also has a lower risk of experiencing outages caused by natural disasters. Finally, we see customers selecting Arizona as their data center home, in particular, our Chandler facility, because of its close proximity to power sources.”

While not many data center owners have rushed to Arizona in the last 18 months for the tax exemptions, Smoldon agrees with Rodie, who believes Arizona has gained a competitive advantage over its main competitors — Oregon, Nevada, Ohio, Virginia and, potentially, Texas. “Arizona’s incentives are competitive – but not the best or the worst,” says Rodie.

“There are multiple Fortune 500 companies that have expressed interest in locating a data center here and several are looking at sites,” says Smoldon.

how competitive are our incentives?

A competitive advantage is the eligibility of co-location tenants for sales tax abatements. The $50M investment requirement limits eligibility to tenants with significant power requirements. The lack of considerable property tax abatements can be compelling when compared to enterprise zones in Oregon or statewide incentives like those in Nebraska.

Will WE re-gain A standing as a top DATA Center State?

Arizona has so much going for it (superior university system, a robust population of qualified labor, quality of life, low power rates and cost of living, limited natural disaster risks and proximity to California).

Employable incentives for corporate users would result in more mission-critical relocations to Arizona. Increased demand would attract more thirdparty operators and expansion by existing operators.

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15

There’s no such thing as a “small” deal in this industry, coming out of a recession. However, it’s the big deals, and the brokers who make them, that make the market an interesting one to watch.

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

Industrial/Sales

Top 5 Notable Leases and Sales (June 1 to July 31, 2014) Source: Cassidy Turley Research Department, Colliers International and CoStar

Office/Sales

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T H G IA I R D Y E P M O C BIG Z A

1. Stapley Corporate Center, Mesa 180,083 SF; $32.5M Buyer: Buchanan Street Partners Seller: DESCO Southwest Listing BrokerS: Chris Toci and Chad Littell, Cushman & Wakefield BUYING BrokerS: Mark Gustin, JLL

1. Logistics 75, Phoenix 682,291 SF; $27.9M Buyer: LBA Realty Seller: Buzz Oates Enterprises Listing and Buying BrokerS: Mark Detmer and Bo Mills, JLL 2. 1666 N. McClintock Dr., Tempe 146,142 SF; $16.05M Buyer: Cole Credit Property Trust III, Inc. Seller: Levine Properties, Inc.

Mark Detmer

3. Black Canyon Business Park, Phoenix 218,777 SF; $13.1M Buyer: BKM Capital Partners, LP Seller: Business Properties Management Listing Brokerage: Cassidy Turley

Bo Mills

4. Jabil Circuit, Tempe 193KSF; $11,415,000 Buyer: EverWest Real Estate Partners, LLC Seller: Jabil Circuit, Inc. Listing Brokerage: Cushman & Wakefield

16 | September-October 2014

3. Scottsdale Gateway I, Scottsdale 106,931 SF; $20M Buyer: Equus Capital Partners, LTD Seller: Teachers Retirement System of Illinois Listing Brokerage: CBRE 4. Chandler Corporate Center, Chandler 67,561 SF; $13,914,000 Buyer: Palisades Capital Realty Advisors Seller: Held Properties Listing Brokerage: JLL

5. 9235 S. McKemy St., Tempe 81,200 SF; $7.5M Buyer: Development Services of America, Inc. Seller: Atlas Development Corporation Listing Brokerage: Cassidy Turley

BIG DEALS is sponsored by

2. 92 Mountain View, Scottsdale 115,200 SF; $24.1M Buyer: Equus Capital Partners, LTD Seller: Teachers Retirement System of Illinois Listing Brokerage: CBRE

Chris Toci

Chad Littell

Mark Gustin

5. Zanjero Falls, Glendale 147,405 SF; $9.1M Buyer: Select Healthcare Solutions Seller: Pacific Coast Capital Partners Listing Brokerage: Cassidy Turley

SkySong 3

Firm: Arizona State University Foundation, Plaza Companies, and Holualoa Companies Build: SkySong 3 – a 145,000 sq. ft., 3 story office building and adjacent 5 story parking structure Loan: $17.8 million construction loan, financed by Alliance Bank of Arizona

LAND/Sales

MULTI-FAMILY/Sales

RETAIL/SALES

1. Broadstone Camelback, Phoenix 220,280 SF; 270 units; $74.75M BUYER: Heitman LLC SELLER: Alliance Residential Company Listing BrokerS: Tyler Anderson, Sean Cunningham, Matt Pesch and Asher Gunter, CBRE

1. Pecan Promenade, Tolleson 132,587 SF; $19M BUYER: CIRE Equity SELLER: Tate Capital Real Estate Solutions, LLC

1. Lincoln Road and 56th Street, Paradise Valley 12 acres; $38.7M BUYER: Cullum Homes SELLER: Crown Realty & Development, Inc. Listing BrokerAGE: Nathan & Associates 2. Signal Butte and Guadalupe, Mesa 128.76 acres; $21,623,412 BUYER: Blandford Homes SELLER: Jerry Ivy Trust 3. N. 130th Ave., Surprise 160 acres; $14,065,413 BUYER: Vistancia West Construction LP SELLER: TNT Boys LLC Listing Brokerage: TNT Boys LLC

Tyler Anderson

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2. Chandler Heights Village, Gilbert 50,763 SF; $12.65M BUYER: West Valley Properties, Inc. SELLER: Dr. Bradley A. Tinker Listing Brokerage: Phoenix Commercial Advisors

T H G IA I R D Y E P M O C BIG Z A 4. 1350 N. Priest Dr. — Rhythm Subdivision, Chandler 29.20 acres; $11,275,290 BUYER: Mattamy Homes SELLER: Property Reserve, Inc. Listing Brokerage: Property Reserve, Inc. 5. 708 S. Lindon Ln., Tempe 14.60 acres; $8.75M BUYER: Capstone Properties Corp.

SELLER: Cook Native America Ministries Listing Brokerage: Berkadia

2. Parcland Crossing, Chandler 518,365 SF; 383 units; $65M BUYER: Pillar Communities, LLC SELLER: Mark-Taylor Residential, Inc. Listing Brokerage: CBRE

Sean Cunningham

3. The Station on Central, Phoenix 419,212 SF; 414 UNITS; $53M BUYER: HSL Properties, Inc. SELLER: Baron Properties Listing Brokerage: Apartment Realty Advisors

4. Verano Townhomes, Phoenix 435,840 SF; 360 units; $49M SELLER: Cornerstone Real Estate Funds Listing Brokerage: CBRE

Matt Pesch

Asher Gunter

3. South Mountain Crossing Shopping, Phoenix 132,314 SF; $11,172,825 BUYER: Lamar Companies SELLER: Moreno Companies LLC Listing Brokerage: Lee & Associates 4. The Shoppes at Highlands Village, Mesa 87,486 SF; $10.5M BUYER: Glenwood Development Company, LLC SELLER: Donahue Schriber Realty Group Listing Brokerage: Cassidy Turley

5. Greenfield Gateway, Mesa 70,699 SF; $7,975,000 BUYER: Oakpoint Advisors SELLER: Starwood Capital Group Listing BrokerageS: CBRE/Colliers International

5. Block 1949, Tempe 264,555 SF; 225 units; $38.7M BUYER: Consolidated Investment Group, LLC SELLER: Situs Holdings, LLC Listing Brokerage: JLL

Where Experience Meets Opportunity

BIG DEALS is sponsored by

Vicki Williams

When Sharon Harper, President and CEO of Plaza Companies, and the ASU Foundation needed to secure $17.8 million financing for SkySong 3, the newest addition in the ASU Scottsdale Innovation Center, they called on a strategic partner who shares their passion for performance. They called on Alliance Bank and their Senior Vice President Vicki Williams, a 20-year commercial real estate veteran.

17

Industrial/Leases

1. Kyrene 202 Business Park - Building I, Chandler 50,544 SF Landlord: EastGroup Properties Tenant: CORT Business Service Corp Landlord Brokers: Paul Sieczkowski and Rob Martensen, Colliers International TENANT Brokers: Jim Wilson, Cushman & Wakefield 2. 3315 W. Buckeye Rd., North Building, Phoenix 43,357 SF Landlord: The Blackstone Group LP Tenant: DAT Cabinets Landlord BrokerAGE: JLL TENANT BrokerAGE: Southwest Commercial Brokerage

Rob Martensen

Paul Sieczkowski

Jim Wilson

3. 4707 W. Van Buren St., Phoenix 40,541 SF Landlord: William I & Patricia M. Grubman Trust Tenant: Allied Packaging Corporation Landlord BrokerAGE: Cassidy Turley TENANT BrokerAGE: American Realty Brokers 4. 1502 E. Haldey St. - Bldg. 6, Phoenix 36,368 SF Landlord: Phoenix Adobe Partners, LLC Tenant: Allied Packaging Corporation Landlord BrokerAGE: Harrison Properties TENANT BrokerAGE: Cassidy Turley 5. 4445 E. Elwood St., Phoenix 37,552 SF Landlord: ADOT;Prologis Tenant: J & K Cabinetry, Inc. Landlord BrokerAGE: ADOT TENANT BrokerAGE: Colliers International

BIG DEALS is sponsored by

18 | September-October 2014

Office/Leases

1. Rivulon, Gilbert 150KSF Landlord: Nationwide Realty Investors Tenant: Isagenix International LLC Landlord Brokers: Fred Darche and John Cerchiai, Lee & Associates Tenant Brokers: Pat Williams and Andrew Medley, JLL 2. ASU Research Park, Tempe 110KSF Landlord: Arizona State University Tenant: Amkor Landlord BrokerAGE: Cassidy Turley 3. City North, Phoenix 77,391 SF Landlord: ScanlanKemperBard Companies Tenant: Sprouts Farmers Market Landlord BrokerAGE: JLL TENANT BrokerAGE: Cresa 4. First Chandler Business Park, Chandler 70KSF Landlord: MJA Investments Tenant: Crown Castle Landlord BrokerAGE: Lee & Associates TENANT BrokerAGE: Colliers International

Retail/Leases

1. Camelback Colonnade, Phoenix 80,328 SF Landlord: The Macerich Company Tenant: Food & Decor Landlord Brokers: Mike Kallner, RED Development, LLC Fred Darche

John Cerchiai

Pat Williams

Andrew Medley

5. Black Canyon Tower, Phoenix 33,373 SF Landlord: The Koll Company Tenant: Homesite Landlord BrokerAGE: Colliers International TENANT BrokerAGE: JLL

2. Peoria Town Center, Glendale 56,875 SF Landlord: SNS Investments Tenant: State Trailer RV & Outdoor Supply Landlord BrokerAGE: Rein & Grossoehme 3. The Village at Sun Lakes, Chandler 27,600 SF Landlord: Arizona Partners Retail Investment Group Tenant: Goodwill Landlord BrokerAGE: Arizona Partners Retail Investment Group TENANT BrokerAGE: Velocity Retail 4. Camelback Plaza, Phoenix 24KSF Landlord: SAFCO Capital Corp.

Tenant: V&V Event Hall Landlord BrokerAGE: ZELL Commercial Real Estate Services, Inc. TENANT BrokerAGE: ZELL Commercial Real Estate Services, Inc. 5. Shea Scottsdale East, Scottsdale 22,450 SF Landlord: Karlin Real Estate Tenant: LA Fitness Landlord BrokerAGE: Arizona Partners Retail Investment Group TENANT BrokerAGE: Diversified Partners

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PEOPLE TO KNOW IS EXPANDING ANDING IN 2014

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AZRE Magazine will combine the top People to Know with the top Projects to Know — all in one issue!

This annual special edition will feature the best commercial real estate projects that define our state with the people who make them happen.

PEOPLE TO KNOW CATEGORIES

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PROJECTS TO KNOW acknowledges Arizona’s landmark developments in a range of categories and notable additions to cityscapes statewide.

T H + G A I I R D Y E P M O C BIG Z A Architects Engineers Attorneys Brokers Developers Finance Accounting General Contracting Property Managers Subcontractors

PEOPLE TO KNOW

PROJECTS TO KNOW

PEOPLE TO KNOW will reveal updated interviews that add more personality to the profiles than ever before.

Sample page/People to Know

ARCHITECTS & ENGINEERS - PTK

MICHAEL L. MEDICI, AIA

LES F. OLSON

Senior Vice President, Corporate Practice Leader

Sample page/Projects to Know

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PROJECTS TO KNOW CATEGORIES

Adaptable Re-Use Art/Entertainment Office Development Industrial Development Government Healthcare Facilities Hospitality Multi Family Retail/Mixed Used Development Tenant Improvement Educational Facilities

REBECCA OLSON, AIA, LEED AP

President

Principal, Director of Phoenix Studio

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SMITHGROUPJJR

COE & VAN LOO CONSULTANTS

WESTLAKE REED LESKOSKY

Responsibilities: Sr. Vice President, Corporate Practice Leader Years at Company: 33 Years in CRE: 33 Accomplishments: Medici has been with SmithGroupJJR since 1980 and has remained active in managing several of its key projects including TGen, Arizona Biomedical Collaborative and Freeport McMoRan Center.

He is active in the the community and serves as co-chairman of the Annual Cystic Fibrosis Stair Climb & Firefighter Challenge; a member of St. Joseph’s Hospital Foundation Board; a member of the Scottsdale Cultural Council & SMoCA Board and past president of ASU Council for Design Excellence. His leadership enables SmithGroupJJR to achieve success both regionally and nationally.

Responsibilities: Business development Years at Company: 22 Years in CRE: 37 Accomplishments: Olson has more than 36

Responsibilities: Principal/Director, WRL Phoenix; Project Director Years at Company: 5 Years in CRE: 30 Accomplishments: Olson is a leader in integrated A/E design and project delivery. She builds strong teams serving Arizona real estate through top management, and multiple roles. Her expertise in LEED sustainable design, project delivery, design build, and BIM places her at the forefront.

She drives the success of WRL’s Arizona studio, guiding strategic development and expansion in the West. Her 30-year experience in project management spans new construction and renovation, a range of construction types and budgets, including large complex projects.

455 N. 3rd St., #250, Phoenix smithgroupjjr.com · 602-265-2200

4550 N. 12th St., Phoenix cvlci.com · 602-264-6831

years experience in building what others say isn’t possible — complex civil engineering for private developments, water resources, municipal improvement projects, airport planning and design, construction specifications and inspection. In addition, he has provided consultant services and design expertise for petrochemical and marine industries along the Texas Gulf Coast. He has participated in various aspects of numerous major projects with a combined size in excess of 75,000 acres.

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One E. Camelback Rd., #690, Phoenix wrldesign.com · 601-212-0451

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SUPPORT TEAM

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BRYCE PEARSALL, FAIA Chairman

ERIK B. PETERSON AIA

DLR GROUP

PHX ARCHITECTURE

Responsibilities: Chairman of DLR Group Years at Company: 41 Years in CRE: 41 Accomplishments: Pearsall became Managing

Responsibilities: Lead Architect and Principal, business and project management Years at Company: 2 Years in CRE: 12 Accomplishments: Peterson is licensed in several Western states, and is an active member in AIA Arizona. He serves as a board member for Valley Forward. He was voted Best Architect in AZ Foothills - Best of Our Valley, and has designed projects that have been featured in publications such as LUXE, Phoenix Home & Garden, Luxury Home Quarterly, AZ Foothills, and Mountain Living Magazines. Designing award winning projects, including clubhouses, custom residences, restaurants, and office, Peterson has led PHX Architecture to continued success.

6225 N. 24th St., #250, Phoenix dlrgroup.com · 602-381-8580

Principal at DLR Group in 1986 and received his Fellowship in the American Institute of Architects in 1987. He is chairman of the National AIA Large Firm Roundtable and on the Board of Regents of the National American Architectural Foundation.

STEVE RAO, AIA

Principal

7507 E. McDonald Dr., #B, Scottsdale phxarch.com · 480-477-1111

President

DWL ARCHITECTS + PLANNERS, INC. 2333 N. Central Ave., Phoenix dwlarchitects.com · 602-264-9731

Responsibilities: President of DWL, leading the Transportation Services Group.

Years at Company: 24 Years in CRE: 32 Accomplishments: Rao’s notable accomplishments include Phoenix Sky Harbor International Airport’s Terminal 4 and the West Terminal Expansion project at Phoenix-Mesa Gateway Airport. He has managed more than $700M worth of aviation work. He is actively involved in the Arizona Airports Association, Airport Consultants Council, Southwest Chapter of the American Association of Airport Executives, and currently sits on the Board of Directors for the Support Sky Harbor Coalition, Discovery Triangle and East Valley Aviation & Aerospace Alliance.

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8 PEOPLE TO KNOW 2013

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30 YEARS OF EXCELLENCE

4/30/13 10:08 AM

For more information call: 602.277.6045 or visit azBIGmedia.com

Legislative Update

SILENCING

THE IMPACT FEE

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T H G IA I R D Y E P M O C BIG Z KEEPING UP A WITH PACE I

n 2011, the legislature modified the development “impact” fee laws. First, a little “Impact Fees 101.”

Arizona has the policy “new growth pays for itself.” When a developer wants to build a project, the city requires that the developer pay fees for the municipal infrastructure to service the project.

Infrastructure includes “hard costs,” sewer lines, water lines, streets and sidewalks. It also includes “soft costs,” infrastructure maintenance and public safety services.

The law requires a “nexus” between the fee and the project. Developer pay fees directly related to the “impact” of the project to municipality. Impact fees have been a constant issue between municipalities and developers. Valley Partnership has been very diligent in protecting commercial developers from unreasonable impact fees.

T

he 2014 regular legislative session has come to a close and The AIA Arizona Government Affairs Committee, staff and lobbyists have monitored and attempted to influence legislation with fairly good results.

We were successful in helping to derail legislation that the committee feels would have been detrimental to the industry including a bill that would have prohibited jurisdictions from adopting energy efficient building codes. Another piece of legislation that the

20 | September-October 2014

Commercial projects have generally not been charged fees for residential amenities. These are “Parks and Library Fees.” If you build an office or retail center, the workers and guests will not use parks or libraries. There is no “nexus” between the fee and the commercial project.

In 2011, despite opposition, laws were revised to require municipalities charge impact fees in all categories to all projects. Commercial developers were now responsible to pay parks and library fees. However, the “nexus” requirement still exists.

On behalf of the commercial development industry, as each city revises their impact fee program, Valley Partnership has been arguing that, if commercial projects must pay a parks and library fee, the lack of “nexus” requires that the amount of the fee would be little or nothing at all. People that use

committee worked against would have allowed limited bonding capacity of school districts and an additional bill that would limit community funding districts.

This committee feels it’s important that if Arizona is going to develop a 21st century economy, investing in infrastructure is paramount. Arizona lacks some of the development tools other states offer. At a minimum, maintaining the capacity of existing tools are important to us.

The committee is actively supporting legislation that offers alternative financing for infrastructure and sustainability improvements through property assessed clean energy, or PACE. We’re presently meeting with stakeholders to see if we can advance some sort of legislation next session. We feel it’s important to support sustainability and PACE legislation is a good alternative financing tool. The committee sees investing in this state’s infrastructure as a politically challenging

commercial projects do not visit parks and libraries. Developers should not have to pay for those amenities.

Working in partnership with municipalities, Valley Partnership has been successful with several cities to keep parks and library fees extremely low or at zero. This permits cities to comply with the law, but not charge an inappropriate fee to commercial projects. The collaborative effort between Valley Partnership and our municipal partners is a great example of fulfilling our mission as “The Valley of the Sun’s Premier Advocacy Group for Responsible Development.”

Richard R. Hubbard President & CEO Valley Partnership

issue for the foreseeable future. Working to enact PACE districts has several hurdles that need more outreach and consensus building, including the major state’s utilities and American Bankers Association. We’re working over the summer with stakeholders to see what sort of compromise can be reached in advance of next year’s legislative session.

In the future, we’re looking into expanding alternative delivery methods and better defined prompt pay laws.

John Glenn Associate of The American Institute of Architects in Arizona and Government Affairs Co-Chair

USE YOUR INCENTIVES WISELY

T

he use of incentives has become a routine issue in economic and real estate development and their use to attract desired projects such as Tesla or Apple is frequently questioned. Often, people ask if officials are simply helping private parties make bigger profits at the expense of the general public. This is a legitimate question.

Government has several roles in controlling behavior of market participants – one is to restrict or control by regulation and another is to incentivize. Markets prefer incentives.

Incentives are many things, but they need to be used to implement public policy and not just to secure development of disparate projects.

They should be tied to where we want to go and what we want to be as a community. This implies a need for a vision or a brand. It’s too broad to say, without a brand, we want a skilled workforce, quality transportation infrastructure, quality places to live, a wide range of housing, a favorable business climate, quality education and other considerations. What are the critical economic drivers that will make us a player in a dynamic global economy? Answering that question helps us create a brand and that is how we should define incentives and how to apply them. This will also help create a trust earned when public officials are clear about the purpose of, and approach to, incentives -- and are transparent in their granting and reporting of results that are used to achieve brand promise.

It is critical to monitor the effectiveness of an incentive program and to do this transparently. This is about outcomes. One of those outcomes is impact on the area, neighborhood and overall community. Not just answering the question “did the project work?” but did it have the desired impact?

Remember it is not City/Town Councils, Planning and Zoning Commissions or neighborhood groups that build communities – it’s private developers. Incentives are an important part of shaping growth but they need to be looked at in the context of Mark Stapp Arizona Advisory Board community investment and creating a desired Member, Urban Land Institute ; Executive Director, Masters place and focusing of Real Estate Development; the development Fred E. Taylor Professor of community to help Real Estate, W. P. Carey deliver a brand School of Business, Arizona State University promise.

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T CAUTION: LOW-FLYING AIRCRAFTH POLICIES G IA T I R D Y E P M O C BIG Z A he Federal Aviation Administration (FAA) is considering a significant reduction in the maximum height limit of buildings near U.S. airports to ensure aircraft have clearance to continue an ascent in the unlikely event that an engine fails at takeoff. The proposed policy would limit building heights of new commercial projects within 10,000 feet of the end of the runway to no more than 160 feet tall. As a result, NAIOPAZ has submitted a letter to strongly advocate that the FAA retract the proposed One Engine Inoperative (OEI) Procedures in the Obstruction Evaluation Studies published in the Federal Register on April 28.

While NAIOP-AZ fully supports the FAA’s role to oversee aviation safety, it opposes this proposed OEI policy, note that it does not address safety, does not contain adequate justification, penalizes unfairly communities surrounding airports by impeding much needed economic development, and lacks rigorous cost-benefit analyses.

NAIOP-AZ especially has a keen interest around one of the largest airports in the U.S., Sky Harbor International Airport in Phoenix where a number of its members have existing and planned buildings in multiple communities in relatively close proximity to the airport.

NAIOP-AZ is of the belief that if the policy determination outlined recently in

the Federal Register is driven by economic considerations, it will have a chilling effect on developers constructing new facilities and on firms and tenants who may want to own existing facilities for investment purposes should a facility be close to or exceed the lower height requirements.

Should the FAA move forward, any OEI policy should, at a minimum, provide for certainty to developers and communities who engage in long-term planning, take into account the impacts and views of all stakeholders – not just in the aviation community, and be subjected to robust legislative rule-making requirements of the Administrative Procedures Act, including a full cost- benefit and Federalism analysis. Toward this end, NAIOP-AZ support HR 4623, pending in the US House of Representatives, which would mandate that the FAA follow normal rule-making procedures for a policy change of this magnitude that would include such an economic costbenefit analysis.

Tim Lawless President NAIOP - Arizona

21

Legislative Update

Leasing the

sun4 B 1 0 2 AN OSHA T TAKEOVER H G IA I M R D Y E P M O C BIG Z A embers of the Arizona State Legislature ground their way to final adjournment of the 2014 Legislative session in late April. As always, next year’s state budget was the driving force of the entire process. During the last few weeks of the session, about 300 bills were stacked in an intentional logjam created in both chambers. The delay of those bills created negotiating items that were then used to facilitate the final agreement on the budget.

One hotly debated issue during the session was the possible takeover of construction inspections by OSHA. The feds had threatened this action since Arizona passed a residential fall protection law in 2012. That law raised the fall protection threshold from six feet up to 15 feet on single-family residential projects. The standard for full fall protection in commercial and industrial construction has been six feet for several years. This change was done at the request of the Home Builders Association of Central Arizona.

On March 28, Federal OSHA delivered a “show cause” letter to the Industrial Commission of Arizona. That letter advised the state that Arizona’s fall protection standard was “not as effective” and asked for written response from the state. This was the first step of the process that ends with a federal takeover.

22 | September-October 2014

The Arizona Builders’ Alliance aggressively pursued amendment to the existing law, while trying to broker discussion and agreement among all the affected parties. Other members of the business community became involved due to concerns about OSHA takeover having a negative impact on all construction and other businesses as well.

As a result of ABA’s effort, the Legislature passed a “conditional repeal” bill. If the feds publish a notice in the Federal Register that Arizona’s law is “not as effective” as the federal standard, it will trigger an administrative repeal of the residential fall protection law. OSHA has indicated it intends to publish such a notice this summer.

If that occurs, the threat of Arizona losing its ability Mark Minter to do construction Executive Director inspections is gone.

Arizona Builders’ Alliance

OMA Greater Phoenix has been working toward the efficiency and sustainability of its members and other commercial buildings for many years.

Its Kilowatt Krackdown energy benchmarking and tuning program has engaged almost 500 commercial buildings in the Valley of the Sun since 2009 and has helped Phoenix to grow from No. 23 on the list of Energy Star Certified buildings to No. 12 last year. That’s one of the reasons BOMA is so concerned to see the decision by the Arizona Department of Revenue (DOR) to tax leased rooftop solar systems.

According to the Department of Revenue’s own figures, the proposed tax on leased systems would more than offset the utility savings for homeowners for at least the first several years of the lease and cost commercial property owners a large chunk of anticipated savings.

BOMA Phoenix’s membership and our Advocacy Committee actively supported a bill introduced in the state Senate last session to make leased solar energy devices or systems designed to serve on site electricity needs considered to have no value, and to add no value to the property for tax purposes.

Unfortunately, this bill did not advance.

The DOR has Mark Covington recently begun sending Executive Director valuation notices to Building Owners Management Association of Arizona companies Greater Phoenix that are involved in these solar leases. Two of the companies are now challenging the DOR in court. While BOMA hopes the lawsuit progresses successfully and the state reverses its plan to tax these systems, it is also encouraging legislators to revisit this issue in the next session.

Making efficient use of the abundant Valley sunlight is the right thing to do from a business and sustainability standpoint.

Get Your Representative’s Scorecard at 960ThePatriot.com

4 1 0 2

T H G IA I R D Y E P M O C BIG Z A Click on your district.

See the report card for your elected officials.

How fiscally responsible are your state legislators and city council members?

They are all graded at 960ThePatriot.com.

Get informed!

23

LAW

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T H G IA I R D Y E P M O C BIG Z A 24 | September-October 2014

4 1 Mixing things up 0 2 T TGH A I I R D Y E P M O C BIG Z A

By Amanda Ventura

oo many cooks in the kitchen can spoil a soup, but with the right mix of experience, demand and legal advice, mixed-use developments can turn into a wildly successful, complementary group of projects.

Mixed-use developments are on the rise in Phoenix Metro as office buildings see the benefit of offering employees a place to work, shop, eat and seek entertainment in thriving community environments. To get one off the ground, though, requires a lot of collaboration and the clearing of many potential legal hurdles.

“The homeowner, the office tenant, the shopkeeper and the restaurant owner – each have concerns involving the layout, structure, location and function generally, including issues dealing with hours of operation, access (both pedestrian and vehicular), noise, security, costs, landscaping, utilities, insurance and so forth,” says James Connor, shareholder at Gallagher & Kennedy, P.A. “The various interests of the users may not always be aligned, and in fact, often may be in conflict.

“Creating the fundamental governing and controlling development agreements to serve all interests of the various users, while not undermining the value as an investment nor impeding the ability to obtain financing, is challenging,” Connor adds. “These agreements must deal with not only the development and construction periods, but of course, the indefinite life of the project for decades (if not longer) in duration.”

While drafting agreements that make everyone happy (enough) is key to the success

of a mixed-use development. The financing is perhaps one of the biggest non-starters.

“Because most developers have a goal of selling the project upon realization of stabilized cash flow, care must be provided to allow for each component to be able to be defined and conveyed, in order to market parcels to the strategic investors,” Connor says. “Put another way, a REIT which invests solely in office projects will have little appetite to acquire a parcel which includes retail, residential or other uses.”

Experts note that mixed-use projects are increasingly a response to less available land for new development in dense metropolitan areas.

“What makes a given mixed-use project unique depends to a significant extent on whether you are dealing with a ‘vertical’ or a ‘horizontal’ mixed-use project, and whether the project is being developed by a single developer or multiple developers,” says Mike Ripp, an attorney at Ryley Carlock & Applewhite.

Vertical projects, he says, are the most complicated type of mixed-use development.

“The uses are more physically interdependent on each other and that components on the lower floors may need to be in use before the upper floors are complete,” he says.

“The reason these projects are becoming more popular is because people like to live, work and play all in the same area. People like having access to these types of things,” says Nussbaum, Gillis & Dinner attorney Howard Weiss.

From a consumer standpoint, mixed-use developments make life easier. That said, 25

REAL ESTATE The most common mixed-use issues and the best ways to overcome them:

Jeff Moloznik

Mike Ripp

Howard Weiss

it’s a long journey to the “parcelization scheme” that will grab investors, developers and tenants.

“As mixed-use projects become more prevalent nationally, it is likely that standard ways of handling the more common mixeduse project issues will evolve and gain acceptance,” says Ripp.

“Some lenders find mixed-use projects difficult to evaluate because of the lack of real comparables,” Ripp says, adding that underwriting the many components of development and being able to judge whether a developer has sufficient experience all the product types are also of concern to lenders.

Every single use at CityScape was financed independently of the others. It built a hotel, occupied it and then built apartments above. Instead of phases expanding horizontally, CityScape expanded vertically.

“The idea of having to vertically finance the phasing of a mixeduse project has been one of the most complicated things we’ve had to do here,” says Jeff Moloznik, general manager of CityScape.

“That part of it was far and away one of the most interesting and intricate elements of what happened,” says Moloznik of the design and engineering work as well as the financing of the CityScape phases, which happened over a seven-year span.

Additionally, Weiss points out, discrepancy between parking ratios for the different components can sometimes occur. Another issue, he says, comes to leasing. As a tenant, he says, you may not have as much control over eliminating competition — for instance, being the only sub shop in the complex. Operating expenses, too, are important to define for the respective uses.

The expenses for elevators, cleaning and janitorial services or security are not always shared by all the tenants in a mixed-use development, he adds, citing the vertical and disjointed CityScape as an example.

“There’s always an issue with the allocation of these expenses,” says Weiss.

It is easier, he says, for projects such as Kierland or Scottsdale Waterfront, which have different components in different buildings — spread horizontally.

“In that type, from a legal perspective, you’ll deal with reciprocal easement (REAs) and operational agreements,” says Weiss.

That means that during development, if different components are owned or developed by separate companies, they can sign an agreement that allows for the most beneficial coexistence through contractual obligation.

“There are a lot of commercial leases out there, but at the end of the day a landlord wants a lease that specifically works with their project,” says Weiss. “Because each one has a unique component, and depending on the developer, I would say this would be handled more on a case by case basis.”

Developers: I see the developers as being the ringmasters in a multi-ringed circus; attempting to make everyone happy, despite the compromises in design, amenities, etc., which must be implemented. Issues which seem simple – say, parking – can become a Rubik’s Cube. Residential users want sequestered and reserved parking, retail users want easy access and few restrictions on parking, and office users need both reserved and unreserved spaces, as well as ample parking spaces for visitors. Validation process for guests is an open item as well.

The inherent conflict in these and similar goals makes the project challenging.

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Investors: With few exceptions, most investors like the idea of the synergistic value which a mixed use project can provide, but do not want to own assets which have mixed and blended uses. So creating clear and discrete parcels, which isolate a use (e.g., hotel, etc.) within a mixed use project is important. Investors are also concerned to confirm that the allocation of operating costs within the mixed use project is reasonable, fair and predictable.

T H G IA I R D Y E P M O C BIG Z A 26 | September-October 2014

Designers: Mixed use projects present challenging building code issues, and require care in dealing the local municipal authorities. Often, “Life Safety” issues require considerable attention, given that the different “buildings” within a mixed use project will be interconnected, and therefore at variance with standard set back and separation standards. Fire escapes for “Building A” may be provided via corridors in “Building B”. Also, providing for 3D perspectives is necessary given the conjoined nature of the overall project scheme. The CAD systems are utilized to their fullest capacity.

Contractors: As with any large scale commercial project, the contractors must make sense of the design and plans, and often face in the field challenges which were not previously envisioned. Phasing and scheduling are particularly difficult, along with maintaining safe and functional access throughout the project during the entire construction time period. Given the amount of time involved in pre-construction activities, a mixed use project does not readily lend itself to a bid process which commences at the completion of the design phase. Involvement of a general contractor during design seems to be the only practical approach.

Property managers/owners: Typically, a property manager for the entire project must be appointed, with clear powers and reporting responsibilities, and hopefully, there is a clear methodology set forth in the development documents as to sharing of costs, allocation of revenues (e.g., parking) and decision making for the various areas, including budgets, landscaping, insurance, maintenance, etc. Individual components within the mixed use project may have their own property managers, and frankly, engaging separate property managers for this purpose might be warranted.

—James Connor, a shareholder at Gallagher & Kennedy, P.A. For 30 years, he has represented local and national real estate developers, lenders and investors with commercial real estate matters including apartments, industrial, office and retail projects, master planned communities and shopping centers.

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TOP 10 OFFICES

TOP

10

offices we’d love to work in

By Amanda Ventura

How many offices can boast a 15foot spinning Jumbotron, an entire room devoted to playing golf, a bat pole for riding between floors, a hidden kitchen for creative break times? We can think of at least one! From football fields to doubledecker buses, these are the offices we’d love to work in — for at least one day.

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T H G IA I R D Y E P M O C BIG Z A DBSI Inc.

Location: 6950 W. Morelos Pl., Chandler, Ariz.

Architecture/Design Firm: DBSI, Inc. About: DBSI Inc. works with financial institutions to re-brand and transform their branch locations.

THE HIGHLIGHTS: With its high ceiling and open spaces, DBSI’s headquarters leaves plenty of room to promote creativity and fun at every corner.

Some of DBSI’s office highlights include a room called the Ideation Center with a 15-foot TV “Wow Wall” that screens movies and broadcasts sports games while doubling as a secret door to a Collaboratory (aka a “test kitchen”), a golf simulator room and bat pole between floors for a rush of energy before employees return to work.

28 | September-October 2014

DIRTT Environmental Solutions

Location: 836 E. University Dr., Phoenix Architecture/Design Firm: Phoenix Design One About: DIRTT, short for Doing It Right This Time, is a company that creates customizable architectural interiors with tailored prefab for flexible building designs.

THE HIGHLIGHTS: There’s no such thing as a corner office at DIRTT’s factory environment. Not even the executive has a private office. Instead, people sit in the “Fish Bowl” in the heart of the DIRTT factory. Bordered on all sides with a Breathe Wall, employees gets to enjoy the greenery of live plants in addition to daylighting from skylights. Breakfast, lunch and breaks are catered by two full-time chefs in a cafeteria also used for presentations and networking events.

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T H G IA I R D Y E P M O C BIG Z A DPR Construction Phoenix Regional Office

Location: 222 N. 44th St., Phoenix Architecture/Design Firm: SmithGroupJJR About: DPR Construction is a national technical builder that specializes in sustainable projects.

THE HIGHLIGHTS: SmithGroupJJR turned a 28-year-old, 16,500 SF retail building into the first commercial office in Arizona (and second in the country) to achieve a Net-Zero Energy Building certification. The open-office environment has 58 work stations, nine conference rooms, a gym and locker facility and a zen room for quiet retreat. A Lucid Building Dashboard system shares building energy and utility usage in real time and has a “Vampire Switch” that, when pressed, turns off phantom plug-loads at the end of the day.

FITCH Phoenix Studio

Location: 16435 N. Scottsdale Rd., Ste. 195, Scottsdale, Ariz.

Architecture/Design Firm: FITCH About: FITCH is a global design consultancy founded in 1972 in the UK. THE HIGHLIGHTS: The FITCH studio, nestled in the Scottsdale Promenade, a shopping center that offers a unique architectural setting inspired by American architect Frank Lloyd Wright. What makes the LEED Silver office unique, inspiring and innovative is the group’s namesake. FITCH has a 1962 Route Master bright red double-decker London bus in its lobby. The bus was purchased in Los Angeles, dropped the engine and was completely restored by FITCH staff. The labor of love was completed with a fully functioning conference space on the lower portion and a lounge complete with television on the upper portion of the bus. It even hosts an annual British American Parliamentary Group meeting.

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TOP 10 OFFICES

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T H G IA I R D Y E P M O C BIG Z A  GoDaddy (Owner: Ryan Companies US, Inc.) Location: ASU Research Park, Tempe, Ariz.

Architecture/Design Firm: Patrick Hayes Architecture, SmithGroupJJR (Interior) About: GoDaddy is an internet domain registrar and web hosting company.

THE HIGHLIGHTS: The GoDaddy project is full of unique and quirky design features. It has an indoor go-kart/bicycle track; a slide that goes from the second to first floor (and is rumored to be six-degrees steeper than Google’s slide); several game areas for employees to refocus; a yoga studio and fitness center; it has an innovative workspace layout with meandering walkways and wide open spaces; the break room features 12’ x 30’ glass doors that open up allowing the inside and outside spaces to flow; site amenities include a soccer field, several multi-purpose sport courts (including a shaded basketball court) and electric vehicle charging stations.

Habitat for Humanity

Location: 3501 N. Mountain Ave., Tucson, Ariz.

Architecture/Design Firm: DKP Architecture About: An international, non-governmental and nonprofit organization dedicated to building homes that are affordable and address the issues of poverty housing.

THE HIGHLIGHTS: “Habitat for Humanity is a functional, pragmatic organization and its new Tucson office captures the same spirit,” writes Sundt Construction’s Kurt Wadlington. A repurposed 1940s grocery store, the working environment was created for Habitat’s employees, volunteers and community and with a design emphasis on collaboration. The office’s signature element is its “House with the House.” This freestanding indoor pitched roof structure greets visitors and provides a communal conference area. The office also includes a children play area and open office areas held below the roof structure to preserve the high volume bowstring wood trusses of the original structure.

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TOP 10 OFFICES InfusionSoft

Location: 1260 S. Spectrum Blvd., Chandler, Ariz.

Architecture/Design Firm: Balmer Architectural Group About: Infusionsoft is a private company that offers an e-mail marketing and sales platform for small businesses, including products to streamline the customer lifecycle, customer relationship management, marketing automation, lead capture, and e-commerce.

4 1 0 2 THE HIGHLIGHTS: Infusionsoft’s headquarters, located in a 90KSF, two-story office building in the middle of Chandler’s tech hub, is anything but stuffy. The office is built around a 40-yard indoor football field that acts as a central gathering place for company-wide meetings, department chats and a place to throw around a Frisbee or football.

With a design focus on company culture, Infusionsoft features a fully stocked cereal bar, massage chairs, a game room, gym and showers. One popular feature is in the auditorium, which has a removable wall made up of blocks that can be removed to connect the auditorium with the rest of the office space or placed to create intimacy and privacy.

T H G IA I R D Y E P M O C BIG Z A Recruiting.com and Jobing.com

Location: 1375 N. Scottsdale Rd., Ste. 300, Scottsdale, Ariz.

Architecture/Design Firm: hayes/architecture interiors inc.

About: Jobing.com is an employment website focusing on local recruiting in 18 U.S. cities. Recruiting.com offers companies software and technology that helps in the hiring process.

THE HIGHLIGHTS: This office space was a consolidation of Jobing.com and Recruiting.com’s headquarters with the end goal of a functional, motivating work environment. Want to have a meeting from a ceiling-suspended collaborative workspace? Park it in one of the two floating benches known as “huddles,” where you can host clients, video conferences or collaborative sessions. From the interesting wallpaper to the entertaining lighting and the collection of PEZ machines, Jobing.com’s space was designed to be as varied and diverse as its employees. From environments that cater to working out, napping, collaborating or working independently, there’s a spot for every kind of work style.

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TOP 10 OFFICES Rose Law Group

Location: 7144 E. Stetson Dr., Ste. 300, Scottsdale, Ariz.

Architecture/Design Firm: Gensler About: A full-service business law firm based in Scottsdale, Ariz.

THE HIGHLIGHTS: Rose Law Group is one of a handful of law firms embracing modern office design. After Rose Law purchased a space with two pre-existing suites, it engaged Gensler to design a cohesive floor. The two suites were brought together with a circulation loop, the center of which holds a “collaboration lab.”

Gensler also worked to maximize the number of private offices along the perimeter of the building and accomplished this by increasing the number of offices from 8 to 28. Salvaged materials during the process were re-used for other areas of the project, such as flooring, shelving and reception millwork.

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T H G IA I R D Y E P M O C BIG Z A before

ViaSat

Location: 2040 E. Technology Circle, Tempe, Ariz.

Architecture/Design Firm: Gensler About: ViaSat is a global satellite technology company based in San Diego, Calif. It Tempe office will be used for operations.

34 | September-October 2014

THE HIGHLIGHTS: Despite being designed around engagement, connection, familial culture and exterior amenities, ViaSat’s Tempe operations building will have a 95 percent closed office environment. The office, smaller than a standard space, is broken up into private work spaces with glass fronts. Every “team cluster” has a front porch, which is a collaborative space for individuals. The office has a large gathering space designed as a place for meetings and a connection to the basketball and sand volleyball courts as well as outdoor meeting spaces.

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T H G IA I R D Y E P M O C BIG Z A

DOWNTOWN PHOENIX

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T H G IA I R D Y E THE LUHRS P M O ENDURES CN BIG Z A

Iconic building towers over important adaptive reuse project in downtown Phoenix

By Peter Madrid

estled among the steel and glass high rises in downtown Phoenix, the Luhrs Building stands as a symbol of the iconic brick-andmortar structures that once graced the inner city.

As the City of Phoenix embraces the concept of adaptive reuse, the Luhrs Building, constructed in 1924 at a cost of $553,000, is part of this trend to repurpose existing buildings with retail or office additions.

According to the City of Phoenix website, the number of adaptive reuse projects – renovating buildings and turning them into new spaces – has increased since it started its adaptive reuse program in 2008. There were 17 projects in the first year. That number jumped to 48 in 2013.

36 | September-October 2014

“Historic, unique buildings are excellent prospects for adaptive reuse,” says Summer Jackson, associate director with the retail services division at Cushman & Wakefield of Arizona, the brokerage firm handling the retail leasing assignment for the Luhrs Building.

“Many restaurateurs are taking advantage of these spaces to create new concepts that cater to the demand in the area. It’s an opportunity to do something innovative – something different,” Jackson adds.

One such establishment that has taken advantage of the opportunity is the Bitter & Twisted Cocktail Parlour, 1 W. Jefferson. Owner Ross Simon says he was looking for a space with a great history and some genuine “wow factor.” A space, he says, that had a real city feel for

a concept that would be at home in any major city around the world.

“Also something that could lend itself well to the cocktail-centric concept,” Simon adds.

Adaptive reuse is evident elsewhere around Phoenix. Some of the more notable examples include: Culinary Dropout at the Yard, a former motorcycle dealership built in the 1950s on 7th Street; Taco Guild at Old School O7, the former Bethel Methodist church on Osborn Road; Southern Rail and Changing Hands bookstore at the Newtown Phx, the former Beef Eaters restaurant built in 1961 on Camelback Road; Windsor and Churn, which share a restored 1940s building on Central Ave.

» » » »

CONNECT FOUR

The three of the four corners at the intersection of Jefferson Street and Central Avenue currently bustle with the liveliness and scents of restaurants. On the NEC, sits Squid Ink sushi, on the NWC is Chloe’s and on the SWC is Bitter and Twisted. The SEC, on the ground floor of the Barrister Building remains vacant. However, seven proposals submitted for the space include restaurant concepts on the ground floor. If a restaurant is chosen, the intersection would be the first fourcornered restaurant district in downtown Phoenix. “The significance of a four-cornered restaurant hub are numerous,” says Don Keuth, president of the Phoenix Community Alliance. “I’m sure there are others in the Valley, but this is a pedestrianfriendly intersection — no sea of parking, no drive thru windows. To get to these places, people need to walk to them. Additionally, they could all be local (the other three corners are). This reinforces the downtown movement to a much more urban Don Kueth location.”One of the key players in activating a more urban downtown Phoenix lifestyle is the completion of CityScape.

BITTER & TWISTED

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T H G IA I R D Y E P M O C BIG Z A

RED Development turned an abandoned and oft-avoided dirt lot sitting on nearly $3B in infrastructure and development into a strong core for downtown Phoenix. RED’s headquarters moved to CityScape about four years ago and the company drinks the Kool-Aid, as it is. They’re a tenant, a consumer and an advocate for the businesses in downtown Phoenix. And it has served as a foundation for further development in the area.

“We set out to blend into the community and downtown long-term and spark other development,” says RED Development’s General Manager Jeff Moloznik. Now that the core has been strengthened, Moloznik is watching the core expand and increase its density with the announcement of projects such as Ross Simon’s Bitter & Twisted.

“We couldn’t be happier,” says Moloznik. “Those are the things that will help sustain the revitalization of downtown Phoenix. They help affirm a desire from the consumer to invest in downtown.” — Amanda Ventura

Courtney Auther

“Consumers are looking for an experience,” says Courtney Auther Van Loo, Associate Director with the Retail Services Division at Cushman & Wakefield.

“While maintaining historical architecture styles and a building’s unique iconography, developers and tenants have created oneof-a-kind experiences and breathed new life into these landmarks. This style of reuse combines a contemporary feel with a touch of the classic.”

When he was selecting a site, Simon says he wasn’t necessarily looking for a space in an adaptive reuse project. “But after I revisited the space and thought about the layout a bit more to know it would work, I was sold on it,” he says.

Bitter & Twisted, as well as Subway sandwich shop have become retail tenants at the Luhrs Building.

Summer Jackson

“I had a real idea of what I wanted the overall place to look and feel like from an operational standpoint and from a guest experience point of view,” says Simon, who adds that Bar Napkins Production worked on the initial layout and all the architectural plans. Southwest Architectural Builders was the general contractor.

As the light rail whizzes by the Luhrs Building on Jefferson, it’s evident a sense of “newness” is also being felt downtown.

An $80 million, 19-story hotel – the 320-room Luhrs City Center Marriott – breaks ground later this year at the northwest corner of Madison Street and Central Avenue.

The project is being developed by the Hansji Corporation of Anaheim, Calif.

It’s the same family-owned company that purchased the “Luhrs Block” in 2007.

Ross Simon

Rajan Hansji

For the past 38 years, Hansji Corp. has developed more than 2MSF of office, retail and hotel space.

“It (the Luhrs Block, which also includes the Luhrs Tower) was really our first historical building,” says company President Rajan Hansji. “We knew it was something special. You can’t recreate this.

It’s history. It gave me a new appreciation (for historical properties).”

Hansji says he is pleased with the outcome of Bitter & Twisted and its historical feel, including exposed original walls and beams.

“That corner is going to define the block,” Hansji says. “It (Bitter & Twisted) will be the catalyst for the rest of the block.

It’s an amazing and unique space. The hotel’s exterior will utilize different brick colors and utilize the Luhrs’ history.”

37

EDUCATION

The New Class of schools 4 1 0 2 T H G IA I R D Y E AOP GM C BI Z A

By Amanda Ventura

n apple a day may keep a student in a teacher’s good graces, but there’s more to a healthy learning environment than fruit.

It’s no secret that many school districts have had to do more with less funding and fewer employees. With a rapidly changing learning environment — one with Wi-Fi in every classroom — and one that needs to accommodate more students and shift with the times, construction companies are being called upon to help schools transition into the future while surviving the present.

McCarthy Building Companies is one such contractor that has been using site-adapt approaches to its new school buildings. The approach includes adapting existing school designs to fit a district’s needs. This method reduces design time and allows for construction to occur on an aggressive timeline, says Steve Poulin, project director for McCarthy Building Companies’ educational services.

For example, McCarthy is working with HDA Architects on a 91KSF K-6 elementary school in Chandler modeled after the city’s Riggs and Carlson elementary schools. This is an increasingly common trend in burgeoning communities, such as Chandler and Gilbert.

Chasse Building is seeing the same trends in Deer Valley and Scottsdale, says Chasse Building Team Project Manager Jeremy Keck.

Chasse’s Deer Valley Elementary School No. 30 is adapted from two previously built schools — Stetson Hills and Norterra Elementary. Site-adapts aren’t a novel concept, points

38 | September-October 2014

out HDA Architects Principal Pete Barker.

“The original concept for this school configuration took place in the late ‘80s. That is literally how long we have been adapting and re-using this design,” he says.

Barker estimates that site-adapt designs save a developer about 1 to 2 percent in design costs as a percentage of the construction cost. Poulin adds that the real impact for efficient designs, for the school district, comes in maintenance and operation costs.

“Overall, districts employing the site adapt are seeing improvements on their operations and maintenance budgets and time costs are reduced,” says Poulin. “Permitting on a new design can be substantial, and cutting this to closer to three or four months saves the district (money and time). In addition, when the primary requirement by the district is to decide on minor changes to a design they are familiar with, there is less required on their end, allowing the owner more time to focus on education.”

Working with similar structures, he adds, means construction teams are able to work efficiently on more aggressive timelines. Some of the most common changes to the schools include using metal roofs instead of clay, air-cool chillers in central, on-site plants and concrete parking lots and interior flooring. Concrete floors can be wet mopped and don’t need to be waxed.

Going old school

Cities with rising populations are turning to renovations

fresh air, (administrators) see better classroom performance,” says Keck.

There is also an emphasis on bringing outside learning to a K-12 campus. Chasse’s Deer Valley Elementary School No. 30, which broke ground in August, has three interior courtyard spaces that can be used for instruction. The Greater Hearts Academy - Cicero Campus, completed in July, has an outdoor amphitheater in its courtyard.

4 1 0 2

Chartering New Waters

The Noah Webster Schools Pima Campus, completed in August, and Paideia Academy of South Phoenix, completed about two years ago, are charter schools adapted from a Ken Harris Architecture design. Adolfson & Peterson worked with Fairfield Architects to modify the original design.

“The site-adapt approach saved time and costs associated with design while still allowing for the customization of finishes unique to the school,” says Michael Schroeder, Adolfson & Peterson’s marketing director. This was particularly important for the Noah Webster Schools, which is constructed on tribal land and needed to adhere to standards set by the Salt River Pima Indian Community. The 51KSF school was completed in seven months.

Many are moving into big box retail or industrial spaces.

Typically, a charter school is smaller than most K-12 buildings.

Traditional schools are also known for having playgrounds, basketball courts and recreational spaces as well as a bus system.

When schools are built into a shopping center, the issue of dropoff and pick-up can be tricky, Keck warns. However, repurposing these spaces, despite being a new challenge dependent on location, may get easier with time. Chasse’s Great Hearts Academy is based on a prototype established by two new school sites this year.

T H G IA I R D Y E P M O C BIG Z A The Noah Webster Schools Pima Campus, completed in August, is a charter academy that has made use of the increasingly popular site-adapt trend.

and introducing new systems that require lower operating costs.

High-efficiency HVAC systems have become more affordable over time and many schools are investing in LED lighting.

“Many schools in use today are well past their life span and the technology with green building practices have accelerated this life cycle,” says Chasse’s Keck.

Keck has seen a lot of construction going on in Scottsdale. As more rooftops rise, so does the need for schools. Case in point, homebuilder Taylor Morrison donated 15 acres to the Liberty Elementary School District so it could build a school near its newest housing development, Las Brisas in Goodyear, Ariz.

Some of these schools Keck is referring to start from scratch, built into a neighborhood, for instance. However, renovations are also popular. Lighting and HVAC retrofits, for instance. The complexity of retrofitting a school, Keck says, depends on the project. Some require a bit more creativity than others. He recalls a school Chasse Building worked on for the Catholic Dioceses that used a nearby natural well’s water to cool the school. Schools constructed in the 1950s, though, such as Mohave Middle School in Scottsdale, look so tired, Keck says, that at the end of the day demolishing the low-ceiling, single-pane window facilities is the best option.

Creative design elements include multi-purpose rooms. Keck says that gymnasiums and cafeterias tend to be a single space in new designs. He points out that many schools also use offsite locations for food preparation, while its kitchen is more of a Riggs and Carlson elementary schools, top and bottom, respectively, were constructed using warming and serving space. similar design prototypes. McCarthy Building Companies and Hda Architects are currently working on a similar site-adapt project in Chandler.

“When students are in a nice environment and daylight and 39

EDUCATION

Glendale Community College Technology 1 Building

a Competitive Edge hether it’s building a research facility from the ground-up or renovating a historic stadium, institutions of higher education must always be — or appear to be — on a competitive edge.

ASU’s decision to enter a $162M renovation of Sun Devil Stadium in Tempe, Ariz., comes in the wake of other Pac-12 schools’ stadium upgrades and ground-up facilities. And the DPR Construction team awarded the 10-story, 245KSF Biosciences Partnership Building project has planned and priced at least five different scenarios simultaneously so that if one or more is accepted or eliminated, there isn’t much time lost in the design process.

“The universities are under a great deal of competitive stress, if you will,” says DPR’s Senior Construction Manager Peter Berg.

“They’re competing with all the other universities to be the best, and they’re having to do it with less resources and less funding around the state.”

He adds that “the pace of change has accelerated to the point that it’s hard for them to see that future and plan far enough in advance so that the buildings they’re creating when it’s completed it’s still relevant.”

Planning meetings can radically change the direction a project is headed, but one thing never changes, says Berg, and that’s the start and end dates for a development.

4 0 | September-October 2014

By Amanda Ventura

“With increasing choices for learning environments and teaching styles, both on campus and on-line, education facilities need to project their investment in recruiting the top students through every facet,” says David Calcaterra, principal at Deutsch Architecture Group.

This is achieved, he says, by incorporating advanced technologies in the classroom as well as flexibility in the learning spaces for collaboration or focus-based learning.

“Now to be competitive, schools must also incorporate inspirational environments that foster creative thinking,” says Calcaterra. “Gone are the days of windowless classrooms with rows of desks.”

Deutsch was the architect on Adolfson & Peterson Construction’s renovation of the Glendale Community College Technology 1 Building, which was built in 1968.

“The aging facility was badly in need of a complete modernization and a significant upgrade to its infrastructure and technological capabilities,” says Michael Schroeder, director of marketing for A&P. To make the facility an inspiring space that accommodates all methods of learning, Deutsch focused on natural light, good ventilation and sound quality. This supports good student learning, Calcaterra says, and faculty and staff retention.

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Arizona Multihousing Association

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T H G IA I R D Y E P M O RULES OF ENGAGEMENT G C BI HAZ Dwelling in the future looks luxurious

ome ownership is down from 70 percent to 65 percent and rents are rising.

“There are just more renters,” says CBRE Vice Chairman and Managing Director Tyler Anderson.

There are also a lot more investors.

“The low interest rates make multifamily investments very, very compelling,” Anderson says. “They didn’t lower these rates for the multifamily industry, but the sector has benefited from these low rates by being able to buy deals with a significant deal of cash flow. If you went back to some points in time, you’d buy deals with minimal cash-flow with hope of getting more. Today, you go in and can get real

42 | September-October 2014

By Amanda Ventura

returns right from the acquisition.”

Mark-Taylor’s Vice President of Development Chris Brozina says his company was ahead of the curve with six multi-family projects completed since 2011 and at least seven waiting in the wings. Overall, the Phoenix Metro has about 28,000 apartment units in the pipeline, near the pre-recession peak of 30,000.

“The market is telling us fundamentally what we want,” he says, adding later that for the first time he feels Phoenix is offering apples and oranges to the rental community.

Mark-Taylor’s communities are built to provide an apartment alternative to

living in a custom home, whereas much of downtown Phoenix offers infill and artistic-styled apartments geared toward a less suburban demographic. That’s not to say there isn’t some redevelopment in Mark-Taylor’s portfolio. Its 74th Street and McDowell Road project was an old Basha’s lot that contained an office building and an old church.

“Apartments need traffic at their core,” Brozina says. “You like to feel you’re living in a secluded custom home apartment,zz but you need traffic. It’s temporary residents. People are always leaving and entering the community.”

This ebb and flow of more and more individuals are the life-force behind a

691.9K

apartment residents in Arizona

$19.6B

395.5K

apartment homes in Arizona

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T H G IA I R D Y E P M O C BIG Z A total contributions to the state economy

total jobs supported in Arizona

National Multifamily Housing Council/National Apartment Association

CityScape Residences

new apartment paradigm — resort-style living with ceilings up to 10-feet high, smaller dining areas, granite tabletops, fitness centers. Even the new CityScape Residences in downtown Phoenix offer the amenities of the Kimpton Hotel beneath it, including valet, room and laundry services.

According to a Harvard Joint Center for Housing Studies report, about half of Millennials between the ages of 20 to 24 live at home with their parents.

By the time they turn 25 and 29, start forming families or gaining a better financial foothold, only about 20 percent of individuals live with their parents.

Accordingly, it’s estimated there will

continue to be high demand for rental properties over the next few years.

However, whether or not Phoenix has the sticky factor is year to be seen. Many Millennials are choosing to relocate to places such as Denver, Austin, Chicago and San Francisco, according to research accumulated by Niche.com.

Developers in the Phoenix Metro are working to build lifestyles into their communities, though, in hopes to bring more young and talented Millennials to the Arizona workforce.

Deco Communities’s design, public relations and decorating teams are comprised of 20-somethings, says Partner Rob Lyles. His company is most well-known for repurposing B- and C-class apartments for a more trendy clientele. After opening six of those projects in Arizona, Deco is slated to construct luxury condos in downtown Scottsdale and Phoenix that will match the “heartbeats” of their respective cities.

“The difference between the two downtowns is the people in Scottsdale want to be on Wall Street, people in downtown Phoenix want to Occupy Wall Street,” says Lyles of the Envy and Edison condo developments. Neither city has seen new condos in seven or eight years.

“Stuff got built in downtown, but it was the wrong stuff,” says Lyles of the pre-recession development that was vying for attention against a booming housing market. “No one was going to pay those prices, when you could buy a house. Market crashed, now it’s going to be interesting to

see what happens in this cycle.”

It’s not just the Millennials that are driving multifamily development, it’s a more mature, affluent demographic, too. According to the Harvard study, the majority of rental household growth in the U.S. is due to individuals younger than 34 and older than 55. This is one Alliance Residential’s Robert Hicks says drives his company’s luxury developments such as Broadstone Camelback, which recently became the highest price per square foot when it sold for $75M. “We’re building and operating our communities just like resorts,” says Hicks, adding that instead of two or three night stays, tenants live at a Broadstone community for two or three years.

Alliance’s Broadstone Waterfront property that opened in July is just behind a Nordstrom, making it one of the newest developments — within such proximity of shopping, restaurants and entertainment — of its kind in a long while.

The real bar-raising development in the multi housing community is the CityScape Residences. It even exceeded RED Development Vice President of Development, Jeff Moloznik.

“It’s the idea that the sum of the parts are immeasurable based on the benefits,” says Moloznik of CityScape. “I’m willing to purchase something if it comes at full value - there’s an engaging element to it. That’s the value proposition that city living offers residents. They are engaged every single day.”

43

AMA

A Choice Lifestyle

QA 2014 &

with Tom Simplot, President and CEO of the Arizona Multihousing Association

In recent years, the legislature has addressed several key issues for the apartment industry. This past year was the expansion of the Arizona Department of Real Estate Advisory Board to include a multi-family representative. The legislature has also addressed property rights issues, and even the recent sales tax reform will provide a tremendous regulatory improvement for the industry, and ultimately, residents.

Managing hundreds, if not thousands, of apartment units across the state requires consistent laws, a transparent bureaucracy and uniform enforcement.

When one city or justice of the peace interprets an ordinance in a unique manner, it causes confusion to residents and owners alike. Successful businesses want to play by the rules, and our goal is to help create a level playing field.

T H G IA I R D Y E P M O C BIG Z A PHOTO BY SHAVON ROSE, AZ BIG MEDIA

Tom Simplot was named president and CEO of the Arizona Multihousing Association (AMA) in July 2008. The longtime Phoenix resident has served on the Phoenix City Council, president of the Maricopa County Board of Health, Maricopa County Industrial Development Authority, as chair of the Phoenix Historic Preservation Committee and was a member of the Phoenix Housing Commission.

He has a bachelor’s degree from Arizona State University and a law degree from the University of Iowa.

The industry is seeing a cultural paradigm shift in the multihousing sector. How is that manifesting in Arizona?

The Great Recession created a cultural shift in consumer attitudes about a lot of things: saving money, spending within your means and being flexible to move when needed. Many home buyers discovered that owning a home was not a cash machine and that ownership can be an anchor on your lifestyle and a drain on your wallet.

Very few apartment units were built in Arizona between 2009 and 2011, and we actually lost rental units during that time period (due to obsolescence and condo conversions, etc.). To keep up with this change in lifestyle and future growth, apartment developers are building at a pace not seen since the early 2000s, and occupancy rates are near their highest ever.

I’ve heard some people are concerned that with the increased interest in multihousing living preferences that the single-family home/residential market will be hurt and the rest of the real estate industry will be harmed in the process. How is the industry currently adapting to accommodate these changes?

4 4 | September-October 2014

Developers adapt to market conditions or they go out of business. A large number of foreclosed single-family homes were put into the rental market, and we have a large number of rental condominiums. Developers who turned to condo-conversions 10 years ago might now be building apartments. If anything, home builders learned that it was not prudent to have so much land in inventory and to build far fewer speculative homes. There will always be a large market for single-family homes, and what we are now building are lifestyle choices for the consumer.

The way Phoenix manages its apartments (through REITs, investment firms) differs from other major cities, such as L.A. How is that to our advantage/disadvantage given the market right now?

Metro Phoenix is a large market, and therefore has a large number of national and international apartment management companies. Just 20 years ago, most apartments in Arizona were locally owned and managed by small companies. The presence of REITS and publicly traded companies translates into more equity for future development, and has also transformed residential property management into a profession. As the industry has become more sophisticated, our residents have felt the difference in a positive way.

What kind of legislative decisions have affected the AMA and its members? Are there any issues that will need to be addressed in the near future?

What kind of trends are you seeing within the sector (in what ways is Arizona still leading the way in recovery)?

It seems that Baby Boomers and Millennials both love freedom of choice and living in a more urban environment.

Walkability is important as are nearby restaurants, nightlife choices and amenities within the community.

Even our suburban cities have adopted this lifestyle choice, and we see new apartments in areas that historically only wanted single-family homes. The day of living in a “McMansion” is over for many people, and downsizing is key. New apartment communities reflect this as do older communities which have upgraded to “retro chic.” In Central Phoenix, communities built mid-century are now as popular as mid-century homes.

Residents want something unique yet comfortable, and they don’t need excess square footage to accomplish that.

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T H G IA I R D Y E P M O C BIG Z A

AMA

AMA Membersâ&#x20AC;&#x2122; Projects Highland Groves at Morrison Ranch Developer: P.B. Bell Companies General Contractor: MT Builders Architect: Todd & Associates Location: 105 N. Beebe St., Gilbert, Ariz..

Size:228 units/Avg. 964 SF Value: $37.5M Estimated start/completion: December 2012 to July 2014

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T H G IA I R D Y E P M O C BIG Z A Highland Groves at Morrison Ranch is contained on 14 lush acres within the highly sought after Morrison Ranch master planned community.

Residences are designed as two-story garden style homes.

Vive Distinctive Living

Developer: P.B. Bell Companies General Contractor: MT Builders Architect: Whitneybell Perry Architects Location: 1901 W. Germann Rd., Chandler, Ariz.

Size: 194 Units/Avg. 972 SF Value: $33M Estimated start/completion: December 2012 to July 2014 This community of two- and three-story building configurations is developed on approximately 10.8 acres on the southeast corner of Dobson & Germann roads in Chandler.

46 | September-October 2014

Escape

Developer: P.B. Bell Companies General Contractor: MT Builders Architect: Studio 15 Location: Approximately 6.16 gross acres located on the NWC of 16th Street and Highland Avenue in Phoenix Size: 248,825 SF, 244 units Value: $44.5M Estimated start/completion: Start 05/2014; First Phase 12/2015; Final 04/2016

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Escape is a contemporary luxury apartment community consisting of 244 units, 230 in a four story building over podium parking and 14 carriage units. The design will allow for relatively spacious dwelling units, poured-in-place concrete garage, detached garages, and resort-style pool with spa, Amenity tower with residents’ lounge, state-of-the-art exercise facility, and other highly marketable & preferred amenities.

T H G IA I R D Y E P M O C BIG Z A

Residences on Farmer

Developer: Urban Development Partners General Contractor: UEB Builders Architect: Otak Location: 7th & Farmer streets, Tempe, Ariz.

Size: 31 units on .59 acres Value: $6M Estimated start/completion: July 3, 2014, to March 2015 The Residences on Farmer is a four-story, 31-unit tilt-up development building with four live-work units on its ground floor.

San Privada Apartments

Developer: Mark-Taylor General Contractor: Mark-Taylor Architect: Mark-Taylor Location: 1480 E. Pecos Rd., Gilbert, Ariz.

Units: 296 Value: WND Estimated start/completion: Fall 2013 to August 2014

Mark-Taylor’s first high-end community in Gilbert, Ariz. is a 296-unit complex, located in the acclaimed Spectrum neighborhood at Val Vista Drive and Pecos Road, offers “walkability” that allows pedestrians to utilize the town’s sidewalks and landscaped paths to access nearby shopping, restaurants and employment. The community is an example of “The Next Generation of Mark-Taylor,” a slogan the company uses to describe the evolution of apartment communities over the last two decades. The unit sizes will be among the largest ever built in the Valley. Additionally, San Privada’s features include those typically found in a modern, custom home, such as granite kitchen islands, custom wood cabinets, clean steel appliances, distressed plank flooring, oiled-bronze fixtures, pendant

lighting and direct-access garages. Residents will also have access to a spinning studio, a cyber café with Mac and PC options, a social lounge, an outdoor cabana that includes a poolside kitchen, and the quintessential lagoon-style pool setting that has become a recognizable Mark-Taylor trademark over the years.

47

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T H G IA I R D Y E P M O G I C Reputation B Z A Reputation-HalfPg-112213_Layout 1 11/22/13 2:13 PM Page 1

A contractor’s reputation for excellence builds by completing projects on time, within budget, and by continually exceeding expectations.

Building Successful Arizona Projects for 27 Years

License B1-088897

48 | September-October 2014

480.497.2300 • fax: 480.497.9610 • www.bjerkbuilders.com

2014

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T H G IA I R D Y E P M O C BIG Z A 30 YEARS OF EXCELLENCE

Residential

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T H G IA I R D Y E P M O C BIG Z A Commercial

Development With Vision

Sunbelt Holdings is a large scale real estate management, investment and development company. Since 1979, we have been involved in a wide variety of real estate activities from commercial and land development to master planned residential communities. Our ability to produce award winning projects which strengthen the local community and improve the inhabitantâ&#x20AC;&#x2122;s quality of life has assured our longevity. Our projects are diverse in nature and serve as valuable partners in the community in which they reside. The high calibre of Sunbelt Holdingsâ&#x20AC;&#x2122; development ensures that our work endures the test of time. We invite you to take a look around our website at SunbeltHoldings.com. There you can learn about our history, our award winning projects, our people and our partners.

6720 North Scottsdale Rd | Suite 250 | Scottsdale, Arizona 85253 | Telephone 480.905.0770 | sunbeltholdings.com

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T H G IA I R D Y E P M O C BIG Z A

NAIOP (Commercial Real Estate Development Association)

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2014 NAIOP-AZ ROUNDTABLE

T H G IA I R D Y E P M O C BIG Z A It’s an exciting time for commercial real estate. With technological advances and a new generation entering the workforce, office space is undergoing a significant paradigm shift. NAIOP Arizona’s members discuss the state’s reputation and role in the market — its strengths, weaknesses and promising statistics ­— as well as what companies need to do to keep that trajectory on the up-and-up.

Moderator: Megan Creecy-Herman, Liberty Property Trust Participants: Anthony Lydon, Jones Lang LaSalle Bob Mulhern, Colliers International Chuck Vogel, American Realty Capital Properties, Inc. Keaton Merrell, Legacy Capital Advisors Molly Ryan Carson, Ryan Companies US, Inc. Steven Schwarz, ViaWest Group Tom Johnston, Voit Real Estate Services 52 | September-October 2014

Megan Creecy-Herman (MCH): What is different in July 2014 in our local commercial real estate industry than a year ago?

Tom Johnston (TJ): Although the economy is growing slowly, it just feels better. Vacancy rates are dropping and rates are increasing in all product categories. Job growth is improving year over year, and it is great to see office and industrial projects under construction again.

Bob Mulhern (BM): The most distinct difference in the local commercial real estate market today from a year ago is increased momentum. In the first half of last year, the office and industrial markets were impacted by tepid employment growth and economic uncertainty at the national and local levels. As such, net absorption was minimal in the first half of 2013. The pace of absorption accelerated in the second half of last year and that trend has carried over into 2014. In the first half of 2014, net absorption of office space totaled more than 1MSF, compared to approximately 150KSF in the first half of 2013. In the industrial market, net absorption in the first half of this year topped 4.6MSF, up from approximately 1.5MSF in the first half of last year.

The other noteworthy change in the market is sustained rent growth in the office market. A year ago at this time, rent trends were mixed. Today, office rents are clearly trending

higher and, with absorption likely to remain positive, rent should continue to rise.

Chuck Vogel (CV): The local economy has continued to gather momentum. Job growth is running 50 percent faster than the national pace and unemployment is lower. A stronger local economy and a pickup in regional and national distribution activity is fueling more demand, especially in the office space (industrial recovered earlier). Rent growth has accelerated, from nearly zero a year ago to about 2 percent annually today.

Construction has resurfaced. Office deliveries in 2014 will be more than double that of the last two years combined, although at under 800KSF it will remain low. Industrial construction is nearly back to pre-crisis levels: nearly 2.5MSF is expected to complete in 2014, split 50/50 between speculative and build-to-suit projects.

Steven Schwarz (SS): The market has shifted very quickly in the past year. A year ago, we were very busy buying distressed properties. Those deals are now few and far between. Capital is extremely active now pursuing both development projects and stabilized assets in certain submarkets. As well, the 1031 Exchange buyer is back because they now feel comfortable selling the assets that they

have been sitting on for the past seven-plus years. We have sold three projects in the last few months to 1031 buyers.

Corporate America has continued to lease space at a moderate pace and we have seen a return, albeit very gradually, of some of the local tenants becoming more comfortable expanding and leasing space.

MCH: There are several things that are different and I would say the vast majority of them are positive. Two differences that stand out are the increased speculative development in the office sector, specifically in Tempe, and now even some proposed ground up development in the retail sector. These are good signs as the market continues to recover and I am optimistic that the recovery will become more broad-based across the Phoenix Metropolitan area over the next 12 months.

MODERATOR

Megan Creecy-Herman

Anthony Lydon

Keaton Merrell (KM): From a financing perspective, there is more and more money in the market chasing deals and it continues to get more and more aggressive on LTV and rates.

4 1 0 2 Bob Mulhern

T H G IA I R D Y E P M O C BIG Z A MCH: How would you compare our Metro Phoenix commercial real estate market to other major markets throughout the nation and specifically the western U.S.?

Anthony Lydon (AL): We believe Phoenix is like many other national markets who are experiencing two types of recovery. Value-add, high technology submarkets (i.e., San Francisco Bay Area; Phoenix’s east Valley and Deer Valley) are experiencing a higher level of user demand and good capital flow related to employment. Lower tech submarkets like California/Inland Empire and Phoenix/southwest Valley are seeing an inconsistent, staccato recovery. While the national employment has risen to pre-recession times most of the new jobs are part-time and/or lower wage. This reality has muted U.S. and Metro Phoenix recovery.

BM: The Metro Phoenix commercial real estate market is noteworthy among competing markets nationally and in the Western region for both elevated vacancy and healthy tenant demand. With office vacancy near 20 percent and industrial vacancy in the 12 to 13 percent range, Metro Phoenix is at the high end of the vacancy spectrum. Despite elevated vacancy, tenant demand for commercial real estate is healthy. Final second quarter data is not quite available yet, but in the first quarter, net absorption of office space in Phoenix outpaced all other Western region markets. Tenant demand is sufficient to spark some spec office construction due to tight conditions— particularly for large blocks of Class A space—in a handful of popular submarkets such as Tempe and Chandler. Local industrial properties are further along in the cycle, and spec developments began to deliver in mid-2013. To date, much of the spec industrial space that has been delivered has yet to lease, but the improving national and local economies should ultimately fuel absorption in these buildings.

CV: Phoenix has among the best growth stories in the nation.

Population growth is running at 2-3 times the national pace.

That means more office workers, more shoppers and more goods circulating through the metro’s warehouses. People and

Keaton Merrell

Molly Ryan Carson

businesses are attracted to the metro’s low living and business costs (especially relative to California), amenable climate, and strong transportation infrastructure.

Although commercial real estate prices have picked up, cap rates remain very competitive relative to those in the top six coastal metros (New York, Boston, DC, LA, San Francisco, and Chicago), which have seen an influx of foreign capital.

Expect prices to increase and cap rates to fall further as more investors look beyond the top markets to places like Phoenix for yield.

SS: Generally speaking, our vacancies are far worse than other western major markets but it doesn’t appear that the capital cares. Most California markets have recovered fully.

Denver and Salt Lake City have surpassed peak values in nearly all product types and vacancies are tight across the board. The capital believes, and I agree, that Phoenix will continue to be a national leader in annual job growth and population growth and is therefore positioning accordingly, but we have a ways to go before our fundamentals are as strong as most other Western markets.

MCH: Where does Arizona stand in its economic development plans? Are we headed in the right direction or leave anything for the asking? Is the furor over SB 1062 still creating an image problem for the state?

AL: Arizona has a terrific story! We can further enhance our brand by passing “thoughtful” legislation supporting our communities, families and businesses. We need to continue to invest in education, increase the state’s job closing fund and maintain lower costs of business. SB 1062 is an

Steven Schwarz

Chuck Vogel

Tom Johnston

extreme example of a well-funded, smaller minority that can negatively impact all of us. Just as Seattle recently “jumped” in front of the minimum wage issue, Arizona needs to be a perceived thought leader on issues like thoughtful immigration, sustainable energy, educational reform, minimum wage, etc.

MCH: What kind of business practices came out of the recession that many professionals should keep well past the recovery?

TJ: Learning to do more with less man power. From the pursuit of new business opportunities to operational efficiencies, a lot of creativity came about because of the recession.

MCH: I would hope that an overall prudence in lending with an increased focus on the quality of the borrower and their track record is one of the best practices that we all keep in mind moving forward, specifically when it comes to development. I would also hope that real estate fundamentals are the driving factor behind the corresponding financing decisions, as opposed to the availability of capital driving irresponsible development.

MCH: What has been most surprising about Arizona’s commercial real estate recovery?

TJ: How slow it has been compared to past recoveries.

What is encouraging is seeing our healthcare and high-tech sectors expanding.

CV: Warehouse construction is also surprising. Warehouse development has accelerated dramatically, to 2.8MSF in 2013.

As a result, even though demand is robust, vacancies actually 53

NAIOP-AZ

Molly Ryan Carson and Bob Mulhern

12

Over the past months, financial employers have added nearly 8,500 workers

increased over the past year. The hope is that demand will continue to expand to meet this supply. Retailers (Amazon, TJX Companies, Macy’s) and third-party logistics firms are gobbling up millions of square feet, attracted to Phoenix’s affordable land, strong transportation network, proximity to southern California ports, and growing local economy.

the housing frenzy would be a recipe for another “boom and bust” market, current construction levels are hindering a natural pace of economic growth. The final hurdle to clear for sustained recovery in the office market is the need to move to a more diversified mix of industries. Attracting companies from California will be a significant source of economic expansion in the coming years.

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SS: Phoenix still hasn’t recovered all the jobs it lost during the recession. Considering this, our office market is doing pretty darn well. There is a shortage of class-A product and large-floor plates in a number of submarkets presently. The class-B and -C product and less desirable areas just need more bodies in more homes and more job growth. It is steadily getting there, but the market is much better than the headline vacancy makes it appear. Phoenix is still a young city and therefore redevelopment of old, functionally obsolete buildings hasn’t taken a stronghold, but as the market tightens and the city matures this will start taking place more. Time, jobs, people and removal of obsolete space are the answers. It’s in process. Slow and steady isn’t necessarily a bad thing for this historical boom-bust market.

T H G IA I R D Y E P 20% M O C BIG Z A SS: When the recovery started, I did not expect such a pronounced and extreme gap in values and rental rates when comparing quality, well-located office buildings and less desirable properties. The flight to quality was expected but the ability for landlords to push rates on class-A product as much as they have while class-B buildings remain stagnant has been surprising. This is partially attributable to the need for higher parking ratios and other functional issues rendering many older buildings somewhat functionally obsolete. As well, the recovery has been led by corporate America rather than small business so the class-A buildings have experienced much greater demand. With corporate America’s strong activity there is now a shortage of large blocks of space leading to new development much more quickly in the recovery than anticipated. Each submarket is experiencing a very different recovery than others so real estate operators are evaluating opportunities on a micro-geographic and property-type level.

For example, new office and industrial buildings have gone up in Chandler while the overall metro market still had over 20 percent vacancy in office and 12 percent vacancy in industrial.

As well, we bought an office complex in 2012 in west Phoenix although overall vacancy in that part of town was over 30 percent. The reality is that the vacancy out there was in specialized buildings – medical, office condos, Westgate, while the service office buildings had an extremely tight vacancy.

Lastly, the amount and aggressiveness of the capital has been surprising. There is an enormous amount of capital seeking alternative assets.

MCH: What is the current state of our Metro Phoenix office market and what needs to happen to push the office sector into continued recovery?

BM: The Phoenix office market is in a recovery stage, with vacancy ending the second quarter in the mid-18 percent range, 200 basis points lower than one year ago. Net absorption has been positive in each of the past nine quarters, and market rents have increased in each of the past five quarters. Tenant demand growth is being fueled by job growth in office-using sectors, particularly among financial services 54 | September-October 2014

These positions have accounted for more than

of total job growth in Metro Phoenix in that time.

companies. Over the past 12 months, financial employers have added nearly 8,500 workers. These positions have accounted for more than 20 percent of total job growth in Metro Phoenix in that time. There are a few things that need to happen for the Phoenix office market to move into a more sustained recovery. The first is continued strength in the financial sector.

Phoenix is attracting large, corporate users looking to operate in our market. This trend needs to continue to backfill vacant space and support new development. Second, the housing market will need to gain some momentum. The housing market has stabilized, with foreclosures having largely been worked through the system and prices ticking higher. While those trends are positive, new home construction is down approximately 80 percent from peak levels and builders are behaving with extreme caution bringing new homes to market.

Housing is a huge employment driver in our market and growth in this sector is essential to long-term economic expansion.

While a return to the peak levels recorded at the height of

CV: The Phoenix office market, like the national office market, is recovering gradually. Job growth is creating some demand, but companies are still soaking up “shadow space” (space under lease but not being used) left over from the recession. Technology (firms do not need the libraries and filing space that they did in the past) may have also dampened demand. Construction is rising modestly but is primarily limited to build-to-suit facilities. Vacancies are high at 25 percent, but they are down 90 bps from last year, and rents are rising by about 2 percent year over year. We expect that the recovery will accelerate over the next few years. Much of the “shadow space” has likely been absorbed. Provided that construction stays in check, vacancies should fall substantially.

Molly Carson (MC): In order to push the office sector into continued recovery, we need to continue to focus on strengthening Arizona’s brand to best position our market to be the first choice for companies looking to relocate — with specific focus toward corporate and regional headquarters.

This cannot be done by one organization, rather a collective, unified effort by the private and public sector on the city and state levels. We have a wonderful opportunity at hand to capture a number of new, relocating or expanding firms from other markets with California being our low-hanging fruit. This takes a strong positive message illustrating the advantages our cities and state have to offer. I think this is one of the most important things the real estate business segment can put efforts toward now and in the coming years.

MCH: Why does the Tempe submarket appear to be so hot right now?

MC: Tempe has done a wonderful job of positioning itself for success within the development realm. The abundance of amenities (restaurants, the Tempe Center for the Arts, Tempe Town Lake) within this walkable community are desirable from

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T H G IA I R D Y E P M O C BIG Z A

NAIOP-AZ Metro Phoenix typically absorbs

+/-3.5MSF to 4MSF SF of space annually

Steven Schwarz, Megan Creecy-Herman, Tom Johnston and Keaton Merrell a work-and-live standpoint. Arizona State University remains a valuable draw from an employment standpoint. Simply put, Tempe has done an impeccable job of building a strong foundation and was ready to take advantage of the uptick in the market.

MCH: What is the current state of our Metro Phoenix industrial market?

AL: Metro Phoenix typically absorbs 3.5MSF to 4MSF of space annually. As we move through Q2 Metro Phoenix’s industrial market remains in flux. Larger, national/regional employers like Living Spaces, Winco Foods, Pepsi and others have selected Metro Phoenix to be their “West Coast solution” through the design-build process. These requirements tend to be larger and/or sophisticated “process” facilities that mandate signature construction. In fact, Metro Phoenix has almost 3MSF of industrial facilities currently under construction. In fact, almost two-thirds of “net” absorption is due to corporate design-build projects.

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Conversely, the smaller (less than 50KSF) and larger (more than 200KSF) “existing building stock has yet to see a clear, sustained level of occupant demand.” The mid-sized (75KSF to 200KSF) market does show significant activity with several leases and user sales pending. Leading vertical sectors include high-technology, food and beverage, e-commerce and regional retail fulfillment. With a metro industrial vacancy rate at +/-12 percent versus the national average at 8 percent, the Valley has significant product runway to accommodate most occupant requirements.

T H G IA I R D Y E 3 P M O C BIG Z A TJ: The confluence of our freeway system and the center of Metro Phoenix is in Tempe. Proximity to ASU, the airport and light rail make it advantageous for employers. It has become a real urban core where you can live, work and play.

CV: Tech companies want to locate in areas that are attractive to younger, tech-savvy workers. Arizona State University and recreational, cultural and retail amenities are draws for this cohort as is easy access via the Loops 101 and 202, Highway 60 and Interstate 10. Somewhat central locations (are ideal), especially for the east Valley and the nearby Phoenix Sky Harbor.

MCH: Tempe doesn’t “appear to be hot” ... it is hot. There are numerous reasons why tenants want to be in Tempe, one of which is its central location and the fact that it allows employers to pull talent from across the metro-plex considering that 60 percent of Phoenix Metro residents live within a 20-minute commute of Tempe. Also, its proximity and access to Sky Harbor Airport and proximity to the largest public university in the United States are substantial contributing factors.

MCH: There’s a lot of buzz around adaptive reuse and redevelopment of downtown spaces, particularly in Phoenix. What significance does this development have to the industry? What have been some of the most important projects?

TJ: As someone who grew up here and now lives downtown, it is refreshing to see all the redevelopment in our central core.

As evidenced by housing price increases in central Phoenix, people want to be in an urban environment. They no longer want to drive 30 to 45 minutes to get somewhere. We have seen tremendous success with retail (particularly restaurants) and multi-family redevelopment. There is a lot of opportunity with infill sites for office redevelopment as well. Important projects include 7th Avenue and McDowell Road, 7th Street and Osborn Road, Central Avenue and Colter Street, and the Roosevelt Arts District.

56 | September-October 2014

Metro Phoenix has almost

MSF

of industrial facilities currently under construction

BM: Phoenix is in the early stages of the adaptive reuse and redevelopment phase, in part because Phoenix is a newer city and in part because the area does not have as developed a downtown as some other markets. That is not to say that the city does not have opportunities for adaptive reuse, either with outdated inventory in the downtown/midtown area or some large blocks of vacant retail space. Education has been a driver of redevelopment in the downtown portion of Phoenix, and further expansion by Arizona State University and University of Arizona could be a source of future activity.

The pace of population growth is the wild card for adaptive reuse downtown. First, a larger residential presence would fuel development of retail properties to serve the population. Chefdriven restaurants, where properties are purchased, rehabbed and then re-opened would be an example of this. Also, an increase in the local population would make transit oriented development increasingly feasible and alleviate some of the strain associated with office parking ratios that are lower than the current market standard.

CV: The Phoenix industrial market is very strong. Demand has been booming, fueled by e-commerce (Amazon), as well as traditional retailers and third-part logistics firms attracted by the area’s low costs, proximity to southern California ports and expanding local economy. Construction has picked up more quickly than we would have expected and led to an increase in warehouse vacancies last year despite robust demand. It is expected that demand will continue to accelerate, putting vacancies back on a downward path.

MCH: NAIOP conducted the industry’s first in depth look at e-commerce and its effect on industrial. Where does Arizona stand in preparedness for this shift, in existing and future developments?

AL: Due to the lack of sales tax consistency nationally, Metro Phoenix was an early winner in attracting e-commerce operations. In fact, Arizona contains almost 10MSF of e-commerce space with operators like Amazon, Target, Home Depot and others. Moving forward, facilities will provide a multichannel service: internet, store replenishment, catalog, etc. Older industrial properties will be hard-pressed to compete with higher clear heights, larger electrical services, higher auto parking needs, super flat floors and other building/site enhancements mandated by e-commerce employers.

MCH: What role does our proximity to the Inland Empire increasingly play in industrial development?

AL: Metro Phoenix offers an excellent location option for energy-centric, higher head count employers who seek a 25 to 40 percent operational cost saving while enjoying a deep,

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some see an office block. Colliers international sees a hub of workforce activity for thousands of individuals—each with their own story. At Colliers, we don’t regard buildings simply by the floor count. We regard them as resources for people to work effectively and productively, together. Which is why we go to such lengths to understand each client’s business, and realize the full opportunity for the use of space. Attention to the needs of individuals—it’s just one more way we accelerate success.

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57

NAIOP-AZ Arizona contains almost

10MSFHT

Anthony Lydon and Chuck Vogel qualified workforce population at +/-4.5M. The +/-300MSF Inland Empire lies an hour from the ports of Long Beach and LA and is comprised of “West IE” and “East IE.” IE West has significant geographic and economic development barriers to entry. The IE East lies further from ports while being susceptible to California’s perceived over-regulated and cost environments. Accordingly, Metro Phoenix’s west Valley provides same-day access within the federal truck driving rules and regulations.

advantage of the current historically low interest rate environment, upside potential in rents and being bought at below replacement cost.

CV: There is no shortage of available debt and equity capital. Senior secured lenders still remain modestly levered. Projects with 30 to 40 percent equity work because there is plenty of capital available. If the 10-year treasuries tick up, there will be pressure for the senior secured lenders to take a bigger part of the capital stack if cap rates remain low.

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KM: Financing is getting very aggressive. CMBS is back and quoting interest only for up to half of the loan term at 75 percent loan to value. Banks are getting aggressive as well.

MCH: What new trends are coming to our industry?

SS: In the short-term, the “densification” of office space and focus on creative space will continue. I love these companies saying they want their office to be a “home away from home.”

If that’s the case, why are they cramming eight people in 400 SF? I doubt most people are sharing their bedroom with seven other people! The corporate world has realized that density saves the company money, so they have offset that negative by making the space fun and cool so people aren’t bothered by their lack of space. There are a lot of studies going on right now about productivity and morale related to office space. It’s still early, so I’m not sure anyone has the true answers at this point. Obviously, the continued adoption of technology such as the internet, smartphones and 3-D printing will change the supply chain and use of industrial space, as will the shifting energy landscape and globalization. These items will have a profound impact on the office environment on a rapid and constant basis for many years to come.

G IA I R D Y E P M O C BIG Z A BM: In the short- to intermediate-term, proximity to the Inland Empire will play a minimal role in the Greater Phoenix industrial market. The Inland Empire’s status as a premier big-box industrial market is well-deserved, with approximately 70 percent of the market space in buildings of 100KSF and greater and 88 percent of its space built in the past 20 years.

Current vacancy in the region is approximately 4 percent, which at first glance would suggest an opportunity to attract tenants that are unable to secure space in the Inland Empire, but developers have more than 15MSF of space under way to meet current and future demand. Tenant demand in Metro Phoenix is forecast to be fairly steady in 2014 and 2015, but tenant activity will likely stem from organic growth rather than spillover from the Inland Empire.

MCH: Is the Phoenix market ripe now for spec building? If so, where and what type of building?

MC: Yes, for responsible spec building. Tempe’s sub-5 percent, class-A vacancy and overall 10 percent office vacancy combined with very healthy activity in the class-B+ office product make for a market ripe for spec class-A office. The construction of Hayden Ferry Lakeside phase III allows Tempe to remain squarely competitive (with other markets such as Denver, Austin and California in general).

KM: For the right submarket and project, banks will finance spec buildings in the 60 to 65 percent of cost range.

MCH: There’s a lot of capital coming into the market right now. Where is this best invested?

How is financing trending?

MC: Core assets in solid locations within primary and tertiary markets. The discipline to invest in core assets through upturns and downturns is almost always rewarded. As for

58 | September-October 2014

of e-commerce space with operators like Amazon, Target, Home Depot and others

financing, we are seeing institutions continue to be competing to invest/purchase/lend for the type of assets mentioned above. Lending for land is still challenging.

SS: Since we are selling a decent amount of office product right now, I would say that the best investments are in stabilized office. The reality is that there are certain office markets (certain pockets of north Scottsdale, like Chauncey, Tempe and Chandler) where rents are beginning to really move in a positive direction. We have sold some assets at sub-6 percent caps, but if full-service rents move from $20 to $25 that is really a 40 percent increase in net rents.

That cap rate becomes an 8.3 percent, which is a pretty nice return on investment when interest rates are 4 to 5 percent. One of our strategies that applies to the local market is a focus on acquiring and developing general industrial in tightening markets. This asset type can take

AL: The newest industrial trends include 3-D printing, robotics and open source hardware. 3-D printing deposits thin layers of plastics or metals atop the other fabricating a component part and/or finished good. This will have a profound impact on how companies manage their supply chains. For instance, half of typical pharmacy stock can be 3-D printed on-site. The cost of robotic equipment has dropped from +/-$250,000 per machine to $25,000 per machine. Amazon hopes to increase its pick-pack-ship robotics from 1,300 to 10,000 by end of 2014. Finally, open source hardware found in mechanical systems and networking equipment is available to all without reverse engineering need. This will compress the prototyping cycle time and move machine tools to the production line sooner, quicker and faster.

CV: It is becoming easier for the small investor to invest in institutional quality real estate through non-traded and exchange traded REITs. More investment products are coming available for investors that may offer liquidity and yield in the product types they are looking for. I expect you will see these kinds of investment vehicles continuing to grow. There is also an increasing disparity between credit and non-credit cap rates as the investor appetite continues to grow for credit opportunities, which is keeping the credit cap rates low.

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T H G IA I R D Y E P M O C BIG Z A

NAIOP-AZ NAVIGATING RECOVERY: Megan Creecy-Herman takes the helm of NAIOP-AZ A few of the former chairmen were at the helm during trying times. How would you describe the state of the industry during your term?

I’ve been on the Arizona Chapter Board of Directors since 2010, so I remember what it was like for our board and the respective chairmen to navigate such a challenging market. I was the corporate sponsorship chair on the Board of Directors during that period and fundraising was challenging to say the least. Fortunately, the market has continued to recover this year and our membership is feeling optimistic about where the industry is headed. We actually set the record for the most money ever raised through corporate sponsorship this year at $610,000, which blew away the prior record of $525,000 in 2008.

You’ve been credited with a clear agenda for NAIOP’s educational goals. How have those progressed under your term?

Very well. Our signature speaker event featuring Billy Beane from the Oakland A’s was very successful. We’ve also continued our partnership with the ASU Masters in Real Estate Development (MRED) program where we bring industry leaders in to speak to the MRED students on various topics, and we’ve received very positive feedback on that program as well. We have a new education committee this year and they have done a tremendous job in overseeing both of these programs as well as planning our quarterly Market Leaders Series events and also planning our Tempe market tour.

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all of the local media outlets. Ensuring that NAIOP Arizona’s voice is heard throughout the Phoenix business community is very important to me.

What are two things you find most interesting about the Arizona market right now?

First, that it’s as bifurcated as it is. When it comes to office product, no two submarkets are created equal and that’s extremely evident when looking at Tempe versus the rest of the market. The overall office vacancy rate stands at 17.7 percent and Tempe’s vacancy rate is less than 9 percent and less than 4 percent when it comes to class-A product. It will be interesting to see whether other submarkets can get some momentum going as our recovery continues.

Secondly, the fact that our industrial recovery is becoming more widespread across submarkets and sizes is interesting and encouraging. In 2013, we saw a very pronounced shift in demand from the larger big box tenants who were in the market from the end of 2011 through the beginning of 2013 to the smaller regional tenants in the +/- 15,000 SF to +/- 80,000 SF range, with those users predominantly focused in the airport submarkets and east Valley. During the third quarter, however, we have started to see activity pick up again in the southwest Valley as well, which is a positive indicator for 2015, especially considering that summer is always the slowest time of year in Phoenix.

What is NAIOP’s position and effect on the market?

NAIOP Arizona is the preeminent commercial real estate organization in Arizona. The fact that we have the diverse and experienced Board of Directors that we do helps us to continually monitor the pulse of our market and ensure that we’re providing our members with what they need, whether it be education on what’s happening in the market now or providing opportunities to network with the key players who are doing deals.

T H G IA I R D Y E P M O C BIG Z A

By Amanda Ventura

M

egan Creecy-Herman, Senior Director, Leasing & Development at Liberty Property Trust, has worked in commercial real estate for 11 years, 10 of which have been as a member of NAIOP. In 2013, the 33-year-old was the first female chair of NAIOP Arizona and one of the youngest in the country to hold that position. She was recently asked to sit on the NAIOP National Executive Committee and will once again sit on the National Board of Directors next year.

“I am very proud to be working with such an esteemed group of national leaders from around the country in an effort to continue to strengthen NAIOP nationally,” she says.

There has been quite a bit of buzz about your being a young chairwoman, but that buzz is really nothing new. You were also the first recipient of NAIOP’s Developing Leaders Award, for which you were a founding chairperson. Was chairwoman a role you sought?

Yes, I was the founding chairperson of the NAIOP Developing Leaders in 2009 and it was really through my leadership of that group that I was selected to serve on the Arizona and national NAIOP boards. My work ethic has always been one of the traits that has set me apart. When I joined NAIOP Arizona’s board of directors in 2010, I didn’t necessarily set out to become chairwoman.

I just went to work at giving 110 percent for the organization. It was really through the past chairmen witnessing my dedication and my leadership skills [that I became chairwoman].

60 | September-October 2014

What are other achievements or goals you’ve started working toward as chairwoman?

Strengthening NAIOP’s public relations efforts has also been a goal of mine this year. We have a new communications committee, and they have done a great job executing on our plan to increase NAIOP Arizona’s brand recognition throughout the broader business community while also building stronger ties between NAIOP and

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NAIOP-AZ

Percep tion determ ines realit y

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T H G IA I R D Y E A P M O C BIG Z A NAIOP Arizona Chapter invests in voter education of pro-business legislators

By TIM LAWLESS

bout 10 years ago, NAIOP Arizona made a concerted effort to engage in public policy advocacy at the state capitol in order to attract and grow more high-paying jobs to our state. During this time, we have had a number of successes in the area of lowering commercial property tax assessment ratios. Where we had among the Top 5 worst rankings in the U.S., Arizona is now moving toward the middle.

This past session, we worked with a number of other business trade associations to allow many manufacturing firms that help produce these high-paying jobs to no longer pay sales taxes on their electricity or natural gas consumption. This top priority of NAIOP-AZ, SB 1413, now brings Arizona more into alignment with other states in the union for this tax treatment.

While we have had great success in helping to make our state more competitive in tax policy, Arizona has suffered some recent economic development image setbacks such as SB 1070 related to illegal immigration enforcement and SB 1062 related to religious freedom in the eyes of

62 | September-October 2014

supporters and discrimination to detractors.

In order to help prevent some of these perceptual challenges in the future, our NAIOP-AZ Board of Directors has set aside up to $100,000 from our reserves to help elect state legislators who are more sensitive to our national image in this election cycle.

The key caveat to our investment is that the races we get involved in must be to help educate voters in favor of candidates vetted and endorsed by the general business community like the Arizona Chamber of Commerce and Industry. The further caveat is that our contributions need to be used for positive independent expenditures to educate voters rather than “hit pieces” against their opponents.

With the upcoming change in the governor’s chair this November, the commercial real estate industry is in a unique position to do our part to continue to make Arizona a beacon for job creation with a like-minded state legislature rather than the butt of jokes on the national talk show circuit.

Tim Lawless | NAIOP Arizona | Chapter President

Making Arizona look better,

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T H G IA I R D Y E P M O C BIG Networking with a cause Z A L

By Amanda Ventura

ast fall, Rachel Luttrell was standing in front of a grill at a Central Arizona Shelter Services (CASS) campus in the midst of monsoon season. She was volunteering at one of NAIOP’s Dream Team barbecues that fed more than 10,000 homeless individuals last year. The grills were having a hard time staying lit, and she recalls the smell of smoke filling her clothes.

“I felt defeated,” Luttrell says. “We grabbed the batch of burgers to refill the

64 | September-October 2014

serving line and were greeted by volunteers and CASS clients smiling. The smoke smell no longer smelled foul; it smelled delicious!

A few clients raised their hands in the air and welcomed the rain on their skin. No frowns, just joy!”

Luttrell, a senior property manager at ACP Property Services and philanthropy chair for NAIOP Arizona’s Developing Leaders Chapter for professionals under the age of 35, says the moment reminded her to be thankful for the food, shelter

and support network she has. Developing Leaders hosts five to 10 events a year, including a Halloween costume drive for UMOM, a “Feeding the Homeless” event at CASS and an event that benefits Children’s Cancer Network.

“We realize the importance of strong community in the success of future generations,” Luttrell says.

Most of Developing Leaders’ events, like NAIOP’s Dream Teams, founded in 2013, cap at 30 people. However, Luttrell points

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T H G IA I R D Y E P M O C BIG Z A

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NAIOP-AZ

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T H G IA I R D Y E P M O C BIG Z A Above: Cushman & Wakefield of Arizona staffers (left to right) Blaine Black, Bonnie Machen, Greg Valladao and Patrick Devine flip burgers on the grills at the Human Services Campus in Phoenix. Left: In 2013, NAIOP Arizona fed more than 10,000 homeless people as member firms volunteered on 12 Friday afternoons. Given the name “Dream Teams,” NAIOP Arizona members this year have fed almost 3,000 homeless people.

out that most networking events that reach much larger groups of NAIOP members can be turned into a philanthropic opportunity (i.e. making admission to an event nonperishable food).

“It was recognized early on that NAIOP’s members are actively involved in the communities they live and work therefore philanthropy was a natural addition to the existing advocacies. The Developing Leaders felt building relationships occurs best when you are alongside each other, stripped of titles and suites, working together for a common cause.”

Charity is a relatively recent addition to the NAIOP Arizona chapter. In 2008, Megan Creecy-Herman established

66 | September-October 2014

Developing Leaders’ philanthropy committee, which pre-dates NAIOP Arizona’s own official adoption of charitable efforts in 2010.

Legacy Capital Advisors Principal Keaton Merrell points out that the chapter has engaged in philanthropic events over the years, but didn’t make it a part of annual programming until four years ago. In that time, the chapter has raised about $150,000 for charitable causes through its annual Crawfish Boil benefiting Ryan House and has served about 23,000 meals to homeless individuals. In 2013, NAIOP established Dream Teams, groups of 30 volunteers comprised of about 10 people from three firms, who get together once a

month to barbecue burgers and hot dogs for the homeless.

“It is always great to see a Dream Team with volunteers who have never done it before and see them team up to feed 800 homeless people,” Merrell says. “Seeing this massive line of people that you are feeding is very gratifying. People that show up for the first time literally had no idea they would be affecting that many people.”

There’s literally a quarter-mile-long line of homeless, says Chuck Vogel, senior vice president of real estate joint ventures and dispositions at American Realty Capital Properties, Inc. “Until you go down [to 12th and Madison avenues] and do it the first time, you don’t even get it,” he says.

Just wrapping up its first year, word has spread and there’s a waiting list to get assigned to a Dream Team. Currently, there are more volunteers than space to feed the homeless. Registration costs about $75 per volunteer.

“It’s funny,” Vogel says. “We send a followup email with photos, and we get phone calls from people saying, ‘Hey we want to go, too.’

It’s almost a competition. They see who has participated. It’s more about who isn’t on that list. Not who is on it.”

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T H G IA I R D Y E P M O C BIG Z A

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NAIOP-AZ

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T H G IA I R D IN D U STRIAL SECTOR Y E GETS OUT-OF-THE P B OX M P E R S PECTIVE O C BIG Z A

By Amanda Ventura

68 | September-October 2014

Airport I-10 Business Park

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T H G IA I R D J PY ME O C BIG Z A Jeff Hays, senior vice president of sales and leasing at Commercial Properties Inc., is starting his 30th year specializing in the industrial sector and will be the first to tell you that everybody’s busy and no one’s complaining.

LGE Design Build has 54 industrial projects either in the ground or in design, says President Dave Sellers. Brock Grayson, vice president of Layton Construction and co-chair of GPEC’s Community Building Consortium, shares the same sentiments with Layton’s 650KSF of build-to-suit and expansion projects in Arizona.

While LGE’s sweet spot, says Sellers, includes many manufacturing buildings and design-build projects for companies that won’t fit into a spec space, spec isn’t dead. About five spec industrial buildings are in the planning or permitting process.

PAT FEENEY

From Sellers’ perspective, the sector is suiting up, so to speak. In the last two months, Sellers says, LGE Design Build has received seven new build-to-suit projects.

Layton Construction has also seen some build-to-suit demand. The rise in these projects for Layton has little to do with a declining interest in spec development, says Grayson and Layton Executive Vice President Andrew Geier. They’re just keeping busy with everything else.

Between the build-to-suits and the spec development, though, are the empty spaces contributing to deceptively high vacancy rates. These are the semi-obsolete industrial buildings that need some tenant improvement or a functional change.

A lot of businesses need excess land for more parking or equipment or yard storage, he adds.

ANDREW GEIER

BROCK GRAYSON

“It has become a lot more difficult to find quality buildings. That’s leading to some build-to-suits,” he says.

CPI has worked on a handful of distribution center build-to-suits, including Barrel of Fun in Tolleson and Legends Furniture.

Unlike office and retail, there’s less interest in aesthetics as much as functionality — clear heights, power capabilities and square-footage. It’s one thing that’s keeping obsolete industrial spaces from becoming dysfunctional. It’s about $25 per square foot to raise a roof, for instance, so office users looking for that industrial feel are more likely to take the old 16-foot industrial space than someone who is looking for the new 36-foot clear heights.

Users are safer bets (they’ll pay more), but Hays says CPI is seeing more action

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NAIOP-AZ

from investors lately, particularly with those in California.

MARKET UPDATE While the rents seem to have stabilized overall and absorption in 2Q was 4MSF, things still aren’t where they were. But CPI’s Hays isn’t concerned as long as the market can reach a happy medium. More end-users are upsizing, build-to-suits are seeing success and quality buildings are becoming harder to find. The effect of rising construction costs depends on the submarket in which a developer is looking.

The airport, East Valley and Deer Valley submarkets are seeing upward pressure on rental rates due to short supply of industrial space. In turn, CBRE Senior Vice President of Industrial Services, Pat Feeney, says the short supply of investment properties are putting downward pressure on cap rates for leased investments. The lack of available land is another way Feeney says developers can combat rising construction rates.

“Those that are lucky enough to own in these submarkets are really in the driver’s seat when it comes to tenant negotiations,” Feeney says. On the other hand, he says, the

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Southwest Valley submarket is “lethargic.”

“The next couple of large square footage users that lease space are going to be treated as the belle of the ball,” Feeney says. “I think that today the landlords are financially sound so it is unlikely we will see lease rates drop to the levels we saw in 2009 when the market was similar in terms of supply.”

“If it’s at the right price, someone will take it,” says Hays, adding that many class-B and -C industrial was absorbed for other uses during the downturn. “People are still looking for good quality buildings.”

72 | September-October 2014

A lack of leased warehouse product in the Southwest Valley available to investors, despite high demand, keeps values up, Feeney says.

“Currently, the big box distribution user activity and inquiries are at a high level, but users in this group have been very slow to commit to executing leases,” says Feeney.

“However, it should be noted that while large users have been hesitant to commit, the 20KSF to 100KSF users have been extremely active. Users in this size range have been carrying the market so far this year with more than 1.3MSF of positive

Top: Papago Tech exterior Above: Canal Crossing Logistics Center

net absorption in the first half of 2014. I believe that as soon as we see five to six large leases signed in the Southwest Valley big box distribution market, we will reach a balance of supply and demand that we have not seen since 2005 and 2006. I am very encouraged with the current condition of the market.”

When big box distribution sees some absorption, he says, overall vacancy stands a chance at single digits.

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Office Mate

The creative endgame for functional obsolescence

By Amanda Ventura

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T H G IA I R D Y E P M O C BIG Z A The C3 office building, in Los Angeles, was re-imagined by Gensler to include more “front doors” for suites, which are depicted by the colorful stairways on the building’s exteriors.

74 | September-October 2014

f

Forget the corner office. These days, it’s about the coffee shop around the corner, the food trucks outside the lobby, the light rail that passes an office building every 15 minutes.

The work place is all about the worker. Employee and entrepreneur are synonymous. Human resource departments are working in concert with building owners, managers, developers and brokers. Employee demographics are spanning radically different generations with equally varied needs for a work-life balance. These are all observations shared by industry experts, from international architecture, design and planning firm Gensler, to brokerage houses and developers in the Phoenix Metro.

About a decade ago, traditional offices began to open up for collaborative space.

Since then, office environments have contracted around the remote worker and many other trends that ultimately call for very specific, versatile influenced by a company’s DNA. A demand for trendy, compact work environments that encourage collaboration, focus, creativity and accommodates mobility has led to many new speculative and build-to-suit office developments tailored to an end-user’s needs. This is all while vacancy rates in the market hover around 25 percent. However, many experts say this statistic is misleading.

It’s weighed down by the many office buildings constructed in the ’80s or earlier that are structurally — and aesthetically — outdated.

functional obsolescence among office properties in the Phoenix Metro and found that Singerman was right.

Net absorption of office buildings constructed after 1990, Aulick reports, accounted for 4.4MSF in 1Q 2014. In that same period of time, buildings completed prior to 1990 were reportedly declining in about 320KSF and 200KSF in 1Q and 2Q, respectively. The major contributors or obsolete space is parking ratios and floor plate size.

Midtown, Aulick says, is perhaps one of the hardest hit areas with 10MSF of office and an average age falling pre-‘90s. That area’s options are limited by available space.

It takes entrepreneurship, says Cassidy Turley’s Vice President of Marketing Alison Melnychenko, to recognize the highest and best use for the land on which an obsolete building sits.

GETTING IN THE GAME If an owner isn’t going to sit back on 80 percent occupancy, there are a few options that could raise the appeal of an outdated building. The first move is to retrofit a space — tear out floors or half floors to make higher ceilings. That can be costly and reduces overall volume. The other option is to add to the building’s function. For instance, the Freeport McMoran Center in downtown Phoenix had high user demand for parking. It was turned into a Westin hotel. Buildings along Central Avenue have been converted into apartments and condos — a trend CBRE Senior Vice President of Office Services Bryan Taute says will likely continue.

Retail and industrial buildings are sometimes flipped into office spaces, given the parking issue can be solved. This is more popular in areas such as Midtown or near the airport.

“I think Midtown has the potential to figure a way out of (obsolescence),” says Taute. “If building owners are willing to sell them to new owners with capital to give creative funky ideas. I’m a big believer in mass transit and infill.”

The general idea among people is that Phoenix won’t pay for that kind of re-activated space. But there is more enthusiasm than meets the eye, says Gensler Principal Beth Harmon-Vaughan. Brokers, developers, business owners, she says, see the potential and there are a handful of undisclosed projects in the pipeline on which Gensler is already working.

On a local level, a call center space built in an old Motorola manufacturing facility was designed by Gensler to “control the churn” of the company’s employees who go through 12 weeks of extensive training. The existing building’s unique floor plate led Gensler to use a blue webbing on the ceiling as a navigational tool that brings the 75KSF area together.

The call center is proof that these trendy spaces aren’t just for software and video gaming companies either. Real estate offices such as CBRE in Los Angeles have adopted these new space use trends, and Gensler says more professional and traditionally

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T H G IA I R D Y E P M O C BIG Z A OBSOLETE VS FUNCTIONAL BUILDING COMPARISON ARIZONA OFFICE SPACE

Factors causing functional obsolescence in buildings built prior to 1990 within the Phoenix office market. Obsolete values on the left vs Functional values on the right, for all categories.

PARKING RATIO PER 1000 SF

VS

Average Ratio Prior to 1990 = 3.9:1,000 SF

Average Ratio 1990 & Newer = 5.5:1,000 SF (Includes future/planned buildings)

FLOOR PLATES

THE OBSOLETE

As Cassidy Turley’s head of research, Zach Aulick, puts it: “functional obsolescence” are the buzzwords of 2014.

Aulick cites Rockefeller Group Vice President and Regional Director Mark Singerman’s assessment at a Bisnow event that vacancy rates in the market were much lower, by about 5 to 7 percent, without including obsolete buildings. Aulick, prompted by such buzzings and the news that speculative and build-to-suit development was happening despite vacancy rates higher than 20 percent, looked into the

VS

26,000 SF

50,000 SF

Average Typical Floor Plate Currently is ±50,000 SF

Average Typical Floor Plate Prior to 1990 was ±26,000 SF

EMPLOYEES PER 1000 SF

VS Approximate Average Employees per SF Prior to was

Approximate Average Employees per SF Currently is

Courtesy of Cassidy Turley research department

75

NAIOP-AZ staunch companies such as law firms are coming onboard.

CBRE’s office in L.A., co-developed with Gensler, has a “free-address” system of office space use, often called “hot desking,” which can be reserved for individual use during certain times.

Despite the increase in remote work, companies still want employees to come to the office. Whether its the highly crafted informality of a Quicksilver office’s mixmatched meeting chairs in a windowless warehouse or the raw floors, pet amenities and employee-generated wall art at Facebook’s Menlo Park campus, the younger generation is revolutionizing office space.

Other trends include authenticity designing the DNA of a company into its office spaces - and having a “front door” instead of anonymous-feeling lobbies.

Gensler’s design of Los Angeles’ C3, for example, achieves a “front door” feel through colorful exterior stairwells to upper-story suites.

Phoenix may not be on that level, but change is coming — even to the ’80s-heavy areas of Midtown.

It just takes a drive down Central Avenue to see the buildings in need of change. The Class-B high-rise at 2828 N. Central Avenue was built in 1985 and offers the typical functionally obsolete issues, parking ratios and small floor plates, explains Aulick.

However, it was a building that — with a little renovation — could be turned into the headquarters for the co-op workspace known as “mod on Central.” It’s stylized as a hotel, features a cafe and is a public workspace for remote employees that, as Lynita Johnson, of Olson Communications says, are looking for somewhere that’s “never boring or beige.”

“It’s the way you want to work, because it’s the way you like to live,” she says of the development.

Finance and law firms are among the next wave of industries adopting the new kind of office space. Old, dated, standard offices such as Rose Law Group’s former eight-year residence has transitioned into a high-tech, smart, fun, sleek and creative space in Old Town Scottsdale, near a cultural hub of restaurants.

Rose Law Group’s employees skew “young and energetic,” says Jordan Rose, founder of Rose Law Group. “We are 85 percent below the age of 40.”

“If we weren’t locked into our old lease we

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This call center space features a blue webbing on the ceiling as a navigational tool that unites a unique, 75KSF floorplate.

would have been the first to the open floor plan party at least six years ago,” says Rose.

“We knew as soon as we moved into the old space that we needed a more collaborative atmosphere that would only be achieved through design. That said, traditionally law firms are not known as hot beds of creative thought and collaboration. We have a bit of a different model in that we employ lawyers and non-lawyer planners, MBAs, project managers and energy consultants who can help shape the ultimate advice we provide our clients. Sometimes legal advice in a box is just really bad for a client’s bottom line.”

Non-traditional changes include minimizing the firm’s waiting room area, meant to remind the team that clients shouldn’t wait long to see their attorney.

Conference rooms and open space areas are named after employees and balconies that can be used to host meetings. Offices are centered around a park space where people

can eat lunch. There are also a few old, full-sized arcade games.

ELBOW ROOM

As space allotted per employee continues to drop to about 167 SF per person — down nearly 100 SF in the last few years, with CoreNet Global estimating a further drop to 151 SF by 2017 — developers are tasked with finding ways to make the workplace more enjoyable.

Right now, that looks like raising the roof (or, rather, knocking out floors in highrises). Floor-to-floor heights in buildings constructed in previous decades have been about 13.5 feet. Now, says Sven Tustin, vice president of development and investment for Trammell Crow, they’re about 15 to 16 feet floor-to-floor.

While eight-foot ceilings won’t make an office building obsolete, Taute says a space will be more challenging to sell and

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NAIOP-AZ DOWNTOWN: ACTIVATED One of the general opinions is that public transit will have a positive influence on activating downtown Phoenix’s older office buildings that may be outdated with their parking ratios. Have you observed any relationship between the health of downtown Phoenix’s office sector and public transit?

“I think there has been a relationship, but I don’t think it’s been quantified. We certainly need much more housing in the downtown area and a lot of it is coming. This could put a lot of downtown employees much closer to their work so they don’t need to have the car there all the time. There are also buildings in the Central Ave corridor that could be re-purposed from office to residential similar to One Lexington. In my opinion, a bigger challenge to some of the B and C product is the technology gap that these buildings have with newer product. I think we will see a continued growth in downtown employment in the years ahead due to the availability of the workforce, the expanded light rail system and the amenities that a downtown location can provide.”

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T H G IA I R D Y E P M O C BIG Z A Mod turned a re-purposed Midtown lobby constructed in 1985 into a co-op office space that helps keep the building’s outdated features from making it obsolete.

demand a lower rental rate than an office with higher ceilings. Buildings with lower parking ratios typically see leasing 80 percent of its space as success.

Tustin has seen some significant repurposing happen in southern California, most recently at Playa Vista, a former Howard Hughes hangar that received a $50M makeover that includes an office campus for media, entertainment and tech firms.

“There’s an authentic experience to be had,” says Tustin. “In Phoenix, it’s a little more challenging. Our office employment is a little less creatively geared and more focused on labor.”

Midtown is the only submarket that has experienced negative absorption over the last decade, thanks to the light rail, amenities and the right neighborhood.

“The trick,” says Tustin, “is buying those buildings cheap enough.

“We’ve explored a lot of new developments for infill. We’ve been promoting this initiative quite a bit and one thing we’ve been concerned with is our flight of the younger demographics who view places as more fun.”

Trammell Crow has challenged itself to

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create a project that could be just as fun, though not as extreme, as Playa Vista.

Also, Phoenix doesn’t boast a lot of old warehouses, notes Taute. Trammell Crow is working on a 200KSF project at Cooper Road and Loop 202 that’s a two-story tilt-up office building with 50KSF floor plates and 16-foot, floor-to-floor heights.

The building, he says, targets software and financial service companies. Trammell Crow is focused on creating “the arrival experience” with escape areas, shade structures and “the small things.”

“Developers have probably emphasized aesthetics more than the experience of a building,” says Tustin. “I think it’s worth reallocating the investment toward the employee.” zThis is where Millennials come in.

“From my perspective, it’s a lot more fun because in Phoenix it has always been about price and the things that create it as a commodity,” says Taute. “Now, the office space is being looked at as an attraction tool, which means people are willing to spend more money. If they can get the rents, to make cool office space…All of those things are good for our city. The longevity is better than cookie cutter office buildings.”

— Don Keuth, President, Phoenix Community Alliance

Zach Aulick

Beth HarmonVaughan

JORDAN ROSE

Sven Tustin

H AY D E N FE R RY L A K ES I D E Te m p e , A r i z o n a

R ea d y for

G EN ER ATI O N N E X T

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T H G IA I R D Y E P M O C BIG Z A Millennials are

2x as likely to use

public transit as any other generation

Tempe is the

most walkable city in Arizona

Proximity to family, friends, shopping

Millennials will

and entertainment isÂ

35% of the workforce

to this generation

in 2015 and 50%

than any other

by 2020

more important

make up almost

Parkwayâ&#x20AC;&#x2122;s premier assets are perfect for GEN ER ATION N EX T

Strategically located adjacent to the light rail station and Mill Avenue entertainment district, we have space that your workforce will love.

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T H G IA I R TICKETYTO RIDE: ED P M TO C BIG Z A NAIOP Arizona Tempe Tour

he NAIOP bus tour is kicking back into gear this fall with plans to roll through the largest hub for Valley development — downtown Tempe.

Tour trollies will cycle through stops at Marina Heights, Hayden Ferry Lakeside and Liberty Center at Rio Salado, where participants may network and meet the sites’ respective developers.

“The biggest catalyst to starting the bus tour concept again is the number of exciting projects that are underway,” says Parkway Properties Vice President and Managing Director Matt Mooney. “Everyone in our industry experienced the challenges of the Great Recession, so to now have the Valley, and specifically Tempe, exemplifying such strong development in certain segments is worth seeing. Also, many of the major developments underway in Tempe are NAIOP member projects and this bus tour is a great opportunity to showcase the development prowess and expertise of NAIOP’s leading development firms.”

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It’s also a way for members and nonmembers to meet with the developers of the respective projects.

“We wanted to feature Tempe as it is one of the strongest performing submarkets across all of the western United States, and these projects were chosen specifically because of their proximity and size,” says Mooney. “Marina Heights is the largest office development in Arizona history, Liberty Center is already two buildings into what will ultimately be a mixed-use park of more than 1MSF, and Hayden Ferry III is the first mid-high rise multi-tenant office building in this cycle.”

NAIOP’s end goal, Mooney says, is to give members insight into how and why the projects on the tour came together, what they will be and the trends to which they speak.

Where: Tempe Center for the Arts When: Thursday, October 23, 2014 Tickets: $50 for members, $100 for nonmembers (includes cocktails and hors d’oeuvres).

By Amanda Ventura

Stop 1: Hayden Ferry Lakeside III

Developer: Parkway Properties General Contractor: Ryan Companies US, Inc. Architect: DAVIS Location: Tempe, Ariz.

Size: 311,505 SF (including parking garage) Brokerage Firm: CBRE Value: $42 million Start/Completion: April 2014 to September 2015 Subcontractors: CECO Concrete, Kovach Building Enclosures, Kearney Electric, Comfort Systems, W.J. Maloney Plumbing Hayden Ferry Lakeside was the first major development along Tempe Town Lake and precipitated other, more recent developments such as Marina Heights, the new home of State Farm. The boat-shaped, nautical-themed Hayden Ferry Lakeside buildings I and II were completed in 2002 and 2007, respectively. The last phase of the three-building project, HFL III, broke ground in May 2014. It is a 267KSF, 10-story, Class-A office building with one level of below grade parking that ties into an existing parking garage.

Stop 2: Liberty Center at Rio Salado

Developer: Liberty Property Trust General Contractor: Wespac Construction Architect: RSP Architects Location: 1850 W. Rio Salado Parkway, Tempe, Ariz.

Size: 155,000 SF Brokerage Firm: CBRE Value: WND Start/Completion: December 2013 to September 2015 Subcontractors: Quality Building Maintenance, Speedie & Associates, Hunter Engineering, Arizona Traffic Signal, Buesing Corp., Gunsight Construction, Mister Bugman, Torrent Resources, Desert Services, JJ Sprague of Arizona, The Landscape Broker, Suntec Concrete, Coreslab Structures, Re-Create Companies, Bernies Brass, S&H Steel, E2 Innovations, Fine Line Cabinetry, Rite-Way Thermal, Diversified Roofing, AK&J Sealants, Walters & Wolf, American

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T H G IA I R D Y E P M O C BIG Z A Stop 3: Marina Heights

Developer: Sunbelt Holdings / Ryan Companies US, Inc. General Contractor: Ryan Companies US, Inc. Architect: DAVIS Location: Tempe, Ariz.

Size: 2,095,000 GSF Brokerage Firm: Phoenix Commercial Advisors (Retail) Value: $600 million Start/Completion: 2013 to est. 2017

Direct, Demers Glass, Stucco Renovations of Arizona, Adobe Drywall, Berg Drywall, Wholesale Floors, Adobe Paint, Ganado Painting & Wallcovering, Trademark Visual, Partitions & Accessories, Thyssen Krupp Elevators, Ryan Mechanical, RCI Systems, Alpine Mechanical, DP Electric, Simplex Grinnell, Arizona Control Specialist, Cookson Door Sales, U.S. Mobile Communications, Norcon Industries, Standard Restaurant Equipment, Mountain States Drapery

Subcontractors: Buesing, Suntec Concrete, Walters & Wolf, Delta Diversified, Harder Mechanical, HACI, Sun Valley Masonry, Brothers Masonry, Sturgeon Electric, Jencco, Kovach, Otis Elevator, Olympic West, Aero Automatic, Alliance Fire Protection, Berg Drywall, Adobe Drywall, Custom Roofing, Progressive Roofing, Red Pont, Speedie, CTS, Meade Engineering, Kraemer Consultants, EME, Design Element This project is the new hub office campus of State Farm, a Midwestern insurance company. The LEED Silver design concept covers an area of approximately 20 acres and includes five office

At full build-out, Liberty Center at Rio Salado is a 1MSF mixeduse project at the northwest corner of Rio Salado Parkway and Priest Drive. The 100-acre property will focus on high-performance buildings with a sustainable design built to achieve LEED Silver certification. Designed to accommodate the businesses of today, the project features a 6/1,000 parking ratio and is just minutes from the downtown Tempe entertainment district and Sky Harbor Airport.

towers of varying heights; three to four stand-alone retail buildings; and two below grade parking garage levels.

Approximately 40KSF of retail amenities will complement the transit-oriented development and include food service, coffee shops, restaurants, business services and fitness facilities.

The site will also feature a 10-acre lakeside plaza, which will be open to the public. The total project will consist of approximately 2,040,000 gross square feet of office and retail space and 8,600 parking spaces.

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NAIOP-AZ

NAIOP-AZ NOTABLE 1

2

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4

1. 10 West Logistics Center Developer: Wentworth Property Company General Contractor: Graycor Architect: Butler Design Group, Inc. Location: 6200 W. Van Buren St., Phoenix Size: 660KSF Start/Completion: Summer 2014 10 West Logistics Center is an 80-acre, Class-A masterplanned bulk distribution business park. The high-image facilities offer 36-foot clearance, ESFR sprinklers, energy efficient motion sensor lighting, dock-high loading and trailer and car parking.

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2. American Furniture Warehouse â&#x20AC;&#x201D; Glendale Developer: American Furniture Warehouse General Contractor: D.L. Withers Architect: Butler Design Group, Inc. Location: SEC 99th Ave. and Bethany Home road, Glendale, Ariz.

Size: 600KSF Value: $25M Start/Completion: March to August 2014 Located on the east side of 99th Avenue at the southeast corner of 99th Avenue and Bethany Home Road, American Furniture Warehouse (AFW) is a single-tenant retail development that supports the City of Glendaleâ&#x20AC;&#x2122;s desire for high quality retail in the area. The one-story building is approximately 534KSF on 36 acres of land fronting on 99th Avenue. The building will consist of approximately 152KSF of showroom, 382KSF of warehouse space and 60KSF of mezzanine within the warehouse area.

3. Amkor Corporate Headquarters Developer: Ryan Companies US, Inc. General Contractor: Ryan Companies US, Inc. Architect: PHArchitecture Location: Tempe, Ariz. (ASU Research Park) Size: 101,949 SF Brokerage Firms: Cassidy Turley (Ryan Cos.) and CBRE (Amkor) Start/Completion: March 2014 to est. January 2015 Subcontractors: Suntec Concrete, Ace Asphalt, Delta Diversified, Saguaro Steel This is the new 101,949 SF corporate headquarters for Amkor Technology, Inc., featuring an open office concept for approximately 350 employees with large training and conference areas.

4. Aspera Developer: Cardon Development Group General Contractor: TBD Architect: Butler Design Group, Inc. Location: NWC 75th Ave. and Loop 101, Glendale, Ariz.

Size: 83KSF Start date: September 2014 The commercial retail parcels are a collection of eight single story buildings comprised of four pad sites, three shop buildings anchored by a single 39KSF Mountainside Fitness (Cardon Development Group, Ryan Companies, Butler Design Group, $5M, September 2014 to February 2015) on less than 17 acres.

PROJECTS 5

6

THE CRITERIA: • Property must be owned or have non-refundable earnest money in escrow by 8/1/14 • Property must have proper zoning in place by 8/1/14 • Property must be bigger than 100KSF

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7

5. AZ 202 Commerce Park Developer: ViaWest Group General Contractor: TBD Architect: Ware Malcomb Location: Arizona Avenue & 202 Loop Size: 260,600 SF Brokerage Firm: Cassidy Turley Value: $20M Start/Completion: November 2014 to May 2015 Subcontractors: TBD Two industrial buildings comprised of 139KSF and 122KSF grade level and dock-high loading and 28- to 30-foot clear heights. The property is one turn to diamond interchange at Arizona Avenue and the Loop 202 freeway.

6. Centrica Developer: Phoenix Rising Investments General Contractor: Willmeng Construction Architect: Nelsen Partners Location: 1550 W. Southern Ave., Mesa, Ariz.

Size: 140,000 SF Brokerage Firm: Cushman & Wakefield of Arizona Completion date: November 2014 The adaptive re-use development will turn three shuttered, big-box retail stores into a Class-A office building expandable to 140KSF. Its location in the Fiesta District and a robust fiber optic infrastructure make Centrica ideal for tech companies seeking a headquarters or office space.

7. Coldwater Depot III Developer: Trammell Crow Company General Contractor: D.L. Withers Construction Architect: Butler Design Group, Inc. Location: Avondale, Ariz. (NEC 127th Avenue and Van Buren Street) Size: 187KSF Brokerage Firm: CBRE Value: $10M Start/Completion: Nov. 1 2014 to April 30 2015 Coldwater Depot Logistics Center Phase III is the final phase of a three building master plan developed by Trammell Crow Company and Clarion Partners. The previous two phases were sold in Q42013 to Lake Washington Partners. The 11-acre site, located just south of the Interstate 10 Freeway in Avondale, Ariz., will feature one 187KSF, Class-A distribution building.

8. GoDaddy Global Technology Center Developer: Ryan Companies US, Inc. General Contractor: Ryan Companies US, Inc. Architect: PHArchitecture (shell); Ajanta Design (interiors) Location: Tempe, Ariz. (ASU Research Park) Size: 150KSF Brokerage Firm: Cassidy Turley (Ryan Cos.); CBRE (GoDaddy) Value: $30M Start/Completion: September 2013 to est.

September 2014 Subcontractors: Gunsite Construction Corp., Suntec Concrete, Carlson Glass Inc., JD Sun Mechanical, Berg Drywall This 150KSF, two-story facility providing creative space for 1,300 employees, including engineers, developers and customer-care representatives.

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11

10

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9. Kyrene 202 Business Park - Phase I Developer: EastGroup Properties, Inc. General Contractor: The Renaissance Companies Architect: Butler Design Group, Inc. Location: 200 S. Kyrene Road, Chandler, Ariz.

Size: 120KSF Brokerage Firm: Colliers International Kyrene 202 Business Park is a six building, front-park, rear-load business park designed to attract customers needing a minimum of 8KSF up to 122KSF. The project will contain state-of-theart features such as 24-to 30-foot clear heights, ESFR sprinkler systems, T-5 warehouse lighting and a parking ratio in excess of two per thousand square feet. Phase I, consisting of 119,933 SF, is currently under construction with an estimated completion during September 2014 and Phases II and III, totaling 285,800 SF, will be constructed in 2015.

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10. Living Spaces Furniture Showroom and Distribution Center Developer: Irwin Pasternack General Contractor: Ryan Companies US, Inc. Architect: Irwin G. Pasternack, AIA & Associates Location: Phoenix Size: 437,234 SF Value: $14M Start/Completion: April 2013 to February 2014 Subcontractors: Hard Rock Concrete, Ace Asphalt, JB Sun Mechanical, Chas Roberts This 437,234 SF showroom and distribution facility, includes 314,384 SF of warehouse and distribution space, a 122,850 SF showroom, and a receiving dock with 35 truck bays. Ryan also built the surrounding infrastructure, including roads and traffic signals.

11. Mach One — – Chandler Airport Center Developer: Trammell Crow Company General Contractor: TBD Architect: Butler Design Group, Inc. Location: NWC Cooper & Germann Roads, Chandler, Ariz.

Size: 200KSF Value: $5.388M Start/Completion: 2Q to 4Q 2015 Brokerage Firm: Colliers International This spec office space within the Chandler Airport Center is comprised of two, 100KSF two-story buildings.

12. Parc 17 Developer: Jackson Shaw Company & LaPour Cos General Contractor: Nitti-Graycor Architect: McCall & Associates Location: NWC 7th Ave & I-17 Size: 177,750 SF Brokerage Firm: Lee & Associates Value: $14M Start/Completion: November 2014 to May 2015 Parc 17 is a Class-A industrial development fronting Interstate 17 less than three miles from Sky Harbor Airport. Parc 17 offers a 101,290 SF multi-tenant industrial building with dock high, grade level loading options as well as ownership opportunities featuring over-standard secure storage yards and dock high loading capabilities sized from 31,862 or 44,592 SF. All buildings are constructed to a 28-foot foot clear height and equipped with ESFR sprinkler systems.

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13. Park Lucero Developer: Trammell Crow Company General Contractor: D.L. Withers Construction Architect: Butler Design Group, Inc. Location: Gilbert, Ariz.

Size: 631KSF Brokerage Firm: JLL Value: $46M Start/Completion: Aug. 1 2014 to March 1 2015 Park Lucero is a new Class-A industrial development located along the south Loop 202 Freeway developed by Trammell Crow Company and Artis REIT. This ±48.3 acre project features six buildings totaling 631KSF. It’s one of the newest and largest developments in the Southeast Valley of its kind.

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14. Playa del Norte Developer: Irgens Partners General Contractor: TBD Architect: WorksBureau Location: 979 E. Playa del Norte Dr., Tempe, Ariz.

Size: 103KSF Brokerage Firm: Cushman & Wakefield of Arizona Start/Completion: TBD Playa del Norte is a nine-story, 103KF buildto-suit, Class-A office building in Tempe. It offers convenient access to the Southeast and Northeast valleys, Sky Harbor International Airport and the 101 and 202 freeways.

15. Portico Place II Developer: Irgens General Contractor: TBD Architect: Archicon Location: 2195 W. Chandler Blvd. Chandler, Ariz.

Size: 49,175 SF Brokerage Firm: Lee & Associates Value: TBD Start/Completion: September 2014 to March 2015 Portico Place II is a 49KSF, two-story, Class-A multi-tenant office building breaking ground in fall 2014. With modern design amenities, energy efficient construction, and large 25KSF floor plates, Portico Place II will be the premier Class-A office building in Chandler for corporate users. Located just off Chandler Boulevard and Dobson Road, the property provides prospective tenants a highly visible and accessible location. Portico Place II enjoys a retail-type presence with many desirable amenities within a one-mile radius including Chandler Fashion Square Mall. In addition to being less than one mile from the Chandler Regional Hospital, the project is in close proximity to major employers such as Intel, Microchip, Bank of America and Orbital Science.

16. Reserve at San Tan - Phase II Developer: Orsett Properties General Contractor: Willmeng Construction Architect: Butler Design Group, Inc. Location: 339 E. Germann Rd., Gilbert, Ariz.

Size: 104,425 SF Brokerage Firm: Newmark Grubb Knight Frank Value: WND Estimated completion: December 2014 Phase II of the Reserve at San Tan includes construction of Building No. 4, a single-story office building with multiple options for tenancy, including mezzanine or second floor capabilities.

The Reserve is a 39-acre, Class-A business park.

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17. Rivulon 1 & 2 Developer: Nationwide Realty Investors General Contractor: TBD Architect: Butler Design Group, Inc. Location & City (major crossroads/exact address): NEC of Gilbert Road and San Tan Freeway, Gilbert, Ariz.

Size (SF): 150KSF; 125KSF Brokerage Firm: Lee & Associates Start/Completion: 4Q 2014 to 4Q 2015 Rivulon 1 is a three-story build-to-suit building for Isagenix. Rivulon 2 is a four-story speculative office building. Both projects will be submitted for LEED Certification.

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18. Scottsdale Quarter III, Block M Developer: Glimcher Realty Trust General Contractor: IBEX Construction Architect: Nelsen Partners Location: 15059 N. Scottsdale Rd., Scottsdale, Ariz.

Size: ±170KSF Brokerage Firm: CBRE Value: WND Start/Completion: Summer 2014 to summer 2015 Scottsdale Quarter is the premier mixed-use project in Greater Phoenix, located on 28 acres at the southeast corner of Scottsdale Road and Greenway-Hayden Loop. At complete build-out, Scottsdale Quarter will include more than 1MSF of office, retail, residential and hotel space. The dozens of restaurants and shops on-site offer an unmatched walkable amenity base in the heart of upscale Scottsdale. Phase III will add another 140KSF of Class-A office space.

20

19. SkySong III Developer: The Plaza Companies General Contractor: DPR Construction Architect: Butler Design Group, Inc. Location: 1365 N. Scottsdale Rd., Scottsdale, Ariz.

Size: 148,960 SF Brokerage Firm: Lee & Associates Value: $12M Start/Completion: August 2014 This a four-story multi-tenant office building more than 80 percent leased. This project has been submitted for LEED Silver certification.

20. SkySong IV Developer: The Plaza Companies General Contractor: DPR Construction Architect: Butler Design Group, Inc. Location: 1355 N. Scottsdale Rd., Scottsdale, Ariz.

Size: 150KSF Brokerage Firm: Lee & Associates Start/Completion: October 2014 to August 2015 This is a four-story multi-tenant office building. This project will be submitted for LEED certification.

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NAIOP-AZ

NAIOPâ&#x20AC;&#x2122;S NOTABLE PROJECTS 21

22

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23

21. Spectrum Ridge Developer: Trammell Crow Company General Contractor: TBD Architect: Butler Design Group Location: Phoenix Size: 220KSF Brokerage Firm: CBRE Value: $19M Start/Completion: Aug. 15 2014 to March 1 2015 Spectrum Ridge is a Class-A industrial development located in the Deer Valley submarket on 7th Street, one mile north of the Loop 101 Freeway, developed by Trammell Crow Company and Principal Real Estate Investors. This Âą14.4acre project features three buildings totaling 220KSF.

94 | September-October 2014

22. Tolleson Corporate Park, Building E Developer: Merit Partners, Inc. General Contractor: The Renaissance Companies Architect: Butler Design Group, Inc. Location: 777 N. 79th Ave., Tolleson, Ariz.

Size: 580KSF Start/Completion: 2015 This is a single-story industrial build-to-suit project.

23. Westech Developer: Seefried Properties General Contractor: TBD Architect: Butler Design Group, Inc. Location: 300 E. Palomino Dr., Chandler, Ariz.

Size: 126,360 SF Start/Completion: TBD Westech proposed 126,360 SF single-user speculative industrial/manufacturing building.

Truck loading and receiving located on the east side of the building with cross-dock capability on the west side. The north side of property is planned for outside storage or building expansion.

24. WL Gore & Associates Manufacturing, Building 3, Phase II Developer: W.L. Gore & Associates General Contractor: Ryan Companies US, Inc. Architect: Reece Angell Rowe Architects Location: Phoenix Size: 132,900 SF Value: $35M Start/Completion: June 2012 to December 2013 Subcontractors: University Mechanical, Kearney Electric, Metal Weld, Baker Concrete, Berg Drywall, KT FAB This 132,900 SF facility includes office, warehouse and clean rooms spaces. A walkable ceiling above the clean rooms allows workers to change out light bulbs and air filters without interrupting production. An exercise room, kitchen area and volleyball courts help to promote employee wellness.

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