SEPTEMBER-OCTOBER 2016
TOP 10 OFFICE
SPACES p. 36
INSIDE:
Market Update p. 26 East Valley Cities
AMA p. 44
Arizona Multihousing Association
NAIOP p. 56
Roundtable Discussion
POWERING YOUR PROSPERITY Danny Gabriel Colrich Communities, Inc. Active Member and Supporter of Challenged Athletes Foundation Walker & Dunlop borrower since 2013
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Changing season
T
his time of year brings with it annual changes. School is back in session, football season is starting up and autumn is around the corner. Other changes can be seen in the commercial real estate industry, where the latest tenant and market demands are reshaping the places we work, live and play.
More and more tenants — whether it be office, multifamily or industrial— are hoping to take their companies to the next level by providing an amenity rich environment with convenient access to desired resources and activities. It was interesting to learn about the new features and designs being used to attract and retain the best workforce. In this issue, you’ll find a list of 10 cool offices (Page 36) that may leave you wondering what took so long for companies to include go-karts, floor-to-ceiling windows and upgraded common areas with billiards, games and hoverboards. In the multifamily market, homeownership is at an all-time low and more people are looking at renting as the better option. Experts from the Arizona Multihousing Association share insights regarding how amenities and urbanization are driving the luxury multifamily market in the Valley (Page 44). Also in this issue, NAIOP leaders deliberate the biggest issues and trends impacting commercial real estate (beginning on Page 56) during their annual roundtable discussion. An old Bob Dylan song says, “The times they are a-changin’.” And with these changes comes new opportunities, growth and competition, all of which are positive signs to the industry’s continued progress.
President and CEO: Michael Atkinson Publisher: Cheryl Green Vice president of operations: Audrey Webb EDITORIAL Editor in chief: Michael Gossie Associate editor: David McGlothlin Interns: Jesse Canales | Matt Durack | Alyssa Hesketh Taylor Neigum Contributing writers: Keyvan Ghahreman | Jake Hinman Tim Lawless | Courtney LeVinus | Cheryl L. Lombard Deb Sydenham ART Art director: Mike Mertes Graphic designer: Anita Richey Intern: Shannon Finn DIGITAL MEDIA Digital editor: Jesse A. Millard MARKETING/EVENTS Marketing & events manager: Heidi Maxwell Marketing coordinator: Kristina Venegas OFFICE Special projects manager: Sara Fregapane Executive assistant: Mayra Rivera Database solutions manager: Cindy Johnson AZ BUSINESS MAGAZINE Senior account manager: David Harken Account managers: Jennifer Heberlein | Brit Kezar | Bailey Young AZRE | ARIZONA COMMERCIAL REAL ESTATE Director of sales: Ann McSherry AZ BUSINESS LEADERS Director of sales: Sheri Brown RANKING ARIZONA Director of sales: Sheri King EXPERIENCE ARIZONA | PLAY BALL Director of sales: Jayne Hayden
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CREATIVE DESIGNER Director of sales: Joe Freedman AZ BUSINESS ANGELS Director of sales: Felix Mayo 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. ©2016 by AZ BIG Media. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from AZ BIG Media.
2 | September-October 2016
CONTENTS
FEATURES 2 Editor’s Letter 6 Up Front 10 New to Market 12 Executive Profile 14 After Hours 16 Big Deals
20 Legislative Update
36
26 East Valley Market Update
34 Office Interiors 36 Top 10 Offices
44 Arizona Multihousing Association
26
49 NAIOP
49 On the cover:
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4 | September-October 2016
GO TO store.azBIGmedia.com to purchase subscriptions, digital issues and plaques
44
Coming February 2017
THE 12 th ANNUAL RED AWARDS Real Estate and Development Awards, are Arizona’s most comprehensive annual real estate awards. CATEGORIES • BROKERAGE
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UP FRONT PROJECT NEWS
Q2 PHOENIX MARKET REPORT
By MATT DURACK
NEW MEDICAL OFFICES The Arrowhead Orchards development is scheduled to see the first medical office building spec project in the area since the recession. It will bring 22,700 square feet of new product to the market near the Abrazo Arrowhead Campus, which is a major benefit for future users along with unique leasing options. Current tenants include a mix of healthcare providers, including HonorHealth, TOCA, US Oncology, Center for Venous Disease, Arizona Center for Urology and SimonMed Imaging, among others.
P83 GETS UNIVERSITY Huntington University, the Arizona Center for Digital Media Arts, opened in the West Valley on August 29. The school, Peoria’s first stand-alone university, offers fouryear BA and BS degrees in digital media arts at the repurposed three-story building, which was the former Dolce Salon & Spa at Peoria’s P83 entertainment district. The 30,000-square-foot liberal arts university’s Peoria campus consists of two studios, a control room, a screening room, a 50-seat theater, editing labs, a student lounge, faculty offices and computer media labs. 6 | September-October 2016
I
t’s that time of year again when commercial real estate firms analyze market activity based on numbers and reports from the first two quarters of the year, and predict how that will impact the rest of 2016 through next year. Experts in their respective markets weighed in on the findings from quarter two reports in this mid-year market update of Greater Phoenix. Overall, the commercial real estate market appears to be steadily progressing in the right direction but not all markets are seeing equal levels of activity.
MEDICAL • Trends: Vacancy down, rent rates up, net absorption up • Key stat: Vacancy dropped 180 basis points over the last year • Outlook: Expectations for tenant demand to rise to its highest since a decade ago The first half of 2016 has seen a very sharp decrease in vacancy for medical offices in the Greater Phoenix area, with increases to asking rents and tenant demand. Vacancy at the end of the second quarter was resting at 16-percent, down 180 basis points since Q2 of 2015. Additionally, asking rents have risen a modest 2.5-percent, indicating the medical market is beginning to trend in the right direction. Michael Dupuy, vice president at Colliers, partly credits the changing attitudes of physicians toward new
David Clifford
Michael Dupuy
healthcare structures for the encouraging trends in rent rates and vacancy. “I think physicians are more comfortable with their business models and compensation structures than they were after the healthcare reform,” he says. “I am optimistic we’ll see physicians and healthcare users continue to explore reasons why they should grow as opposed to why they should contract.” Dupuy predicts that now that there is growing attitudinal shift among physicians, the market will see much more of a smoother recovery into the rest of 2016, expecting the tenant demand to rise to its highest since nearly a decade ago.
MULTIFAMILY • Trends: Vacancy up, rent rates up, transaction activity up • Key stat: Rents rise over 8 percent during the last 12 months • Outlook: Decreases in vacancy, increases in rent rates For the multifamily market, the second quarter was almost all positive. With rents already steadily rising, Q2 continued showing strength, and the improvement is not projected to wane anytime soon. While vacancy rose to 5.9-percent, a typical uptick for the summers in Phoenix, investment activity saw a peak it hasn’t seen since 2007, with more properties being exchanged this quarter than any quarter since that year. Cliff David, vice president of investments at Marcus and Millichap, attributes this historic peak in sales activity to the changing trends of the younger consumers. “That younger cohort historically, before this cycle, was buying homes,’ he says. “Now we’re seeing more of those folks rent, especially multifamily.” David says he feels the market now is more likely to be sustainable than when it peaked in 2007, due to Phoenix’s desirability as an affordable market. “Phoenix is a better value than some of the other major markets we compete with for capital,” he explains. “So you Larry Miller couple our strong
PROJECT NEWS
PHOENIX REAL ESTATE CYCLE
Peak Market
p Ex Re c
ess
Re co
ion
ve r
an
Co nt
sion
r ac
t ion
y
EAST VALLEY CANCER CENTER
Market Bottom - 2010
Current Market
2016 Medical Q2 Summary Statistics
1
112.3
86.4 52.6
16
17.5
59.5
59.9
15.7
Vacancy (%)
26.5
Under construction (KSF)
Net absorption (KSF)
Asking rents ($) Off-Campus MOB
On-Campus MOB
Phoenix Market
22.80 26.35 21.22
2016 Multifamily Forecast 9,100 units will be completed
4.5%
2
6.5%
Year to Date
392,789 SF
quarterly absorption
1,017,159 SF net absorption
9.4% overall vacancy
NEW RETAIL SPACE IN PEORIA
in effective rates - $937/month
2016 Retail Q2 Summary Statistics
1
Year to Date
888,405 SF
under construction
Arizona Oncology broke ground on a new state-of-the-art cancer treatment center at Arizona State University Research Park. The new 21,000-square-foot facility will offer medical, radiation and gynecologic oncology, as well as hematology services, giving patients in the East Valley region a new treatment option for comprehensive advanced cancer care. The new center is scheduled to open in April 2017.
542,739 SF completions
$13.93 asking rents
Evergreen Development broke ground on a 7,550-square-foot multi-tenant retail building in Peoria. Evergreen chose Phoenixbased Vertical Design Studios as the architect for the project and Phoenix-based GCON, Inc. as the general contractor. Evergreen anticipates the project to be completed by the end of October and the first tenants to open doors in January 2017.
1
Source: Retail and Medical research market report for Greater Phoenix courtesy of Colliers International. 2 Multifamily research market report for Phoenix Metro area courtesy of Marcus & Millichap.
fundamentals, the favorable corporate tax structure that we offer as a state, and the value to buy apartments here relative to other major metros in the west, Phoenix has a really good story.”
RETAIL • Trends: Vacancy down, rent rates up, net absorption down • Key Stat: Retail vacancy drops 60 basis points lower than one year ago • Outlook: Continuous improvement at modest rate
With vacancy trending downward and rents rising, the Phoenix retail market is showing very measured and steady improvement. However, notable closures of large retailers such as Sports Authority and Carl’s Jr. have served as setbacks and affect the market’s overall net absorption numbers. Larry Miller, associate vice president specializing in retail leasing at Colliers International, believes that despite the dip in net absorption from these closures, he still views the market as strong.
METROCENTER WELCOMES SUPERCENTER The ground breaking of the Walmart Supercenter represents the single largest capital investment in MetroCenter Mall in decades and a revitalization effort. The 148,000-square-foot store will be located on the south side of the mall and is slated to open in spring 2017. 7
UP FRONT 2016 Industrial Q2 Market Indicators 2,196,000 11.3
2,756,000 2,684,000
497,000
9.6
0.52
Net absorption (SF)
Vacancy (%)
Q2 2015
1
Under construction (SF)
0.54
Asking rents ($)
Q2 2016
2016 Economic Indicators
1
Rob Martensen 2Q 2015 2Q 2016
1,900K 1,962K
5.2% 4.7%
5.4% 4.9%
Phoenix Employment
Phoenix Unemployment
U.S. Unemployment
OFFICE
2016 Office Rental Rates by Submarkets $ 25 20
25.66 19.95
22.39
22.41
Airport Area
Central Corridor
2
24.92 22.12
22.43
21.58
15 10 5 NW Phoenix
East Phoenix
West Valley
East Valley
North Phoenix
Scottsdale
Source: 1 Phoenix industrial market report courtesy of Cushman & Wakefield. 2 Phoenix office market report courtesy of Cresa.
“We’re still moving forward to an extent,” he says. “The big key for the second half of the year will be how we’re affected by the Sports Authority closures and the like.” Despite these closures, the market numbers are improving in small increments. According to Colliers’ mid-year retail market report, average asking rent has risen by 3.3-percent over the last year. Vacancy has dipped as low as 9.4-percent. Total sales activity over the first half of the year is up 36-percent from the first half of last year. Miller believes this momentum will continue into the second half of the year, where retail expansion is typically stronger.
INDUSTRIAL • Trends: Vacancy flat, rent rates up, net absorption down • Key stat: Net absorption in Q2 is down for the first time in 12 quarters • Outlook: Market set to improve with a strengthening housing market 8 | September-October 2016
Ryan Timpani
Sales and leasing activity of industrial buildings have both been accelerating over the first half of the year, but the market is still very much in recovery, according to Rob Martensen, senior vice president at Colliers. Martensen attributes the drop in net absorption to the increase in industrial buildings over the first half of the year. “The net absorption number is not as good as it should be, just because there’s a lot of new construction,” he says. “If new construction slows down, which I think it will, and leasing continues, then we’ll start to absorb more space.” The Colliers mid-year report projects net absorption to reach 6.7 million square feet by the end of the year. Martensen projects that the market will continue to show steady improvement with the rise of the housing market. “We’re recovering without housing, and industrial is always real dependent on housing. If and when housing comes back, I think [industrial] will really get going,” he adds.
• Trends: Vacancy up, rent rates up, net absorption up • Key stat: Net absorption totals surpass 4.7 million square feet over the last 12 months • Outlook: Remain healthy as job growth continues to rise Ryan Timpani, vice president at Colliers specializing in office leasing and sales, called Q2 of 2016 “one of the strongest quarters we’ve had in the last few years.” The numbers seem to support this claim: net absorption is seeing its strongest 12-month period since 2007, vacancy has dipped to 16.6-percent from 18.1-percent at Q2 2015, and rental rates have risen 5.5-percent over the past year as well. Healthy job growth in the Greater Phoenix area is largely responsible for this hugely successful quarter, according to Timpani. He says the numbers are a result from the influx of companies relocating to Phoenix, as well as a surge of brand new companies. “We continue to see both existing companies hire and save more space in addition to some corporate relocations from out of market,” he explains. “So many new companies have rather quick occupancy dates, so they don’t have the benefit of waiting for new construction, so they’re gobbling up existing inventory.” This success is projected to last through the rest of 2016 and potentially onward. “Everyone seems to think that the fundamentals are strong enough for this momentum to carry well into 2017,” Timpani adds. “Employers are still feeling relatively confident of the state of the economy right now, and can continue to hire and add more jobs.”
PRIMED FOR PROGRESS
Peoria announces plans for West Valley innovation center BY DAVID MCGLOTHLIN
T
he City of Peoria prepares to take the next steps in positioning itself as an up-and-coming hub for innovation and technology with the development of a 17-acre innovation center. Its goal is to create a synergistic environment through the rejuvenation of the P83 Entertainment District that puts Peoria on the shortlist for attracting new companies to the area, which is already rich with existing assets, amenities and an educated workforce. The innovation center will offer class A offices and mixed-use space to attract high-level innovation and technology companies in fields like biotech, software design and data research to Peoria. Located in the heart of the P83 district on 83rd Avenue south of Bell Road, the innovation hub will occupy a portion of Peoria Sports Complex’s parking lot. Scott Whyte, City of Peoria economic development director, sees enormous potential for P83 through the creation of the innovation center for a list of reasons, one of the biggest being that Peoria currently has zero class A office space. “We are looking to create an environment where our citizens can be employed,” says Peoria Mayor Cathy Carlat, who also sees the upside of this project, which continues to receive wide spread support and collaboration from the city council, her office, city managers and private entities. She explains more than 80 percent of Peoria’s residents leave the city for work each day. “We need to transform ourselves into a complete city where our citizens can work, play and raise their families,” she adds. Whyte points to that statistic as an indicator of a large, well-educated workforce in Peoria that is being underutilized. He explains, “Those talented employees want to be in a P83 district equivalent that has within walking distance restaurants, retail, entertainment, Arrowhead Mall, Bell Road businesses and a spring training venue.”
Whyte adds the class A offices at the center “will cost significantly less than other East Valley cities since the land doesn’t cost as much.” The City of Peoria started moving on plans in March when it hosted an investment forum to pitch its vision for the 17-acres site. Then in July, the city entered into an exclusive negotiating agreement with Plaza Companies, founded 34 years ago and headquartered in Peoria, which also led development at Sky Song within the ASU Research Park. Whyte quickly points out that Peoria’s innovation center “will not be Sky Song West.” He adds, “It will have its own flavor and distinctive design to provide a sense of place.” “The platform and the foundation for this project is truly the vision that the City of Peoria has to create an outstanding sense of place to attract companies with strong employment to take advantage of the assets of the community,” says Sharon Harper of Plaza Companies. “We understand the components to create this sense of place, a magnet Cathy Carlat for businesses and
jobs,” she explains. The site is already well poised to take advantage of what’s already been built around it. Harper adds, “It’s a site surrounded by all the things you dream about when you want a great project, the retail, bars, restaurants, entertainment, hiking, lifestyle, schools, landscape” and the list goes on. P83’s innovation campus announcement continues to generate a lot of interest in the brokerage community and higher-level tenants who see the opportunity of what the city is doing with P83. Meanwhile, Plaza Companies is currently finalizing documents and site plans “that will set this project to the head of the class in the West Valley for great spaces to work and great spaces for companies to call their home or headquarters,” Harper says.
Sharon Harper
Scott Whyte 9
EXECUTIVE PROFILES
INVESTING IN THE FUTURE
McCarthy's new president plans to follow the roadmap paved by mentor PHOTO BY MIKE MERTES, AZ BIG MEDIA
By DAVID MCGLOTHLIN
J
ustin Kelton stepped foot on his first construction site at age 18 after being hired with his twin brother as trade laborers by project manager Bo Calbert. Fast-forward 28 years and Kelton is succeeding Calbert, a longtime friend and mentor, as McCarthy Building Companies’ southwest division president. Kelton describes their first job together in New Hampshire as life changing. “It opened my eyes to all the possibilities,” he adds, knowing then that construction was something he wanted to come back to. So he did. Kelton joined the United States Marine Corp. and earned civil and environmental engineering degrees from a technical school while staying in touch with Calbert about what he wanted to do after. It was 2001 when Kelton again found himself being interviewed and later hired by Calbert as a project engineer for McCarthy’s southwest division in Phoenix. Since then, Kelton quickly moved up the leadership ranks as a result of his vast range of experience on all product types and Calbert’s coaching,
10 | July-August 2016
which concentrated on continuously improving not only yourself but also the people around you and their communities to make them better. “Thanks to Bo’s mentoring over the past 15 years, and our development of such an outstanding leadership team, we’re poised for the next chapter at McCarthy Southwest,” Kelton says. “What’s ahead is more of the same: entrepreneurial innovation, growth and community stewardship.” From the start, Kelton connected with the mentality at McCarthy as community based builders embracing innovation and investing in the communities it builds in. “It’s more than just constructing the buildings,” says Kelton. “It’s supporting the community’s foundation and being a part of that community.” He admits, “Building is definitely a part of it but it’s also about building communities by servicing their needs and investing in where it counts.” Just like Bo, Kelton is steadfast in his commitment to maintaining the firm’s culture of community engagement. He serves in a leadership role with the American Heart Association’s Greater Phoenix Chapter, the Support Sky Harbor Coalition, Arizona Builder’s
Alliance as well as positions with the American Society of Civil Engineers and WESTMARC. “I’m really passionate about our industry and we all have an invested interest in our communities,” Kelton explains. “The better we are as human beings, the better we do for our clients because we really do care and want to deliver everything they need.” One project near and dear to Kelton was building the first facility for the Western Maricopa Education Center, a technical institute, which aims to help remedy the skilled laborer shortage while providing valued jobs and careers. Kelton also had a part in the company’s development of national business groups in water/wastewater and renewable energy. Meanwhile, he worked on developing and expanding the division’s educational services as well by launching a Job Order Contracting business for smaller projects. The legacy he wants to leave “is as the best builder out there and bringing all the lessons learned to the table as a trusted partner supporting the community while expanding into new markets because we bring value in our efforts to make where we work and live a better place,” he adds.
AFTER HOURS
Eye of the architect Viewing work and the world through unique lens By DAVID MCGLOTHLIN
F
or Jim Larson, a keen eye for composition and all facets of architectural design, links his professional experience as an architect to his pursuits in photography. “Photography is connected to my day job but also connected to the way I see the world,” says Larson. A world he frequently sees during his travels abroad accompanied by his wife of 41-years, Debra, and his camera, a Nikon D7100 DSLR. Together they’ve been to most of Europe and plan on returning to Italy in November. That of course is when he is not at work as owner of Larson Associates Architects, Inc., a firm he started in 1995. His journey as an architect began in 1966 at the University of Illinois where he earned his undergraduate and graduate degrees. In 1973, his first job out of school led him to Arizona where he worked as a local architect while teaching architecture classes at the University of Arizona for 14 years. He later moved to Phoenix in 1987 and joined the Arizona State University faculty as a part-time adjunct for three years. Before Larson knew he wanted to be an architect, he started developing a passion for photography back in high school. He learned a few photography techniques and to develop his own film from the 35mm camera he used back in the day. Over the years, his gear has gradually improved as better cameras hit the market, but he admits being glad he learned to develop his own film even though it was a pain. “I try to stay true to what you do to old traditional film,” he explains. “Like adjusting rotation so images are straight, adjusting contrast, color saturation and only about a half dozen
12 | September-October 2016
other traditional techniques.” His knack for producing striking photographs from his travels has landed his works in various different art galleries over the years and even in the possession some fans who have purchased his photos. Larson currently has two photos of his trips abroad on display in the Herberger Gallery display at the Arizona Center. However, the first art show that he was ever featured in resulted from visiting Cuba as part of a 10-person cultural exchange for architects and artists in the fall of 2010. He says his visual training as an architect enables him to identify and pick out things to compose in his photographs, which he shares with other photography enthusiasts who are fellow members of the Photographers Adventures Club’s Facebook group. In addition to photography, Larson also tried his hand with salmon fishing 15 years ago and he adds, “It’s safe to say, ‘I was hooked.’” Every year around late July or early August, he packs a light bag and takes a single-engine seaplane with his fishing buddies to the Coastal Springs Float Lodge, a cabin on a raft about 200
miles north of Vancouver, B.C. The group of fisherman then take out an 18-foot trolling boat and set up their rigs in hopes of catching the 50-pound limits allowed by their fishing permits. Although Larson didn’t catch his 50-pound limit this year, he still remembers the biggest fish he ever caught like it was yesterday, a 34-pound chinook salmon in 2011.
NEW TO MARKET
HOSPITALITY ANDAZ SCOTTSDALE RESORT & SPA
HOSPITALITY EMBASSY SUITES BY HILTON SCOTTSDALE RESORT
OWNER: PV Scottsdale Hotel Owner SPE, LLC DEVELOPER: Chelsea Hospitality Partners GENERAL CONTRACTOR: PWI Construction ARCHITECT: EDG Interior Architecture + Design LOCATION: 6114 N. Scottsdale Road, Scottsdale, Arizona, 85253 SIZE: 22.5 acres START: April 2015 COMPLETION: Q4 2016
DEVELOPER: Snyder Nationwide Real Estate, Inc. GENERAL CONTRACTOR: UEB ARCHITECT: HFS Concepts 4 LOCATION: 5001 N. Scottsdale Road, Scottsdale, Arizona 85250 SIZE: 15 acres, 312 units VALUE: $25M START: July 2015 COMPLETION: July 2016
14 | September-October 2016
(Clockwise from top): Andaz Scottsdale Resort & Spa exterior, interior; Bahia 101; QC District; Proxy333; Embassy Suites by Hilton Scottsdale Resort interior, exterior
MULTIFAMILY PROXY333
OFFICE BAHIA 101
RETAIL QC DISTRICT (PHASE I)
DEVELOPER: Tilton Development Company, Goodman Real Estate GENERAL CONTRACTOR: UEB ARCHITECT: Studio Meng Strazzara, Creative License International (interior design), Studio Sprawl (landscape) LOCATION: 333 E. McKinley St., Phoenix, Arizona 85004 SIZE: 118 units, 234,000 SF VALUE: $19M START: February 2015 COMPLETION: June 2016
DEVELOPER: SAXA GENERAL CONTRACTOR: LGE Design Build ARCHITECT: PHArchitecture (building), Jacobi Interiors (interior design) LOCATION: 8900 E. Bahia Drive, Scottsdale, Arizona 85260 SIZE: 40,000 SF START: August 2015 COMPLETION: June 2016
DEVELOPER: Thompson Thrift Development, Inc. GENERAL CONTRACTOR: Chasse Building Team ARCHITECT: Butler Design Group LOCATION: 20715 E. Rittenhouse Road, Queen Creek, AZ 85142 SIZE: 114,185 SF VALUE: $42M START: June 2015 COMPLETION: May 2016
15
Right place, right time Southwest Phoenix lands top 10 industrial acquisition in the country
By DAVID MCGLOTHLIN
T
he joint venture between Koll Company and Seera Investment Bank for a 1 million-squarefoot distribution center in Southwest Phoenix for $74.75 million ranked among the Top 10 industrial acquisitions of the year in the United States. Koll Company, a California-based company focused on portfolio growth and investment strategy, searched the Phoenix market for about 12 months before this deal happened. It had been active in the Greater Phoenix market since the 1970’s but this marked its most current acquisition in the market since 2008 although the company held onto existing Phoenix assets until 2013. Scott Lanni, Koll’s managing principal, says it was a matter of waiting for the right opportunity, product type and investment partner. The opportunity was a 1,009,351-square-foot facility that is currently fully leased by the Fortune 50 international e-commerce company, Amazon. The product type was an industrial property used as a small package sorting and distribution
16 | September-October 2016
center in the Buckeye Logistics Center. And the investment partner is Seera Investment Bank, a private equity bank from the Kingdom of Bahrain in the Middle East. “We are pleased to add a fully leased project with a world-renowned tenant to our growing portfolio, which provides superior cash returns,” says Gerald O. Yahr, Koll’s managing principal. “Our mission is to create long-term value as well as near term returns for our investors, and this project will be a marquee asset.” An asset that features a great location in the heart of Southwest Phoenix’s industrial hub that’s near the Interstate 10 freeway and a dependable, highly regarded tenant in Amazon. “A lot of stars aligned themselves for us to partner up with Seera Investment Bank,” explains Lanni. “A lot of different things came into line to facilitate us working with Seera as they have very stringent requirements” in accordance to Shari’a law, which includes complicated operational technicalities. The distribution center was built in
Scott Lanni
Gerald O. Yahr
2007 at 6835 W. Buckeye Road and initially totaled 604,768 square feet. It was expanded four years later by 404,673 square feet to accommodate the tenant’s growth. Lanni says this isn’t your traditional industrial property in the sense that value has been enhanced by who the tenant is and its improvements, which includes facility-wide air conditioning, extra security features and additional parking for its 750 employees. Lanni adds he hopes to do a lot more in the Greater Phoenix area and currently has eyes on the Scottsdale and Tempe markets.
It’s the big deals and the brokers who make them, that make the market an interesting one to watch. Here are the Top 5 notable sales from May 15, 2016 to July 31, 2016. Source: Cushman & Wakefield research department, Colliers International and Costar.
INDUSTRIAL/SALES
OFFICE/SALES
BUCKEYE LOGISTICS CENTER 6835 W. Buckeye Road, Phoenix, AZ 85043 1,009,351 SF; $74.75M BUYER: Seera Investment Bank SELLER: Duke Realty Corporation LISTING BROKERAGE: JLL
SCOTTSDALE LANDING 8660-8777 E. Hartford Drive, Scottsdale, AZ 85255 458,272 SF; $94,998,407 BUYER: Wentworth Property Company, LLC SELLER: Troon Management Co. LISTING BROKERAGE: N/A
TEMPE COMMERCE PARK 7340-7360 S. Kyrene Road & 7343 S. Hardy Drive, Tempe, AZ 85283 437,924 SF; $40,827,216 BUYER: BKM Tempe Commerce 112, LLC SELLER: Core Fund Tempe Property, LLC LISTING BROKERAGE: JLL
PARK ONE 2111 & 2141 E. Highland Ave., Phoenix, AZ 85016 195,299 SF; $37,575,527 BUYER: Velocis SELLER: McCarthy Cook & Co. LISTING BROKERAGE: CBRE
CAPITOL COMMERCE CENTER 7037 W. Van Buren St., Phoenix, AZ 85043 552,330 SF; $32,838,000 BUYER: Westcore Properties SELLER: XPO Logistics, Inc. LISTING BROKERAGE: N/A
CENTRICA 1550 W. Southern Ave., Mesa, AZ 85202 116,982 SF; $30M BUYER: 601W Companies SELLER: Phoenix Rising Investments, LLC LISTING BROKERAGE: Meridian Capital Group & JLL
91ST AVENUE PROPERTY 670 S. 91st Ave., Tolleson, AZ 85353 417,600 SF; $27,352,800 BUYER: CT Realty Investors SELLER: States Logistics Services, Inc. LISTING BROKERAGE: Cushman & Wakefield
(2 BUILDING PORTFOLIO), TEMPE 3015 S. Priest Drive & 1330 W. Southern Ave., Tempe, AZ 85282 250,000 SF; $29.3M BUYER: Angelo, Gordon & Co. SELLER: Cordia Capital Management, LLC LISTING BROKERAGE: N/A
CHANDLER CORPORATE CENTER III 485 N. Juniper Drive, Chandler, AZ 85226 81,768 SF; $18.8M BUYER: Universal Health Realty Income Trust SELLER: The Rockefeller Group LISTING BROKERAGE: Colliers International
TERRA VERDE I 16767 N. Perimeter Drive, Scottsdale, AZ 85260 180,445 SF; $27,001,593 BUYER: Wentworth Property Company, LLC SELLER: Troon Management Co. LISTING BROKERAGE: N/A
17
LAND/SALES
MULTIFAMILY/SALES
RETAIL/SALES
NWC 91ST & DEER VALLEY ROAD, PEORIA, AZ 85383 142 ACRES; $30,808,991 BUYER: Maracay Homes SELLER: Communities Southwest LISTING BROKERAGE: N/A
SCOTTSDALE SPRINGS 7791 E. Osborn Road, Scottsdale, AZ 85251 504,088 SF; $80.9M BUYER: TruAmerica Multifamily, LLC SELLER: Abacus Capital Group, LLC LISTING BROKERAGE: CBRE
TANGER OUTLET CENTER WESTGATE 6800 S. 95th Ave., Glendale, AZ 85305 410,664 SF; $66.99M BUYER: Tanger Factory Outlet Centers, Inc. SELLER: iStar Financial Inc. LISTING BROKERAGE: N/A
2631 & 2652 E. PELICAN COURT, GILBERT, AZ 85297 83 ACRES; $20,850,000 BUYER: Toll Brothers Az Construstion Co., Inc. SELLER: Whitewing V, LLC LISTING BROKERAGE: N/A
SAN VALIENTE 2220 W. Mission Lane, Phoenix, AZ 85021 695,138 SF; $71.3M BUYER: M & C Properties, LLC SELLER: Colony Realty Partners LISTING BROKERAGE: CBRE
SILVERSTONE MARKETPLACE 23015-23399 N. Scottsdale Road, Scottsdale, AZ 85255 78,094 SF; $47M BUYER: JLL Income Property Trust, Inc. SELLER: Van Tuyl Companies LISTING BROKERAGE: Eisenberg Company
8235 E. INDIAN BEND ROAD, SCOTTSDALE, AZ 85250 3 ACRES; $17.5M BUYER: Wyndham Resort Development Corporation SELLER: Scottsdale Club Villas Development, Inc. LISTING BROKERAGE: N/A
THE RESIDENCES AT FOUNTAINHEAD 2520 S. Plaza Drive, Tempe, AZ 85282 424,600 SF; $69.5M BUYER: MAA SELLER: Goodman Real Estate, Inc. LISTING BROKERAGE: CBRE
TRAILSIDE SOUTH W. CALLE LEJOS, PEORIA, AZ 85383 71 ACRES; $11,639,639 BUYER: Shea Homes SELLER: TerraWest Communities LISTING BROKERAGE: Land Advisors Organization
THE GLEN AT OLDTOWN & VISCOUNTI AT CAMELBACK 4343 N. 78th St. & 7979 E. Camelback Road, Scottsdale, AZ 85251 634,478 SF; $67.5M BUYER: ColRich SELLER: NorthStar Realty Finance Corp LISTING BROKERAGE: CBRE
LAKE COUNTY VILLAGE 1030 E. BASELINE ROAD, TEMPE, AZ 85283 14.66 ACRES; $10M BUYER: D.R. Horton, Inc. SELLER: Saratoga Meadow, Inc. LISTING BROKERAGE: N/A
LA PRIVADA AT SCOTTSDALE RANCH APARTMENTS 10255 E. Via Linda, Scottsdale, AZ 85258 97,821 SF; $64M BUYER: DiNapoli Capital Partners SELLER: GE Asset Management LISTING BROKERAGE: CBRE
DC RANCH CROSSING 18221-18291 N. Pima Road, Scottsdale, AZ 85255 68,116 SF; $27,090,476 BUYER: KDI Investments SELLER: Stockbridge Capital Group, LLC LISTING BROKERAGE: CBRE MARICOPA FIESTA 20928-21164 N. John Wayne Pkwy., Maricopa, AZ 85139 92,936 SF; $18.75M BUYER: Bilak Investments SELLER: Granite Capital Investments, LLC LISTING BROKERAGE: Cushman & Wakefield LAKEVIEW VILLAGE 67-179 & 49 S. Higley Road, Gilbert, AZ 85296 97,821 SF; $16,865,000 BUYER: Vestar SELLER: North American Development Group LISTING BROKERAGE: Cushman & Wakefield
BIG DEAL: San Valiente, a 695,138-square-foot apartment complex in Phoenix, sold for $71.3 million. 18 | September-October 2016
LEGISLATIVE UPDATE
Keeping Arizona competitive
O
ver the last several years, Arizona has made tremendous strides in diversifying its economy. No longer does our main economic engine consist of unbridled home building and speculative development. Such diversification can be largely attributed to sound economic development policies. Establishing economic incentives such as property tax abatements, and creating a business-friendly climate has led to notable out-of-state companies opening major operations in Arizona, such as Northern Trust in Tempe and Caterpillar in Tucson. It has also established Arizona as a new hot-bed of technology entrepreneurialism. In fact, in a recent Forbes report, the Greater Phoenix Metro Area ranked third in the U.S. for growth in information technology jobs between 2010–2015. Furthermore, with institutions like Arizona State University at the forefront of innovation, Arizona has developed a robust business ecosystem
20 | September-October 2016
Keyvan Ghahreman AAED
that has finally climbed out of the grip of the deepest recession our generation has ever experienced. With all the positive indicators we have seen recently, our state still faces significant economic development challenges. Competition for business attraction and retention is as fierce as ever, both nationally and globally. As a state, we lack some basic tools such as tax increment financing. Arizona is one of only a handful of states that does
not allow TIF as a means to incentivize responsible development. Arizona also ranks among the lowest in the nation for access to early education, with only 37 percent of three- and four-year-olds enrolled in preschool. Furthermore, state funding of our public university system was slashed by 47 percent between 2008–2015, and community colleges were dropped from the state budget altogether. In order for Arizona to stay competitive, we must keep building on the momentum that we have achieved over the last few years. When companies large and small consider where it makes the most sense to do business, they evaluate factors such as economic incentives, workforce education and quality of life. Our collective success lies in our ability to compete for quality, high-wage jobs. To do this effectively, we must continue to advance thoughtful policies and practices that make Arizona appealing to the business community. Keyvan Ghahreman is the Arizona Association for Economic Development Governmental Affairs Committee Vice Chair.
LOBBYING
FOR A BETTER
TOMORROW
AMA fights to protect housing market interests
F
ifty years ago, the Arizona Multihousing Association was formed after a group of apartment operators joined together at the state’s capitol to promote and advocate for a fair and competitive housing market in Arizona. Today the mission of the AMA remains the same in protecting the interests of ethical rental housing providers in legislative, regulatory and legal matters throughout Arizona. By providing rental property owners with a level playing field to operate throughout the various municipalities, we can reduce the cost to provide housing to thousands of families living in apartment homes across the state. More recently, and over the last two years, the AMA has continued with its mission to promote legislation aimed at protecting property owners from patchwork, and oftentimes impractical and unworkable, regulation. In 2015, the AMA passed legislation (SB1079) to allow apartment operators to select a private solid waste or recycling service provider in all of Arizona’s cities and towns. The bill took effect in July and allows AMA members to opt-out of city trash services and select the most competitive service provider. That same year, the AMA passed a second critical piece of legislation to clearly prohibit cities, towns and counties from adopting what are known as “inclusionary zoning” ordinances. Such ordinances require developers to set aside a certain percentage of their units for affordable housing or pay an in-lieu fee. Since Arizona cities and towns are already prohibited from adopting “rent control” ordinances, the new law strengthened existing statutes and
Courtney LeVinus
Capitol Consulting
Jake Hinman
clearly prohibited inclusionary zoningtype of ordinances. This past January, the AMA continued on this mission and entered the legislative session with a focus of supporting Governor Doug Ducey’s policy priorities to promote legislation aimed at cutting bureaucratic red tape and reducing unnecessary and costly government intrusion. Holding true to his pledge to support small businesses and working families, in March the governor signed two critical pieces of legislation to protect business owners and multi-family operators across the state from undue regulation. The AMA joined a united business coalition to pass HB2130, a bill that prohibits cities and towns counties from adopting what are known as energy benchmarking ordinances. Similar ordinances in New York City,
Seattle, Austin and San Francisco require business owners and multifamily property operators to measure and report their energy usage to a governmental agency or risk a penalty. Having to acquire energy bills from apartment residents in order to report their consumption to an agency is an unreasonable regulatory burden on apartment operators and an unnecessary intrusion on the privacy of apartment residents. The second critical bill, HB2131, prohibits cities and towns from prescribing mandatory waste diversion or recycling programs upon businesses and multi-family properties. HB2131 protects owners from one-size-fits-all policy that is often impractical and unworkable for those tasked with the daily operations of running a business or providing safe and affordable housing options. As the AMA heads into 2017, and the new legislative session, the Association will look forward to continued partnership with other aligned housing and economic development associations across the state with a focus on the housing providers that provide safe, affordable housing opportunities for thousands of working families across the state. Courtney LeVinus is president and Jake Hinman is the director of government relations for Capitol Consulting. 21
LEGISLATIVE UPDATE
Putting People First: Building healthy places creates market value
D
eclining health trends nationwide have prompted the land use and real estate development industry to take a harder look at cost-effective strategies to promote health at the building or project scale. In 1970, just one in eight American adults was obese. Today, it is one in three adults. Health problems influence economies and the futures of individuals, families, communities, states and nations. As communities continue to face pressing health challenges, raising awareness of the connections between health and the built environment in the real estate community, and working to make sure health is a mainstream consideration, becomes even more compelling. A commitment to building healthy places cannot be achieved without first exploring and understanding the value proposition. Does building healthy places make business sense as a development objective? How have developers pursued this objective? What has the market response been? And how have developers measured their success? Recent case studies have shown that the integration of development strategies such as promoting physical
22 | September-October 2016
Deb Sydenham ULI
activity, improving the indoor environment and encouraging social engagement, created a tangible market response and exceeded developer expectations - rapid lease-up and sales rates, higher rents than pro forma projections, rent and sales premiums, waiting lists and new interest by lenders and investors. There is a strong consensus that upfront development costs — even for those individual components that were significantly more costly than standard approaches — were well worth the cost and contributed to the projects’ overall success. Ample research points to strong market and consumer demand for places that support healthy behaviors.
■ 76 percent of Millennials think walkability is important in where they choose to live. ■ More than half of Americans (51 percent) want to live in a community that has transit and 53 percent want to be close to shops, restaurants and offices. ■ Homes located in neighborhoods with good walkability are worth $34,000 more on average than similar homes in neighborhoods with average walkability. ■ Access to sunlight in office buildings increases worker productivity by 15 percent. “Health happens not in your doctor’s office, but where you live. ULI has created a work that can — and I hope will — change how every building and rebuilding, every subdivision and retrofit, will be carried out in America and perhaps beyond,” said Dr. Richard Jackson, nationally renowned pediatrician and Chair of Environmental Health Services, University of California, Los Angeles (UCLA) Fielding School of Public Health, and advisor for the Urban Land Institute’s Building Healthy Places Toolkit. Despite the well-known benefits of exercise, only one in five adults gets enough physical activity. In an era of sedentary jobs, extended screen time and long commutes sitting in cars, it’s no surprise that health researchers are telling us “sitting is the new smoking.” Every day, developers, designers and others involved in the practice of real estate make decisions about their projects - they make tradeoffs and set priorities. They anticipate market trends. They balance community needs and wishes with financial constraints. What if more of these decisions had health at their core and incorporated considerations about transportation, connectivity and access, and encouraged shifts in builtenvironment shaping policies? Health is a fundamental component of thriving communities and the built environment has a profound impact on our ability to create healthy places.
Deb Sydenham is the FAICP executive director, ULI Arizona District Council. Excerpts included from the 2015 Building Healthy Places Toolkit: Strategies for Enhancing Health in the Built Environment by ULI.
Engage early and often to shape the real estate development future
T
he Bureau of Economic Analysis released gross domestic product (GDP) numbers for the first quarter of 2016. Arizona’s growth came in at 2.6 percent, tying for the sixth-fastest growth rate for any state in the nation, compared to the previous period. The sectors contributing most to Arizona’s GDP growth during this quarter included real estate and rental and leasing, construction, along with finance and insurance. As Arizona continues its strong financial showings now, is the time for the real estate industry to engage as early as possible in all policy discussions that affect growth within our Valley cities while encouraging and supporting responsible development. Just in the past year, Valley Partnership has engaged with Phoenix, Tempe, Mesa, Goodyear, Buckeye, Maricopa County Flood Control District and the
23 | September-October 2016
Cheryl L. Lombard Valley Partnership
Arizona Department of Transportation on impact fees, access management, development incentives, codes changes ranging from building, streets and transit as well as how to pay for water in new growth areas. In addition, to efforts at the Arizona Legislature and United States Congress on how we pay for infrastructure.
We are about to have a new President, Congress, Legislature and many new people on Valley City Councils. More and more issues will be discussed in the coming year that can impact whether real estate and construction will continue being a large contributing factor to Arizona’s GDP. However, as an industry we cannot sit back and wait for these issues to come to us. We need to engage early to help shape them. Some issues that Valley Partnership is anticipating and are already engaging in Congress, our State Legislature, and Valley cities include: tax reform, in lieu exchange authority, water and drought issues especially how we plan and prepare, protecting economic development tools, public fees for service, transportation and transit funding. However, we need you in the real estate development industry to assist us, to step up early and offer assistance on how any of these issues will impact your business and, ultimately, impact the bigger picture of responsible growth and vitality throughout the Valley. We look forward to working with you now and into 2017. Cheryl L. Lombard is the president and CEO at Valley Partnership. 23
LEGISLATIVE UPDATE
NAIOP Arizona blocks energy benchmarking ordinance Coalition formed to help pass legislation to preempt cities from requiring owners to report building energy consumption
T
he commercial real estate industry in Arizona recognizes the demand for energy-efficient office and industrial space and is already taking important steps to reduce building energy consumption through voluntary and market-driven approaches. NAIOP Arizona believes that these approaches should be supported by incentives, tax credits and grants, rather than energy consumption reporting mandates. These mandates, commonly referred to as energy benchmarking, require building owners to measure and report the overall energy consumption of their commercial properties. They can be misleading because they do not take into consideration some fundamental realities of a building’s energy consumption that may lead to inaccurate representations. Last year, the city of Phoenix considered a benchmarking ordinance that would have required owners of commercial buildings larger than 50,000 square feet to report their buildings’ energy usage on a government website or face a Class 1 misdemeanor and not less than a $500 fine for each violation. According to the city, the ordinance would have affected 1,398 buildings. It was similar to energy reporting requirements in Austin, Texas; Boston; Chicago; New York City; Philadelphia; San Francisco; Seattle; and Washington, D.C. An energy reporting ordinance of this type can be difficult to comply with because it requires property owners to collect information from their tenants, many of whom view this type of information as private or proprietary. In addition, energy benchmarking requirements fail to
24 | September-October 2016
Tim Lawless NAIOP
take into consideration the energyefficient technology incorporated into a building’s infrastructure or the fact that individual tenant energy consumption, unlike that in common areas, is outside the property owner’s control. Interest groups could use the collected benchmarking information to unfairly “shame” building owners into undertaking expensive building retrofits that could impact building sales, deter potential tenants and have a chilling effect on economic development. NAIOP-AZ opposes efforts at every level of government that unfairly and mistakenly label a building as being wasteful because of its energy consumption. In response to Phoenix’s draft benchmarking ordinance, NAIOP-AZ took the lead and formed a coalition with 10 other groups, including the Arizona Chamber of Commerce, National Federation of Independent Business and BOMA-AZ, to pass legislation at the state level to preempt cities from enacting this type of local energy reporting. The bill, SB1241, was signed into law by Gov. Doug Ducey on April 13, 2015. Following the bill’s passage,
however, Tempe Councilwoman Lauren Kuby initiated a lawsuit that was advanced by the Arizona Center for Law in the Public Interest, challenging SB1241 on the constitutional grounds that bills must be limited to a single subject. The lawsuit argued that SB1241 violated the “single subject” clause of the state’s constitution because, in addition to energy consumption reporting, it also prohibited cities from banning the use of plastic bags by grocery stores. Rather than wait for the courts to decide the case, our coalition came together again in 2016 to support a stand-alone bill that bars cities from adopting energy benchmarking ordinances. The new bill, HB2130, was passed by the Arizona State Legislature and signed into law by Gov. Ducey on March 14. The successful advocacy by NAIOPAZ and the coalition in the passage of HB2130 is a victory for the commercial real estate industry throughout Arizona. The impact of our efforts was confirmed when Kuby re-filed her lawsuit to focus solely on the state preemption of local ordinances banning plastic bags. NAIOP Arizona continues to recognize the importance of energyefficient commercial space and will work with state and local lawmakers to develop sound market-driven policies to improve energy efficiency, rather than mandates that could inaccurately label buildings and do not take into consideration the economic impacts or costs of reducing a structure’s energy use. This fight is not only important for Arizona. It is important to all NAIOP members facing similar legislative threats in their states and municipalities. Tim Lawless is the president of NAIOP Arizona.
COMING NEXT ISSUE Featured topics include: • AAED/Arizona Association for Economic Development • ULI/Urban Land Institute • AIA/American Institute of Architects
For additional information, call 602.277.6045 or visit,
azBIGmedia.com
25
EAST VALLEY MARKET UPDATE
RISING IN THE EAST East Valley cities show results of market health By DAVID MCGLOTHLIN
E
vidence of a healthy commercial real estate market can be seen throughout East Valley cities where economic development directors expect continued activity as a result of recent success stories and other big plans in the works. The cities of Chandler, Gilbert, Mesa, Scottsdale and Tempe share a common goal to progress their communities through economic development that attracts new companies, creates jobs and keeps its residents near home to work, play and live. How each city’s economic development director accomplishes this varies based on the unique traits and advantages that their cities have to offer. Each director notes common variables driving new economic development and companies to their cities are based on location, access to a quality workforce, an amenity rich environment, affordability and incentives by the city. They explain the impact of recent developments and the companies calling them home as well as other projects in the pipeline seen as significant economic development opportunities.
Kennedy explains the presence of 60,000 students at ASU, in addition to partnerships with the university on projects, help attract tech and innovation start-ups to Downtown Tempe that aim to tap into the highly educated workforce and be nearby other companies in the same industry. As a result, she says, “the Class A office space in Downtown Tempe and Tempe Town Lake has lower vacancies among all regional submarkets and
higher rents.” Other factors bringing companies to Tempe include easy access to surrounding freeways and Sky Harbor Airport plus an amenity rich environment in what’s known as the “most walkable city in Arizona,” which is also exceedingly bike friendly, Kennedy adds. Convenient commuting to and through Tempe will also evolve in time as the city was recently awarded
TEMPE The city continues to be a hotbed for class A office and multifamily developments while remaining a go-to destination for new innovation and technology companies. Donna Kennedy, City of Tempe economic development director, says the city’s innovation and tech district feel attracts a lot of companies to develop in Tempe, which also happens to be home of Arizona State University. That’s fitting since ASU was recently ranked the top innovation and technology university in the nation according to U.S. World and News Report. 26 | September-October 2016
100 Mill Tempe
Santander Consumer USA Mesa
federal funding to expand the light rail downtown through Mill Avenue to the Apache Corridor. Adding to the progression of Downtown Tempe, Kennedy mentions a project called 100 Mill that aims to transform the former Monti’s steakhouse and the abandoned Flour Mill into a new gateway to Mill Avenue. The project will consist of renovations to both historic properties as well as the development of new class A office space and two hotels. Another project Kennedy says is “something to keep an eye on” will be a 300-acre development called The Grand. The city also recently announced plans and a partnership with ASU for the redevelopment of 20 acres to be a biomedical technology campus at the former Tempe Center for the Arts. Kennedy says this project is a twoyear mission to repurpose the arts center into a collaborative environment for six to ten or more businesses that all work within the same industry. “It is a win, win situation all around,” she adds.
MESA Bill Jabjiniak, City of Mesa economic
development director, says, “Mesa is experiencing steady economic growth with some great development success stories and more to come.” He adds there’s an increased demand for existing spaces as well as more speculative and industrial developments coming to the market. One example is the 117,000-squarefoot adaptive reuse project for Santander Consumer USA in Mesa’s Fiesta District, which will create nearly 1,000 jobs in the next three years with salaries averaging $51,000. Jabjiniak says other companies looking at Mesa include tech companies wanting big square footages and to be near existing tech companies like Apple’s 1.2-million-square-foot manufacturing facility in Southwest Mesa. In addition, other manufacturing companies specializing in medical devices are increasingly interested in Mesa’s industrial sites like Dexcom, Inc., which is currently retrofitting an old building in the Fiesta District. Jabjiniak says the city’s locally controlled Foreign Trade Zone and being one of the two cities in the state with a military re-use zone makes Mesa attractive to companies
in addition to having easy access to freeways, an educated pool of workers, lower rental rates than most Valley submarkets and a streamlined entitlement process. He explains the FTZ is unique in its ability to create subzones in attracting international companies that want to be able to move product in and out of that trade zone. He adds that the military re-use zone at the Mesa Gateway Airport offers major advantages to companies too such as tax credits, transaction privilege tax and property class reclassification. This area near Gateway Airport along the US-60 highway, now dubbed the Elliot Road Technology Corridor, is currently working on plans to develop a 63-acre tech center with an aerospace and aviation component called Falcon Field. Jabjiniak hopes to be approved to break ground on this project in a little more than a year from now and mentions it is something to keep an eye on. Other developments to watch out for include the repositioning and renovation of empty retail centers in West Mesa and a potential ASU 27
EAST VALLEY MARKET UPDATE
Mach One Chandler
campus in Downtown Mesa that is still awaiting approval.
CHANDLER The City of Chandler remains steadfast to its 50-plus year history of high-tech manufacturing and research development projects, which keep drawing new companies to the area. “The market is very strong for light industrial manufacturing and office developments,” says Micah Miranda, Chandler’s economic development director. For instance, The Rockefeller Group recently delivered 150,000 square feet of class A industrial flex space in the Chandler Airpark area. Another example is 600,000 square feet of Class A office space recently completed at Alma School Road and Loop 202 freeway. Next will be the development of one million square feet of class A office space within the Price Corridor, the city’s leading employment corridor, which was recently approved. Miranda says, “A demand for high quality corporate tenants is driving a lot of speculative development.” He describes a spider web effect where a lot of innovation start-ups are flocking towards facilities anchored by brand name corporate tenants like Intel, which continues to be the largest private sector employer and innovator in Chandler. Miranda adds the city’s partnership with the private sectors dates back 28 | September-October 2016
Mach One Chandler
more than 30 years and it is known for being a reliable and predictable place to conduct business. In addition, he notes the city’s AAA bond rating, “we are a low cost destination that’s providing how quality service.” Thus, the city has been largely successful in targeting semiconductor related research and development, advance manufacturing, engineering related support and supply chain companies. Miranda mentions the office for ARM, a microprocessor manufacturing
company, as an example that opened in November of last year as part of Chandler’s technology incubator campus, which opened in 2010. He adds in the last 18-24 months, a handful of new projects account for 2.5 million square feet of new product on the market generating $500 million in capital expenditures. Although the city is 85 percent built out, it is saving most of the remaining lands for employment purposes. In the near future, Miranda predicts
BUILDING HOPE The 2016 Valley Partnership Community Project will benefit the Sunshine Acres Children’s Home in Mesa. Join us on Saturday, November 5, 2016. Your support will help to provide a loving home for disadvantaged youth.
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EAST VALLEY MARKET UPDATE to see “more vertical developments downtown for office and multifamily.”
GILBERT The City of Gilbert’s commercial real estate market is incredibly strong says Dan Henderson, economic development director. He adds according to quarter two reports, “Vacancy rates for existing space across all commercial property types was just nine percent, the lowest it has been in five years.” Numbers from August indicate Gilbert has a total of more than 26.6 million square feet of commercial space with another 3.9 million square feet under construction, planned or proposed, which are both indicators of market growth. Gilbert Heritage District accounts for 11 percent of that total square footage and has experienced a boom in the last three years with a combination of retail, office and mixed-use developments. “Heritage Marketplace has been a major catalyst for the continued growth of the Heritage District,” says Henderson. “The development is just completing Phase II, which adds 31,000 square feet to the development” in addition to the long list of big name restaurant tenants already open there. Other major contributors to the
Heritage District Gilbert 30 | September-October 2016
city’s growth include large speculative and built-to-suit developments like Rivulon, Park Lucero, Gilbert Spectrum and Reserve, he adds. Lately, the most active market in Gilbert is for light industrial development. Henderson explains new light industrial product has been absorbed quickly like developments such as Park Lucero. He reports a total of 181,000 square feet of light industrial space was absorbed last quarter compared to 19,000 square feet of retail and 15,000 square feet of office. Gilbert remains focused on growing and attracting businesses that have high concentrations of STEM and related occupations such as healthcare,
Rivulon Gilbert
Aerospace/Defense, Software/IT, Life Sciences and Financial services sectors, Henderson adds. He attributes the growth of Gilbert’s commercial real estate market over the last five years to the community’s ability to attract, grow and retain high quality jobs. Since 2009, projects that his department assisted with account for more than 11,000 new/retained jobs, $1.2 billion in capital investment and 6.3 million square feet of new or renovated space. Henderson predicts in the next 10-20 years, “People will say this is the place they truly love to live, work and play because of the unique amenities, the family friendly atmosphere, the
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EAST VALLEY MARKET UPDATE
Danielle Casey
Dan Henderson
exceptional schools and the high quality jobs that are available near their home.�
SCOTTSDALE Industrial, office and retail vacancy rates in Scottsdale remain lower than that of the Greater Phoenix area, according to Danielle Casey, City of Scottsdale economic development director. She calls the Scottsdale market strong,
The Marquee Scottsdale 32 | September-October 2016
Bill Jabjiniak
Donna Kennedy
which is currently in an infill phase with an increased demand for more quality retail and office developments in downtown and South Scottsdale. Casey adds Downtown Scottsdale has become a hotspot for technology and innovation companies seeking class A office space near a rich environment with lots of amenities and entertainment options within walking distance. New plans for developments
Micah Miranda
downtown like the Marquee at the District reflect increased efforts to capitalize on tenant demands for class A office space in urban areas. As a result, the city is working on changes to its policies to allow for greater heights and densities for projects in areas like downtown for redeveloping existing buildings and erecting new ones. She says while attracting new companies to Scottsdale is still a priority so is offering next level services to companies already in Scottsdale who are looking to expand. A recent victory for the city was its ability to retain JDA Software, a firm delivering nearly 350 jobs all with $100,000 average salaries or more, that was in the market for locations to facilitate its expansion efforts. Casey explains her department really tries to be a holistic services team keeping the city’s great firms happy as we continue to bring new companies in. She adds the city is primarily seeing the most growth in information, communication and technology companies as well as advance business service sectors like finance and insurance. Areas like North Scottsdale are seeing a higher concentration of corporate headquarters like the plans for Scottsdale One, a mixedused development along the Loop 101 and Scottsdale Road. It will offer 1.8 million square feet of space for commercial tenants alongside retail, restaurants, class A office and multifamily options. Casey says tourism is still big for Scottsdale and the city continues to support resort, hospitality and amenities options while working with the office of tourism to revamp Downtown Scottsdale.
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Catherine Lon g as executive vice wears many hats at STORE Capital in addi president, CEO tion to her role company’s open and treasurer. ing in 2011 thro She’s been esse ntial in the ugh it going pub STORE Capital lic she said this was is the third company that Lon on the NYSE last year. g has taken pub the most spec ial in the first bell lic but of the 2015 cale because she was invited to ring ndar year at the her colleague s rung in the NYS E. Long and New Year in New officially rang York City befo in the financial re she year on Wall Long is proud Stre et. to report the company emp compared to loye five when it first opened. She said es 65 people days, the team used to meet back in those at restaurants a speaker-pho and huddled ne for conferen around ce calls. That Long though. neve Even r discouraged that would mee tually she secured an offic e space to lease t the company ’s needs and proj Since signing the lease, the ected growth. company has times knockin expa g down interior nded three walls for mor Long’s foresigh e space. t current job resp also plays an instrumental role in her onsibilities. She of the company maintains the backbone while providin g financial secu flexibility. As a result, she cons rity and tant projections and anticipating mar ly looks ahead, making savvy was shap ket trends. Her ed by working business with business front to back es from through its ince ption to even public through tually going out beneficial to witn her career. Long explained how it was ess so many diffe from mergers rent business prac to buyouts and tices foreign operation makes her insig hts so valued. s, which Throughout her illustrious care in particular. er, she rememb That ers 2008 by Financial Exec year she was voted the CFO of the year utives Internat Although she ional despite neve the recession. admitted to learn r wants to repeat those time s, she ing a lot. “You in negotiating have to be very and getting thin aggressive gs done in a time people didn’t want to move, when ” she explaine Long showcase d. s great career and a pay it forward mentality. “I’ve very much enjo to mentor the yed it,” she said had a really younger grou . “No w it’s time p and help them Thinking back with their care on how she got ers.” she said, “It all started on her started from a career path, high school job opportunity to and getting an do something I didn’t expect. a cashier at a ” That job was plant nursery that led her to as tutor then as work as a colle an accounting ge student and now responsible for she’s financiall a millions of doll y ars.
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OFFICE INTERIORS
Office space What trends are having the biggest impact on workspaces and interiors? By MICHAEL GOSSIE
E
xperts in office interiors know the workplace is a tool to drive business results. The more inspiring, engaging and efficient the workplace, the better the bottom line. No one knows that better Lisa Johnson, president and CEO of Corporate Interior Systems, which has offices in Phoenix, Tucson and Flagstaff. Johnson gave AZRE her thoughts on office trends.
AZRE: What are the changes or trends you’re seeing in office set-ups or work spaces? LISA JOHNSON: There is a talent shortage in knowledge workers and because of this, attraction and retention of talent is a growing concern for organizations. There is a growing focus on people in an organization. Well-being in the workplace is becoming more and more important. One piece of well-being is a work/ life balance and a desire for more flexibility, rather than the typical 8-5 work day. Flexible work hours are provided by many corporations these days and has led to a few major changes in the workplace. One of these is the concept of “free address” space. Eliminating dedicated work spaces for users allows an organization to maximize real estate utilization as many users are not in the office 40 hours a week. This flexibility concept is also desired in the office space as well. Users are demanding spaces and furniture that is easily adaptable and multi-functional. Users determine how they want to use the space and choice is given in how, when and where they can work. 34 | September-October 2016
AZRE: How has technology impacted office design and interiors?
LJ: Mobile technology allows people to work wherever and whenever. People no longer need to be tied to their desks 8-5. They can work in the café, a lounge, a small conference room or they can work at 9 p.m. after their children are in bed. Mobile technology has allowed organizations to give their employees flexibility in work hours. The traditional office is gone. Also, because of the continuous advances, it’s important that the furnishings support the technology, but do not imbed the technology. Furniture has a warranty of 10-plus years, but technology is changing constantly. It’s important to protect the user’s investments by providing them with furnishings that will seamlessly integrate with the ever-changing need of technology. AZRE: What are the trends you’re seeing in office furniture? LJ: In the past, spaces were close to 80 percent workstations and 20 percent activity spaces (break room, conference rooms). The workstations were often high paneled, large stations. There has been large a shift to smaller, more condensed stations and more space allocated to activity spaces. The ratio we are seeing today is closer to 50/50, which is a dramatic shift to the past. Taking this a step further, immersive planning blurs these boundaries all together. Maximization of real estate is a top priority for many organizations. With that comes a demand for flexible and adaptable furniture options. “Creative office space” is a term we are constantly hearing, but what does this actually mean? A creative space is a space that
is not dictated in use; it is a space that can change and move with the user. It is creative because the user makes it creative and they can only make it their own if we provide them the flexible, adaptable tools and furnishings to support their needs. AZRE: Are there colors or textures that have become trendy?
LJ: The trend is leaning towards raw elements, whether it is incorporated into furniture, accent pieces, or walls. There is also a trend of a more vibrant color palette, such as a lounge, café or breakout areas. In order to protect the long-term investment of furniture, most designs are keeping these trends to accent areas and pieces. AZRE: What trends or changes do you expect to have the biggest impact on office interiors? LJ: One of the biggest changes we will be seeing is Generation Z entering the workplace. Generation Z are those born after 1997. This generation was born with technology at their fingertips and with this comes a fundamentally different set of needs as they enter the workplace. Technology will continue to change the office and its furniture. Another big shift is the amount of contract workers in the workforce today. It is predicted that more than 20 percent of the workforce will be contract workers by 2020 and will continue to increase after that. Coworking spaces are becoming more than just a starting point for an entrepreneur; it’s becoming a hub of solopreneurs working together and sharing ideas. It’s also becoming a space that organizations are taking advantage of and they are allowing and encouraging their employees to work from these spaces — not just for the joy of flexibility or a different work environment, but because these spaces stimulate creativity. They are also a place to network and potentially find future employees for their organization.
TREND SPOTTER: Lisa Johnson is president and CEO of Corporate Interior Systems, a contract office furniture dealer with showrooms in Phoenix and Tucson. PHOTO BY SHANNON FINN, AZ BIG MEDIA
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OFFICE INTERIORS
COOLEST
TOP
10 OFFICES By JESSE MILLARD
CCBG
Developer: Mark Abromovitz and CCBG Architects General Contractor: hardison/downey construction Architect: CCBG Architects Location: 102 E. Buchanan St. Phoenix, Ariz. Size: 8,000 SF Value: $1,800,000 Start Date: Aug. 2004 Completion Date: July 2005 Why it’s awesome: Located in the center of the burgeoning Downtown Phoenix Warehouse District, this modern building pays homage to the historic area. The team at CCBG designed the space themselves, with open windows offering fantastic Phoenix views and an industrial yet friendly feel unlike any other space. The space feels like a home more than an industrial office. Model displays of past and present projects line the tables and walls, and plans for many projects are presented out on long tables and desks. This open and inviting space allows the team at CCBG to collaborate and work together while still maintaining a serene vibe where one can work hard. 36 | September-October 2016
Colliers International
Developer: ViaWest Group General Contractor: Stevens Leinweber Construction Architect: SmithGroup JJR Location: 2398 E. Camelback Road, #280, Phoenix, Ariz. 85016 Size: 19,000 SF Brokerage Firm: Colliers International Why it’s awesome: When Colliers International renovated its offices within the heart of Phoenix’s financial district, the firm decided to go collaborative and open. The vibrant office space was designed in a way where you can easily get from point A to B in a flash with a circular design, but plenty of avenues to cut across the office. Employees work side by side as a team, allowing them to easily discuss the day’s activities. The board room inside can be open or closed, allowing for wide expansive meetings or a more intimate setting. Every desk inside can be turned into a standing desk, keeping the employees active, but nothing gets the job done better than the treadmill desks available within the offices. Great views of the Camelback Corridor are also available within Colliers’ amazing space in the Biltmore Financial Center.
The Department
General Contractor: 180 Degrees Architect: Interior – Mark Ryan Studios, Inc. Location: 1 N. 1st St. Phoenix, Ariz. 85004 Size: 16,000 SF Start date: Jan. 2015 Completion Date: Oct. 2015 Why it’s Awesome: Located inside of what used to be a department store in Downtown Phoenix’s early days, The Department is an open collaborative workspace. There are 100 current members in The Department, representing more than 30 companies who are all working side by side in the 100-year-old building that is in the heart of Downtown Phoenix. Wide concrete floors with bright lighting and views across the city make the space inviting. There are drafting desks, offices and lounge areas where folks can work. Feeling tired? The Department has you covered as it even has cold brew on tap for anyone to enjoy. The space truly feels like a community as you see folks sitting around on the couches, walking to and fro and just enjoying the open space.
Empire Southwest
General Contractor: Porter Brothers Architect: DMJM-Tonnesen Location: 1725 S. Country Club Dr. Mesa, Ariz. Size: 50-acre campus Why it’s awesome: As one of the largest Caterpillar dealers in the world, Empire Southwest makes sure you know they deal with tractors. The front office reception desk is a 16-cylinder mammoth of an engine bloc.
The offices feels like the industry it represents with tractor tires and parts along the walls and on prominent display inside. Rocks from local mines lead you inside, and beneath the building’s board room is a full-size tractor in a display case. There are displays showing the history of Caterpillar, and the open yet industrial vibe throughout the facility shows how proud they are to be a part of Caterpillar. 37
OFFICE INTERIORS Fox Restaurant Concepts
Developer: Arturo Moreno; Andrew Cohen General Contractor: Schrader & Martinez Construction, Inc.; TK Interior Construction Co. Architect: CMDA Design Bureau Inc., Testani Design Troupe, Inc. (Interior designer) Location: 4455 E. Camelback Road, Ste B100 Phoenix, AZ 85018 Size: 8,370 SF Brokerage Firm: RN Properties The Park, LLC Start Date: March 2012 Completion Date: August 2012 Why it’s awesome: Dubbed “The Big Kitchen,” Fox Restaurant Concepts’ home offices are situated in a loft right above its popular Phoenix restaurant The Henry. The space plays off of The Henry’s clean and homey ascetic with open spaces, warm fabrics and design patterns. The space is also designed so collaboration and creativity are fostered in the open space filled with beautiful Camelback Mountain views from large glass doors and windows.
GoDaddy Global Technology Center
Developer: GoDaddy General Contractor: Ryan Companies, Inc. Architect: SmithGroup JJR Location: 2155 E. GoDaddy Way, Tempe, AZ 85284 Size: 150,000 SF Completed: Oct. 2014 Why it’s Awesome: Go-Karts, Yoga, putting green, basketball and volleyball courts, no we’re not describing your local recreation center this is GoDaddy’s Global Technology Sector. This two-story facility boasts more than 1,100 employees inside of the ASU Research Park where GoDaddy works towards empowering small businesses. The 150,000-square-foot facility is open and inviting to its employees, and even has on-site chefs working in a full kitchen. The new facility was designed to be open so employees can collaborate amongst one another, a trend that we’ve been seeing in modern office across the Valley. Now, where do I apply for a job? I want to race a Go-Kart. 38 | September-October 2016
OFFICE INTERIORS
HomeSmart International
Developer: CRI Construction, Inc. General Contractor: CRI Construction, Inc. Architect: CEO Matt Widdows drew the floor plan, and Will Architects Location: 8388 E. Hartford Drive, Scottsdale, AZ 85255 Size: 37,000 SF Brokerage firm: HomeSmart Value: $7.6 million
40 | September-October 2016
Start date: Nov. 2014 Completion Date: May 2015 Why it’s awesome: There is an elegant casino-like vibe over at the HomeSmart International headquarters. A swanky staircase leads to upstairs conference rooms, but where you’ll really be heading to is the ritzy game room and marble-top bar where you can play some Pac-Man, or shoot some pool, it’s really up to you. Do HomeSmart
employees really work? Or are they just playing all day at wonderful offices like this with mandatory music playing throughout the space. They must get some work in as they’re able to hover around like Marty McFly on hoverboards while chewing on some delicious caramel corn you got in the office. These offices are so swanky, that I’ve just been showing up, hoping to get in.
Mindspace
Developer: YAM Properties General Contractor: RJM Construction Architect: Interior Architect – Brent Shetler, McCarthy Nordberg; Interiors Design – Brent Shetler, Meghan Freeney Location: 725 S. Rural Road, Tempe, Ariz. Size: 5,253 SF Brokerage Firm: Cushman & Wakefield Start Date: Jan. 2015 Completion Date: April 2015 Why it’s awesome: Inside of Mindspace, employees aren’t allowed to sit in the same spot for more than two consecutive days. The open and home-like offices allow its employees the best of both needs in an office: collaboration and alone time. Employees can sit at bartops, on the patio or in booths that let them work together. But if someone needs some personal time, there are five individually-themed breakout spaces where you can hunker down on your own and get to the nitty gritty. No one is assigned an office or individual space, letting you be free to sit and work how you like.
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OFFICE INTERIORS
Riester
Developer: Newmark Grubb Knight Frank General Contractor: Reliance Build, Inc. Architect: Krause Interior Architecture, Inc. and Mirja Riester Location: 3344 E. Camelback Road, Phoenix, Ariz. 85018 Size: 23,316 SF Brokerage Firm: Newmark Grubb Knight Frank Why it’s awesome: Gorgeous views of Piestewa Peak and Camelback Mountain greet Riester employees everyday. The advertising agency also boasts a Test Kitchen for its grocery product clients and renewed focus group and observation rooms give the offices a fresh feeling. The décor is top notch too, with original artwork dotting the walls by Co-Owner Tom Ortega. There are even classroom sized whiteboards and creative thinking spaces so the employees can come up with great ideas at these offices. But perhaps the best part, is that your furry dog friends can hang around the offices too as there is a mini dog park. Cyclists can fall in love with the facility, or any active employee really, as there is a spot for community bicycles and a private exercise recovery room equipped with a spa-like shower.
Zion & Zion
Developer: Architekton General Contractor: Bistany, PLC Architect: Architekton Location: 32 S. Farmer Ave., Tempe, Ariz. 85281 Size: 14,241 SF Value: $4.3 million Start date: 6/12/2015 Completed: 1/14/2016 Why it’s Awesome: The crack of a pool cue and the faint sounds of an arcade machine aren’t really synonymous with work. But at Zion & Zion’s offices where dogs can roam with the people, the office really is like a second home. Its board room boasts a regal feel and the there are thousands of square feet of whiteboard wall that’s mixed in with technology. You’ll really feel like it’s the future here as you utilize touch screens, room wizards and more.
42 | September-October 2016
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ARIZONA MULTIHOUSING ASSOCIATION
Broadstone Camelback Apartments
Urbanization, amenities drives luxury multifamily market By DAVID MCGLOTHLIN
M
ultifamily construction in Greater Phoenix returned to record level highs for completed number of units, rental rates and investment activity for the first time in over a decade. This year marks one of the highest rates of completion of multifamily developments since 2000. It also exceeds investment activity levels not seen since 2007. In turn, rental rates rose for a seventh consecutive year, which marks a 30 percent rise since 2009. “There has been somewhat of a pent up demand for high-end, rental housing in Arizona for the past several years,” says Tom Shelton, principal at Shelton-Cook Real Estate Services. “The construction and delivery of single-family housing remains low and homeownership rates are at all-
44 | September-October 2016
time lows,” he explains. “More and more people are choosing renting as a lifestyle choice - hence the robust construction of new apartments.” New multifamily construction is largely found in three primary areas: Downtown Tempe, Downtown Scottsdale and Downtown Phoenix. Are you starting to see a common theme? More and more multifamily developments are popping up at infill sites in prominent downtown areas with the richest urban environments, which offer the most amenities and nearby resources for renters. “The multifamily developments with the highest rents are in those infill entertainment corridors in downtowns,” says Tyler Anderson, vice chairman at CBRE.
These downtown submarkets are also seeing more innovation and technology companies enter those areas to target this young professional and Millennial demographic. Anderson explains, “35-year-olds and under are the strongest renting class,” but more Baby Boomers renters that are 60-years-old or more are looking at luxury multifamily options. The Baby Boomer generation is not considered the “typical renter” class adds Shelton. He says, “Most people deciding to rent today prefer the mobility that renting provides, and they choose to live in an environment where maintenance of their home is minimal.” The other big change in the multifamily market are the amenity
AMA Member Profiles Kohl Eisenhour — Vice President of Operations for Avenue5 Residential Years with current employer: 1 year Years with AMA: 4 years Area of expertise: Operations, financials, budgeting and mentorship AMA experience: 2012 – 2015 Board of Directors; current Perspectives & Projections Chairman
What is the best advantage to being an AMA member? It’s allowed me the opportunity to meet and listen to mayors, governors, senators and other political and community leaders.
Proxy333
packages being offered at new developments that focus on connecting people to people through their shared interests. “New amenities run the gamut - high end and world class fitness facilities, resort pools and outdoor living spaces, in-unit Wi-Fi and surround sound, concierge services, dog washing stations, Uber discounts and gift cards,” explains Shelton. “Chances are if you look long enough, you’ll find most anything.” These new buildings are at a whole new level of quality compared to traditional apartment complex of the past, adds Anderson. Whether it’s a virtual driving range, lounge, bar, kitchen, billiards room, outdoor fire pits or big projectors to watch Sunday’s big game, these luxury multifamily developments are not holding back in terms of amenity packages. Richard Renta, regional director of Arizona at Weidner Apartment Homes, says, “There are so many communities that have these extensive amenity packages, what is going to distinguish them from the rest is the level of service they can give renters.” There is still a thirst for amenity driven communities with rooftops pools like @51 Phoenix Apartments near the Camelback Corridor area. However, Renta explains, “Over the years, everything is being called a luxury community” and newer developments are starting to feature all the same amenities and options. Thus being able to provide next level service will be key for these apartment complexes, he adds. Affordability is always a hot topic but Shelton says, “Despite escalating rents on new Class A product, the cost of living in a new apartment is still most likely less than a single-family home when you consider a mortgage, taxes, insurance, the maintenance and upkeep associated with owning a home.”
What do renters want in multifamily properties? They want beautiful pools, state of the art fitness centers, well appointment interior finishes. All those first impression “wow factors.” What makes AMA a unique association? The charity and community efforts that the AMA organizes are tremendous. From Raising a Reader, Project S.A.F.E. and UMOM, to the focus on Smoke Free Living. These are efforts that are strengthening our communities, making Arizona a better place to live and these are the differentiators that make the AMA such a unique and respected association. What catches your eye about the market right now? Personally I really enjoy the trend of inner-core infill. I think when people can live, work and play in close proximity to each other it makes for a much better quality of life. R. Chapin Bell — Chief Executive Officer at P.B. Bell and Associates Years with current employer: 23 years Years with AMA: 18 years Area of expertise: Multifamily development, management and acquisitions AMA experience: current member of Board of Directors, former chairman for the executive committee, former investment committee and trade show What is the best advantage to being an AMA member? The AMA is a very informed organization that clearly sees the value in educating its members. It just keeps everybody in the know. What do renters want in multifamily properties? Today’s renter is not just looking for a place to stay. They are looking for a place to engage and be social. They’re really looking for a lifestyle experience. How do you expect the Valley’s market to look in 10 years? Urban infill projects will definitely make a mark on our area in the years to come, while a trend of higher-density communities will continue. And, as an industry, residents will remain a top priority.
Tyler Anderson
Richard Renta
Tom Shelton
What changes do you see in the multifamily market? In the multifamily market, change is constant. Design, building, technology, marketing and resident services are all consistently evolving and it’s exciting to be a part of it.
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AMA
50 YEARS
AMA Member Profiles Lesley Brice — Principal at MC Residential Years with current employer: 17 years Years with AMA: 26 years Area of expertise: Property Management/ Investment AMA experience: Chairman emeritus and current board member
of industry advocacy and leadership THE BEGINNING
The Arizona Apartment Association was formed in 1966 by Bill Schulz and a small group of owners to protest and defeat the statewide rental tax. He gathered other owners and hosted luncheons to discuss issues around the industry and try to agree on standards for regulation and operations. They formed an association and worked hard to defeat the proposed statewide rental tax and ultimately they were responsible for pushing the Apartment Renter’s Tax Relief Bill through the Legislature. For nearly 20 years, Schulz led the organization and worked with members across the Valley to educate city leaders about the industry and to advocate on behalf of members.
RESTRUCTURING
Suzanne Gilstrap came on as the CEO in 1989 and worked to reorganize and restructure the association. She led a merger with the association from Tucson and created the Arizona Multihousing Association. Over the following years, she grew the organization around the state and started the Tributes Awards to honor the staff members of the member companies. Today, the Tributes awards still stands as the organization’s largest event, gathering more than 1,400 members from around the state to honor the contributions of the leaders and staff members of the industry. Gilstrap was also involved in the creation of the Arizona Department of Housing Finance Authority and she sat on that commission for years.
THE MISSION
For the AMA, the focus remains clear. The association’s No. 1 priority is to limit unfair government overreach, reduce bureaucratic red tape and work to create a regulatory environment in which businesses and property owners can succeed in Arizona. By providing apartment owners, operators and developers with a level playing field to operate statewide and limiting costly regulation, the association can ultimately reduce the cost of housing for the third of Arizonans who rent their homes and help shape Arizona as an attractive option for businesses seeking to expand or relocate into the state. The AMA has been advocating for smart growth policies to include multifamily to allow access to all. According to Smart Asset, Phoenix is one of the most affordable housing markets in the country. This encourages economic growth and attracts talent to the market. Apartments have transformed the landscape here leading to urbanization. Leadership in the association and the advocacy teams have been working on having policy discussions about how density helps to build downtowns and urban neighborhoods.
STATE LEGISLATIVE WINS
Tax reform: In the early 1990s, the AMA worked with the Arizona legislature to enact property tax reform that changed the state assessment ratio for Class 4 (rental) property from 15 percent to 10 percent, saving the Arizona apartment industry over $3.5 billion to date. Sales tax on rent: A number of cities have proposed sales taxes on rent, creating an unjust burden on renters, rather than on all residents of the cities. These sales tax initiatives have not only been defeated, but today, cities must have voter approval for any rental tax rate increase. Interior inspections: In the early 1990s, Tempe proposed annual interior inspections of apartments — and fees for these inspections — as a result of some complaints about rental housing in the community. The AMA team worked at the legislative level to pass HB2221 (2013), one of the AMA’s most successful pieces of legislation, saving members an estimated $17 million per year. 46 | September-October 2016
Why did you join AMA? My true introduction to the AMA came from my early employers, mentors and now partners Ken McElroy and Ross McCallister who preceded me as Chair of the Board.
What makes AMA a unique association? The AMA’s non-profit, Arizona Multihousing Charitable Foundation, has raised hundreds of thousands of dollars benefiting UMOM New Day Center, Florence Crittendon in Phoenix, Hope Cottage in Flagstaff and the Julie Hurst Scholarship Fund, among others. With the support of the board of directors and Big Hearts committee, we [along with partner, Ken McElroy] helped to introduce and form the Autism committee late in 2015 that raised $133k for the statewide Autism Speaks/SARRC Walk (scheduled for Oct. 23, 2016 at Tempe Beach Park). What do renters want in multifamily properties? While we don’t profess to know all they need, we are focused on quality of life amenities/services that they have expressed a desire to have; which is why we developed a HouseMates program where residents can have a great co-living opportunity. Bryan Fasulo — Regional Property Manager at Pinnacle Years with current employer: 3.5 years Years with AMA: 15 years Area of expertise: Jack of all trades, master of none AMA experience: Board Member, Committee Chain on 2 committees including membership How has AMA benefited your career and business? Being an AMA member has allowed me to network in my industry both on the management and vendor side. Relationships are how you grow your career. What do renters want in multifamily properties? Residents want convenience. They want to be close to everything and have as much as possible at their fingertips. What changes do you see in the multifamily market? I see a real change in the renter demographic. Years ago, people rented until they could buy a home. Today, with the growth of a global job force, we are seeing renters that are more than qualified to purchase, renting their home. What catches your eye about the market right now? Well specifically in Phoenix, the growth of the High Density, City Style apartment home.
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NAIOP
Words of wisdom Longtime NAIOP leader brings national experience to AZ as new chapter chairman
O
ver the years, Larry Pobuda made a name for himself throughout the NAIOP ranks in a number of different capacities at prominent leadership positions. Today, he finds himself at the helm of the NAIOP Arizona chapter as the newly appointed chairman, which is familiar territory having served as vice chairman the year prior. His history with NAIOP dates back to 1997 in Minneapolis, where he got his start as the Minnesota chapter president for what was the third largest chapter in the nation at the time. Since then he made his mark as a distinguished, experienced, nationally awarded and longtime member of NAIOP who decided in 2013 to bring his leadership skills and talents to Arizona, the nation’s seventh largest chapter. Pobuda explains how working closely with Bob Hubbard and Tom Johnston at NAIOP Arizona helped him gain a better sense of the local organization, opportunities and its history. “I have a solid understanding of NAIOP — its mission, its members and the impact we have when we do things right,” he adds. His commercial real estate background began with an urban studies degree from Michigan State University followed by a master’s degrees in finance and marketing. Then he worked in Minneapolis accumulating knowledge and experience in areas such as: development, leasing, corporate real estate service and healthcare. He even started his own development
52 | September-October 2016
and investment firm focused on opportunistic investments and groundup developments. From testifying in front of a Senate committee on Capitol Hill to visiting 35 NAIOP chapters across the United States, Pobuda continues to share his insights and experiences with NAIOP members and those involved in the commercial real estate industry.
WHAT ARE THE TOP THREE GOALS ON THE AGENDA THIS YEAR? There are three legs to the NAIOP stool: education, networking and legislative advocacy. Our top priority is to provide meaningful, relevant programming taught by our members, for our members and others in the business community. The beauty of NAIOP is the “practitioner nature” of
NAIOP NAIOP EXPERIENCE: recipient of the Minnesota chapter’s Lifetime Achievement Award
served as Minnesota chapter president
1997
2003
2004
our membership — we are sharing real-life, real-time experiences in the world of commercial real estate development, investment, transactions and management.
YOU VISITED 35 DIFFERENT NAIOP CHAPTERS AROUND THE COUNTRY. WHAT STANDS OUT ABOUT THE ARIZONA CHAPTER? The spirit! Attending Night at the Fights or the Best of NAIOP gives you a clear picture into the collegiality that exists among members. Every chapter has its own personality. In Arizona, it isn’t a fixed sum game (if I win, you lose). The pie continues to grow in Phoenix and there are opportunities for the best ideas to emerge and become reality.
IS THERE A NAIOP MEMORY THAT RESONATES WITH YOU? During my tenure as national chairman of NAIOP, I had an opportunity to testify in front of the Democratic Senate Committee on Capitol Hill regarding proposed changes to carried interest legislation that were being considered in the wake of the economic downturn of 2008. Being on Capitol Hill at such a devastating time for our industry was memorable.
HOW HAS THE MARKET CHANGED SINCE YOU WERE THE NATIONAL NAIOP CHAIRMAN IN 2010? Happily, it is considerably better! I have memories of giving speeches to various NAIOP chapters in 2010 54 | September-October 2016
served as national chair
served on NAIOP Board of Governors
served as chair-elect of the National Board
served on National Board of Directors until 2008
served as chairman of the Research Foundation
2009
2010
2012
member of AZ Board of Directors
member of the Research Foundation Board of Trustees
20132014
where the attendees looked like deer in headlights! In 2010, we were talking about tenant defaults, capital calls and foreclosures. One of the most notable differences is how our members have diversified their real estate pursuits. Today, our members are far more diversified, pursuing industries that benefit from “demographic tailwinds,” including senior housing, student housing and healthcare.
2015Current
2015
served as chairelect of AZ Board of Directors
2016
diversity, a notable difference in our numbers from 2009 to today is that we have greater membership diversity than before, especially with women.
WHAT CAN PEOPLE EXPECT AT THE NATIONAL NAIOP CONFERENCE IN SCOTTSDALE THIS YEAR?
Where: Scottsdale Princess Resort - 7575 E. Princess Drive, Scottsdale, AZ 85255
Timely programming that will feature best-in-class thinking from industrial, office, multifamily, retail and healthcare commercial real estate experts. There will be approximately 1,300 people from around the country attending, touring some of the great commercial real estate projects in the Valley, including Marina Heights, Scottsdale Quarter, the REI facility in the West Valley, among others. And to get your political fill, Newt Gingrich will be one of the featured keynote speakers!
When: September 26-28, 2016
MESSAGE TO MEMBERS?
Who: 1,300 commercial real estate executives from nationwide
NAIOP presents great opportunities to grow and develop your career in ways that you can’t anticipate today. My involvement with NAIOP jump-started my relocation to Phoenix. Moving to a new market was made considerably easier having known the AZ leadership team that included Mike Haenel, Todd Holzer, Steven Schwarz, Tim Lawless, Tom Johnston and others. They provided the “springboard” for my entry into Phoenix and I will be forever grateful for the time and consideration that so many people gave me during those early months.
What: NAIOP Commercial Real Estate Conference
WHAT DOES IT MEAN TO THE AZ CHAPTER TO SEE MEMBERSHIP NUMBERS NEARING ITS PEAK FROM 2009? A great indicator that our industry is back! The recovery has been uneven at times, and slower than past recoveries, however, most will tell you that the foundation of our industry appears stronger and more diversified than previous recoveries. Speaking of
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By ?????????????????
NAIOP Arizona’s annual roundtable What are the biggest issues and trends impacting commercial real estate?
S
ince its founding in 1967, NAIOP has become the leading organization for developers, owners and investors of office, industrial, retail and mixed-use real estate. For its 2016 roundtable discussion held by leading members of the Arizona chapter, NAIOP-AZ members discuss the national and local issues and trends that impact the commercial market. The 2016 roundtable participants are:
MODERATOR
Larry Pobuda (LP) Opus Group
PARTICIPANTS
Molly Carson (MC) Ryan Companies US, Inc. Mike Haenel (MH) Cushman & Wakefield 56 | September-October 2016
Matt Mooney (MM) Parkway Properties Darren Pitts (DP) Velocity Danny Swancey (DS) ViaWest Group Jim Wentworth Jr. (JW) Wentworth Property Company, LLC Pat Williams (PW) JLL LP: What is different (today) in our local commercial real estate industry than a year ago? MC: Not different, but the war for talent is becoming even more difficult. The challenge of hiring and retaining good employees will continue to have a significant impact on where
commercial real estate is developed and how it is used. Employees are demanding better work life balance, and the quality of and location of their office space will in most cases trump pay every time. The work/life/ play mantra is here to stay in a big way. Urban locations with multiple amenities spanning from eating and entertainment to outdoor space for activity; city parks will become even more desirable. Because of this, mixed-use spaces that include office, residential and recreation options will outperform stand-alone suburban properties for the foreseeable future. DS: I don’t think the market is materially different than it was a year ago. You can certainly point to a few shifts and trends here or there that are not identical to a year ago, but overall I think that the office and industrial markets both continue to see healthy
tenant demand and relatively limited new supply. I think the fact that we’re experiencing a more gradual climb is a good sign that our market is more diversified than in previous cycles and is continuing to mature. That doesn’t mean we’re impervious to a downturn, it just means we should be in a better position to weather future economic storms. PW: The market feels very similar to this time last year. However, I do think activity for larger users has slowed a bit. It does feel like larger requirements (100,000 square feet plus), while still active in Metro Phoenix, have become fewer in the last 12 months. I’m hopeful that our labor market, cost of real estate and lifestyle will continue to draw larger corporate consolidations like Northern Trust Bank, State Farm, Farmers Insurance, etc. to our market. I do believe Metro Phoenix entered this good market late in the cycle and we unfortunately won’t experience the same run other similar size markets have experienced. LP: How would you compare our Metro Phoenix commercial real estate market to other major markets throughout the nation and specifically the Western U.S.? MM: One of Phoenix’s advantages over many of its peers is the sheer size that it enjoys, particularly when you compare Phoenix to competing markets outside of California like Salt Lake City, Las Vegas and Portland. The mass of population in Phoenix and the number of real estate options and employees available gives companies confidence to locate here. From a pure real estate perspective, Phoenix was later to recover in this cycle than most of its peers due to the confluence of overbuilding and over-dependence in home-building related industries in the last cycle. While that wasn’t particularly enjoyable during the past several years, we are certainly in a very positive place today as there is a lack of speculative development across product types (not including multifamily) and the diversity of industries constituting Phoenix’s employment is arguably at an all-time high. DP: The West Coast markets of
Moderator
Larry Pobuda
Panelists
Molly Carson
Mike Haenel
Matt Mooney
Panelists
Darren Pitts
Danny Swancey
Vancouver, Seattle, Portland, San Francisco, Los Angeles and San Diego are in expansion modes, while Metro Phoenix remains in a recovery mode. Over the last year, Phoenix has slowly and steadily improved in vacancy and absorption. Current vacancy is 9.5 percent which is the first time we’ve recorded a single-digit vacancy since 2008. While we are optimistic in Phoenix’s improvement, it is interesting to note that of all the national major markets, Phoenix still has the highest vacancy rate. PW: Phoenix has done a great job attracting corporate users to the market. While we aren’t close to the market velocity San Francisco/Silicon Valley has experienced, Phoenix has attracted tenant expansion from the Western U.S. including Shutterfly, Yelp, Silicon Valley Bank and others. Clearly the lack of corporate headquarters in Metro Phoenix limits our organic growth, but hopefully we can continue to attract users from other markets for headquarters relocation or back office needs.
Jim Wentworth Jr.
Pat Williams
MH: The Phoenix industrial market experienced over 3.5 million square feet of occupancy growth during the first half of 2016. This ranked our market 10th out of the 79 markets that Cushman & Wakefield tracks. Of the nine markets that out performed Phoenix in terms of occupancy growth, three are located in the Western U.S. – Inland Empire, Dallas/Ft. Worth, and Los Angeles. As the local economy continues to expand with consistent job growth and the housing market inches closer to normal historic levels, the Phoenix commercial real estate market will greatly benefit. We will experience larger gains in occupancy, rental rate growth, build-to-suit demand and speculative development. Compared to the three most recent recoveries, Metro Phoenix has been relatively average in terms of industrial absorption. LP: Where does Arizona stand in its economic development plans? Are we headed in the right direction? Is Gov. Doug Ducey on the right track? Is the furor over 57
NAIOP K-12 spending still an issue or did Prop 123 help? Have we done well to diversify or economy? MC: Yes. Yes. Yes. 2016 is poised to be a strong year for commercial real estate, and Arizona continues to be a more prominent force in attracting and retaining businesses. We are fortunate to have a businessman for our governor and already are seeing the benefits. Arizona has a strong workforce and can offer a very good standard of living; this makes for a very compelling story to new and existing companies. Families need good schools, strong neighborhoods and cultural amenities to happily reside and thrive. We have a government that recognizes this and continues to improve upon our strong base; just look at the immediate impact Prop 123 has had. As a result of these efforts, Phoenix almost always is on the short list with highly competitive markets such as Denver and Austin. MH: The State of Arizona and Metro Phoenix, in particular, are poised to continue to take full advantage of attracting new and diverse companies. This is attributable to a recovering
58 | September-October 2016
housing market, the quality of our well-located available commercial real estate, and a cohesive, pro-business economic development platform. The leadership of Governor Ducey, the Arizona Commerce Authority, GPEC and all of the local municipal economic development agencies are firing on all cylinders to successfully help close deals and add quality jobs to our economy. Just this year, companies like Dexcom, SK Foods, Stitch Fix, Carlisle, Oscar Health, and many others have expanded into our economy. Arizona is a great place to do business and we need to continue to promote our strengths. LP: We now have a number of years of consistent expansion of the national economy. Are we overdue for a national recession? If so, how will Arizona fare in comparison to Great Recession? If not, how many good years do you see before the next cyclical downturn? DS: The million-dollar question; the short answer is, I don’t think so. If you strictly look at time as the determining
factor, then we are overdue or very close to being overdue. However, given the magnitude of the last recession, relatively modest recovery and more importantly lack of the traditional leading indicators, I believe that a recession is improbable in the next 12 months. Even with the lack of what I perceive to be strong leading indicators, the inevitable black swan events are always the exception and could happen at any time without a lot of notice. I’m not sure if it’s one, two, or three-plus years of runway, but we’re consistently monitoring the national and local real estate and economic landscape for warning signs and are adjusting our investment strategy accordingly. That said, there’s the looming issue of student debt that, in my opinion, will eventually result in some form of economic disruption. JW: Even though we never got as hot as most other Western markets, Phoenix feels pretty good right now. As history has taught us, it is not a matter of if but when we go in to a recession. We talk to people from all over the country and it is frustrating
NAIOP NAIOP-AZ Chapter Awards Timeline nam e in N d a
st Outstanding Special Event Mo for Comedy Night n tio
named Most Outstanding Gov.'t Affairs Program in nation
'07
'06
Executive Director Tim Lawless receives first-ever volunteer award from AZ Chamber of Commerce Executive Director receives first-ever NAIOP "Capitol Dome" Award for public
'08
'09
won national award for Best Magazine Supplement
received awards for Greatest Net Membership Increase in Nation and Todd Holzer received award for Most Outstanding Volunteer in Nation
won national aw a ra m Prog and pt Cha er E
t DL Bes ding r o tstan sf rd st Ou ve i Mo ecut x
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ar d won national a w tion Committee in N a ew N Publication for DL
won national award for Most Outstanding Chapter Chairman bestowed to Megan Creecy-Herman along with Most Outstanding Communication Tool and Most Outstanding Annual Corporate Sponsorship Program
won national award for Most Outstanding Chapter Chairman bestowed to Keaton Merrell
when they say we are getting pretty late in the game for this cycle. It feels as though the game is just getting started in Phoenix. Unfortunately, as goes the national economy, so goes the Phoenix economy. The economy is never predictable but a pullback is likely in the next two or three years. The good news for Phoenix is that it should be a more muted downturn than previous cycles because we haven’t risen at our traditional pace; we simply don’t have as far to fall. LP: What is the current state of our Metro Phoenix office market and what needs to happen to push the office sector into continued improvement? MM: The Phoenix office market 60 | September-October 2016
won national awards for Best Membership Program and Best Corporate Sponsorship in Nation
'10 s a fo r B D L sle nd B es t t t e e st Period ic r
'08
'13
named Most Outstanding Chapter in nation
'14
'15
Won national award for Large Chapter of the Year and Most Outstanding Mentor Program in the nation
remains a fairly bifurcated story. Owners that have well-parked office buildings with efficient floor plates, proximity to amenities, and freeway (or better yet mass transportation) access are doing very well. Those with older, less efficient product or under-parked product, are still struggling. The key to continued improvement is a combination of continued quality job growth, and not falling into our old habits of overbuilding speculative product. MC: The office market in Phoenix is getting stronger every day, and if we continue to evolve with the market trends, we will continue to thrive as a city. Companies are looking for creative and affordable office space options, and we have a plethora of office redevelopment opportunities
'16
Downtown Phoenix to fill this need. Premium, urban space is in high demand. Phoenix is well positioned for the redevelopment of many buildings downtown. High quality renovated space, specifically urban redevelopment will attract tenants and continue to validate our downtown. LP: What is the hottest submarket right now and what is the next hot submarket? PW: Tempe is the hottest submarket with tenant activity still very high. Interestingly, our overall office vacancy is very submarket driven. Vacancy rates in Scottsdale and Phoenix are still very high and with new construction in the Southeast Valley, there are great opportunities for tenants to achieve
NAIOP
outstanding market terms and concessions. DS: North Tempe and Old Town (Scottsdale) have been the darlings for office users for some time. I’ll preface my comments by noting that we have a large ownership position in this area — so while it may be self-serving, wishful thinking or a little of both — I feel that the Camelback Corridor, specifically 24th Street and Camelback, could really catch fire over the next 12-24 months. Recent asset repositioning, best-of-class (and growing) amenity base, coupled with abundant executive and workforce housing make it a hard choice to bet against. Additionally, as Millennials graduate from the Mill Avenue scene, we’re seeing them migrate to Arcadia and North Central seeking convenient access to Camelback Corridor restaurants, South Scottsdale nightlife and the burgeoning mix of culture, restaurants and nightlife in Downtown Phoenix. I believe this trend bodes well for Camelback Corridor. MM: I’m a bit biased in saying Tempe, as that is where our largest 62 | September-October 2016
holdings are, but I believe when you are talking about net new users to the Valley and net absorption, the numbers bear out that Tempe continues to pace the Valley followed closely by Old Town Scottsdale and increasingly Downtown Phoenix. As the FIRE industries and homebuilding continues to improve, it seems the Camelback Corridor and North Scottsdale are poised to benefit. DP: Two of the hottest submarkets are in the Southeast Valley. Gilbert and Queen Creek are both very active in terms of tenant interest and developer activity. The demographics are very strong in both submarkets. Incomes that reach over $90,000 per household encourage retailers to expand. These submarkets were also those hardest hit during the recession with several planned projects put on pause, or stalled which are now coming back into focus. Grocery stores such as Sprouts, Fry’s, Natural Grocer and Winco have all expanded and are continuing to expand in these submarkets. The next hottest submarket would be Surprise. The
Northwest Valley has expanded the transportation corridor with the Loop 303 and current Grand Avenue improvements which will encourage new growth and development in all real estate sectors over the next several years. LP: What is the current state of our Metro Phoenix industrial market? JW: The Phoenix industrial market continues to be healthy. We have single-digit vacancy rates and we continue to see nice growth in rental rates. We have seen good discipline in development across the board. The mid-sized tenant activity has been particularly favorable. The capital markets are very strong for industrial due to the heavy demand from institutional investors and limited supply of quality product. These investors are chasing investment yields that are driving cap rates down to as low as I’ve ever seen. These low cap rates still feel good to many of the investors because the 10-year Treasury yields are incredibly low (1.55
NAIOP NAIOP-AZ Chapter Events
percent as of today). At the same time, they can get a 100 to 150 basis point higher unleveraged return investing in Phoenix as opposed to the other major Western markets. I expect the industrial market to continue to be steady and strong. MH: I agree, the industrial market continues to improve. Second quarter vacancy is below 10 percent which marks the lowest vacancy rate since 2007. Landlords, investors and brokers remain optimistic and feel we will have a steady “two to three” year run of solid net absorption. Given that we won’t see a significant increase in supply, we expect rent growth. Infill properties and developments located near an airport and/or major freeway continue to outperform the market from a demand and rent perspective. Capital continues to aggressively chase industrial and with the lack of available product, cap rates could potentially compress further. LP: Is the Phoenix market still ripe for spec building? If so, where and what type of building type? MM: On the office side, the challenge with spec building in Phoenix today is that there is a growing cautiousness nationally about how late we may be in the cycle nationally and globally. Thus, while the dynamics in specific submarkets like Tempe and Old Town Scottsdale call for more vacancy needed in the market today (and clearly at good rates if you had the vacancy), when you start thinking about 18-24 months to deliver the new product then capital grows cautious. JW: I wouldn’t say that we are ripe for spec office building though we will see it in some select submarkets. The development approach and volume has been more conservative in this cycle compared to prior cycles. Lenders are still very cautious when it comes to spec office development and it must be a great site in one of the top three or four submarkets. We are more likely to see redevelopment or repositioning 64 | September-October 2016
because the delivery timeframes are more compressed compared to planning and building a ground up development. We are seeing, and will continue to see, spec industrial development in certain submarkets. These buildings cater to the mid-size and large tenants in the Southwest Valley and Airport submarkets and to the small to mid-sized tenants in markets like Deer Valley. LP: Why does the Gilbert retail and restaurant scene seem so vibrant? What did they do right? DP: Gilbert has created a special area where people can come together as a community. The downtown district has character and is pedestrianfriendly with many concepts within walking distance from one another. The town clustered the development and encouraged local concepts to expand and create an area where people want to come. Some of the restaurants include, Petersen’s Ice Cream, Zinburger, Lo-Lo’s, Barrio Queen, Snooze, Pomo Pizzeria, Joe’s Real BBQ, Liberty Market, Romeo’s Euro Café, The Farmhouse, SoCal Fish Taco, Postino, Joyride, Oregano’s, Nico’s and Sushi Brokers. Since opening, all have great recipes for continued success in this district. It is also important to note that Downtown Tempe, Phoenix’s 7th Street corridor and Central Avenue corridor, as well as Indian School Road from 48th Street to 24th Street are all growing their own vibrant restaurant scene. The redevelopment of buildings within these areas has been very creative and successful. LP: What is the solution for the vacant boxes in our market? DP: Our company specializes in big box leasing and disposition and has been tracking and cataloging the big box category for several years. With over 230 vacant boxes in our market, it is a concern to us all. Recent announcements of Sports Authority, Sports Chalet, Roomstore,
2016 chapter re-instituted signature speaker series in May featuring Oakland Athletics's GM, Billy Beane
2013
launched first-ever crawfish boil, raised $15k in donations for Ryan House and executive council charities
2011 chapter creates a new Monte Carlo night
2010 chapter adds "Hands On" program to biannually feed the homeless
2008 Comedy Night event added with Jay Leno
added educational events such as "Lunch & Learns" financial classes
2014
chapter launched "Dream Team" concept to feed 10,000 homeless in downtown Phoenix throughout the year
2012
national NAIOP conference takes place Oct. 17-20 in Scottsdale
2010 chapter creates a quarterly educational speaker series
2009
Casino Night event added
2006
NAIOP NAIOP Members Per Year
from 2002-2016
2002
401
2003
433
2004 2005 2006 2007
(2006-present)
551 616 669 752
2009 2011 2012 2013 2014 2015 2016
829 648
2010 published first-chapter related electronic newsletter in the nation
518
events & networking activities has
grown
7
events to
2002
from
56
2016
2015
7
th LARGEST
CHAPTER IN NATION
612 631 674 726 781
Oasis Bedrooms, and Fresh & Easy vacating their locations exacerbate the current situation. Other retailers have leased some of the spaces, but it seems we take two steps forward and one step back. The property segment that has the greatest vacancy is boxes in neighborhood shopping centers. These boxes comprise over 60 percent of our total big box vacancy and are the hardest to re-lease. These vacant boxes are with us and will affect our economic health for several years. Creative involvement for owners of vacant boxes will be needed to help fill these vacancies and bring their asset back to economic health. JW: This is a tough question and I don’t think there is an obvious answer that solves the problem. Big box retail is being supplanted by industrial buildings fulfilling the needs of e-commerce. That trend is not going to reverse itself. While we have seen some back office tenants fill big boxes as far back as the repositioning of Park Central Mall, there is not enough office tenant demand to fill all the big box vacancies. There are 66 | September-October 2016
11
YEARS IN A ROW
492
2008 2010
received a major national award
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tied record for the number of sponsors with
other creative uses for the boxes, such as an old Levitz Furniture store in Tempe, which we recently purchased and are converting in to a self-storage facility. Unfortunately, I don’t think the alternative uses cure all the ills of the big boxes. We may be approaching the point where the demolition of the structures and the re-use of the land is the most intelligent course for some of these properties. LP: What new trends are coming to our industry? Are the Millennials still driving office design? DS: Especially with larger companies, we’re experiencing a growing trend where HR departments, workplace strategies groups, etc. are driving more of the real estate decisions versus the more traditional real estate and facilities divisions. The companies are simply doing the math and incorporating the costs of acquiring and retaining talent, and weighing that with the cost of rent. Additionally, retail and nearby amenities are continuing to increase in their importance, specifically to office
91total users. This desire is age agnostic and is not just a millennial thing. As far as Millennials driving office design, I’d say it really depends. More than ever before, very psychologically savvy agencies are analyzing how to make the workplace more productive and in doing so are educating companies on the right mix of private, open and collaborative space for their specific business. MC: Millennials make up nearly 20 percent of our workforce today, and will make up 50 percent in 2020; it is safe to say they do and will continue to drive how office space is designed. Millennials desire an open, flexible, collaborative work atmosphere. Down with the cube walls (hard walls better be gone already), replaced by smaller, open, flexible workstations, public lounge spaces to relax or work, and natural light. In short, creative spaces that bring people together. Additionally, sustainability will become an increasingly larger focus for tenants, as Millennials are more health and environmentally conscious than their Generation Y and Baby Boomer comrades.
NAIOP
NAIOP members’ projects MACH ONE
Developer: Trammell Crow Company General Contractor: Willmeng Construction Architect: Butler Design Group Location: 2222 & 2290 E. Yeager Drive, Chandler, AZ 85286 Size: 205,000 RSF Brokerage: CBRE; Bryan Taute Value: $40M Start: February 2015 Completion: February 2016 Subcontractors: Arizona Glass Specialists; T.P. Acoustics, Inc.; PK Associates, LLC; Sutter Masonry, Inc.; Torrent Resources, Inc.; Blackstone Security Services, Inc.; Airpark Signs & Graphics; Suntec Concrete, Inc.; IAA Concrete; Norcon Industries, Inc.; Allgon Exterminating, Inc.; Niemeyer Brothers Plumbing, Inc.; Aero Automatic Sprinkler Company; Artic Air Heating & Cooling, Inc.; Williams Scotsman, Inc.; ELS Construction, Inc.; European Pavers Southwest, Inc.; Stockett Tile & Granite Company; The Shannon S. Martin Company, Inc.; Speedie & Associates, Inc.; Southwest Surface Blasting, Inc.; Adobe Drywall, LLC; Alcal Specialty Contracting, Inc.; Desert Services; Hawkeye Electric, Inc.; Partitions & Accessories Co.; Pro Steel Erectors II, Inc.; Pyramid Southwest, Inc.; Redpoint Contracting; Riddle Painting & Coatings, Inc.; Roofing Southwest; RTI Sealant Specialists, Inc.; Styles Brothers Custom Millwork; Sunland, Inc. Asphalt & Sealcoating; Thyssenkrupp Elevator Corp.
68 | September-October 2016
CHANDLER 202 Developer: Kieckhefer Properties General contractor: Willmeng Construction Architect: Creo Architects Location: 2525 W. Frye Road, Chandler, AZ 85224 Size: 139,159 SF Brokerage: Cushman & Wakefield Value: $12,251,688.12 Start: May 2014 Completion: May 2015 Subcontractors: Williams Scotsman, L.P.; Rent-A-Fence; Desert Services; S & H Steel; Redpoint Contracting; Hardrock Concrete; Premier Engineering Corp; Speedie & Associates; Hawkeye Electric; Artic Air
Heating & Cooling; Niemeyer Bros Plumbing; Schindler Elevator; C.D.S Framing, Inc.; ELS Construcion; Aero Automatic; Diversified Interiors; Star Roofing; Allgon Exterminating; Sun Tech Glass; Palo Cristi Stone Company; RTI Sealants; American Cleaning Systems; Patti Reznik Photogrophy; Climatec; EyeSite Surveillance; Walters & Would Construction; Arizona Shoring & Bracing; King Insulation; Lighthouse Security & Patrol; European Pavers Southwest, Inc.; T-Pac Construction; Beach Products; Fine Line Cabinets; Clayton Floor Covering; Stoll Masonry; Bernies Brass; Airpark Signs; Hersey Aerni; Sunset Acoustics; Southwest Surface Blasting; Trademark Visual; A.L.D Inc.; Adobe Drywall; Miner Southwest, LLC.
PIMA CENTER 23
Developer: The Opus Group General contractor: The Opus Group Architect: Butler Design Group Location: Pima Center Parkway and Via de Ventura, Scottsdale, AZ Size: 125,000 SF Brokerage: Lee & Associates Arizona Start: Q4 2016 Completion: Q4 2017
SKYSONG 4 Developer: The Plaza Companies General contractor: DPR Construction Architect: Butler Design Group Location: 1355 N. Scottsdale Road, Scottsdale, AZ 85257 Size: 141,000 SF Brokerage: Lee & Associates Arizona Start: November 2015 Completion: September 2016
FARMERS INSURANCE AT 17
NORTH CORPORATE CENTER
Developer: Ryan Companies US, Inc. General contractor: Ryan Companies US, Inc. Architect: Butler Design Group
Location: Interstate 17 and Pinnacle Peak Road Size: 150,000 SF Brokerage: Tenant Rep - JLL, Landlord Rep – CBRE Value: $30M
Start: March 2016 Completion: February 2017 Subcontractors: Suntec; Ace Asphalt; Kearney Electric; Optimus; Commercial Air; RCI Systems; Schuff Steel; Carlson Glass; Roofing Southwest; PK Associates; Kraemer; Laskin; Dry Utility Services 69
NAIOP THE WATERMARK | TEMPE Developer: Fenix Development, Inc. General contractor: Sundt Construction Architect: Nelsen Partners Location: 600 N. Scottsdale Road, Tempe, AZ 85281 Size: 310,000 SF (248,000 SF-office / 62,000 SF-retail) Brokerage: Cushman & Wakefield Value: $150M Start: March 2017 Completion: August 2018
COMCAST CUSTOMER RESOURCE CENTER HEADQUARTERS
Developer: N/A General contractor: Jokake Construction Services, Inc. Architect: Acquilano Leslie, Inc. Location: 4690 N. Oracle Road, Tucson, AZ 85747 Size: 187,000 SF Brokerage: Jones Lang LaSalle Value: $11.7M Start: September 2015 Completion: March 2016 Subcontractors: Wilson Electric; Kazal Fire Protection; Adobe Drywall; Adobe Paint; Comfort Systems USA; Gemini Millwork; Barrett Homes NORTERRA WEST Developers: USAA Real Estate Company/Metro Commercial Properties General contractor: Wespac Construction Architect: DAVIS Location: 25700 N. Norterra Parkway, Phoenix, AZ 85085 Size: 147,638 SF Brokerage: CBRE Start: July 2015 Completion: June 2016 Subcontractors: Suntec Concrete; DP Electric; Saguaro Steel; Spectrum Mechanical; Milam Glass 72 | September-October 2016
NAIOP CHANDLER AIRPORT CENTER Developers: Meritex Enterprises/Metro Commerical Properties General contractor: Graycor Construction Company Architect: McCall & Associates Location: 1725 & 1825 E. Germann Road, Chandler, AZ 85286 Size: 210,926 SF Brokerage: Lee & Associates Start: August 2015 Completion: April 2016 Subcontractors: Hardrock Concrete; Indicom Electric; Specialty Roofing; Milam Glass
METRO EAST VALLEY Developers: Principal Real Estate Investors/Metro Commercial Properties General contractor: Graycor Construction Company Architect: McCall & Associates Location: 614, 618, 716, & 720 East Auto Center Drive, Mesa, AZ 85204 Size: 349,049 SF Brokerage: Lee & Associates Start: September 2015 Completion: May 2016 Subcontractors: Suntec Concrete; Echo Canyon Electric; Specialty Roofing; Carlson Glass
BLOCK 23 AT CITYSCAPE
Developer: Red Development General contractor: TBD Architect: Gensler Location: 101 E. Washington St., Phoenix, AZ 85004 Size: 165,000 SF Brokerage: CBRE Value: $200,000,000 Start: Q4 2016 Completion: Q2 2018
74 | September-October 2016
NAIOP KDC FREEWAY LOGISTICS Developer: Kitchell Development Company General contractor: hardison/downey construction Architect: Butler Design Group Location: 28th Street and Broadway Road, Phoenix, AZ 85040 Size: 215,044 SF Brokerage: CBRE Start: June 2016 Completion: December 2016 Subcontractors: BCS Enterprises; ISS Grounds Controls; Kelley Bros; Marks Valley Grading; Milling Machinery; Riggs Companies; The Structures Group SW; Wilson Electric
FRIENDSHIP HOUSE AT ROYAL OAKS MEMORY CARE FACILITY Developer: Royal Oaks Memory Care Facility General contractor: Sundt Construction Architect: Todd & Associates, Inc. Location: 10015 W. Royal Oak Road, Sun City, AZ 85351 Size: 58,082 SF Value: $13,780,958 Start: November 2013 Completion: February 2016 Subcontractors: LSW Engineers; Bakkum Noelke; AmFab; Nexus Steel; JFK Electric; JD Sun Mechanical; RKS; Jones Concrete
MICHAEL LEWIS COMPANY Developer: Michael Lewis Company General contractor: LGE Design Build Architect: Cornerstone Location: 143rd Avenue and Van Buren Street, Goodyear, AZ 85338 Size: 294,712 SF Brokerage: Cushman & Wakefield Value: $35M Start: Q3 2015 Completion: Q2 2016 76 | September-October 2016
NAIOP ALLRED BROADWAY CENTER
Developer: Douglas Allred Company General contractor: Willmeng Construction Architect: Balmer Architectural Group Location: 4141 E. Broadway Road, Phoenix, AZ 85040 Size: 107,817 SF Brokerage: CBRE Value: $20M Start: June 2016 Completion: March 2017
THE GRAND AT PAPAGO PARK
CENTER
Developer: Lincoln Property Company General contractor: Whiting-Turner Architect: HKS Architects Location: 1101 W. Washington St., Tempe, AZ 85281 Size: 213,056 RSF Brokerage: CBRE Value: $85M Start: March 2016 Completion: January 2017 Subcontractors: Blount Contracting Inc.; Schnabel Foundations; Suntec Concrete; Coreslab Structures Inc.; K. T. Fabrication, Inc.; Harder Mechanical Contractors, Inc.; Delta Diversified Enterprises; Kone Elevators & Escalators; NKW, Inc.; Paramount Iron, Inc.
WAYPOINT
Developer: Lincoln Property Company General contractor: WESPAC Construction Architects: DAVIS Location: 1130 N. Alma School Road, Mesa, AZ 85201 Size: 152,540 RSF Brokerage: CBRE Value: $45M Start: March 2016 Completion: January 2017 Subcontractors: Gunsite Construction Corporation; Hardrock Concrete Placement Company; J.J. Sprague of Arizona, Inc.; Saguaro Steel, Inc.; Thyssenkrupp Elevator; Aspen Construction, Inc.; SGSI Glass & Glazing; Specturm Mechanical; Ryan Mechanical Company; Wilson Electric; Star Roofing Inc.
78 | September-October 2016
79
NAIOP
INDUSTRIAL RESURGENCE
By DAVID MCGLOTHLIN
80 | September-October 2016
Building new product and transforming the old
A
n uptick of activity in the Valley’s industrial sector indicate a healthy market with vacancy rates returning to single digits for the first time since the third quarter of 2007.
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NAIOP
...today’s market for class A industrial developments require 36-foot clear heights, may stretch more than 500,000 square feet and employ hundreds of workers on-site. Major factors contributing to the resurgence of the Valley’s industrial market include different tenant demands for new and improved product, changes to the retail market through e-commerce and the California effect that is resulting in droves of companies fleeing California for better opportunities in Arizona. According to Cushman & Wakefield, industrial market reports for the second quarter of 2016, vacancy rates dropped to 9.6 percent with net absorptions and occupancy growth totaling about 2.1 million square feet each. Older industrial products not meeting today’s industry requirements are being repurposed into funky, cool bars and offices in Downtown Phoenix while other areas add newer industrial developments designed to 82 | September-October 2016
meet today’s standards for traditional manufacturing and distribution space. Keith Earnest, executive vice president of Van Trust Real Estate LLC, recalls the Greater Phoenix industrial market back in the 1990s, which featured significantly smaller buildings primarily located along Interstate 10 between 35th and 75th Avenues. Back then, he says, 200,000-squarefoot industrial buildings with 24-foot clear heights and 10-on-site employees were considered big, toptier industrial developments. In contrast, today’s market for class A industrial developments require 36-foot clear heights, may stretch more than 500,000 square feet and employ hundreds of workers on-site. As a result, areas like Downtown Phoenix are redeveloping functionally obsolete industrial buildings of the
Dick's Sporting Goods combined an all air conditioned warehouse space with 23,000 square feet of highly-branded offices featuring an indoor basketball court and upgraded common areas.
past into neat bars, entertainment venues and offices. A prime example of this adaptive re-use is the Gould Evans/Canary downtown studio on Third Street in Phoenix, which converted a former warehouse into class A office space. James Murphy, president and CEO, and Thomas Jarvis, vice president of Willmeng Construction Inc., have been recognized by NAIOP with multiple industrial project of the year awards in 2012 and 2015. Willmeng also won the 2016 Industrial Tenant Improvement of the Year award as the general contractor for the 44,000-square-foot Stone Creek Funiture warehouse, which combines a showroom, offices and manufacturing/disribution services under one roof at the Kyrene 202 Business Park. Murphy and Jarvis both attribute the repurposing of older industrial products as a result of newer, cheaper and better product becoming available in areas like the West Valley.
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NAIOP Murphy adds tenants first look at location then a checklist of technical requirements like clear heights, dock doors, logistic costs and target markets, which helps dictate what Arizona submarket location would be best for business. Jeff Cutberth, principal at Butler Design Group, has worked on industrial developments in nearly every submarket in the Valley. He notes the submarkets experiencing the most activity are the Southwest, Southeast and North parts of the Valley as well as the Sky Harbor Airport area. In total, 11 of 17 defined industrial submarkets experienced a decline in vacancy, according the Cushman & Wakefield industrial market reports. The airport area submarket in Phoenix continues to see smaller boxes near the 150,000-square-foot range with lower clear heights being leased by tenants do more local business throughout Metro Phoenix area. In the Southeast Valley, Cutberth sees more multi-tenant industrial speculative developments between 100,000 to 150,000 square feet being subdivided for four to six smaller tenants. These tenants are not as reliant on the California connection he says, “more of a local flavor than a regional focus.”
“Markets further west like in Goodyear and Buckeye are becoming more prominent locations for big box industrial developments” – Jeff Cutberth Also targeting the local Metro Phoenix market are smaller companies like subcontractors, manufacturers and local suppliers in the North Deer Valley area where speculative developments for single-user buildings typically between 10,000 and 20,000 square feet are becoming more common. “Markets further west like in Goodyear and Buckeye are becoming more prominent locations for big box industrial developments due to proximity of the California ports,” Cutberth says. “The further west, the bigger the box for the most part.” In addition to bigger boxes, newer product also features things like air conditioning, improved common areas, upgraded on-site amenities and an increased emphasis on the company’s brand, look and feel of the facility.
The goal here is to attract and retain top warehouse and office associates. He says, “A lot of these larger corporate tenants are fighting for the same employees in a submarket.” So offering air conditioning throughout the warehouse is sometimes enough to win employees over older industrial space that still has evaporative cooling systems from a decade ago. Dick’s Sporting Goods, 623,000-square-foot built-to-suit distribution center, along the Loop 303 Corridor, is a good example of West Valley industrial product. It also contains 20,000 square feet of office space, which is designed to showcase the company’s brand and culture. Cutberth explains that for a while the market was geared towards built-
Butler Design Group worked for EastGroup Properties to deliver the Kyrene 202 Business Park, which ultimately became the home of Stone Creek Furniture, a showroom/warehouse/distribution space and NAIOP's Industrial Project of the Year in 2016, built by Willmeng Construction, Inc.
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NAIOP to-suit developments because of the vacancy rates and available existing buildings but has since seen an increase in speculative builds. For example, Coldwater Deport Logistics I and II, a 600,000-square-foot distribution center that is currently expanding to 1.2 million square feet along the I-10 in Avondale. Earnest predicts the far West Valley near I-10 and the Loop 303 as even as far out at State Route 85 will continue to be big markets for industrial development because it’s more affordable land and in closer proximity to California. He adds California’s recent approval of a $15 minimum wage helps put Arizona on the shortlist for locations to build
The complex sorting and conveyer belts systems inside the REI Distribution Center reflect the needed interior components for streamlined packaging and distribution of products.
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Jeff Cutberth
Keith Earnest
today’s bigger box industrial product. “Just looking at overtime rates, the $15 turns into $22.50,”” he explains. “Multiply 400 employees times $22.50 for overtime alone and companies are deciding its more cost efficient to serve the southwest market from Arizona.” Larger distribution facilities like the REI, a 420,000-square-foot distribution center in Goodyear along the Loop 303 within PV303, prefer the West Valley because it reduces
Thomas Jarvis
James Murphy
travel times and traffic congestion for its semi-trucks making trips back and forth to the Long Beach Port in California where the merchandise is coming in from. Other trends impacting the industrial market can be attributed to changes in the retail industry with e-commerce and the way customers shop today. Jarvis says, "with the current volume of internet-based retail shopping, there's more and more industrial leasing activity to support the retail inventory that supports these transactions." Companies are looking for the best ways to ship its products directly to customers’ residences. In turn, more third party logistic companies are being contracted by retail distributors to package and ship online products. “The logistic firms who are assisting today's tenants are very sophisticated in the way that they identify the best places for their clients to conduct business and how they can serve their customers more efficently,” explains Earnest. By using complex algorithms and equations, these companies are considering wear and tear on the trucks, cost of employees, fuel, driver times, customer bases, labor rates and much more in their decisions to relocate. In total, the Greater Phoenix industrial market added more than 1.1 million square feet of new product in the second quarter of 2016, according the Cushman & Wakefield reports. More than 94 percent of the 2.7 million square feet currently under construction are distribution and multitenant properties. Industrial market forecasts predict continued expansion through 2016 as more jobs and housing option increase as well.
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PHOENIX
RISING Warehouse District gets new life as a home for tech companies and start-ups By JESSE A. MILLARD
M
ore than 100 years ago, Phoenix’s Warehouse District was a bustling area where trains would crisscross the streets, bringing wholesale goods and produce in and out of the region. Then the urban flight of the 1950s and 1960s swept the nation, Phoenix wound up with a severely empty warehouse district. For the many building owners in the area, it became cheaper to own dirt than an empty warehouse, so many of the brick-walled sentinels of the past were torn down and replaced with dirt or parking lots. Fast forward to the 21st Century and the district’s remaining dormant buildings have been undergoing a rejuvenation, with redevelopment revitalizing an area that had been left by the wayside.
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HOME TO TECH: WebPT, a cloud-based electronic medical record and practice management solution tailored specifically to physical therapists, makes its home in the Warehouse District. WebPT is preparing to move into its third Warehouse District location. PHOTO BY MIKE MERTES, AZ BIG MEDIA
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RECLAIMING ART: ASU’s School of Art moved one of its five student galleries to the downtown Phoenix Warehouse District. The converted warehouse space inside the Grant St. Studios offers a revitalized student gallery experience. PHOTO BY DSQUARED
CALL IT A COMEBACK Warehouse District Council Chair Brian Cassidy says the area started to make this comeback when Chase Field and Talking Stick Resort Arena were built in the 1990s. In Downtown Phoenix, Cassidy says the Warehouse District has a lot of potential for development. “Within the district itself, there are 18 city blocks of either surface parking lots or dirt,” he says. “And in any other major city, these parcels would have been built on many, many years ago.” Phoenix’s Warehouse District is loosely designated as the region starting on the south side of Jefferson Street to a block south of Grant Street between Seventh Avenue and Seventh Street. The area is dotted with some still-in-use and some abandoned train tracks and large brick buildings with plenty of grit and charm. Some Phoenicians might think it’s an area best avoided, but they’d be wrong. In 2004, when Cassidy first built and moved his architecture firm — 90 | September-October 2016
CCBG — into its own space in the Warehouse District on the corner of Buchanan and First streets, the area started to see its share of businesses opening up shop. But the real estate recession struck too soon, leaving CCBG out in the cold. “It was very quiet,” he says, as they were the only business in a block radius for a long time. Now, well into the economic recovery, Cassidy says the area is starting to gain traction once again.
PLACEMAKERS The Warehouse District isn’t so empty anymore with businesses and entertainment venues starting to move in. Cassidy has been seeing companies start to move out of the suburban areas in Phoenix and move into Downtown Phoenix. The same goes for restaurants, too. Many popular restauranteurs have been expressing interest in setting up a location in the Warehouse District now that the
businesses are starting to come in, Cassidy adds. One of the latest modern office trends has been the utilization of open spaces. The thinking behind tearing down the walls of your cubicles so you can sit next to your office mates is collaboration-based. This trend has been growing inside of technology company offices for years. The trend has even extended to include companies that may be renting space next door to your offices. Local tech luminary Brad Jannenga, co-founder of WebPT, noticed these open-space hubs right out of college when he moved to California to work for various tech companies. Sure, there were the catch-all tech hubs of Silicon Valley, but within the Valley and other cities across the country, Jannenga noticed even more condensed pockets and corridors of tech firms working side-by-side. Jannenga, who co-founded physical therapy software firm WebPT with his wife, Heidi Jannenga, wants to create
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NAIOP one of these tech microcosms right in Downtown Phoenix.
BUILDING A TREND The SaaS Industries president and CEO thinks the Warehouse District is just the right place to make one of those hubs in Phoenix. WebPT, where Jannenga still sits on its board of directors, is planning to move from its current Warehouse District space — its second in the District — into a 120,000-squarefoot warehouse space near Fifth and Grant streets. The renovated facility will house both WebPT and Denver-based tech education firm Galvanize. WebPT will take up enough space to fit 500 employees, while Galvanize will take up the remainder
of the space. Jannenga has also bought two more Warehouse District buildings that aren’t too far from Cassidy’s CCBG offices and WebPT’s space. One of his newly purchased buildings that he’s renovating will be used for SaaS Industries and the other building’s concept is still in the works. Collaboration and resource sharing can happen much easier when companies work in close proximity, Jannenga says. You don’t have to look very far in Arizona to see an example of a dense collection of tech and innovative companies working together. ASU SkySong has transformed South Scottsdale, making it one of the biggest hubs of innovation in the state.
CREATIVE SPACE: Gould Evans Principal and Board Chair Trudi Hummel and Principal Krista Shepherd helped Gould Evans moved its Phoenix offices to the Warehouse District in downtown Phoenix in 2015. The architecture firm earned a earned a Design Excellence Award from the International Interior Design Association for its 521 S. 3rd Street Studio renovation, which includes a community bike rack so employees can ride bikes to get coffee, have lunch or to downtown events. PHOTO BY MIKE MERTES, AZ BIG MEDIA
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Currently, SkySong is home to more than 50 companies and is projected to generate some $32 billion in economic impact in 30 years, according to a recent Greater Phoenix Economic Council report.
TECH TRENDSETTER There is no question Phoenix as a whole is becoming a tech hub. A CBRE report on Tech Talent ranked Phoenix No. 11, nationally and noted a 58.1 percent growth in tech talent since 2010. Jannenga says now is the time to move into the warehouse district as more firms start to move in. Galvanize is one of the more recent businesses choosing to set up shop here as it is set to open its new space in the Warehouse District with WebPT in September. The Warehouse District offers a few unique advantages over Downtown Phoenix proper, Jannenga says. He notes cheaper rents in the Warehouse District than most spaces in Phoenix’s core, which lets the smaller start-ups get in on the community action, he adds.
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NAIOP TRAILBLAZERS: In 2006, Brad and Heidi Jannenga founded WebPT and transformed the physical therapy industry. A decade later, WebPT has helped turn the Warehouse District into a tech hub. PHOTO BY MIKE MERTES, AZ BIG MEDIA
And the Warehouse District lets firms utilize open and unique spaces while taking up historic parts of Phoenix that would otherwise be torn down. “What weve really been doing, as a community, is pulling together to really save Arizona’s history (in the Warehouse District),” Jannenga says. “They’re these gems just sitting there falling apart.” And gems they are. Each of the remaining buildings in the District are full of history and charm brick walls, wood ceilings, former employee etchings on the walls from hundreds of years ago, and much more. One longtime business resident and owner, Martijn Pierik of Impress Labs, which recently merged with Seattle-based Duo PR, compares his love of Phoenix’s Warehouse District to his love of the Netherlands, where he grew up. Pierik grew up in an environment full of historic buildings and seeing business begin to operate in one of Phoenix’s oldest areas is exciting, he says. Impress shares its office space with Moses Inc., an advertising agency, and Pieriksays working in wide open spaces like places in the Warehouse District helps breed creativity and collaboration. “It’s critical for our type of business to be in an open environment, where collaboration and open inspiration drive whats happening,” he says. Impress Labs has been in the Warehouse District for a few years and Pierik says his business is not a Class A office user. The history behind each building in the Warehouse District really inspires Pierik and his team, which is critical for a creativebased company. He notes that since Impress Labs is so close to many other similar businesses, like R&R Partners, an advertising, marketing and public relations firm just down the road from his offices, collaboration is really allowed to grow. 94 | September-October 2016
“Creativity isnt done in a vacuum,” Pierik says. “The more collaboration, the better product you can deliver.”
WHAT’S AHEAD Redeveloping in the Warehouse District is not for the faint of heart, Cassidy says, but it is much more fun. As developers take up the last parcels of land in the Roosevelt Row district, Cassidy doesn’t see much more room for continued development momentum. “(The Warehouse District) is where the opportunities are going forward,” he says. One advantage the area has over Roosevelt Row is that the Warehouse District is much closer to the core
of Downtown Phoenix than people would assume, Cassidy says. Cassidy hopes to see the dirt lots and mostly un-needed parking lots get redeveloped into quality buildings, ones that pay respect to the historic area. He’d like to see good urban buildings that aren’t just shiny brass towers that would stick out like a sore thumb. And he’s like to see housing added, he says, because there are plenty of housing opportunities in the area. “There’s probably room for several thousand housing units to be built down here and more office space,” he says. “If those two components are in place, you’ll see more restaurants and entertainment venues follow suit.”
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