AZRE January/February 2017

JANUARY-FEBRUARY 2017

2017 OUTLOOK

INSIDE:

BOMA p. 42

p.24

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ICSC p. 52

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ULI p. 57

POWERING YOUR PROSPERITY

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Looking ahead to what’s coming in CRE

F

orrest Gump’s mama said, “Life was like a box of chocolates. You never know what you’re gonna get.”

I sense 2017 will be like a box of chocolates. Generally speaking, there’s a lot of uncertainty and speculation circulating about what will happen in 2017. To clarify some of that uncertainty, AZRE tracked down commercial real estate experts from across the Valley to provide a sense of “what you’re gonna get” in terms of commercial real estate.

In this year’s annual outlook, experts share predictions about the future of the commercial real estate market.

AZRE also identifies 40 companies worth watching in 2017, and takes an in-depth look at each sector of the industry heading into this year.

One legislative update outlines the potential benefits and risks of President Donald Trump’s proposed policies in relation to commercial real estate.

In the After Hours section, I caught up with a local commercial business development manager, who talks about the parallels between his career and bicycle racing, as well as stories from his favorite competitions.

The new president of BOMA Greater Phoenix sits down for a Q&A about her plans to re-energize and refocus the association in the Valley.

In Chandler, an old eyesore was demolished to make way for a 25-acre mixed-use development.

The last section of this issue foreshadows the theme of the Urban Land Institute’s upcoming Trends Day, with members explaining how the industry is adapting to changes in the market, what disruptions are shaking up CRE and ways to create healthier communities.

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: Alyssa Hesketh | Taylor Neigum Contributing writers: Robert Bach | Joyce Grossman Tim Lawless | Deb Sydenham ART Art director: Mike Mertes Graphic designer: Anita Richey 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 AZRE | ARIZONA COMMERCIAL REAL ESTATE Director of sales: Ann McSherry AZ BUSINESS ANGELS AZ BUSINESS MAGAZINE Senior account manager: David Harken Account managers: Jennifer Heberlein | Brit Kezar | Bailey Young AZ BUSINESS LEADERS Director of sales: Sheri Brown EXPERIENCE ARIZONA | PLAY BALL Director of sales: Jayne Hayden HOME & DESIGN Director of sales: Joe Freedman

David McGlothlin Associate editor, AZRE david.mcglothlin@azbigmedia.com

RANKING ARIZONA Director of sales: Sheri King

AZRE: Arizona Commercial Real Estate is published bi-monthly by AZ BIG Media, 3101 N. Central Ave., Suite 1070, Phoenix, Arizona 85012, (602) 277-6045. The publisher accepts no responsibility for unsolicited manuscripts, photographs or artwork. Submissions will not be returned unless accompanied by a SASE. Single copy price $3.95. Bulk rates available. ©2017 by AZ BIG Media. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from AZ BIG Media.

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CONTENTS

FEATURES 2 Editor’s Letter 6 Project News 8 Trending 10 Executive Profile 12 After Hours 14 New to Market 16 Big Deals

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20 Legislative Update 24 Annual Outlook 38 Millennials 42 Building Owners and Managers Association

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50 East Valley Update 52 International Council of Shopping Centers 57 Urban Land Institute

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On the cover:

Scheduled to break ground in early 2017, the $25 million Arizona Center makeover project will take approximately nine months to complete.

4 | January-February 2017

GO TO store.azBIGmedia.com to purchase subscriptions, digital issues and plaques

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PROJECT NEWS IN THE WORKS

SKY HARBOR RENOVATIONS Phoenix Sky Harbor International Airport Terminal 3 opened its doors to the public in December after completing the first of a threepart modernization to Terminal 3 costing a half billion-dollars.

The design-build team comprised of DWL Architects + Planners, SmithGroupJJR and Corgan, along with contractor joint-venture HuntAustin.

Driving in manufacturing AZ selected for electric car manufacturing plant

By JESSE A. MILLARD

A MIDTOWN LUXURY VanTrust Real Estate, LLC, started construction on Peak 16, a 233-unit luxury apartment community, within the up-andcoming Camelback East Village in Uptown Phoenix. Designed

by ORB Architecture, the fourstory, wood-framed, podium deck development will sit on nearly four acres and is slated to be finished in March 2018. Wespac Construction Inc., is the general contractor on the project.

6 | January-February 2017

rizona beat out 12 other states competing for the location of a proposed $700 million electric car manufacturing plant.

In late November, Gov. Doug Ducey announced that Lucid Motors, a Silicon Valley luxury electric car startup, plans to build its manufacturing center on 500-acres in Casa Grande next year.

Lucid Motors, formally Atieva, narrowed down on Casa Grande after looking at 60 potential sites in 13 states, Brian Barron, director of Global Manufacturing at Lucid Motors, explained at the announcement for the facility.

Although financing for the $700 million plant hasn’t been finalized, according to a KJZZ report, the Menlo

Park-based automaker plans to start construction on the facility next year, and will eventually employ 2,000 workers, and Barron expects production to begin in 2018.

A collaborative relationship between Lucid Motors, Gov. Ducey’s office, Arizona Senators John McCain and Jeff Flake, the Arizona Commerce Authority, Pinal County and the City of Casa Grande was formed to help this deal come to fruition.

Lucid Motors will be buying five properties, a portion of which is Pinal County land that the city will be annexing, says Greg Stanley, county manager at Pinal County.

In the past, the area was mostly agriculture, but Casa Grande has been investing in infrastructure and attracting many industrial projects to the area, Stanley says.

IN THE WORKS

Some of the land owners who will be selling their plots to Lucid Motors have already had a hand in getting other industrial projects to the area, says Larry Rains, Casa Grande’s city manager. “[They] know how important it was to get this development and project going,” Rains says.

Existing infrastructure in the area was a big help in getting Lucid Motors to pick Casa Grande, he says.

The land, which starts at the southwest corner of Peters and Thornton Roads, is close to an existing rail line, and has easy access to sewage, Rains says.

Lucid Motors would not confirm names or companies of any brokers or general contractors that are working on the project, but Land Advisors Organization’s Pinal County advisor,

Kirk McCarville, is representing one of the owners of the five properties.

McCarville has seen the city invest a lot of money into infrastructure over the years. The area has been targeted for industrial projects, and McCarville had a hand in the Walmart Distribution Center project adjacent to the future Lucid Motors plant.

The Pinal County and Casa Grande area seems to be gaining momentum. In June, a 2,360-acre motorsports facility, dubbed Attesa, was announced.

“Just since the Attesa announcement, we’ve had a lot of people calling and looking at things,” Stanley says, the Pinal County manager. “But certainly a lot of interest in that area, and I think this is going to help spur a lot of that growth we want to see.”

Brian Barron

Larry Rains

Kirk McCarville

Greg Stanley

LEADERSHIP CENTER AT GIRL SCOUTS CAMP SOMBRERO The Bob & Renee Parsons Leadership Center for Girls & Women at South Mountain will have meeting spaces for group activities, classrooms for STEM and other focus area programs, a pool and sports field and 15 temperature-controlled cabins for year-around use. The Weitz Company is the general contractor and Marlene Imirzian & Associates are the architects for the project, which should be finished in early 2017.

MIXED-USE WITH A VIEW Once completed Union 32, a mixed-use project with 135-units and 42,000 square feet of office space, will offer views of Camelback Mountain, a rooftop amenity deck and a rooftop pool in addition to underground parking for residents and office tenants. Phoenix Rising Investments, LLC, Willmeng Construction Inc. and Nelson Partners teamed up for the project.

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TRENDING

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MYTHS ABOUT RENEWING YOUR OFFICE LEASE MYTH

FACT

We have a great relationship with our landlord or landlord’s broker

Engaging a broker for a lease renewal will cost the tenant money by diminishing real estate savings We have no interest in relocating, we plan on simply renewing and do not need an advisor We are getting a good deal; the landlord reduced our rent and we are saving money We already have a lease in place and have more than a year left in lease term

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• The landlord’s objective is to maximize profits and shift economic and non-economic risk to the tenant.

• The landlord’s advisor has a fiduciary obligation to achieve the best deal for the landlord and does not represent the tenant’s best interests.

• Brokerage fees are not additive to your real estate expense. They are already embedded and don’t disappear or reduce absent the engagement of a representing broker. The landlord’s broker receives a larger fee if the renewing tenant does not engage an advisor.

• An advisor’s sole objective is to drive the most aggressive economic and non-economic leasehold regardless of a renewal or relocation.

Without an advisor, the landlord achieves the upper hand in negotiations.

• A good deal can only be benchmarked against relocation alternatives that have been brought to full economic and non-economic maturity pursuant to a methodical process of orchestrating competition for the tenant.

• Landlords do not give their best deals. Strategy and leverage define market reality (market maker vs. market taker approach).

• Tenants can strengthen their leasehold covenants to secure greater flexibility, costs containment and expense mitigation by leveraging the landlord.

• The existence of credible leverage delivers the opportunity to improve the tenant’s leasehold position to achieve unobvious savings and enhanced risk mitigation.

Comparison shopping: Phoenix office market rates Northwest Phoenix

$

20.42/SF ▲

Airport area

$

22.85/SF ▲

East Phoenix

$

25.69/SF ▲

Highest office rental rates Phoenix office market rates Central Corridor

$

West Valley

$

21.91/SF ▼

22.81/SF ▲ East Valley

$

22.83/SF ▲

Hayden Ferry Lakeside Tempe: $40-$45 /SF

Esplanade

Central Corridor: $38-$39 /SF

Galleria Corporate Center Scottsdale: $38 /SF

Cityscape North Phoenix

$

21.44/SF ▼

Sources: Cresa, CoStar 8 | January-February 2017

Scottsdale

$

25.47/SF ▲

Overall vacancy

Downtown Phoenix: $38 /SF

15.4‰ ▼

Biltmore Center

Central Corridor: $35-$38 /SF

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EXECUTIVE PROFILE

A diverse Ensemble McGrane finds success by building multifaceted real estate company

PHOTO BY MIKE MERTES, AZ BIG MEDIA

By MICHAEL GOSSIE

R

andy McGrane doesn’t play favorites.

“I’m doing everything from a $5,000 consulting engagement for a healthcare client in Reno and I’m building a $140 million hotel in Menlo Park, Calif.,” says the managing director and CEO of Ensemble Real Estate Solutions.

In his current position, McGrane manages the day-to-day operations of Ensemble’s Phoenix headquarters office, as well as branch offices in Las Vegas, Reno and Long Beach. McGrane is also responsible for leading Ensemble’s senior management committee.

“The three partners at Ensemble have been doing this for 35 years and we’ve seen a lot of cycles and a lot of major world events,” says McGrane, a founding partner of Ensemble. “We said, ‘what we need to do is build a

10 | January-February 2017

RANDY McGRANE: “The key to being a successful player in commercial real estate over the next year is really about having a disciplined process,” says the founding partner of Ensemble Real Estate Solutions. “Do you know how to look at deals? Do you know how to analyze deals? That will be the key.”

really strong core competency that can do a lot of different things in the whole life cycle of real estate.’ Then, we found specialists in each of these food groups — healthcare, hospitality, commercial and urban multifamily/mixed-use sectors — to analyze opportunities.

We don’t care if someone needs us for consulting or if someone needs us to build something. We are agnostic.”

In addition to working extensively on business development, McGrane oversees all leasing and building operations of Ensemble’s growing portfolio, manages all acquisition and disposition of property and arranges for long-term financing with the institutional debt markets.

BIGGEST CHALLENGE: “Navigating a real estate company specializing in healthcare and hospitality through the

Great Recession. Simultaneously, we dealt with changes in the healthcare industry while booking for hotels ended abruptly. Fortunately, we are conservative in our finances, so the key was to remain calm, be realistic and be willing to make tough decisions.”

BUSINESS ADVICE: “Do the right thing and accept the results.”

CHILDHOOD ASPIRATIONS: “I wanted to be a carpenter. I love to build things and still do woodworking. It drove me to a vocational education, where I learned my trade and entered construction at 18 years old and I have not looked back. I still love to build things.”

SURPRISING FACT: “I’m a student

of Buddhist philosophy and find it an ideal approach to business.”

AFTER HOURS

Parker’s Tour de France Dream Team: Lance Armstrong Mario Cipollini Katie Compton Missy Giove Jaroslav Kulhavy Matthew Lee Major Taylor Johnny Tomac Himself

PHOTO BY MIKE MERTES, AZ BIG MEDIA

Achieving new heights Derek Parker pushes limits at work and on the course

By DAVID MCGLOTHLIN

W

hat started out as a hobby and way to relieve stress quickly turned into a lifestyle for Derek Parker, commercial business development manager at Old Republic Title, who first discovered a passion for cycling in 1996.

From his appreciation for the art of frame design to turning himself inside out during a long race, “My love for cycling never wanes,” he says. “It takes a certain type of individualz to pay good money to sign up for a race where you will be suffering up and down mountains for 100-plus miles.”

While his friends may be enjoying a relaxing round of golf on a Saturday morning, Parker chooses to compete in races like the Bradshaw Grinder, which totals 60-plus miles with 7,500 feet of vertical climbing on dirt and gravel.

He has never been afraid of a

12 | January-February 2017

challenge. In fact, he welcomes it.

Parker says “I’ve been able to push myself well beyond my perceived limits during endurance events and I have used that same drive to achieve wins in my work career too.”

His passion for cycling grew after his first race, the 1996 MBAA Cross Country Series in Arizona, which consisted of a 20-mile sprint lasting less than 90 minutes.

After a couple years of podium finishes, Parker shifted focus to endurance races starting with the 24 Hours of Moab, a continuous 24-hour relay race through the Utah desert.

“I remember riding through freezing, snow laced temperatures in my inadequate Arizona riding gear and being miserable for it,” he explains but, “I was hooked!”

Since then, Parker has raced through

the peaks of Flagstaff, across Prescott, Cave Creek, McDowell Mountains, Colorado and against former U.S. Downhill Champion Marla Streb.

He says, “Over the years, I have had the pleasure of competing in some very cool and sometimes iconic races."

Parker tries to ride two to three times during the work week, logging the most miles early in the morning before starting his day with the Wall Street Journal and a coffee.

He adds his latest love is gravel racing. “Where you ride dirt roads and single track on road style, drop bar bikes with large knobby tires,” he explains, like his favorite bike, the Van Dessel Whiskey Tango Foxtrot.

In total, Parker owns six racing bikes, which are kept in a designated room at his home along with his other gear and tools.

His most recent race was the Bradshaw Grinder in September, which was also the first time he raced against his 21-year-old son who beat Parker’s time by 20 minutes.

“You will go through a range of emotions during a six- or seven-hour event,” says Parker. "The best of which come from crossing the finish line."

COMING NEXT ISSUE CoreNet Global IREM-Institute of Real Estate Management RED: Real Estate Development Awards West Valley Building Update

602.277.6045 • azBIGmedia.com 13

NEW TO MARKET A

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MEDICAL A MERCY MEDICAL WEST DEVELOPER: MedProperties Group GENERAL CONTRACTOR: TBD ARCHITECT: Ware Malcomb LOCATION: 1781 E. Willis Road, Gilbert SIZE: 40,000 SF VALUE: $15M START: Q1 2017 COMPLETION: Q2 2018

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MULTIFAMILY B FIRST PLACE PHOENIX DEVELOPER: First Place AZ GENERAL CONTRACTOR: hardison/ downey construction ARCHITECT: RSP Architects LOCATION: 3rd Street & Catalina Drive, Phoenix SIZE: 81,525 SF; 50-units VALUE: WND START: January 2017 COMPLETION: March 2018

HOSPITALITY C AC HOTEL TUCSON BY MARRIOTT DEVELOPER: Tucson Urban LLC GENERAL CONTRACTOR: Lloyd Construction ARCHITECT: FORS Architecture and Swaim Associates LOCATION: 151 E. Broadway Blvd., Tucson SIZE: 176,000 SF VALUE: $31M START: December 2015 COMPLETION: mid-2017

C

B

F

MULTIFAMILY D AVIVA DEVELOPER: Housing Trust Group GENERAL CONTRACTOR: Chasse Building Team ARCHITECT: Biltform Architecture Group LOCATION: 8350 E. Baseline Road, Mesa SIZE: 19 acres; 325-units VALUE: $63M START: November 2016 COMPLETION: Q3 2018

OFFICE E THE HUB DEVELOPER: Clarius Partners GENERAL CONTRACTOR: Layton Construction ARCHITECT: RSP Architects LOCATION: 2701 E. Ryan Road, Chandler SIZE: 292,000 SF VALUE: $50M START: September 2017 COMPLETION: April 2017

OFFICE F MCKESSON CORPORATE REGIONAL HEADQUARTERS DEVELOPER: Ryan Companies U.S., Inc. GENERAL CONTRACTOR: Ryan Companies U.S., Inc. ARCHITECT: Butler Design Group LOCATION: 5601 N. Pima Road, Scottsdale SIZE: 271,000 SF VALUE: WND START: November 2016 COMPLETION: 2017

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A winning equation 5 days, 4 brokers, 3 deals, $200 million, 1 team

By DAVID MCGLOTHLIN

I

n the past five years, one local brokerage team has closed more than $10 billion worth of multifamily deals, which includes over 50 properties totaling nearly $3 billion in 2016.

CBRE’s Tyler Anderson, Sean Cunningham, Asher Gunter and Matt Pesch are back at it again. In November, the team closed three multifamily deals totaling nearly $200 million in less than five business days.

• Alta Tempe: 296-units in Tempe sold for $67.9 million.

• Biscayne Bay: 512-units in Chandler sold for $71.5 million.

• Elevation on Central: 266-units in Phoenix sold for $60 million.

The three deals combined for a total of 1,074-units and more than 1.1 million square feet.

Their success underscores the current climate of Metro Phoenix’s hot multifamily market as investors continue to actively and aggressively trade multifamily assets, especially in the Valley.

Biscayne Bay and Elevation on Central both sold first and on the same day, Nov. 17. PrivatePortfolio Group, LLC, sold Biscayne Bay and bought Elevation on Central. Then the team’s big week concluded on Nov. 22 with the sale of Alta Tempe.

“The goal is to always accomplish our clients’ objectives,” says Pesch. “When we start with that for every assignment, everything else falls into place.”

Anderson and Cunningham are the veterans of the bunch. They formerly

16 | January-February 2017

Elevation on Central

became partners in 1998 but worked together since 1983. Then Gunter joined the team in 2009 followed by the newest member, Pesch in 2011.

Each member of the team brings something different to the table that’s complementary to the entire team and supportive to the clients’ needs, which has proven to be a winning formula.

Over the years, Anderson has developed a vast network with some of the strongest and broadest relationships of anybody in the industry.

Cunningham, a Phoenix native with nearly 40 years of experience, has a unique perspective and an ability to articulate block-by-block knowledge in a way that nobody else is able to.

Asher is known for an insatiable work ethic and almost always being the last guy at the office. He is able to quickly grasp complex assignments and present them in a way that creates

Tyler Anderson

Sean Cunningham

value for all parties.

Pesch may be the newest member of the team, but in his four-year tenure, he has been involved in over 200 multifamily investment transactions totaling more than $8 billion.

Anderson says, “As a team we are very focused on providing clients with best of class service and execution while providing insights for clients to achieve their objectives.”

What sets them apart from other brokerage teams is their level of transaction volume. With billions of dollars in annual sales, the team is able to provide a lot of market insights and data points for clients.

“It makes it a little easier for them to keep a pulse on the market, to understand what capital is doing and to identify trends that allow them to make the most informed decisions,” adds Pesch.

Asher Gunter

Matt Pesch

It’s the big deals and the brokers who close them that make the market an interesting one to watch. Here are the Top 5 notable sales for the months of October and November. Sources: Cushman & Wakefield, Colliers International and Costar.

INDUSTRIAL/SALES

OFFICE/SALES

WESTSIDE BUSINESS PARK 859-901 S. 86th Ave. & 8590-8602 W. Buckeye Road, Tolleson 1,106,167 SF: $82,066,340 BUYER: The Blackstone Group LP SELLER: LBA Realty

111 W. RIO SALADO PKWY. & 222 S. MILL AVE., TEMPE 1,051,663 SF: $278,501,395 BUYER: Cousins Properties Incorporated SELLER: Parkway Properties, Inc. LISTING BROKERAGE: Eastdil Secured, LLC

COTTON LANE COMMERCE PARK 4320 S. Cotton Lane, Goodyear 752,808 SF: $42.85M BUYER: Huhtamaki, Inc. SELLER: Broadway Goodyear, LLC

40-80 E. RIO SALADO PKWY. & 80 E. RIO SALADO DRIVE, TEMPE 488,937 SF: $129,480,296 BUYER: Cousins Properties Incorporated SELLER: Parkway Properties, Inc. LISTING BROKERAGE: Eastdil Secured, LLC

PAPAGO WEST 1115 N. 47th Ave. & 4411 W. Roosevelt St., Phoenix 452,271 SF: $33.55M BUYER: Cohen Asset Management, Inc. SELLER: Breakthru Beverage Group LISTING BROKERAGE: Colliers International OPUS AIRPORT INDUSTRIAL 3333 S. 7th St., Phoenix 393,292 SF: $32.65M BUYER: Principal Global Investors SELLER: The Opus Group LISTING BROKERAGE: CBRE PAPAGO WEST 1115 N. 47th Ave. & 4411 W. Roosevelt St., Phoenix 452,271 SF: $26.78M BUYER: Cohen Asset Management, Inc. SELLER: Breakthru Beverage Group LISTING BROKERAGE: Colliers International

GREAT AMERICAN TOWER 3200 N. Central Ave., Phoenix 344,958 SF: $49M BUYER: Bridge Investment Group Partners, LLC SELLER: EverWest Real Estate Partners, LLC LISTING BROKERAGE: Cushman & Wakefield 5090 BUILDING 5090 N. 40th St., Phoenix 175,835 SF: $42.6M BUYER: City Office REIT, Inc. SELLER: Lowe Enterprises Investment Management, LLC LISTING BROKERAGE: CBRE AVNET GLOBAL HEADQUARTERS 2211 S. 47th St., Phoenix 176,402 SF: $32M BUYER: Cole Office & Industrial REIT SELLER: Lexington Realty Trust LISTING BROKERAGE: Colliers International

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LAND/SALES

MULTIFAMILY/SALES

RETAIL/SALES

E. GERMANN ROAD, QUEEN CREEK, AZ 85142 6,556,651 SF: $19,995,600 BUYER: Shea Homes SELLER: PBS Germann, LLC

BISCAYNE BAY 300 E. Warner Road, Chandler 475,720 SF: $71.5M BUYER: Alliance Bernstein L.P. SELLER: PrivatePortfolio Group, LLC LISTING BROKERAGE: CBRE

3218 S. MCCLINTOCK DRIVE & 15221744 E. SOUTHERN AVE., TEMPE 256,871 SF: $36.75M BUYER: Phillips Edison Grocery Center REIT I, Inc. SELLER: West Valley Properties, Inc.

ALTA TEMPE 1260 E. University Drive, Tempe 403,364 SF: $67.9M BUYER: DiNapoli Capital Partners SELLER: Wood Partners LISTING BROKERAGE: CBRE

SHADE AT DESERT RIDGE 21050 N. Tatum Blvd. & 4710 E. Rose Garden Lane, Phoenix BUYER: Turf Paradise SELLER: Warmington Group of Co. LISTING BROKERAGE: Phoenix Commercial Advisors

NE GERMANN ROAD & LINDSAY ROAD, GILBERT, AZ 85297 3,925,496 SF: $14.91M BUYER: Verde Investments, Inc. SELLER: Galahad, LLC EASTMARK PARCEL 6-8 - E POINT TWENTY-TWO BLVD, MESA, AZ 85212 1,420,056 SF: $9,032,100 BUYER: TerraWest Communities SELLER: DMB Associates, Inc LISTING BROKERAGE: Nathan & Associates

THE RETREAT 20808 N. 27th Ave., Phoenix 466,840 SF: $62.45M BUYER: The Blackstone Group LP SELLER: Bridge Investment Group Partners, LLC BROADSTONE 1675 1675 E. Morten Ave., Phoenix 349,082 SF: $60M BUYER: The ConAm Group of Companies SELLER: The Prudential Insurance Company of America LISTING BROKERAGE: Cushman & Wakefield ELEVATION ON CENTRAL 4650 N. Central Ave., Phoenix 260,000 SF: $60M BUYER: PrivatePortfolio Group, LLC SELLER: Vedura Central, LLC LISTING BROKERAGE: CBRE

ALTA TEMPE: The

296-unit, four-story apartment complex built in 2015 was sold on Nov. 22 for $67.9 million in a deal brokered

by CBRE.

18 | September-October 2016

ARROWHEAD RANCH PLAZA 18555, 18561, 18589 N. 59th Ave., Glendale 42,181 SF: $11.6M BUYER: West Valley Properties, Inc. SELLER: Heinz Real Properties LISTING BROKERAGE: CBRE COFCO PHOENIX CENTER 668 N. 44th St., Phoenix 166,000 SF: $10M BUYER: Angelo, Gordon & Co. SELLER: BNU Corporation

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LEGISLATIVE UPDATE

AAED’s 2017 policy priorities emphasize Arizona economic competitiveness

A

rizona’s success at attracting and growing businesses with high quality jobs requires strong partnerships. Each year the Arizona Association for Economic Development works closely with our partners in the State Legislature on policy priorities that guide lawmakers as they work to make Arizona more competitive.

The following is a list of AAED’s 2017 policy priorities:

ENSURE A QUALIFIED WORKFORCE AND WORKFORCE PIPELINE We support policies and appropriate funding for education programs that build a qualified Arizona workforce.

Continuing legislative support for high-quality educational systems provides Arizona with an additional asset in attracting companies and talent. A qualified workforce will support Arizona’s competitiveness in the retention and attraction of quality high wage jobs.

RETAIN AND MODERNIZE EXISTING ECONOMIC DEVELOPMENT PROGRAMS Our membership opposes any unnecessary changes that reduce or delay existing and proven economic development tools and programs, including Governmental Property Lease Excise Tax (GPLET). Many companies chose to relocate or expand in Arizona because of these programs.

We advocate for the proper funding of the Arizona Job Training Fund or the 20 | January-February 2017

FUND TRANSPORTATION AND INFRASTRUCTURE

creation of a new job training program to help attract and grow businesses in Arizona. We discourage the Legislature from sweeping any funds not used in a particular fiscal year by the Arizona Commerce Authority.

Infrastructure investment expands the economy. AAED encourages infrastructure development, maintenance and improvement.

Sweeps of Highway User Revenue Funds (HURF) must stop. Since 2001, more than $2 billion has been diverted from HURF for other government programs. The Legislature must meet future transportation needs to maximize Arizona’s economic competitiveness.

Infrastructure also includes digital access, AAED supports connectivity to the Internet through high-speed digital infrastructure that meets the needs of all Arizonans.

ENHANCE THE ACCESS TO CAPITAL

LOCAL TAX IMPACT ON BUSINESS

Joyce Grossman AAED

AAED recognizes that venture capital drives job creation and economic growth by helping entrepreneurs turn innovative ideas and scientific advances into products and services. Extension and funding of the Angel Investment Tax Credit is necessary to encourage more private capital investments within Arizona. The funding of research and development tax credit is necessary to encourage the retention/attraction of the companies and the high wage jobs associated. We encourage the Legislature to allow companies with earned tax credits through their investment and job creation activities to apply those credits to their Arizona tax liabilities.

During the economic downturn, seeking to balance the budget, the Arizona Legislature made local jurisdictions responsible for funding state mandates, such as road maintenance and county court costs. Due to the assessment ratio for business property taxes, the net effect of this budgeting technique increased the burden on existing and future Arizona businesses.

For this reason, AAED opposes unreasonable sweeps and unfunded mandates to local governments.

Joyce Grossman is executive director forz the Arizona Association for Economic Development.

2017 commercial real estate priorities at State Legislature

T

here has been a great deal of discussion going into this state legislative session about improving K-12 education and possibly raising revenue or shifting taxes to finance it. The devil is in the details and we will be vigilant in protecting your bottom lines as we already have one of the most uncompetitive property tax burdens for commercial properties in the United States.

Below is a listing of our priorities for 2017:

1. OPPOSE MANDATED COMMERCIAL REAL ESTATE COST INCREASES • Strongly fight any measure that increases existing costs to the commercial real estate industry. This includes but is not limited to the imposition of new taxes, new fees such as a regressive utility usage fee for electricity or the loss of existing sales tax exemptions such as state portion of commercial leases.

• Also of particular concern is imposition of a new statewide property tax or an increase in the State Qualifying Tax Rate (QTR) especially if it does not include a reduction in the assessment ratio or the abolishment of secondary taxes for bonding.

2. SUPPORT AND RETAIN PROPERTY TAX REFORM TO MAKE OUR STATE MORE ECONOMICALLY COMPETITIVE • Strongly fight any measure to reverse or un-do the assessment ratio reduction savings for commercial property passed into law in 2011 (HB2001). This includes measures to shift valuation increases or to rifle-shot a five-percent assessment ratio to selected taxpayers, which further shifts property taxes to the entire commercial real estate community.

• Strongly support any measure to further cut the property tax burden on commercial property, especially if the measure is applied across all commercial properties.

4. SUPPORT EFFORTS TO IMPROVE OUR K-12 EDUCATION SYSTEM AND INSURE MORE ACCOUNTABILITY • Strongly support school finance proposals to eliminate disparities among districts that drive litigation. In general, support stronger performance standards and proposals that get more resources into the classroom.

Tim Lawless NAIOP-AZ

3. SUPPORT EFFORTS TO RETAIN TOOLS IN THE ECONOMIC DEVELOPMENT TOOL BOX TO ATTRACT HIGH WAGE JOBS TO STATE • Protect authority for and ensuring the appropriate use of economic development tools such as Government Property Lease Excise Tax (GPLET).

• Support the creation of viable economic development tools lead by the Governor’s Office without loss of existing tools. Viable means we do not want a tool that will significantly create higher property tax burdens for other taxpayers nor negatively impact the state budget.

5. SUPPORT EFFORTS TO LESSEN LITIGATION COSTS TO MEMBERS • Strongly support legislation to allow CRE firms to “cure” deficiencies when complying with the ADA before lawsuits can be filed in state courts.

MONITOR AGENDA/NEUTRAL POSITION: • Closely monitor state measures to initiate or approximate Tax Increment Financing (TIF) mechanisms for local units of government especially as they may impact other economic development tools such as GPLET. Tim Lawless is the president of NAIOP-AZ.

21

LEGISLATIVE UPDATE

Benefits, risks of President Trump's policies on commercial real estate

T

he surprise election of Donald Trump as the 45th president of the United States is likely to have far-reaching impacts on the economy, capital markets and, by extension, commercial real estate.

The nature of these impacts is more opaque than in most election cycles because policy discussions took a back seat to personalities during the candidates’ debates and speeches.

Nevertheless, we can make some early observations based on a short policy statement titled “Donald Trump’s Contract with the American Voter,” written by three campaign advisors: investor Wilbur Ross, businessman Andy Puzder and economist Peter Navarro. The authors anticipate that the policies proposed in the statement will increase GDP from the 2.1 percent annualized rate that has prevailed in the current expansion to the range of 3.5 percent to 4.0 percent, although mainstream economists question this.

Here, very briefly, is an outline of the president-elect’s preliminary economic proposals and some commentary on the potential benefits and risks for the economy and, where applicable, commercial real estate:

TAXES AND INFRASTRUCTURE A massive stimulus package consisting of major business and personal tax cuts, a simplification of the tax code and a huge $1 trillion investment in infrastructure.

BENEFITS: This would provide a big fiscal boost to consumer and business spending as well as occupier and investor demand for commercial real estate.

RISKS: It would arrive in the late 22 | January-February 2017

Robert Bach

Newmark Grubb Knight Frank innings of the expansion when the labor market is near full employment and wage growth and inflation are picking up. While it would boost GDP, it would also likely boost deficits and debt, putting upward pressure on interest rates — and potentially cap rates — beyond the gradual increase envisioned by the Federal Reserve.

TRADE Renegotiate or withdraw from NAFTA; withdraw from the TransPacific Partnership (TPP); enact stiff tariffs on countries believed to engage in currency manipulation, notably Mexico and China.

BENEFITS: A modest increase in domestic demand for manufacturing facilities and a stronger increase in demand for warehouse and distribution facilities, as companies reconfigure their supply chains.

RISKS: Protective tariffs could increase business costs, reduce U.S. exports, raise import prices and boost inflation.

REGULATIONS Moratorium on new regulations

by government agencies and a review of existing regulations, including Dodd-Frank.

BENEFITS: Could make it easier for businesses to invest and hire; could loosen federally mandated environmental and development regulations on new commercial construction.

RISKS: Unknown impact on the public benefits achieved by the regulations, such as a clean environment and low-risk financial system.

ENERGY Lift restrictions on the production of domestic energy reserves, including oil, shale oil, natural gas and coal.

BENEFITS: Could increase supply of energy and reduce costs for consumers and businesses; could

...implementation will depend on a Republican Congress that shares the same party label as President-elect Trump but not necessarily the same policy goals, such as increasing spending and deficits.

CHILD CARE AND ELDER CARE Tax deductions and dependent care accounts for child care and elder care expenses; incentives for employers to provide on-site child care services.

BENEFITS: Reduce the burden for working families with children.

RISKS: Costs are unknown. potentially help energy-producing regions of the U.S. RISKS: Unknown environmental implications; could aggravate existing oversupply of oil and gas, particularly as electric vehicles become more numerous.

thus raising development costs; could reduce consumer spending in neighborhoods with high percentages of immigrants, potentially hurting small retailers.

IMMIGRATION

Repeal and replace the Affordable Care Act (Obamacare).

BENEFITS: The program needs an overhaul, as major insurers continue to drop out, and the remaining insurers raise premiums.

RISKS: Unknown impact on the 20 million people currently covered by the program; could reduce marginal occupier and investor demand for medical office buildings and other healthcare facilities, but most likely this would be offset by burgeoning demand for services from aging Baby Boomers.

End illegal immigration, build a border wall and increase penalties for (and potentially deport) undocumented immigrants.

BENEFITS: Increase job opportunities and wages for U.S. citizens by reducing the supply of labor.

RISKS: Potentially harsh humanitarian impacts depending on how the policy is implemented; could create a shortage of workers, including in the construction trades, in an already-tight labor market,

HEALTHCARE

TWO CAVEATS The devil is in the details, which is especially true for such a brief policy statement — really more like a list of talking points. Secondly, implementation will depend on a Republican Congress that shares the same party label as Presidentelect Trump but not necessarily the same policy goals, such as increasing spending and deficits.

Thus, these policies are likely to undergo substantial revisions or could be dropped altogether.

Robert Bach heads Newmark Grubb Knight Frank’s research department and is the company’s spokesperson on national trends affecting the commercial real estate industry.

23

2017 OUTLOOK

Annual outlook

40 companies to watch in 2017

By DAVID MCGLOTHLIN

Heading into the new year, experts still see Arizona as a hot spot for commercial real estate activity and development.

While activity in other markets across the nation is starting to fizzle out, Arizona has yet to enter the ninth inning of the business cycle as a result of its slow and steady recovery following the recession.

AZRE identifies 40 companies — in alphabetical order — with major projects in the pipeline for 2017 that are worth keeping an eye on.

24 | January-February 2017

CRESCENT HIGHLAND

25

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Sunrise Hayden Apartment Wrap Scottsdale, AZ

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2017 OUTLOOK: INDUSTRIAL COMPANIES TO WATCH AIM Brokerage Services, LLC: Launched in 2015 as the brokerage division of Arizona Investment & Management, the company focuses only on investment transactions and went from $12 million in total transactions after its first year to nearly $39 million in 2016. The firm projects continued growth and expansion this year.

SKY HARBOR AIRPORT INDUSTRIAL PROJECT

I

ndustrial vacancy rates returned to single digits for the first time since the third quarter of 2007 and the Valley’s market is expected to remain hot.

Cushman & Wakefield reports overall asking rent rates in the Phoenix Metro reached its highest rate of $0.56 since Q3 2009. According to the same report, 15 of the 17 defined submarkets have experienced improvements in overall vacancy rates since Q3 2015.

Experts predict continued increases in absorption, decreases in vacancy rates and the development of more built-to-suit industrial projects for 2017.

The submarkets experiencing the most industrial activity are the Southeast, Southwest and North parts of the Valley as well as the Sky Harbor International Airport area, says Jeff Cutburth, principal at Butler Design Group, which should also hold true for 2017.

The West Valley is positioned to see more construction of big box industrial projects spanning more than 500,000 square feet within PV 303, the 1,600-acre master-planned business park and industrial space located along Loop 303.

Experts predict more industrial activity to coincide with the rise of jobs and housing options in the Valley.

COMMERCIAL REAL ESTATE EXPERTS' OUTLOOK Chapin Bell, CEO, P.B. Bell: “We continue to believe in the longterm strength of the multifamily industry in 2017 and beyond. There are several factors that contribute to that belief, including the fact that Millennials and Baby Boomers tend to favor multifamily living, and job growth expectations continue to be positive.”

Warren Fink, chief operating officer, Carlyle Development Group: “We continue to struggle with lukewarm growth, consumer confidence and competition from online purchasing. We have a tremendous opportunity to respond to demands for dynamic mixed-use retail environments with residential, office, entertainment and other spaces compatible for a total customer experience.”

28 | January-February 2017

Sharon Harper, president and CEO, Plaza Companies: “As far as locations are concerned, we expect commercial real estate growth in South Scottsdale, Northwest Phoenix and Downtown Phoenix. We understand public, private, ongoing partnerships, strategic alliances, collaborations and expect significant growth with this platform in the years to come.”

Curt Kremer, managing principal, EverWest Real Estate Partners: “People are much lower leveraged than they were at in 2008. Debt is cheaper.

Capital is very much available. Tenant demand is strong, absorption is continuing to rise, and surprisingly in Phoenix we aren’t overdeveloping yet.”

Bankers Trust Company: 2017 marks 100-years of business for Bankers Trust, which has operated in Phoenix for the last eight. Locally, it has $580 million in assets, and achieved a 37.4-percent increase in assets over the past year with more coming down the pike.

Buesing Corporation: The company is currently working on plans to increase its pursuit of public works, roadway and federal projects from less than five percent to as much as 15 percent by 2017. A couple proposed projects include the redevelopment of Sky Harbor International Airport’s Terminal 3 and 4.

Camelback Collective Holding, LLC: The joint venture between LaPour Partners Inc. and Holualoa Arizona Inc. will develop a $75 million office-hotel project dubbed the Camelback Collective at 28th Street and Camelback Road. The redevelopment project includes a four-story, 120,000-square-foot office complex and a five-story, 160-room boutique hotel by Marriott’s AC Hotels line, which is slated for completion in Q2 2018.

CBRE: This year the Phoenix office will transition to its award winning Workplace360 model, which will be CBRE’s largest 360 office yet. The Phoenix office will model how cutting-edge office space functions in a 21st century world.

Coldwell Banker Commercial Advisors: The largest Coldwell Banker Commercial affiliate in the world announced plans to expand into the Phoenix market last June. The firm identified Phoenix as a priority market nationally for expansion and looks to aggressively introduce the company’s full suite of commercial brokerage services to the region.

Cresa: Year over year, Cresa has experienced double-digit growth and expects this to carry over this year. In 2016, the Phoenix national accounts team secured three new major global accounts, with more announcements planned for the coming months.

Cushman & Wakefield: By consolidating the firm’s Phoenix operations into one location in 2017, it will offer a wide range of services locally, focusing on connectivity to clients and each other. For 2017, Cushman & Wakefield will work on some of the Valley’s most notable upcoming projects such as One Scottsdale, Watermark, One Hundred Mill, Tempe Tech Center, Scottsdale Landing and the Arizona Center.

2017 OUTLOOK: RETAIL COMPANIES TO WATCH Danrick Builders: The company will start construction of a $500 million recreational motorsports complex in Casa Grande called Attesa. The 2,360-acre site will feature two separate 2.8-mile roads and karting tracks. It will also feature a driver experience center, multi-surface racing and event area as well as a private clubhouse by the time it’s completed in 2020.

Deco Communities: Similar to when Deco Communities introduced the ENVY Residences, Old Town Scottsdale’s first super luxury condo, Deco is preparing to launch a new brand in 2017 that it describes as Arizona’s first-ever ultra-luxury apartment community.

SCOTTSDALE FASHION SQUARE LUXURY WING RENOVATION

T

he "shift from bricks to clicks" in the retail industry describes a growing trend of retailers who are selling products online instead of at brick-andmortar stores and shopping centers.

In retail, net absorption remains low and vacancy higher than expected, but the most growth is being concentrated in a few hot submarkets like Central Phoenix and Downtown Scottsdale.

The 21st century shopping experience is being reimagined through the Internet and concepts like “experiential retail,” which aims to draw in customers with an experience that keeps them coming back.

“The demand for outdoor, socially engaging mixed-use retail space has found its roots with a new generation of shoppers and is not going anywhere,” says Warren Fink, chief operating officer at

Carlyle Development Group, which currently owns Metrocenter.

“Our goal is to incorporate not only retail but also uses like multifamily, office and possibly medical space,” he adds.

Despite increases in online retail sales, reports show a majority of shoppers still value in-store retail experiences.

In turn, Joshua Simon, president of SimonCRE, predicts more Internet retailers will be moving into brick-and-mortar storefronts.

“Customers are seeking a more catered experience and retailers are looking to connect further with their customers,” explains Simon. “We have seen it with Warby Parker, all of the mattress groups, such as Tuft & Needle, even Google and Amazon are embracing brick-and-mortar and putting more focus on the physical retail experience.”

COMMERCIAL REAL ESTATE EXPERTS' OUTLOOK Keith Lammersen, senior vice president, JLL: “We will continue to prove to companies in California, the Midwest and the East that Greater Phoenix is a great market that will allow them to take advantage of our deep talented labor force, low lease rates and exceptional quality of life.”

30 | January-February 2017

Bob Mulhern, senior managing director, Colliers International: “Tenant demand will drive positive net absorption and new supply will be manageable. Vacancies will tick lower, and rents will post modest gains. In Phoenix, the biggest difference between this cycle and past ones is the lack of overbuilding.”

DPR Construction: DPR’s Phoenix office expects to complete a 700,000-square-foot Emergency Department and Patient Tower Expansion for Banner Health at the Banner-University Medical Center Phoenix by 2018. On top of the three-story podium for the ER's relocation will be a 13-story patient tower with 256-patient beds.

Encanto Living: A Phoenix-based home building company will be completing its first three new communities in 2017, which combine an urban living lifestyle and the charm of the Phoenix historic districts throughout Greater Phoenix in midtown and downtown neighborhoods.

Evergreen Devco Inc.: Construction on Parc Midtown, a 306-unit multifamily development, started in May 2016. The project is an adaptive reuse of the former Phoenix Motor Company Mercedes-Benz dealership, which is slated for completion this May. Five Star Development: The Scottsdale-based development company broke ground on the Ritz-Carlton Residences in Paradise Valley last summer. It’s called the largest undertaking of a new master-planned community to feature a Ritz-Carlton with Residences in nearly a decade with an estimated project value of $2 billion. The project spans 105-acres, and will include a 200-room Ritz-Carlton Resort, 91 villas and 45 singlefamily homes once completed in 2018.

Gensler: With a decade of experience in Arizona, and over 50 recent design awards, Gensler has two major projects in Downtown Phoenix to watch. The first, a $25 million renovation of the Arizona Center with modern updates to better engage the downtown core and surrounding community. The other is the exterior improvements to the Renaissance Phoenix Downtown Hotel, which will act as catalyst in activating Adams Street.

Hines: Hines is developing The Offices at Chandler Viridian, a six-story, Class A office building with 250,000 square feet of leasable space composed of large flexible floorplates, generous ceiling height volumes and ultra-efficient glazing and mechanical systems. Leasing activity has been strong and construction is expected to start in early 2017 and complete in early 2018.

2017 OUTLOOK: MULTIFAMILY TEMPE MIXED-USE PROJECT

COMPANIES TO WATCH Irgens: In February, Irgens will break ground on the $18 million Spectrum Medical Commons, a 44,000-square-foot medical office building next to Dignity Health Mercy Gilbert Medical Center. In addition, it will be building phase II of the Perimeter Center project, a 44,000 SF Class A office in Scottsdale; Ascend D, a 60,000 SF office project in Chandler; and 979 Playa, 114,000 SF of Class A office in Tempe.

Keyser: Last year, Keyser experienced doubledigit percentage growth in revenue and headcount compelling a recent expansion of its headquarters in Scottsdale. Representing only tenants/users of space, Keyser is excited to roll out major announcements in the second and third quarters.

V

acancy rates remain low despite the ongoing delivery of new high-end multifamily units.

As long as vacancy remains in check, the multifamily market will remain strong in the Valley, which reports the average volume and sale price per unit is higher than 2007’s peak.

Metro Phoenix set a new record for multifamily last year for yearto-date transaction volume totaling $4.5 billion. Newer multifamily developments provide residents from Baby Boomers to Millennials with the location, amenities and things to do that facilitate a true live-work-play lifestyle.

Chapin Bell, CEO of P.B. Bell, thinks concerns about overbuilding will be temporary because the flow of capital and debt into multifamily projects will be slower, construction costs will rise and rent growth with decelerate.

“These factors are reducing the returns and thus making it more difficult to underwrite new development deals, which should impact the number of new transactions added to the pipeline,” he explains.

While downtown areas in Scottsdale, Tempe and Phoenix are still prime locations for multifamily projects, Steve Pritulsky, president and CEO at Watt Communities of Arizona, predicts, “soaring land prices in core submarkets will push new multifamily development out to first ring suburban locations – vibrant, growing communities with great amenities and land parcels that can be secured for as much as half the price of sites in core areas.”

This is the approach with View 32, a rental apartment community that the company will begin this year within the North 32nd Street Corridor.

COMMERCIAL REAL ESTATE EXPERTS' OUTLOOK James Murphy, president and CEO, Willmeng Construction: “Phoenix is poised to compete on a national level via competitive cost of living and Arizona State University continues to develop the community and provide well qualified, in-demand graduates at a staggering rate.”

32 | January-February 2017

Todd Ostransky, general manager, Southwest Division for Graycor Construction: “We expect the markets that we serve to continue to produce new opportunities in 2017. With this growth, we are also expecting a rise in construction costs due to increased subcontractor labor costs as well as material costs.”

Kitchell Corporation: Kitchell is at the forefront of prefabrication and 3-D printing, which allows faster and more accurate construction of complex items while lowering costs and reducing waste. The company’s 33,000-square-foot prefabrication center in Tempe contains 10,000 square feet of 3-D printing and virtual reality studio space for collaboration.

Layton Construction Company: Layton celebrates 30 years in the Valley this year, and plans for more work in the markets that tend to be leading indicators of positive economic growth such as hospitality, office and industrial markets.

LGE Design Build: With experience across more than 800 projects and having built 19 million square feet in Arizona over the last 22 years, LGE sees 2017 as its biggest and best year yet with 200,000 square feet of office, restaurant, entertainment and industrial designbuild projects on the horizon.

Mark-Taylor: Mark-Taylor delivered the first multifamily community in Arizona to earn the U.S. Environmental Protection Agency’s ENERGY STAR certification last year. Next year, the company will evaluate the potential to transition up to four other properties including San Cervantes, Azul at Spectrum and Borrego at Spectrum.

McCarthy Building Companies, Inc.: The oldest American-owned general contractor is taking its expertise in utility-solar construction to the national market with projects from California to Georgia.

Numerous schools and healthcare projects are also scheduled for 2017 including the ASU BioDesign C, WestMEC and Greenfield Water Treatment Expansion.

Newmark Grubb Knight Frank: In less than three years, NGKF’s Phoenix division grew from seven brokers to 35. NGKF reports its retail brokerage team currently accounts for more than any other retail brokerage team in Phoenix at more than 12.5 million square feet. On the industrial side, it handled the $43 million Huhtamaki deal in Goodyear, Aviall Services’ new distribution center in Southwest Phoenix and IRIS USA’s 50-acre purchase in Surprise.

2017 OUTLOOK: OFFICE COMPANIES TO WATCH Norris Design: Norris Design has grown by more than 300 percent in Arizona over the past five years. The company, known for mixed-use master planning and urban design, has more than 20 notable projects in the works for 2017 including Market Street at DC Ranch in Scottsdale, One Hundred Mill in Tempe and the BannerUniversity Medical Center in Tucson.

The Opus Group: The completion and sale of Opus Airport Industrial in November represents Opus’ first full life cycle project since entering the Phoenix market. This year, Opus reports a robust pipeline of planned office, healthcare, multifamily and industrial developments including a 540,000-square-foot facility at the Goodyear Crossing Industrial Park.

PEORIA INNOVATION CAMPUS AT P83

F

or the office market, the latest trend is in spaces designed to be creative, collaborative and flexible. Newer developments emphasize flexible layouts, open spaces, upgraded common areas and amenities to create a more attractive work environment.

The highest office rental rates for Class A office space are still found in the downtowns of Phoenix, Scottsdale and Tempe.

Older iconic core assets like the Biltmore Center and the Esplanade are undergoing extensive renovations to bring it up to par with today’s market demands.

With low vacancy rates and high rental rates in the more “urban” live-work-play submarkets like Downtown Tempe and Old Town Scottsdale, some experts predict more tech users will chase quality suburban office options and make them fun places to work, especially

when facing a renewal that could potentially raise their rates by 20 or more percent.

“Some of the tech companies that have landed here over the past three to seven years have brought about a reemergence of the suburban office market,” says Keith Lammersen, senior vice president at JLL. “I believe this will continue to be one of the biggest emerging trends of the new year.”

He sees a lot of redevelopment of office space from more traditional layouts to creative flexible space, which allows for easy scaling based on the tenant’s needs.

For less traditional tenants seeking office space like entrepreneurs, freelancers, startups and small businesses, a collaborative workspace — also called co-working or shared office space — can be a viable and affordable alternative.

COMMERCIAL REAL ESTATE EXPERTS' OUTLOOK Steve Pritulsky, president and CEO, Watt Communities of Arizona: “Over the last several years, multifamily projects have almost redefined luxury and taken rental rates to a whole new price point. To remain healthy, the market needs to also address affordability and deliver product that is within reach of demand.”

34 | January-February 2017

Joshua Simon, president, SimonCRE: “I think 2017 is going to be quite similar to 2016. I would say the economy will accelerate as Trump’s policies are put in action later in 2017. I feel really good about the next 12 months.”

Paul Johnson Drywall: The only Arizona-based drywall contractor named to the national Top 50 Contractor list is projecting significant growth in 2017. Planned projects include new communities for Meritage Homes, K. Hovnanian Homes, Taylor Morrison, Toll Brothers, Merril Gardens in Anthem, Maravilla Scottsdale, Aurora on Broadway, Diamante and Aspera.

P.B. Bell: Construction of the Curve at Melrose, a 204unit apartment complex in Midtown Phoenix, should be completed in early 2018. Other projects on deck for 2017 include a 210-unit community in Chandler, a 220-unit community in Mesa starting in Q3 and communities in Goodyear and North Phoenix, which are set to break ground in Q4.

Plaza Companies: This year will be busy for the company with projects on both sides of the Valley between SkySong, ASU Scottsdale Innovation Center and P83. It will start construction on a fifth and possibly sixth building at SkySong. Meanwhile, developing a mixed-use innovation campus at P83 in Peoria and Estrella Medical Plaza 2 at the Banner Estrella Medical Center campus in Phoenix.

Ryan Companies US, Inc.: Ryan Companies Southwest Division has several projects in the pipeline for 2017 including a 28,000 SF medical clinic for Banner Health at Desert Ridge; a 229-unit multifamily project in Phoenix; three-tenant retail development in Tucson and senior living projects in North Scottsdale, Chandler and Mesa.

Savills Studley: Since opening in 2015, the firm’s Phoenix office has recruited top regional talent and completed over 100 transactions totaling more than 2.3 million square feet. In 2017, the office will expand its team and client list of global financial services companies, technology and law firms.

SimonCRE: The Scottsdale-based development company has 40 projects in the pipeline for 2017 valued at more than $100 million. In Arizona, it’s working on 20 projects in the East Valley, Scottsdale and Arcadia.

35

2017 OUTLOOK: LAND & MEDICAL COMPANIES TO WATCH SmithGroupJJR: Named Ranking Arizona’s Best of the Best and No. 1 architecture firm for the 17th year straight, SmithGroupJJR, doesn’t plan on breaking the streak. This year it will begin an office project for the Greater Phoenix Economic Council, new city hall for the City of Eloy, the Tempe Tech Campus and a project at the BannerUniversity Medical Center Tucson - North Campus.

SPECTRUM MEDICAL COMMONS

L

AND: Solar developers see Arizona as a hotbed for future solar facilities as new technologies emerge and the solar race picks up in the desert.

Arizona’s solar boom is creating a lot of interest from solar developers buying 200-plus acres to smaller investors purchasing 20- to 40-acre parcels. According to Multiple Listing Service data, the number of West Valley acres sold in the first nine months of 2016 doubled the number of acres sold in all of 2015.

In the West Valley, approximately $7 billion worth of solar power plants have been constructed and are currently operating on approximately 15,000 acres.

Due to the recent influx of buyers, the availability of viable West Valley land, especially larger parcels (200+ acres), is limited due to either solar companies or big investors holding onto them for future expansions.

In 2017 and beyond, Kuldip Verma, founder and CEO of Vermaland, the largest holders of 50- to 1,200-acre land parcels in Metro Phoenix, says, “We will see

a surge in development in the West Valley, and that is where we believe the path of growth is headed, based on the largest amount of available private land.”

MEDICAL: Bioscience and medical sectors remain strong with dozens of projects occurring across the Valley.

The transition in healthcare to a “well care” system instead of “sick care” model is accompanied by a goal to make healthcare faster, more convenient and accessible by developing more clinics, urgent cares and outpatient facilities.

Expect to see a growing demand for larger clinic spaces of 20,000 square feet or more to accommodate group practices.

Sharon Harper, president and CEO of Plaza Companies, says, “Consolidations are still underway, merging local and national firms in unexpected partner collaborations and alliances with a creative expectation of real estate needs in terms of product type, location and integration into both neighborhoods and health systems.”

COMMERCIAL REAL ESTATE EXPERTS' OUTLOOK Ashley Snyder, senior vice president, Cresa: “Although certain submarkets have shown robust absorption and rent increases, there continues to be opportunity for improvement in other areas and product types.

Historically, Phoenix has been known for the large swings in peaks and valleys, whereas signs of sustainable patterns exist today.”

36 | January-February 2017

Kuldip Verma, CEO and founder, Vermaland: “All signs are pointing to the West Valley as the place where huge growth is and will continue to take place, whether it’s energy companies, real estate developers, or value investing.”

Sundt Construction, Inc.: One of the country’s largest general contractors will continue to work on a number of projects with significant impact on Arizona in 2017. These include water treatment plants, transportation projects in the Valley and Tucson and several building projects throughout the state.

VanTrust Real Estate, LLC: VanTrust will break ground on the Vantage West Distribution Center, a 600,000-square-foot distribution/warehouse space in Buckeye. It will also begin construction on a 120,000 SF speculative office building on the 26-acres it bought in August at Chandler Boulevard and McClintock Road.

Vixxo: The Scottsdale-based technology and analytics firm will be hiring more than 1,000-new employees and continue to build its asset management portfolio, which includes clients like McDonald's and Starbucks. The firm recently launched a new analytics platform called Fusion, which streamlines the efficiency and delivery of its services.

Walker & Dunlop: Since opening a Phoenix office in 2013 and further expanding in 2016, the company’s commitment to Arizona has resulted in a significant market share. It recently surpassed $1 billion in volume, including more than $85 million in Arizona.

Wentworth Property Company: Resulting from multiple acquisitions in 2016, Wentworth is now the largest owner of class A office space in North Scottsdale and the largest private land owner in Tempe.

Projects underway in 2017 include the Scottsdale Landing portfolio, completing the transformation of a 1970’s commercial building to The Alameda, a 232,452 SF creative office campus in Tempe and build-to-suit buildings at the Discovery Business Campus.

Westroc Hospitality: Westroc, the owner and operator of Hotel Valley Ho and Sanctuary on Camelback, plans to open its latest property — Mountain Shadows — in 2017. The $65 million luxury resort will be located at the former Mountain Shadows Golf Resort, which closed more than 10 years ago.

Willmeng Construction, Inc.: Willmeng plans to construct a mixed-use project called Union32 with 135 Class A multifamily units and 42,000 square feet of ground floor Class A office space. The company will also work on Park Place II — a 2-million-squarefoot business campus with plans for eight buildings at full build-out — in Chandler along the Price Road Employment Corridor.

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SELFIE PROMOTION: Evan Koplan, Jackie Orcutt, Cooper Fratt, Rusty Kennedy and Serena Wedlich — clockwise from bottom right — are Millennials who are changing the industry with CBRE.

THE INFLUENCE OF MILLENNIALS Meet 10 young leaders who are reshaping and redefining Arizona’s commercial real estate industry

By MICHAEL GOSSIE

38 | January-February 2017

Entitled. Narcissistic. Detached. If this were a game of Jeopardy! your response might be: What are the three most common words used to describe the Millennial generation? That doesn’t paint a pretty picture considering Millennials are now the nation’s largest living generation. Yet with every raincloud, there is a silver lining. In this case, they are the Millennials who are shattering this stereotype in commercial real estate and are having a major impact on the industry in Arizona. Here are 10 Millennials who are changing the commercial real estate landscape in Arizona.

Jenna Borcherding

Tenant representation JLL Age: 29 With five years of commercial real estate experience, Borcherding specializes in representing tenants in office leasing transactions, assisting corporations both locally and nationally.

She has been recognized by NAIOP as a “Developing Leader of the Year.”

Impact of Millennials: “Millennials almost intuitively understand how technology fits into the built environment. Our entrepreneurial community – and the office space that houses it – will thrive as Millennials continue to drive innovation and promote Arizona as the place to be for start-up and technology companies.

‘Silicon Desert’ will no longer be a name that only Arizonans use, but one used across the country.”

Ron Gonski

Associate Fennemore Craig Age: 31 Gonski is an electrical engineer and Harvard Law School graduate who handles primarily real estate and corporate transactional matters. While attending law school, he founded and sold a software company.

Value of youth: “(Millennials) focus on people and relationships in an increasingly digital world. My generation is constantly in touch, in dozens of ways.

Gabe Ortega

Vice president, Retail Brokerage Group NAI Horizon Age: 36 Ortega is a consistent Top 10 producer (2007, 2009, 2013-2015).

Value of youth: “Early in my career I put my enthusiasm to work by gaining as much experience as possible. Today, that combination of energy and experience gives me a great skill set to work with a broad spectrum of clients.”

Chandra Reilly

Project director Sundt Construction Age: 36 Reilly was named to Engineering News Record’s 20 Under 40 list, as well as Building Design + Construction’s 40 Under 40. She is currently the project director for a $180 million casino resort expansion.

Adapting to those changes is key.”

Impact of Millennials: “Millennials are going to build Arizona with an eye toward sustainability and local pride. They will shape the state in their image, leading to a dynamic, home-grown business landscape.”

Impact of Millennials: “Millennials are the largest generation in U.S. history and are entering their prime spending years. Retailers are changing the way they sell and deliver goods by leveraging.

Value of youth: “I have the ability to foster strong connections between

more traditional, structured organizational methods and the more flexible, inquiry-based approaches our younger team members take.”

Impact of Millennials: “I think we will see more companies who embrace differences as differentiators, and more leaders who are willing to let their team members take risks in the interest of innovation.”

Casey Treadwell

Retail development manager Vintage Partners Age: 36 Treadwell oversees Vintage Partners’ development management, and shop, pad and anchor leasing.

Value of youth: “I grew up around the Westcor culture (highs) and started my career in the throes of the Great Recession (lows), so I’ve seen both sides at a young age.”

Impact of Millennials: “A traditional 15-year wave might only be five years (old) now, so instead of chasing

the same projects or submarkets, everyone should be trying to figure out how Generation Z — or whatever they’re called — will affect the next retail wave.”

Millennials will expect retailers to continue to make their shopping experience easier and faster.”

39

MILLENIALS

Millennials become strength of CBRE’s industrial lineup CBRE understands the importance of benchstrength and grooming the next generation of industry leaders. But when it comes to the industrial sector, the future is now. The commercial real estate giant boasts one of

the strongest young lineups of industrial and logistics services professionals in the Valley. These five young stars – none of them are over 35 – are already contributing to CBRE’s industrial business in big ways.

Rusty Kennedy

Cooper R. Fratt

Senior associate Age: 31 Pratt specializes in Industrial sales and leasing in the Sky Harbor and Southwest Valley markets. He has been involved in more than 1 million square feet of industrial leasing transactions, 500,000 square feet of industrial sale transactions and 120 acres of industrial land.

Value of youth: “I think commercial real estate has long been viewed as an older generation’s game. I’ve found there are not nearly as many Millennials in CRE as in other industries in the Valley and I think that has given me and other young people willing to work hard an opportunity to make our mark.”

40 | January-February 2017

Vice president Age: 34 With a passion for giving back, Kennedy’s time outside of the office is spent serving on the boards of NAIOP and AZ Disabled Sports, membership chair of the CBRE “Young Guns” and as a member of The Camelback Society.

Impact of Millennials: “The business is constantly becoming more tech-savvy and people in the business are becoming more efficient — much of that driven by my generation … Arizona is also a very friendly place to young people who care, have a desire to have an impact and are willing to do some hard work to get things done.”

Jackie Orcutt

Evan Koplan

Vice president Age: 33 Koplan specialized in real estate strategies and solutions for industrial landlords, tenants, investors and users. He is one of most successful young brokers at CBRE. Value of youth: “Most of us come from diverse educational backgrounds and now have immediate access to information, strategic sales training and personal development programs, which pushes creative thinking and ideas.

Thinking outside of the box allows us to create value in nontraditional ways. We advance our knowledge and careers in a time where technology is at our fingertips.”

First vice president Age: 34 Orcutt specializes in institutional landlord and buyer representation, industrial and back office leasing and sales.

She is also an active and influential member of the business and real estate communities. In 2014, she was named to AZRE’s list of Top 20 Most Influential Women in Arizona.

She is president-elect of AZCrew for 2017.

Value of youth: “I think Millennial’s get a bad rep in this town, but maybe the easy answer is that we’re often underestimated? Hard work, ethical behavior, and careful thought and concern for clients has been the core of my business plan.”

Serena Wedlich

Sales assistant Age: 30 Prior to joining Advisory & Transaction Services, Wedlich was a real estate manager with CBRE Asset Services, where she managed more than over 1.2 million square feet of industrial, office and retail properties.

Impact of Millennials: “Technology will be even more ingrained into our daily lives and that will have a dramatic effect on how and where we work. We’re already seeing this, but I think a decade from now it will be much more prevalent. Work will no longer be conducted in a traditional office, but rather in a worksharing environment or remotely.”

BOMA

Benefits of being recognized BOMA 360 Performance Program adds value in more ways than one

I

By DAVID MCGLOTHLIN

f you own an expensive sports car, you ensure the vehicle’s value and longevity by making sure it is cared for by the most qualified professionals. Likewise, owners of a multi-million-dollar buildings tend to want the same thing.

Building certifications, awards and designations can help add value to a property, but not every designation adds the same value because of the nature of its focus.

With that in mind, the Building Owners and Managers Association (BOMA) International decided to unveil the BOMA 360 Performance Program in 2009, which has proven to increase a property’s value, occupancy and tenant satisfaction rates.

While most building designations in the industry are quantitative in nature giving energy performance scores and sustainability ratings like the U.S. Green Building Council’s Leadership in Energy and Environment Design certification, the BOMA 360 Performance Program tends to be more qualitative and holistic.

Joel Corley, BOMA 360 Performance Program director for BOMA International, says the industry wanted something broader than the LEED and Energy Star certifications, which while valubale in their own respects, primarily focus on the physical qualities of the property related to energy and sustainability.

“We wanted to come up with a designation that not only spoke to the physical attributes of the building but also the human component that go into making those buildings run efficiently and harness their full potential,” he adds.

After all, even a LEED Platinum certified building cannot run itself

42 | January-February 2017

Not only do BOMA 360 buildings average $8 more per square foot in rental rates compared to those without, it’s also valuable for tenants, brokers, building owners and property managers for

reasons beyond strictly financials.

“It gives property managers, teams and companies a way to measure the areas they are doing well in and others where there is room for improvement,” Corley explains. “This is one of those unique tools that’s a market differentiator. This is what sets us apart.”

Marii Covington-Jones, general manager at McCarthy Cook & Company, currently has three BOMA 360 buildings in the Valley.

She says the occupancy at Camelback Commons in Phoenix has increased by 27 percent since receiving the BOMA 360 designation in addition to higher tenant retention and satisfaction rates.

“McCarthy Cook & Co.’s motto is ‘relationship driven experience’ and BOMA 360 helps us provide that experience by putting the best in class management practices in place,” she explains.

BOMA 360 helps layout a roadmap for management companies to learn where it excels and where deficiencies might be, which is valuable in an industry where any advantage to sell or lease a property is critical.

Joel Corley

Karen Piper

without the lifeblood and operations that ensure it is maintained and protected.

BOMA 360 encompasses all the major aspects of property management like energy and sustainability but it goes beyond that to include components like emergency preparedness, preventative maintenance, education, communication and efficiency of service.

Since the program started in 2009, more than 1,500 BOMA 360 designations have been granted with more joining the ranks every quarter after applications are reviewed.

Although the program is not as familiar to many in the industry as the LEED certification, buildings that have the BOMA 360 designation command higher rental income, tenant retention rates and lower vacancy rates than buildings without the designation.

Arizona is currently home to eight BOMA 360 buildings.

ADDED VALUE

Marii CovingtonJones

Tom Hatch

2800 TOWER: The 21 story, 364,533-square-foot Class A office complex is located just south of the southwest corner of Central Avenue and Thomas Road.

43

BOMA INCREASED INCOME PER SQUARE FOOT BUILDINGS

LEED BUILDINGS

with the BOMA 360 designation are averaging

Tom Hatch, property and asset manager at Forum Property Services, responsible for Portales Corporate Center in Scottsdale, says, “Earning the BOMA360 designation was a great way for Forum Property Services to differentiate ourselves from other joint-venture and third-party management companies working for our ownership group.”

Not only does BOMA 360 create more tangible benefits than LEED and Energy Star certifications, but it is also significantly cheaper to apply.

“Not everybody can afford to go for a LEED certification,” says Karen Piper, former president of BOMA Greater Phoenix in 1993 and 2013 and current regional operations manager at LBA Realty. “It’s an expensive process and it’s not as expensive to go through BOMA 360.”

She adds the LEED process typically involves hiring a third-party consultant, application and consulting fees plus the retrofitting costs, which when combined can total $30,000 to $70,000 dollars.

“BOMA 360 is a much more cost effective way for building owners and managers to achieve a recognition for their management skills and capabilities without having to spend a tremendous amount of money, time and effort that’s required to go after LEED certification,” Piper explains.

APPLICATION PROCESS Although the scope of the BOMA 360 Performance Program is broad, Hatch describes the application as fairly intuitive and easy to complete.

“If a property management team has all the required policies, procedures and protocols in place and in writing, the application should only take a couple of weeks.”

The application may take longer for less organized management firms that need to track down the needed documents, but Corley, who takes 44 | January-February 2017

with the BOMA 360 designation are averaging

$7.88

$1.60

more per sq. ft.

more per sq. ft.

in Total Income than buildings without the designation

in Total Income than LEED buildings without the designation

$7.25

$1.48

more per sq. ft.

more per sq. ft.

in Total Income than (-) Total Operating Expenses than buildings without the designation

in Total Income than (-) Total Operating Expenses than LEED buildings without the designation

INCREASED TENANT SATISFACTION BOMA 360 BUILDINGS scored higher than Kingsley Index in

93% of tenant satisfaction catagories

Source: BOMA 360 Performance Program, Kingsley Index and CoStar

BOMA 360 BUILDINGS IN ARIZONA 20 E. Thomas Tower

Viad Corporate Center

Building Owner: LBA Realty Fund II – Company V, LLC Management Company: LBA Realty, LLC

Building Owner: MS MCC 1850 North Central, LLC Management Company: McCarthy Cook & Company

Camelback Commons

2800 Tower

Building Owner: MS MCC Highland, LLC Management Company: McCarthy Cook & Company

Building Owner: Gaedeke Holdings, LTD Management Company: Gaedeke Group, LLC

Portales Corporate Center

North Scottsdale Corporate Center II

Building Owner: Principal Life Insurance Company Management Company: Forum Property Services

Building Owner: Artis Reit Management Company: Ryan Companies U.S., Inc

Park One

Desert Canyon 300

Building Owner: MS MCC Park One, LLC Management Company: McCarthy Cook & Company

Building Owner: Piedmont Operating Partnership, L.P. Management Company: Piedmont Office Management

BOMA

pride in walking applicants through the process from day one through their renewal three years later, sees this as a teaching moment.

“One of the end goals is to strengthen our industry and make for a more knowledgeable and well-rounded core of property professionals,” he explains. “We want you to improve your processes and become more organized.”

For property and asset managers constantly looking at how they can add value to their assets, it can be used as a valuable self-auditing process.

Hatch says the BOMA 360 application and certification process provides an excellent opportunity for property managers to assess how their operational systems and dayto-day procedures compare to other management companies at first rate facilities.

The entire application process is done online and starts with creating a building profile, which can be for one or more buildings.

Broken into six major areas in scope in addition to prerequisite criteria, Corley says, applicants go through subcomponents of each section and upload documentation.

Before the application can be formally submitted for official review, the building must meet the minimum point threshold for each section.

The cost for submitting an application for a building under 100,00 square feet can be as low as $900 for BOMA members or as high as $2,280 for nonmembers applying for a building over 600,000 square feet.

At the end of the day, Corley says the greatest return on investment you’ll receive from the BOMA 360 Program is confidence in the management and operational practices in place at your building and peace of mind for your investors knowing the asset is being protected to the highest industry standards and that tenants are receiving quality service.

46 | January-February 2017

20 E. THOMAS TOWER: Rental rates average up to $25.50 per square-foot per year at the 585,000 SF office building, also known today as the Century Link Tower.

CPIs peci al i z esi n: -S al es&L eas i ng -Cor por at eS er vi ces -Of f i ce -Medi cal

-Pr oper t yManagement -As s oci at i onManagement -L and -Ret ai l

-F aci l i t i esManagement -Mai nt enance&Engi neer i ng -I ndus t r i al -1031Ex changes

CPI ’ sl i s t i ngsi ncl udeov er21mi l l i ons quar ef eetf ors al e/ l eas ewi t hmor et han180pr oper t i esandas s oci at i ons undermanagement ,t ot al i ngov er6.

2mi l l i ons quar ef eet .

BOMA

MN: Build a strong foundation of future leaders by encouraging involvement from everyone, not just new members but long term members as well. I am a strong believer that you will get so much more value out of your membership if you participate. For members who engage in everything that BOMA has to offer, the value is tangible. Engaged property professionals in BOMA reap financial rewards for themselves, their properties and their companies.

Refocused and recharged BOMA Greater Phoenix boosts advocacy, educational efforts

By DAVID MCGLOTHLIN

S

ince the Building Owners and Managers Association was founded 110 years ago, commercial real estate professionals look to BOMA as a leading source for advocacy and education in the industry around the world.

In Arizona, BOMA Greater Phoenix was established in 1936 with the same mission to be the industry leader for best practices, providing guidance through expert resources, innovative programs and groundbreaking initiatives.

Incoming president of BOMA Greater Phoenix, Maricela Nunez, also the regional manager at VEREIT, Inc., will continue that mission while refocusing and recharging the association’s member engagement, advocacy efforts and educational programs.

With more than 15 years of commercial real estate experience, Nunez served on BOMA’s Board of Directors for three years, then as secretary treasurer in 2014 and vice president last year.

48 | January-February 2017

BOMA Greater Phoenix’s Executive Director Sarah Osteen says, “I have confidence in Maricela’s passion for the industry and BOMA at large to re-energize our programs and initiatives that drive high performance in our industry and keep property professionals on the cutting edge.”

Nunez shared her plans as president of BOMA Greater Phoenix in December before starting her term.

AZRE: What can we expect from BOMA Greater Phoenix moving forward?

MN: Getting back to our roots.

Focusing on being effective leaders through advocacy [legislative and regulatory lobbying] and professional development opportunities. Training today’s workforce to be successful and training tomorrow’s workforce for successful careers in the industry.

AZRE: What will be on the top of your agenda as the new president of BOMA Greater Phoenix?

AZRE: How does BOMA Greater Phoenix’s educational programs help its members in “CREating their own success?”

MN: Property professionals ‘CREate’ their own success through involvement in BOMA education programs designed to enhance and advance their careers.

Courses in 2017 will be offered in a variety of formats to suit every schedule and budget.

AZRE: What are the legislative priorities for 2017?

MN: In partnership with Courtney LeVinus of Capitol Consulting, LLC, we will work to re-establish our roots as a legislative force representing the commercial real estate industry. We are currently working on opposition to mandated increased pressurization requirements for fire pump and riser systems in high rise office buildings, which creates significant hardships on struggling buildings. The lowest price thus far on BOMA buildings that bid the excessive pressurization was $2.14 per foot, equating to $642,000 on a 300,000-square-foot building.

AZRE: In what ways has BOMA Greater Phoenix progressed and evolved recently?

MN: I think we’re still in the throngs of our transition and currently in process of evolving, refocusing/ revisioning our strategic long range plan and engaging both new and longstanding members.

ARIZONA’S AUTHORITATIVE MID-YEAR UPDATE & FORECAST AZRE magazine hosted a panel of Arizona’s top commercial real estate experts, yielding in-depth discussions of economics, development and state of the industry.

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EAST VALLEY UPDATE

Ready for

growth Gilbert plans for more businesses, residents, visitors

By DAVID MCGLOTHLIN

T

he Town of Gilbert is attracting new residents and companies to the area by making a name for itself as a live, work, play city.

It projects significant business and residential growth in the next 10 to 20 years, which includes approximately 80,000 more residents by 2030 and nearly 20,000 more employees in one of Gilbert’s four employment corridors.

With the completion of AZ60 and Reserve@SanTan Building IV, groundbreakings at Gilbert Spectrum, developments like Park Lucero and Rivulon continuing with the next phases of construction, and proposed developments like Circle G Corporate Park, Gilbert is in a position to deliver office and flex industrial space to meet the needs of any business looking to expand or relocate in the community, according to Dan Henderson, Town of Gilbert economic development director.

AZ60 consists of two buildings totaling 225,600 square feet of flex industrial space, and the Reserve@ SanTan features 104,000 square feet of

50 | January-February 2017

flex office space, which are both move in ready.

In addition, the Gilbert Spectrum Business Park — a 63-acre commercial and industrial project with up to 850,000 square feet of office, flexindustrial and technology-related space — recently broke ground on their first building, which will house Orbital ATK Space Systems Group’s new 60,000-square-foot facility.

The Heritage District in Downtown Gilbert continues to be a hotbed of commercial real estate activity. As the demand for office space in the Heritage District continues to increase, developers like LGE Design Build, are revisiting their plans for proposed and planned projects to incorporate office square footage.

District Lofts broke ground in June 2016 and will add 172-units to the Heritage District. This project along with added office space being proposed has spurred interest from other residential developers.

The first building constructed in

PAST MEETS THE PRESENT: The Heritage District combines Gilbert’s older, historic assets and character with newer more progressive projects geared to meet modern-day trends and demands.

Downtown Gilbert was a train depot built in 1905. Today, the area is where the past meets the present and future as it remains a hotbed for commercial development activity.

Described as “the community’s family room,” Heritage District is a place where residents and visitors can enjoy retail, restaurants, entertainment, arts and culture from weekly farmer’s markets to a rich nightlife scene with restaurants and bars.

“The current commercial real estate development we are seeing now represents an exciting rate of growth, not only in residential numbers but workforce as well,” explains Henderson. “Gilbert is carefully considering these growth projections as the community evaluates current and future infrastructure needs.”

4 PROJECTS, 1 MASTERPLAN Developers demolish old eyesore to make way for Chandler Viridian

By DAVID MCGLOTHLIN

I

n November 2014, the City of Chandler demolished Elevation Chandler, an unfinished structure on site and local eyesore, to develop a mixed-use masterplan, which was the last available site adjacent to the Chandler Fashion Center.

In its place will be Chandler Viridian, a 25-acre mixed-use development in the middle of the Price Road Corridor, which will consist of four different projects: a modern-brand hotel, high-end apartments, desirable office space and sophisticated retail offerings.

“We believe the mix of uses, including the multifamily development, hotel and restaurants, all enhance the city’s sense of place, which will help contribute to the viability of the office project,” says Chandler Mayor Jay Tibshraeny. “We look forward to seeing that project begin soon as we see this as a magnet for employers and employees that want to be in the heart of the Price Corridor.”

Hines, an international real estate firm, broke ground on the Cambria Hotel & Suites at Chandler Viridian in November and plans to open for business in 2017. The Cambria Hotel & Suites Chandler will feature 136 rooms, a pool with cabanas, fitness room, lounge area and 1,300 square feet of meeting space.

“Hines is thrilled Chandler Viridian is advancing as planned,” says Chris Anderson, managing director and local city leader for Hines. “We have a longstanding commitment and vision for this exciting mixed-use development featuring a modern-brand hotel, dynamic offices, high-end apartments and sophisticated retail that will strengthen the variety of existing uses at the Chandler Fashion Center.”

On the office side, construction of the Broadstone Fashion Center — a 335unit, Class A multifamily community — is projected to conclude in early 2017.

The high-end residential community built by Phoenix-based Alliance Residential Company and designed by ORB Architects of Phoenix includes a mix of studio, one- and two-bedroom residences plus individual attached garages.

Hines was also tapped to develop The Offices at Chandler Viridian, a six-story, Class A office building with 250,000 square feet of space, designed by RSP Architects, which will start construction in early 2017 and complete in early 2018.

The last project of the master-planned mixed-use development is Chandler Viridian PRIMEGATE, developed by WINLEE Development, which will feature approximately 24,000 square feet of curated, specialty restaurant and retail amenities on 3.25 acres.

“We are excited to be under construction as planned on this distinctive project and to participate in bringing to fruition the larger vision of

CAMBRIA HOTEL & SUITES: The hotel will be an important element of Chandler Viridian, which also includes The Offices at Chandler Viridian, apartments at Broadstone Fashion Center and retail at Chandler Viridian PRIMEGATE.

the mixed-use development,” says Peter Nelson, president of WINLEE. “It didn’t take Panera Bread [PRIMEGATE’s first secured tenant], a quality operator with sophisticated real estate analysis, very long to realize the unique nature that the PRIMEGATE location affords.”

Construction recently began and is expected to be finished in April 2017.

Chandler Viridian represents a dynamic shift occurring along Frye Road and Chandler Boulevard, which is the primary entrance to Chandler Fashion Center Mall.

Nelson says, “Frye Road is emerging as the preferred route quite simply because it provides greater ease of access to more amenities from more directions for more people.”

51

INTERNATIONAL COUNCIL OF SHOPPING CENTERS

Bringing them back for more NEW ENTRANCE: Scottsdale Fashion Square's renovation plans include a striking new entrance and arrival point, two-story storefronts and exterior-facing retail buildings and restaurants that will elevate and enhance the offerings for luxury retailers.

PHOTO BY MACERICH

52 | January-February 2017

Experiential retail, mixed-use projects add to shopping center reinvention

W

hy someone returns to a store or shopping center can be hard to peg but most shoppers want stores to be a hub for convenience and entertainment where experiential retail merges with things to do outside of shopping.

According to a recent Coldwell Banker Commercial Affiliates survey, shoppers still value traditional brickand-mortar shopping experiences. In fact, nearly half of Americans prefer to make purchases in a store instead of shopping online.

Commercial real estate professionals are exploring ways to facilitate the perfect customer experience through two emerging trends in the retail industry — experiential retail and destination making.

“We’re seeing that Americans still value in-store retail experiences in an increasingly e-commerce world, but brick-and-mortar retailers will need to embrace aspects of online shopping and invest in experiential retail to drive traffic in-store,” says Fred Schmidt, president and chief operating officer of Coldwell Banker Commercial Affiliates.

Case in point, the iconic Scottsdale Fashion Square and Macerich’s announcement in December for a phased project to further enhance the shopping center. It will consist of renovations to the mall’s luxury wing and incorporate high-end residential units, class A office space and hospitality in the area.

For more than 50 years, Scottsdale Fashion Square has made a name for itself as a one-of-a-kind retail destination and top-performing shopping center in the Valley.

Today, with four anchor department stores and more than 200 shops and restaurants, Scottsdale Fashion Square is one of the premier shopping

destinations in the country with total annual sales exceeding $650 million.

“The best centers are constantly adding new retailers and restaurants, exciting new consumer experiences and physical upgrades that make shopping there even better,” explains Scott Nelson, senior vice president of development at Macerich. “As an industry, we need to keep giving shoppers reasons to shop in person, and a great way to do that is to keep adding enticing experiences they can only get in physical settings.”

With that in mind, plans at Scottsdale Fashion Square call for a new dramatic, high-visibility arrival point off Goldwater Boulevard, creating a grand entry into the luxury wing, which will be flanked by sweeping, two-level luxury flagships and an internationally acclaimed restaurant with spill-out café seating.

Construction will begin in 2017 with completion slated for fall 2018.

Macerich is also planning the addition of mixed-use elements at Scottsdale Fashion Square on a sevenacre parcel immediately north of the mall that reaches from Goldwater Boulevard to Scottsdale Road.

The plan will incorporate high-end residential units, class A office space and hospitality uses to extend the customer base and sales potential for retailers within the shopping center.

“When customers visit a mall they want much more than just a place to buy things; they want memorable experiences,” says Nelson. “Retail properties that not only offer great stores, but also deliver on the experience front with everything from small conveniences to big amenities, are in high demand.”

The luxury renovation and added mixed-use elements will supplement 53

ICSC LEADERS IN LUXURY: Scottsdale Fashion Square is home to more than 40 of the world’s finest luxury brands including Cartier, Louis Vuitton, Gucci, Tiffany and Co., Bulgari and Prada to name a few.

PHOTO BY MACERICH

key investments in other aspects of the shopping center, including refinements and updates to the contemporary wing anchored by Nordstrom and the property’s entertainment/young fashion wing anchored by the new Harkins Theatre. Plans also include the addition of new restaurant and food offerings at the 1.9 million-square-foot Scottsdale Fashion Square.

Nelson says, “The strong growth in Scottsdale and Greater Phoenix creates a climate where adding more density and new uses surrounding Scottsdale Fashion Square makes a whole lot of sense.”

Looking at past projects, Macerich identified that enhanced performance at its shopping centers coincided with mixed-use expansion.

He pointed to Tysons Corner Center —

Joe Doucett 54 | January-February 2017

Rommie Mojahed

a 2 million-square-foot mall in Northern Virginia — as an example, which like Scottsdale Fashion Square was a retail powerhouse with the best stores.

Macerich developed a vertical, mixed-use expansion including a 22-story trophy office building, a 300-room Hyatt Regency hotel and an upscale 429-unit residential building.

Not only are the mixed-use elements at Tysons themselves performing well, says Nelson, but the expansion also benefited retailers by extending the built-in client base with sales per square foot up 20 percent over the past five years.

He foresees similar results at Scottsdale Fashion Square once the renovations and mixed-use additions are completed.

Scott Nelson

Fred Schmidt

ASK THE EXPERTS: How can shopping centers and retailers make themselves more attractive to tenants and provide a better shopping experience?

“In an era of Internet retail, brick-andmortar retailers need to make sure that they are providing quality service and an in-store experience for their customers.

The Internet can’t replace the enjoyment of shopping in a store with knowledgeable and courteous staff. Shopping center owners, in that same light, need to be sure that their centers are in good condition, well maintained and overall, an appealing place to be.” — Joe Doucett, senior managing director for Newmark Grubb Knight Frank’s Phoenix retail team What are the main factors all retail tenants look at before committing to a retail space?

“Design, pricing, parking, financing, tenant improvements - all play a significant role helping the tenant make a decision, but location seems to be the most important deciding factor. There is an old adage ‘out of sight, out of mind.’ In retail, this is true.” — Rommie Mojahed, director of retail sales and leasing at Sperry Van Ness

Comprehensive commercial real estate news delivered directly to your inbox

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ADAPT. DISRUPT. CREATE.

LIFE IN EVERY DIRECTION

In the High Sonoran Desert sits a place where you’ll never feel closed in. The community of Estrella takes that wide open feeling to new heights, with scenic trails winding around

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72 acres of lakes—ideal for kayaking, canoeing, sailing, or just

catching a spectacular sunset. In Estrella, you’ll find natural

beauty everywhere you turn, even on those starlit nights right outside your front door.

ESTRELLA.COM New homes from the high $100,000s to over $400,000 Beazer Homes • David Weekley Homes • Gehan Homes • KB Home • Shea Homes Terrata Homes • William Ryan Homes • CantaMia® by AV Homes 55-Plus I-10 west, then south on Estrella Parkway 623.386.1000 • Brokers Welcome

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Newland Communities is the largest private developer of planned residential and urban mixed-use communities in the United States. We believe it is our responsibility to create enduring, healthier communities for people to live life in ways that matter most to them. www.newlandcommunities.com EQUAL HOUSING OPPORTUNITY • NNP III-Estrella Mountain Ranch, LLC and NNP III-EMR 4, LLC (collectively, “Fee Owner”) are the owners of various parcels of land comprising the Estrella Community (“Community”). Newland Communities is the development manager retained by the Fee Owner for the Community. Certain homebuilders unaffiliated with the Fee Owner or Newland Communities are building homes in the Community. Fee Owner and Newland Communities are not co-developing, co-building, or otherwise responsible for any of the obligations or representations of any of the Builders. Fee Owner and Newland Communities are in no way responsible for any obligations or representations of any of the Builders to third parties and/or homebuyers, and Fee Owner and Newland Communities shall incur no liability whatsoever nor have any obligations or liability to any homebuyer regarding a home purchase from a Builder. Buyers of homes from any of the Builders waive, to the fullest extent permitted by law, any and all rights, claims, causes of action and other rights whatsoever against Fee Owner and Newland Communities arising out of their purchase transaction with the Builders. • Prices, specifications, details, and availability of a builder’s new homes are subject to change without notice. • Actual development may vary from developer’s vision. No guarantee can be made that development will proceed as described. Certain properties may be registered with HUD, or may have registered components in the future as required pursuant to the Interstate Land Sales Full Disclosure Act. If such registration occurs, obtain the HUD Property Report, or its equivalent, required

by Federal law and read it before signing anything. No Federal agency has judged the merits or value, if any, of this property. 2017 © Estrella. All rights reserved. Estrella is a trademark of NNP III-Estrella Mountain Ranch, LLC, and may not be copied, imitated or used, in whole or in part, without prior written permission.

URBAN LAND INSTITUTE

Leading with integrity for the long haul F

rom dawn to dusk, whether deliberate or accidental, everyone is framing and contributing to a personal and a collective legacy. The mission of the Urban Land Institute offers tangible opportunities for individual growth and the power of teamwork. “To provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide” demonstrates a philosophy steeped in 80 years of seeking knowledge, sharing best practices and embracing varying perspectives to create better places.

ULI looks beyond the impossible, beyond the obvious, beyond the challenges – it’s our legacy.

How can the development industry identify and embrace changing realities while simultaneously leveraging the resultant knowledge and successes — or failures — to strengthen the fabric of our communities?

Adapt: “The measure of intelligence is the ability to change.” – Albert Einstein Community and industry thoughtleaders recognize that long-term success hinges on maintaining balance between achieving results today and seizing new opportunities tomorrow. Roy Drachman, iconic Arizona real estate development pioneer and founding member of ULI, demonstrated this ability in 1946 when he opened a real estate office, having no prior knowledge or expertise, and

Deb Sydenham

ULI Arizona District Council proceeded to make a living “by the seat of his pants.”

Authentic leadership conveys an understanding of the responsibilities necessary to pursue the long game while maximizing the most valuable asset we have – an open mind.

Disrupt: “Everyone has a plan… until they get punched in the face.”

– Mike Tyson One key to surviving a world of disruption, where the external environment is changing at lightning speed, is reassessing business models to change the game. When a company can accelerate both the speed of execution and agility, it goes from surviving to thriving. This is not an easy task.

Through its research, centers, initiatives and District Councils, ULI helps leaders anticipate emerging trends and explore creative solutions as they navigate disruption in the marketplace.

Create: “I’m always thinking about creating. My future starts when I wake up in the morning and see the light.”

– Miles Davis Widely considered one of the most influential musicians of the 20th century, Davis was at the forefront of almost every major development in jazz from World War II — a time of tremendous disruption — to the 1990s.

Great ideas do not spring from innate creativity or necessarily from the brilliant minds of people. Rather, great ideas come to those who are in the habit of looking for great ideas – all around them, all the time.

Recent years of wholesale change resulted in the real estate development industry learning painful but valuable lessons and refocusing on substance over flash, creativity over certainty, and taking risks over playing it safe.

Throughout the vast field of land use and real estate, ULI is widely-acclaimed as a neutral convener where individuals representing disparate perspectives can engage in dialogue and craft insightful strategies to forge better places.

As Jake Wood, CEO of Team Rubicon eloquently states, “The more you say ‘we,’ and the less you say ‘I,’ the farther you’ll go. It’s something that the most effective leaders understand and take to heart.”

Deb Sydenham, FAICP, is the executive director of the ULI Arizona District Council.

59 | January-February 2017

ULI: ADAPT

ADAPTING TO CHANGE

Infill, adaptive reuse prove to be viable options for newer developments

By DAVID MCGLOTHLIN

J

ust as it is true in biology, the ability to adapt is vital for survival and prosperity within the commercial real estate industry.

But the factors that allowed a company to survive the commercial real estate jungles 20 years ago may not work in today’s market.

To survive and thrive, members of the Urban Land Institute and their companies are rethinking traditional business models and adapting new strategies to embrace new market philosophies, demographic shifts and changes in consumer spending.

Instead of planning, financing and building new developments entirely

60 | January-February 2017

from scratch, developers of infill master-planned communities and oneoff adaptive reuse projects are utilizing the infill sites’ existing infrastructure and amenities — roadways, utilities, restaurants, retail shops, schools and parks — to save time and money.

The sprawling multi-thousand-acre master-planned communities of the 1990s on the outskirts of town are becoming less popular as a growing percentage of people shift their attention to more urban infill environments. And developers are doing the same.

From Millennials to Baby Boomers, more people want to live in or near urban areas with plenty of amenities, places to eat, retail shops and things to do, which truly facilitate a live/work/ play lifestyle within their community.

MASTER-PLANNED COMMUNITIES “A growing percentage of residents are trading in a 3,000-square-foot single-family home that’s an hour from work for a 2,500-square-foot apartment that’s 15 minutes from work,” says Brent Herrington, president and CEO of DMB Associates Inc. Master-planned community developers like DMB and Sunbelt Holdings — historically known for expansive master-planned communities on the edges of town — are being asked to develop smaller master-planned communities ranging from a dozen acres to a few hundred acres instead of thousands of acres.

Take DMB’s plans for Eastline Village as an example, a 13.5-acre mixed-use development planned for

UPTOWN PLAZA: Located on the northeast corner of Camelback Road and Central Avenue in the center of four historic neighborhoods, Uptown Plaza is again a thriving retail shopping center and is home to national and local tenants like Shake Shack, Lou Malnati’s and Flower Child.

ADAPTIVE REUSE: Located within Roosevelt Row on Central Avenue, FOUND:RE opened in October as a boutique, art-filled hotel.

PHOTO PROVIDED BY FOUND:RE.

Tempe, which recently completed its zoning approvals and plans to break ground in mid-2017.

Herrington describes Eastline Village as a transit-oriented urban village designed for a 21st century workforce that will consist of a variety of housing types and price points for rental and sale as well as retail, office and open spaces.

Located in a pre-existing amenityrich area and in close proximity to a light rail station, Herrington thinks it will attract a diverse mix of tenants and residents.

“People want to live green, close to things to do and minimize the dead time they spend driving through the Valley,” he adds.

Today’s urban infill master-planned communities are smaller in scale and still provide the same components as a thousand-acre master-planned development, but in a different manner.

John Graham, president and CEO of Sunbelt Holdings, says, “The skill set is very similar to what we’ve always tried to do, which is focus on place-making and quality of life experiences, whether it’s commercial or residential.”

When you’re in a more urban infill context, Herrington says, “You have to begin by understanding all the great stuff already around there and think about, ‘How do I create something that’s additive to the existing assets and community?’”

building materials or nearby amenities into the project.

In addition to being affordable, “It’s extremely important to make sure the adaptive reuse complements the culture of the neighborhood and doesn’t disrupt things,” says Timothy Sprague, principal at Habitat Metro.

That was the idea behind his company’s development of FOUND:RE. It was an old hotel property originally built in 1973 that was transformed into a new 105-room hotel that offers a one-of-a-kind arts and culture hotel experience.

Sprague says FOUND:RE provides affordable housing for artists in the area, as well as a place to display their artwork in the gallery on the bottom floor.

Companies like Habitat Metro and Vintage Partners have successfully revitalized older buildings without disrupting the culture of the surrounding neighborhood, breathing new life into the fabric of the community.

For instance, Uptown Plaza, an iconic shopping center built in 1955 by Del Webb and Roy Drachman, was restored

to its former glory with some modern improvements through the creative efforts of Vintage Partners.

“The magic is in identifying what can be done,” says Walter Crutchfield, partner at Vintage Partners. “When adaptive reuse is done right, everyone benefits — the developer, tenants and community — because it’s not just about changing a building’s use, it’s about restoring community connections, while also looking to the future.”

Experts say there’s no cookie cutter mold for infill communities or adaptive reuse projects, which require developers to adapt based on the site, its existing assets and the surrounding neighborhood.

“As we look ahead, we are seeing fewer and fewer compelling real estate opportunities for multi-thousand-acre master-planned communities and more compelling opportunities in the infill and redevelopment context,” says Herrington.“The whole industry is sensing it and trying to think about what it means for their business and how to respond.”

SUCCESSFUL ADAPTIVE REUSE PROJECTS The same is true for infill adaptive reuse developments that utilize creative ways to incorporate existing

Walter Crutchfield

John Graham

Brent Herrington

Tim Sprague 61

ULI: DISRUPT

SHAKING THINGS UP Disruptive innovations alter real estate development as we know it

D

isrupt: to drastically alter or interrupt the structure of something. In school, disrupting class would get you in trouble, but in business, disruption can provide an incremental benefit in preparing for future changes to market conditions.

For instance, Zillow transformed the way homebuyers shop for houses by using the Internet. AirBnB disrupted the hospitality industry giving travelers options for alternative places to stay outside of hotels.

Another industry-altering disruptor is Uber, which continues to reshape public transportation.

From the use of drones in commercial real estate, creating more collaborative office spaces, the advent of driverless cars, 3-D printing and e-commerce, disruptive forces are changing the face of land use as we known it.

“A drone gives you context you cannot get from being on the ground,” says Dave Cheatham, president of Velocity Retail Group. “You can use photography to get an oblique, angled view, to understand things such as ingress and egress. You can see access

62 | January-February 2017

to roads, freeways and where the residential is. That is a real advantage.”

Beyond drones, three-dimensional printing has the potential to reduce production time and costs. And the rise of e-commerce has more retail stores emphasizing “experiential” in-store shopping experiences for customers and using showrooms to display products.

Steve La Terra, managing director at Meyers Research, LLC, says the biggest disruptions he currently sees in commercial real estate involve the democratization of information, access to capital and how space is used.

COLLABORATIVE WORKSPACES Disruption has facilitated alternative means of collaboration for employees to work and interact through a simple, well-designed office space, which can ultimately increase productivity and lead to greater workforce retention.

“Collaboration has always been a key component to a company’s success, but in our rapidly changing society, technology and culture have changed the way this happens,” says Steve Lindley, senior managing director at Cushman & Wakefield.

By DAVID MCGLOTHLIN

AMIE: The Additive Manufacturing Integrated Energy demonstration project at Oak Ridge National Laboratory used the world’s largest 3-D polymer printer to create a 3-D printed house and car for a cost of more than $2 million.

PHOTO BY JASON RICHARDS

For example, Ryan Companies’ recent interior remodel implements new technology for the company’s transition away from traditional office spaces.

“We don’t have private offices,” explains Rick Collins, Southwest Division president at Ryan Companies.

“Everyone in the organization has a work station,” which includes technology so anyone can walk up and plug in or wirelessly connect to screens and monitors.

Today, collaboration in the workplace is more open, fluid, less structured and can happen anywhere — from social media and email, to common office spaces, to informal meetings outside the office over coffee or cocktails.

The remodel at Ryan Companies also includes a built-in Cantina. With its

Dave Cheatham

Rick Collins

Steve La Terra

Steve Lindley

Devney Preuss

will have the ability to use an app to schedule their own drone to pick up groceries or packages that were purchased online from a distribution center or retail facility,” says La Terra.

Balconies of high-rise multifamily developments may then also be used as the resident’s drone pad, which can pose serious headaches for the FAA if thousands of drones are humming around Phoenix for personal errands.

AUTONOMOUS VEHICLES DRIVERLESS CAR: In December, the Google self-driving car project was spun off into a new company called Waymo.

PHOTO BY WAYMO

Southwestern design, restaurant-style booths and variety of cold beers and beverages, it provides employees with an oasis to which they can escape for meetings and breaks.

A growing number of today’s employees — many of whom are Millennials — prefer working at locations near things to do and experience from arts, entertainment and culture to restaurants and bars, according to Devney Preuss, executive director of Phoenix Community Alliance.

3-D PRINTING There continues to be major buzz around 3-D printing as it becomes more popular and practical with new applications and uses being identified all the time.

What is 3-D printing? It’s an additive process that creates an object by laying down successive layers of a liquid polymer that hardens on contact with

a laser light, which is a process known as sterolithography.

Last January, La Terra attended the International Builders Show in Las Vegas where he actually sat in a full-sized 3-D printed car, which was accompanied by a one-room 3-D printed house.

Expect to see more 3-D printing uses emerge in commercial real estate as the technology advances.

La Terra says 3-D printing has already been shown to reduce reliance on subcontractor labor, streamline production schedules and reduce costs.

DRONE DELIVERIES Drones are not a new concept, but have surged in popularity for commercial and personal use.

Companies like Amazon and others have become increasingly interested in using drones to delivery packages, but have battled the Federal Aviation Administration on proposed regulations.

The first federally approved drone delivery was documented in July 2015 when a pilotless drone successfully delivered medical supplies to a clinic in Virginia.

“It won’t be long before all consumers

From driverless cars to 18-wheelers, autonomous vehicles are changing the way we commute and transport goods.

In October, the first self-driving 18-wheeler successfully drove about 120 miles and delivered 2,000 cases of beer in Colorado.

“It will certainly increase worker productivity, traffic efficiency and reduce accidents,” says La Terra, “but it may also change how we view commercial parking ratios, residential garage space, public parking facilities, etc.”

PARKING’S UNCERTAIN FUTURE Although Greater Phoenix is still a car-centric city, developers and tenants are re-thinking their long-term needs for parking and looking at alternative transportation like light rail or bicycles.

“Landlords are re-thinking guest parking requirements and replacing with pick-up/drop-off areas as clients use shared-ride services like Uber or Lyft instead of renting cars,” says Lindley.

There’s also a discussion emerging about designing parking structures for changes related to autonomous vehicles, although he adds, this is still too speculative and long-term to result in any significant changes to development plans yet.

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ULI: CREATE

CREATING NEW STANDARDS Healthy communities pay long-term dividends for developers and residents

By DAVID MCGLOTHLIN

R

esearch shows a community’s environment affects the lifestyle decisions its residents make.

Those decisions can result in improved health for its residents.

According to Active Living Research, communities in rural, suburban and urban settings that factor healthier environments into their designs have quicker home sales, faster leasing, stronger home values and higher pre-sold units compared with

conventionally designed communities.

From what we eat to how we commute, community design impacts choices and today’s “healthy communities” are providing ways for its residents to make healthier lifestyle choices.

In Southern Arizona, a 3,000acre master-planned community called Rancho Sahuarita is nationally recognized for its diverse health and wellness offerings. Agritopia is another healthy community catching people’s

attention in the Town of Gilbert, where the staple feature is a working farm instead of a golf course.

ULI launched the Building Healthy Places Initiative several years ago to help people embrace a healthy culture through living in a community that’s connected to and facilitates health in hopes it will become the standard for future developments.

Adrienne Udarbe, executive director of Pinnacle Prevention, led this effort in the state on behalf of ULI Arizona for the last two years.

She says, “The ULI Building Healthy Places Initiative is a multifaceted program to leverage the power of ULI’s members and networks to shape projects and places in ways that improve the health of people and communities.”

Udarbe worked with ULI to create a Building Healthy Places Checklist for local governments with case studies and best practice examples to assist with integrating health into all phases of their general and comprehensive plans, which consists of 10 principles every healthy community should address.

SAHUARITA TRIATHLON: Started in 2003, it was the community’s first organized health and wellness event. PHOTO BY RANCHO SAHUARITA

64 | January-February 2017

10

ULI IMPACT LEADER

PRINCIPLES for Building Healthy Places:

1. Put people first

6. Ensure equitable access

2. Recognize economic value

7. Mix it up

3. Empower champions for health

8. Embrace unique character

4. Energize shared spaces

9. Promote access to healthy foods

5. Make healthy choices easy

10. Make it active Source: ULI

The goal is for health to be the easy choice for all people. Amenities often include walkable and bike-friendly streets, nearby access to affordable goods and services like grocery stores and healthcare providers, as well as healthy homes, spaces for multigenerational play and recreation and socially engaged neighbors, says Marilee Utter, president of Citiventure Associates.

“An environment that nurtures activity and exercise, healthy foods, close relationships, good sleep, all support a healthier and happier lifestyle,” Utter adds.

RANCHO SAHUARITA Located in the Sonoran Desert of Southern Arizona, is one of the bestselling and most successful masterplanned communities in the country.

Rancho Sahuarita was ranked No. 29 by Money Magazine in its list of “50 Best Places to Live” in the United States.

It boasts a wealth of state-of-the-art

Bob Sharpe

Adrienne Udarbe

facilities, like a 30,000-square-foot clubhouse and 6,000-square-foot fitness center, in addition to its 50-plus parks and 40 miles of paved walking paths and bicycle trails connecting the community’s schools, parks, commercial and recreational areas.

Bob Sharpe, president of Sharpe & Associates and developer of Rancho Sahuarita, says, “While our 17 miles of trails continue to be a big attraction for homebuyers, it’s the combination of the outdoor and indoor space with our programming, which includes over 180 events a year and over 30 free wellness classes each week, that sustain the vibrant lifestyle and home sales in our community.”

Since 2002, national homebuilders have sold more than 5,000 homes in this project with a value of more than $1 billion, making Rancho Sahuarita one of the top master-planned communities in the nation.

Sharpe is quick to admit Rancho Sahuarita wouldn’t have been possible without the scores of ULI members who taught the then 30-year-old Sharpe about the business of masterplanned community developments.

Sharpe says one of the first people he turned to for advice was Roy Drachman, Marilee Utter

ROY DRACHMAN

One of ULI’s first members in Arizona, Roy Drachman was co-owner of the Roy Drachman Realty Company, which he established in 1946. His contributions to Arizona were many: • He played major roles in bringing Hughes Aircraft (now Raytheon Corp.) to Tucson.

• He helped raise money to establish Tucson Medical Center.

• He was one of the original partners who founded Ramada Inns.

• Drachman and Del Webb codeveloped the first shopping centers in Arizona, including Tucson’s Swanway Plaza and Uptown Plaza and Park Central in Phoenix.

• Webb and Drachman also developed Christown Mall in Phoenix, the first enclosed mall west of the Rockies.

• He donated a total of $3 million to the University of Arizona.

“I have been a great believer that the environment is an important segment of our world,” Drachman said in 1996 in an interview for the Arizona Historical League.

“That we’ve got to pay attention to how we use the land and what we use it for; that we gotta plan for the long pull. We just can’t do the thing that’s wise today because you can make money at it.”

In the 1980s, Drachman became ULI ’s first Emeritus member. He died in 2002.

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ULI ULI IMPACT LEADER

Tucson’s most respected real estate entrepreneur and one of ULI’s original members in the 1940s. Drachman steered him towards ULI. Later on the community launched a “Health and Fitness Day” in 2007, hired its first health and wellness manager in 2010 and continues to look at new efforts, such as the upcoming Rancho Sahuarita Cancer Walk on March 4.

“Our added lifestyle value and unique experiences differentiate our community from all others and results in a competitive advantage that consists of greater land values and more home sales,” Sharpe says.

AGRITOPIA In Gilbert, a master-planned community made healthy choices easier by designing it to provide access to healthy foods, which are grown and

NEW AGE FARM: Agritopia is an “urban farm” in Gilbert that was designed to flourish in the urban setting of Metro Phoenix.

produced within the community.

After the Recession stopped construction in 2008, Agritopia, the farm-focused residential development located in Gilbert at Higley and Ray Roads resumed construction.

It is one of more than a dozen projects across the country known as “argihoods” designed for home buyers who seek open, green space and fresh foods, which is all produced within the community.

Spanning 160 acres, Argritopia consists of more than 450 residential lots and 16 acres of certified organic farmland with fruits, vegetables and livestock.

Every Wednesday night, residents can purchase the locally grown and produced foods at the market located in the center of the neighborhood.

Udarbe is happy with the progress Arizona has made in integrating health into community planning and says she looks forward to the day where healthy initiatives become the norm in development.

She credits ULI Arizona for playing an instrumental role in advancing the conversation and practice among multisector partners that play a vital role in designing a healthy community.

WALTER WINIUS JR.

ULI appointed Walter Winius Jr. as the first Arizona chair in the 1980s, and at age 88, is the longest standing member of ULI Arizona.

For more than 50 years, he has conducted real estate and economic research for clients across the nation, which includes analysis of trends, absorption rates, project feasibility, land use and valuation studies.

Here’s a list of Winius’ notable Arizona clients and projects: • Winius carried out market analysis and concept planning for the holding known today as the Verrado masterplanned community.

• He conducted evaluation and valuation of two Jack Nicklaus golf courses and a 1,152-lot planned community at the Superstition Mountain Development.

• Winius worked on valuing natural gas pipeline easements across Indian Reservation lands in Arizona and New Mexico for the Transwestern Pipeline project.

• For the Mobil Land East Mesa Project, he provided evaluation of market and development potential and land use analysis for a mixed-use development.

Today, Winius continues to serve as the managing director of Integra Winius Realty Analysts, Inc. and president of its predecessor entities, Winius Montandon, Inc. and Walter Winius, Jr., Inc. in Phoenix.

66 | January-February 2017

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ULI

80 YEARS OF MAKING A DIFFERENCE

1936

The National Real Estate Foundation for Practical Research and Education is chartered in Illinois. The group’s name is changed to the Urban Land Institute in 1939.

1941

The first ULI conference is held at the Massachusetts Institute of Technology on the topic “The Principles of City Re-Planning.”

1960

1955

ULI’s research program is established with the initial objective of developing “a better understanding of the underlying forces which produce urban change.”

1972

Roy Drachman and Del Webb develop Uptown Plaza. Christown Mall, the first enclosed mall west of the Rockies, opens 4 years later.

1980s

McCormick Ranch begins development as Arizona’s first masterplanned community.

Walt Winius becomes ULI’s first Arizona chair and Drachman becomes the first ULI Emeritus member.

1995

ULI Online premieres, providing members with direct electronic access to key resources, experts and services.

1999

Arizona District Council hosts its official Inaugural Event. First Full Member Case Study: Scottsdale Fashion Square Bridge Expansion.

Walt Winius

2000

Number of ULI District Councils grows to 39, including Europe, Japan and South America councils.

2001

2006

ASU campus expands into Downtown Phoenix and ULI’s first professional development webinar is offered.

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2004

First Young Leaders Group is established to attract new members age 35 and younger.

2008

ULI Daniel Rose Center for Public Leadership is created to foster creative, efficient and sustainable land use practices.

ULI Arizona launches four initiatives: UrbanPlan, AzTAP, Scholarship & Intern and Smart Growth.

2014

ULI Arizona membership surpasses 1,000.

2016

ULI Arizona receives ULI Global District Council Impact Award for longtime work and partnership with SARRC.

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ULI

Trends impacting real estate today: A ULI discussion

By DAVID MCGLOTHLIN

S

ince its founding 80 years ago, the Urban Land Institute (ULI) has provided leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.

To kick off 2017, members of ULI Arizona gathered to discuss the issues and trends impacting land use.

QUESTION: What are your thoughts on

the real estate industry heading into 2017?

EM: We’ve seen positive expansion,

values increase and cap rate compression down. We’ve seen rental rates steady at the same time and we have also seen a decrease in home foreclosure sales, too. All signs that we have been doing well over the last seven years.

BS: One of the other areas that we’re doing well in is tech office. We continually hear that offices in San Francisco, and costal offices — New York as well — are wanting to open offices in Arizona.

SLT: I think we have the table set for

attracting those groups with the ease of doing business here.

PARTICIPANTS Denise Christensen

Byron Sarhangian Timothy Sprague,

JU: Ecommerce industrial is a game

Steven La Terra

Managing director, Meyers Research LLC (SLT)

Erik Marsh Managing director, Newmark Grubb Knight Frank Capital Markets (EM)

Erin A. McInerney

Vice president of acquisitions, VEREIT, Inc. (EAM) Attorney, Snell & Wilmer (BS) Principal, Habitat Metro, LLC (TS)

Jennifer Understahl,

Partner, Perkins Coie LLP (JU)

Debra Wilkins Stark,

Councilwoman, District 3, City of Phoenix (DWS)

a slower rate of recovery. In Arizona, there’s speculation that 40 percent of commercial mortgage-backed securities (CMBS) loans coming due in the next 18 months are going to have trouble getting refinanced. That’s a huge number.

Q: What are the keys to Arizona’s continiued growth?

JU: It’s been a slow and steady

EAM: I think that the real key is that you have to get the worker to want to move from San Francisco to Arizona and I think that’s a really interesting quandary. There are ways that we can make Phoenix more attractive as a creative, progressive kind of event-type

recovery. It hasn’t been a boom, which is a good thing in some ways.

But also that leaves certain areas at

70 | January-February 2017

DC: If you are a Millennial coming in for a tech job, do you really want to be in an apartment downtown that’s 1965 vintage or do you want one of the more current, innovative spaces with expansive floor plans and flexibility, not just from an office floor plate perspective, but from a home perspective as well?

Q: What are some of the innovations and trends that are impacting the industry?

Acquisitions and development, Habitat Metro, LLC (DC)

EAM: I would say retail continues to

struggle, but that’s not just true of Arizona. Traditional retailers that we all shopped at 20 years ago continue to struggle nationally.

city where there are things to do.

changer. We are ahead of the curve compared with other regions in terms of our attractiveness for high-tech distribution centers.

TS: I’ve been in the business for 30 years and the way people walk in to look at buying a house today is different. It’s not unusual to have somebody who has never been to the area walk into our sales office and write a check to buy a house that day. They’ve researched the area on the Internet and they know everything that we know about our condo project when they walk in the door.

EM: We are seeing a lot of changes in healthcare. A lot of hospitals have been buying up small practices with one or two doctors. What they are doing is mixing disciplines of doctors in the same office space. So we are seeing many of those small offices are not physically obsolete, but there is a demand for that.

Q: How is technology disrupting the industry?

SLT: I’ve actually walked through a 3-D printed house. I’ve even sat in a 3-D printed car. So that’s one very, very real area of disruption.

JU: Technology — in terms of

utilities and shared energy grip — and new technology being built into smart homes or smart buildings is huge. Being ahead of that curve from an efficiency standpoint, from a marketability standpoint, is huge in terms of future water issues, too.

EM: Many office tenants are looking

to get more creative with the existing structures. Case in point, Leslie Pools bought an old vacant Sam’s Club on Indian School Road and retooled it to make a 120,000-square-foot office building that is now their headquarters.

Q: How does ULI impact the industry in Arizona?

TS: There are two advocacies. One is to

make sure that the city and the state government is definitely behind (the industry) to make it easy for developers to do their jobs. The other thing is to convince lenders that mixed-strata economic housing is okay.

cycles and demands we have. I can bring that back as an extra level to educate my clients.

DWS: As a planner, when I talked to elected officials, I had the power behind me to explain that it really isn’t a planner driver. It really is an economic development tool. It’s just been really valuable.

EAM: I’ve always said it’s been the mentorship and having people my age and people who are further along in their careers to direct me or if I need someone to bounce ideas off.

SLT: With ULI, you’re there for a

common purpose and sharing your best practices, so those connections tend to last a little longer. In no other organization have I seen a developer get up in a very uncensored way to provide all the examples of how they’ve done things wrong for educational reasons.

Q: What are the hot topics we should be watching?

TS: I think things will remain flat. My prediction is what you see is what you’ll get for the next four or five years unless there’s something really catastrophic on the economic front.

EM: We’ve been in an 87-month recovery and expansion. The average has been 58 months since World War II. The longest was about 120 months from 1991 to 2001. So we’re in that period now. It’s been a great, healthy expansion and Phoenix has certainly seen that.

JU: You have to invest in education so that people can have good jobs in 10 years and your kids can compete on a global basis.

BS: We are going to continue to face the labor shortage.

JU: It’s about wages and salaries and

if people who have those good jobs are willing to spend money on houses and other things. Nowadays, it’s not good enough to go to high school and even college. You have to compete in a world market.

BS: One of the best parts of ULI is we are all able to get into a room together, have an event and talk about what we can really do to make Arizona a better place to live and work.

DWS: When you work with neighbors, they sometimes have a vision for their neighborhood that’s difficult to overcome. But to have a force like ULI behind you saying, “This is realistic, we can do some of this but you as residents also have to give some,” then you have some buy-in and it provides a reality check.

Denise Christensen

Steven La Terra

Erik Marsh

Erin A. McInerney

Byron Sarhangian

Timothy Sprague

Jennifer Understahl

Debra Wilkins Stark

Q: How about the relationships you form within ULI? EM: What ULI brings to the table is that great information exchange among the experts within the industry to keep up with the ever-changing

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