NOVEMBER-DECEMBER 2013 2013
New Point of View Award-winning Arizona designers offer fresh perspective
INSIDE
Big Deals: Notable sales, leases p.14 Healthy Outlook: ACA's effect on CRE p.18 Adapting PHX: Urban in-fill, re-use find new in old p.36
Healthy dose of optimism
T
his was an exciting year for real estate. Litanies of “recovery” echoed throughout Arizona, which was named one of the fastestgrowing states by Moody’s Analytics in September, and many sectors of commercial real estate got much-needed morale boosts throughout the last three quarters. It was a particularly interesting year for medical office buildings as the deadline for the Affordable Care Act approaches. The ACA could mean bringing healthcare to more than 30 million previously uninsured Americans, which will greatly affect the healthcare industry — and its real estate. Inside this issue of AZRE, industry professionals chime in on just what the ACA will mean for physicians and their facilities as well as trends within the sector. Healthcare Trust of America CEO and President Scott Peters also breaks down what the ACA may mean for investors in an exclusive Q-and-A. Twenty-thirteen is drawing to a close, and that means it’s time for year-end awards. That includes BOMA’s TOBY Awards and AIA Arizona’s Design Excellence Awards. Flip ahead for photos and descriptions of this year’s finalists and be sure to visit azremagazine.com on Nov. 3 (AIA) and Nov. 16 (TOBY) for a list of the winners and honorees. Speaking of exceptional things, developers, contractors and architects have taken it upon themselves to preserve pre-existing structures through out Phoenix in creative adaptive re-use projects that keep popping up all over town — from turning an old church into a Taco Guild or a television studio into a wellness center. We hope you’re looking forward to the new year as much as we are. We’re rolling out new products, new ways of sharing information with you and already have an arsenal of great in-depth stories we’re eager to share. Enjoy the issue.
Amanda Ventura Associate editor, AZRE amanda.ventura@azbigmedia.com 2 | November-December 2013
President and CEO: Michael Atkinson Publisher: Cheryl Green Vice president of operations: Audrey Webb EDITORIAL Editor in chief: Michael Gossie Associate editor: Amanda Ventura Interns: Lauren Gephart | Sara Healy | Meg Krivanec | Alexa Renfroe ART Art director: Mike Mertes Graphic designer: Lillian Reid Design intern: Deborah Missel DIGITAL MEDIA Digital manager: Perri Collins Web developer: Eric Shepperd MARKETING/EVENTS Manager: Whitney Fletcher AZRE | Arizona Commercial Real Estate Director of sales: Steve Koslowski OFFICE Special projects manager: Sara Fregapane Executive assistant: Mayra Rivera Database solutions manager: Cindy Johnson Az BUSINESS MAGAZINE Senior account manager: David Harken Account managers: Ann McSherry | Shannon Spigelman AZ BUSINESS LEADERS Director of sales: Jeff Craig RANKING ARIZONA Director of sales: Sheri King Scottsdale Living EXPERIENCE ARIZONA | Play Ball Director of sales and marketing: Zoe Terrill AZ BIG MEDIA EXPOS SCOTTSDALE SUPER EXPO/MARCH SCOTTSDALE SUPER EXPO/NOVEMBER Exhibit directors: Kerri Blumsack Tina Robinson | Marianne Avila
AZRE: Arizona Commercial Real Estate is published bi-monthly by AZ BIG Media, 3101 N. Central Ave., Suite 1070, Phoenix, Arizona 85012, (602) 277-6045. The publisher accepts no responsibility for unsolicited manuscripts, photographs or artwork. Submissions will not be returned unless accompanied by a SASE. Single copy price $3.95. Bulk rates available. ©2013 by AZ BIG Media. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from AZ BIG Media.
CONTENTS FEATURES
SUPPLEMENTS 41 BOMA
02 Editor’s Letter
The changing roles of building managers and this year’s TOBY Award finalists
06 New to Market
Projects in the pipeline
08 Planning & Zoning
P&Z updates throughout Arizona
06
18
57 AAED
09 Project News
10 Executive Q&A
Four faces of industry leadership
12 After Hours
After 40 years of success, AAED implements an updated way of business
Cliff Paul, PK Associates
14 Big Deals
The top sales and leases since August, and the brokers who made them
09
32
18 Healthcare Trends
COMING UP
The Affordable Care Act could mean big changes for MOBs, and other trends
•
International Council of Shopping Centers
•
Annual real estate outlook for 2014
•
40 companies to watch in 2014
32 AIA
A look at adaptive re-use in the Valley, and AIA Arizona Design Excellence Award winners
12
42
14
On The Cover: Shade Platform on the
roof of the Maricopa County Security Center Building in downtown Phoenix. Architect: SmithGroupJJR Photo: Liam Frederick
4 | November-December 2013
57
Free AZRE app for android online with this QR code
3101 N. Central Avenue Suite 1070 Phoenix, Arizona 85012 (602) 277-6045 azBIGmedia.com
NEW TO MARKET 1
HEALTHCARE
1 | Sierra Vista Regional Health Center Replacement Hospital Developer: Regional Care Hospital Partners General Contractor: JE Dunn Construction Architect: Gould Turner Group Architects Location: State Route 90 and Colonia De Salud, Sierra Vista Size: 175,000 SF
JE Dunn was recently awarded the $55M Sierra Vista Regional Health Center Replacement Hospital project. The 175,000 SF, 100-bed full-service acute care medical center will be located on Sierra Vista’s existing 77-acre campus.The project is scheduled to start construction in December and will implement a 15-month fast track delivery process. The project broke ground in October 2013 and expects to finish in 1Q of 2015.
2
INDUSTRIAL
2 | Turner Spectrum Ridge
Developer: Turner Real Estate Investments General Contractor: Renaissance Companies Architect: Butler Design Group Location: Eight buildings on E. Lone Cactus Rd. & E. Salter Dr. Size: 10,944 SF to 20,040 SF Brokerage Firm: Voit Real Estate Services
On September 25, construction began on eight free-standing industrial buildings ranging in size from ±10,944 SF to ±20,040 SF. The development includes block-fenced private yards, a minimum of ±1,492 SF of office, clear height 20- and - 24-inch evaporative cooling, 800 to 1200 amps of 277/480v power and A-1 zoning. Buildings are expected to be completed between February and May 2014.
Multi-family
EDUCATION
Developer: Wood Partners General contractor: WP South Builders Architect: Womack + Hampton Location: Granite Reef and Indian School roads Size: 190,000 SF Brokerage Firm: Michael Lieb
Developer: American Campus Communities OWNER: Arizona State University General contractor: hardison/downey construction Architect: Studio Ma with Solomon Cordwell Buenz Location: University Drive and Veterans Way, Tempe Size: 218,000 SF, 241 units, 816 student beds
Wood Partners broke ground on two fourstory Italianate buildings that will house 140 one-bedroom units, 76 two-bedroom units and two three-bedroom apartments with granite countertops, stainless steel appliances, vinyl plank flooring and many locally sourced materials. Residents of this boutique community will have access to a club room and bar area for events and cooking demonstrations, a fitness center and a Frank Lloyd Wright-inspired pool area. Tempered-air corridors will ensure that residents’ front doors are not exposed to the elements. Guests will be greeted in a hospitalitystyle entrance lobby. Construction on the $38M project is expected to finish in 2Q 2015.
This student dormitory project located on ASU’s main campus features a full gut and remodel of the historic 15-story Manzanita Hall, which was originally built in 1967. The project, which began in February 2012 and ended in October 2013, cost $50.3 million. The new dorm rooms units with two or three bedrooms with one bathroom, and four bedrooms with two bathrooms. Manzy Square, the student dining facility, was also remodeled on the first floor of the building. New social spaces include a fitness center, mail and computer rooms, student lounges and a business center. Exterior improvements include new landscaping and courtyards, and basketball and sand volleyball courts. Subcontractors include HACI, Danco, Wang Electric, AZ Fire Protection, Adobe Drywall, Adobe Paint, Ikon Steel, Sun Valley Concrete & Masonry, American Openings, Kovach, Heritage, Mikada, Fine Line and Dickens Quality Demolition.
3 | Alta Scottsdale
6 | November-December 2013
3
4 | Manzanita Hall Remodel
4
5
Office 5 | SkySong III
Developer: The Plaza Companies OWNER: SkySong Office III, LLC General contractor: DPR Construction Architect: Butler Design Group Location: 1365 N. Scottsdale Rd., Scottsdale Size: 145,000 SF office building and 1,000-space parking garage
The $18.9M SkySong Office III building is a new LEED Certified ground-up 145,000 SF core and shell four-story office building with interior lobby and restroom build-out, including site preparation and development of surface parking, new quadrant roads and a ground plus a four-story +1,000-space parking garage. Construction began in August and is expected to finish in July 2014. Subcontractors include Saguaro Steel and ProSteel, Coreslab, DP Electric, HACI, Irontree, Jones Concrete, Kovach, ALR, Stonecold, DPR Construction Self Perform Work and Otis.
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6 | Garmin International Developer: Garmin International General contractor: LGE Design Build Architect: Cawley Architects Location: Juniper Drive & Galveston Street, Chandler Size: 67,000 SF
Garmin – Chandler is a new ground-up office building for Garmin International. This $10M project broke ground September 10 and is anticipated to finish in June 2014. The LEED Silver building features a parking ratio more than 6/1000, tilt concrete construction, a two-story atrium and outdoor amenities such as basketball and volleyball courts. This project will be designed, engineered and permitted in 120 days with construction scheduled for 240 days.
Retail
8
Mixed-Use
7 | Heritage Marketplace
8 | Liberty Center at Rio Salado
Developer: LGE Design Build General contractor: LGE Design Build Architect: Cawley Architects / AV3 Design Location: Gilbert Road and Vaughn Avenue, Gilbert Size: 31,000 SF Brokerage firm: Brad Balbo and Matt Milinovich of Strategic
Developer: Liberty Property Trust General Contractor: Bid Architect: RSP Architects Location: Priest Drive and Rio Salado Parkway, Tempe Size: 810,000 SF
LGE Design Build has recently broken ground on Heritage Marketplace Phase I in the Historic District in Gilbert. Phase I consists of 31,000 SF split into two anchor restaurants and a twostory mixed use office/retail building. Total cost of Phase I is more than $7 million. Future phases will add an additional 30,000 SF to 40,000 SF of retail, restaurant and office space. Phase I pre-leases include Zinburger by Fox Restaurant Concepts and Lolo’s Chicken & Waffles. Completion is slated for 3Q of 2014.
7
Liberty Center at Rio Salado is a 76-acre, high-performance mixed-use, office complex development offering tenants options for office, flex and light industrial, while providing excellent corporate brand visibility from the Red Mountain Loop 202, Priest Drive and Rio Salado Parkway. The development will later include retail and hospitality. Currently in construction documents, Phase I is a 120,000 SF speculative office building with 80,000 SF on the first floor and 40,000 SF on the second. The building orientation includes views of Camelback Mountain and Papago Park to the north. The campus incorporates a bike path of nearby Tempe Town Beach Park and also features an outside amphitheater. Liberty Center appeals to businesses with its central location and high visibility, as well as to the general public with its Sonoran Desert themed landscape and access to the existing Tempe Town Beach Park walking and bike path. The project is designed to be LEED Certified. 7
Construction: Planning and Zoning
´´City of Scottsdale
The Arizona Department of Transportation (ADOT) has proposed the widening of the Loop 101 Freeway from the Loop 202 to Shea Boulevard in Scottsdale. ADOT has hosted public meetings inviting interested parties to learn the details of this project. Construction for the freeway widening is expected to begin in late summer of 2014. Additional information is available by contacting Felicia Beltran with ADOT at fbeltran@adot.gov.
´´City of Surprise
In November, Surprise residents will be asked to approve a new general plan that, if the plan succeeds with the vote, will give the city a comprehensive guide for future residential and business development, transportation needs and parks & recreational improvements. The City’s General Plan 2035 is the result of extensive public outreach and puts a greater emphasis on sustainable living that would include public transportation and public street links throughout the city, along with bicycle and pedestrian paths with connections between neighborhoods. A City Council appointed citizens committee began a redo of the proposed plan in May 2012 with public meetings, surveys and field visits to local gathering spots to seek resident input. The new general plan also advocates creating a master plan to encourage the development of public art and cultural events, facilities and districts within the city and emphasizes the need for sustainable development. For more information on the contents of the plan, visit surpriseaz.gov/generalplan.
´´City of Goodyear
The City of Goodyear has been working on its general plan update. Drafts of portions of the plan were sent out to a citizen committee and to other interested parties for review earlier this year. Additional chapters of the plan have been posted on goodyearconnects.com for review by the general public. In addition, various public meetings have been scheduled throughout the year. The complete draft is to be presented to the city’s Planning and Zoning Commission and the City Council for discussion at a joint work session in October. The public is also invited to send comments on the plan. To contribute comments or obtain additional information, contact Katie Wilken at katie.wilken@goodyearaz.gov, or at (623) 932-3005.
´´Pinal County
In an effort to attract businesses, new development and jobs to Pinal County, the Development Services Department is proposing ways for easing the development review process. To accomplish this goal, the county has initiated a program to reduce the time it takes for permit approvals. This program includes changes in the concept review process and the addition of a Pre-Application Meeting, which will allow staff to review the essence of a development proposal before the formal application. The county claims these changes will save the applicant time and costs. In addition to these changes, the
8 | November-December 2013
county also proposes changes to the rezoning and to the PAD process that will reduce the time needed for that process from the existing 15 weeks to a proposed 11 to 13 weeks. Processing changes include the dividing of PAD/rezone applications into required documents and background documents. The required documents would be specifically listed with approvals based solely on the information required on the list. Background documents would be intended as informational only and would not be a part of approvals. These changes are intended to shorten review times. A board of supervisors meeting has been scheduled to review and approve these changes. For additional information, contact the Pinal County Department of Planning and Development at (520) 866-6442.
´´City of Flagstaff
In July, the City of Flagstaff City Council agreed, in principal, to give applicants seeking a zoning change the option to submit a so-called “concept-zoning plan” in an effort to expedite rezoning requests and to make it less of a financial burden for the applicant. The city currently requires, as do most cities, a detailed site plan and a number of engineering studies, such as a traffic study, a drainage study and water and sewer studies, before considering a change to an existing zoning district designation. The concept-zoning plan would permit approval of the requested change in zoning without a detailed site plan or the studies. The site plan and the studies would still be required, but only after the request was approved. However, in recent meetings, some commissioners and citizens expressed non-support of this proposed amendment. The opposition to the amendment suggests that it could lead to “speculative” zoning changes, which in turn could lead to higher land costs and, eventually, to higher housing cost.
´´City of Avondale
Avondale has initiated comprehensive text amendments to its zoning ordinance. Drafted amendments to the existing ordinance include a new suburban residential zoning district; temporary sign amendments; a new historic Avondale infill overlay district; and landscaping requirement changes. These staff-initiated text amendments take place periodically to ensure the city stays progressive and responds to the development community’s needs and industry standards and changes. Scheduled public meetings have been held to give residents, business owners and other interested parties the opportunity to participate and provide feedback on the proposed text amendments. For further information, please contact Jennifer Fostino with the Avondale Planning Division at (623) 333-4022 or jfostino@avondale.org.
The P&Z column is compiled by Dave Coble and George Cannataro with Coe & Van Loo Consultants, cvlci.com
Construction: project News
The Sun Devil Fitness Center at the ASU Downtown campus in Phoenix.
´´Sun Devil Fitness Center OPENS AT ASU Downtown Campus
ASU’s Downtown campus saw the grand opening of its $24.1M student recreation center Oct. 1 The 73,800 SF, five-story building, located south of the Lincoln Family Center Downtown YMCA on First Avenue in Phoenix, features a gym, cardio and weight space, an indoor track, multi-purpose space, student lounge, locker rooms and a rooftop leisure pool. A School of Nutrition and Health Promotion program is housed on the second floor. The center, built by Sundt Construction and designed by Gabor Lorant Architects, is designed to achieve LEED Silver certification.
´´LGE Completes Construction on New Office, Warehouse for Phoenix Pumps
LGE Design Build completed construction on a 41,000 SF ground up office/warehouse building for Phoenix Pumps. This project showcases 9,000 SF of office, tilt construction, 24-inch clear height, one gib crane, two bridge cranes, one paint booth, four coiling doors, epoxy flooring and carpet/tile.
´´DPR Construction Takes on More Healthcare Renovations
Banner Good Samaritan Medical Center hired DPR for a replacement of six of the existing nine air handlers that serve the entire Good Samaritan Medical Center Patient Tower. The scope includes a new 480VAC power system for the air handlers running from the basement through 12 active f loors to the roof. The replacement entails rerouting of ductwork to keep areas operational during change-outs, large crane picks to set new units and remove old ones and phased removal/replacement of major air handlers on the roof. The project began in September and is expected to be completed in December. The value of this replacement is $3,497,088. The participating architect is LSW Engineers. Subcontractors for this project include TD Industries, Delta Diversified Electric and Progressive Roofing.
´´Construction on Shea Medical Center’s 5C refurbishment WRAPS UP Headed by the partnership
of Scottsdale Healthcare, DPR Construction, DPA Architecture and the Taylor Ryman Corporation, the refurbishment is a 14,743 SF renovation of 32 patient rooms and support space. This multi-phased
project consists of replacing corridor flooring, wall protection, painting, patient room headwalls, bathroom fixtures, tile and window coverings, replacement of nurse station millwork with modular workstations and new medication rooms. Subcontractors include WD Manor, Specified Electrical Contractors, Dickens Demolition, Styles Brothers, Wholesale Floors, Lanmor Services, Arizona Professional Painting, Safeguard. ´´Arizona Cancer Care Center’s 8,964 SF linear accelerator suite underwent a $360,000 remodel
The remodel included upgraded power for a new linear accelerator, relocated medical gases, new flooring, finishes and millwork.
´´Monarch Wellness Center Gets medical dispensary on First floor
The 1,585 SF, $170,000 renovation included two high-level security areas, the dispensary, complete with security mesh in the walls, and a storage room. There were additional interior and exterior improvements.
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EXECUTIVE Q&A Janelle Schick
Kent Dibble, PE, RLS
Schick Design Group, LLC
Dibble Engineering
Years in CRE: 39 Years at Company: 14
Years in CRE: 40 Years at company: 40
Q: What attracted you to the industry?
Q: What attracted you to the industry?
President
A: My mother had a designer redo our condo and coming home to that transformation must have been the start of realizing the positive effects of well-designed environments. I remember being shocked during my first year at college to learn you could get a degree in interior design. I had started design classes when my architect brother-in-law introduced me to my first boss. She ran a top-rated interior design firm within a much larger commercial architectural firm. From that point on, I was hooked. Q: How has the industry changed since you started?
A: Specialization has played a major role in the advancement of the interior design profession. The direction designers can choose spans between corporate, hospitality, healthcare or residential with specialization within each of those categories. Interior performance can now be measured based on our designed environments producing higher productivity, greater creativity and innovation, increased patronage or sales. It’s not design just for visual impact, but also for innovation, quality and sustainable performance, health, comfort, flexibility and ease of use. The addition of product accessibility for the public has also opened new challenges for the residential designer, as well as retailers and “to the trade” showrooms. Q: What professional achievement gives you the most pride?
A: Owning my own firm was not something I visualized early in my career. In 1999, with a six-year partnership at its end, the next logical progression was Schick Design Group. Building the firm into one of the top design firms in the Valley has given us the ability to have a very positive effect on the industry and community. Being involved in several community service projects throughout the Valley gives us the opportunity to help others achieve some of the success we have experienced.
Mark Ashworth
President Ashworth Construction, Inc. Years at company: 12 Q: What attracted you to the industry?
A: I have always been around construction. My dad was an architect and my uncle was a general contractor. I worked in the field with them at a young age. Ultimately, I love watching a plan come together and creating something tangible that provides for our clients’ needs and wants. Q: How has the industry changed since you started?
A: Banks, labor and insurance. All of these have affected the industry in some fashion. It’s important to roll with the punches and adapt. Trust is a little harder to find these days, based on the nature of the economic challenges we’ve all faced. Everyone has his or her hand over the holster, if you know what I mean. Q: What professional achievement gives you the most pride?
A: I would say creating a small business. I want people to be able to work for an organization where they can make a difference, and of course surviving 2009 and 2010! 10 | November-December 2013
President
A: The opportunity to see the results of your efforts exhibited in completed infrastructure projects really excites me. To drive around the state and see projects our firm has been involved with and engage and develop relationships with the local professionals and community leaders is very satisfying. Q: How has the industry changed since you started?
A: Technical and/or economic merit used to be the main factors in moving forward with a project. Today, environmental, political, financial and social factors play a much larger role in the decision making and consensus building process. These factors have made project delivery — from conception to completion — much more complex. Q: What professional achievement gives you the most pride?
A: I am very proud that our local Arizona firm has thrived for more than 50 years. Our attention to clients and employees (several with 20, 30 and 40 years of service) has been a formula for success. We have been fortunate to be part of the development of sigificant infrastructure projects, including Sky Harbor and PhoenixMesa Gateway airports; US 60, from Florence Junction through Gonzales Pass; Grand Avenue, from Loop 101 to Morristown; Val Vista Water Transmission Main; and several projects for Native American communities throughout the state.
Paul Winslow
Managing partner Winslow + Partners Years in CRE: 50 Years at company: 2 Q: What attracted you to the industry?
A: The ability to create a positive environment for people to live, work and play. The opportunity to have an impact on the lives of people and the community as a whole. Q: How has the industry changed since you started?
A: Technology has changed virtually all aspects of how we live and work. Architects used to draw buildings, but now we build them virtually. The second major change is just happening and that is the change in our social patterns. That will have an extremely profound effect on everything we do. Q: What professional achievement gives you the most pride?
A: Being recognized by my peers in being elected to the College of Fellows of the American Institute of Architects and growing a very successful company for 40 years before retiring from it were major. However, now I would have to say that starting a new firm focused on creating ideas for our changing world is the most exciting thing I have done.
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After Hours
Photo by Lillian Reid
CLIFF PAUL Principal, PK Associates, LLC, Consulting Structural Engineers, Scottsdale Time with PKA: 21 years Born: Buffalo, N.Y. Raised: Boulder, Colo. Education: Studied architectural and structural engineering at University of Colorado Wife: Sherry Engle Family: Six children and stepchildren, between the ages of 27 and 32 Favorites: Sports/Teams — Arizona Cardinals, Denver Broncos, Arizona Diamondbacks, Phoenix Suns and Colorado Rockies Music — All kinds — pop, lounge, Kaskade Destinations —Helicopter skiing in British Columbia, Aspen, Barcelona and the Caribbean Destinations on bucket list —Australia, New Zealand, Santorini, Paris, China, London and Belize Activities — Snow skiing, mountain biking, road cycling, golf and hanging with friends What did you think you’d be when you were growing up? Exactly what I’m doing now. I have to pinch myself every day. As a kid and young adult, I was always designing and building things and envisioned myself owning a design firm. 12 | November-December 2013
OF What accomplishment are you especially proud? I’m most proud of having raised my three kids, but I’m also proud of the Phoenix Convention Center West Building. That was a very complex, fast track design that will leave a legacy long after I’ve retired. When I walk in that building, I feel a sense of pride that I was a part of a team that designed this. What would people be surprised to know about you? That I am a small, part owner in Alcantara Vineyards in Cottonwood. The wines are great and the ambiance is amazing as we are on the Verde River where the confluence of the Oak Creek ends. ADVICE: Received – Take good care of your clients and do good, quality work. It takes seven times the effort to acquire new clients than it does to maintain the clients you already have. It takes 10 times the effort to get a client back that you may have lost. To Share– Be ethical, honest, build trust, work smart, be diligent, grow your knowledge every day, balance work with family and, most of all, be grateful.
Knowing more about the people we work with is the fun side of the business. It helps start conversations and strengthens business relationships. To nominate a colleague, request an After Hours form from Amanda Ventura, amanda.ventura@azbigmedia.com.
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BIg Deals IIDA
There’s no such thing as a “small” deal in this industry, coming out of a recession. However, it’s the big deals, and the brokers who make them, that make the market an interesting one to watch. In every issue, AZRE publishes the top five notable sales and leases for a period of 60 days (one month out from publication) based on research compiled by Cassidy Turley and Colliers International with CoStar.
Industrial/Leases
2. Fairmont Commerce Center, Tempe
83,280 SF Landlord: Walton Street Capital Tentant: MXD Group Landlord Brokers: Steve Larsen, Steve Sayre and Bill Honsaker, Jones Lang LaSalle Tenant Brokers: Steve McKendry, Kris Jenkins and Trevor McKendry, DAUM Commercial Real Estate Marc Hertzberg
Anthony Lydon
Don MacWilliam Payson MacWilliam
1. Papago Distribution Center, Phoenix 221,116 SF Landlord: Prologis Tenant: Marathon Equipment Landlord Brokers: Anthony Lydon and Marc Hertzberg, Jones Lang LaSalle Tenant Brokers: Don MacWilliam and Payson MacWilliam, Colliers International
14 | September-October 2013
3. Carver Distribution Center, Tempe
74,102 SF Landlord: Principal Financial Group Tenant: Haas Landlord Brokers: Michael Haenel and Andy Markham, Cassidy Turley Tenant Broker: Paul Sieczkowski, Colliers International 4. Broadway Industrial Park, Tempe
72,714 SF Landlord: RREEF Tenant: SOLLiD Cabinetry Landlord Broker: Rob Martensen, Colliers International Tenant Broker: Dan Casey, Rein & Grossoehme 5. 501 N. 51st Avenue, Glendale
72,437 SF Landlord: Harrison Properties Tenant: Hensley Landlord Brokers: Jeff Dalton, James Harrison and Natalie Dalton, Harrison Properties Tenant Broker: Bruce Calfee, Cassidy Turley
Top 5 leases of an individual property (August 1 to September 31, 2013) Source: Colliers Research Department
2. Discovery Business Campus, Tempe
2104 E. Elliot Rd. 133,044 SF Landlord: Northwood Investors, LLC Tentant: State Farm Landlord Brokers: Karsten Peterson, Dave Seeger and Mark Detmer, Jones Lang LaSalle Tenant Brokers: Steve McKendry, Kirk Jenkins and Trevor McKendry, DAUM Commercial Real Estate
Office/Leases
3. Diablo Technology Center, Tempe
Mark Detmer
Karsten Peterson
73,000 SF Landlord: Walton Street Capital/The Muller Company Tenant: Xerox Commercial Solutions Landlord Brokers: Charles Miscio and Danny Plapp, Colliers International Tenant Broker: Pat Williams, Jones Lang LaSalle 4. 2455 S. 7th St., Phoenix
John Pierson
Dave Seeger
1. Discovery Business Campus, Tempe 2118 E. Elliot Rd. 166,127 SF Landlord: Northwood Investors, LLC Tenant: State Farm Landlord Brokers: Karsten Peterson, Dave Seeger and Mark Detmer, Jones Lang LaSalle Tenant Brokers: John Pierson, Jones Lang LaSalle
Retail/Leases
38,739 SF Landlord: Harrison Properties Tenant: Arizona Department of Economic Security Landlord Broker: James Harrison, Jeff Dalton and Natalie Dalton, Harrison Properties 5. Pima Northgate, Scottsdale
25,219 SF Landlord: ASB Capital Management, LLC Tenant: LoanDepot.com Landlord Brokers: Tim Whittemore, Michael White and Chris Nord, Cushman & Wakefield Tenant Broker: John Gillespie, Newport Commercial Realty Advisors 2. Glendale Market Square, Glendale
5850 W. Bell Rd. 29,000 SF Landlord: Kimco Realty Tentant: J. Levine Auction & Appraisal Landlord Brokers: Dan Lupien, Kimco Realty Dan Lupien
3. Ahwatukee Foothills Towne Center, Phoenix
26,939 SF Landlord: DDR Corp. Tenant: Michaels Tenant Broker: Tommy Woods and Brian Woods, Colliers International 1. Glendale Market Square, Glendale 5870 W. Bell Rd. 45,000 SF Landlord: Kimco Realty Tenant: Lina Home Furnishings Landlord Brokers: Dan Lupien, Kimco Realty
4. Glendale Galleria, Glendale
20,990 SF Landlord: Brixmor Property Group Tenant: Sears Outlet Landlord Broker: Traci Russell, CBRE 5. Bell Town Center, Phoenix
19,689 SF Landlord: Nexus Development Tenant: Office Max Landlord Brokers: Tommy Woods and Brian Woods, Colliers International
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BIg Deals IIDA Top 5 Sales of an individual property (August 1 to September 31, 2013) Source: Cassidy Turley Research Department
Retail/Sales
2. Tutor Time
Cave Creek 25,315 SF; $8,750,000 Buyer: Terry & Steve Blumenfeld Seller: National Retail Development Partners Listing Broker: Chad Tiedeman, Phoenix Commercial Advisors 3. Hurley Plaza
Teale Bloom
Greg Laing
Phoenix 20,243 SF; $6,922,104 Buyer: Capstone Advisors, Inc. Seller: Lawrence & Geyser Development Listing Broker: Chad Tiedeman, Phoenix Commercial Advisors 4. 35th Avenue & Bell Road
1. Gilbert & Southern Chad Tiedeman Mesa 238,613 SF; $9,530,200 Buyer: Astani Enterprises, Inc. Seller: Wells Fargo Listing Broker: Chad Tiedeman, Steven Underwood, Greg Laing, Teale Bloom and Cameron Warren, Phoenix Commercial Advisors
Steven Underwood
Phoenix 78,422 SF; $5,493,146 Buyer: Kinetic Companies Seller: CWCapital Asset Management, LLC Listing Broker: Jules Sherwood, Rockwood Real Estate Advisors 5. Peoria Square
Cameron Warren
Office/Sales
Glendale 23,075 SF; $5,300,000 Buyer: Cave Creek Capital Partners LLC Seller: Sierra Consulting Group, LLC Listing Broker: Adrian Evarkiou, Helo Real Estate Buyer’s Broker: Max Bippus, CBRE
2. North Scottsdale Corporate Center
Phoenix 156,629 SF; $38,600,000 Buyer: Artis REIT Seller: Miller Global Properties, LLC LISTING BROKER: Chris Toci, Cushman & Wakefield Larry Downey
Jerry Jacobs
Chad Littell
Chris Toci
1. Biltmore Commerce Center Phoenix 258,348 SF; $42,773,000 Buyer: DPC Development Companies Seller: The Muller Company Listing Broker: Chris Toci, Chad Littell, Jerry Jacobs, Larry Downey, Cushman & Wakefield 16 | September-October 2013
3. Kierland One
Scottsdale 175,441 SF; $29,300,000 Buyer: Pacific Coast Capital Partners LLC Seller: Cornerstone Real Estate Advisors, Inc. Listing Broker: Barry Gabel, Mindy Korth and Chris Marchildon, CBRE 4. DeVry University
Phoenix 111,957 SF; $23,030,000 Buyer: Cole Corporate Income Trust, Inc. Seller: LBA Realty Listing Broker: Jeffrey Cole, Cushman & Wakefield 5. Midtown Bank of America Tower
Phoenix 189,868 SF; $14,800,000 Buyer: Omninet Capital Seller: Morrison Street Capital, LLC Listing Broker: Michael Crystal, Cushman & Wakefield
Industrial/Sales
2. Cotton Center Bldg. 2 (Phase I)
Phoenix 99,734 SF; $18,880,000 Buyer: Cole Corporate Income Trust, Inc. Seller: LBA Realty
3. Rio Salado Corporate Center Jim Fijan
Tempe 82,257 SF; $14,402,000 Buyer: Cole Corporate Income Trust, Inc. Seller: LBA Realty 4. Opus Commons
Will Mast
1. Elliot Corporate Center I Tempe 223,392 SF; $23,500,000 Buyer: Everest Holdings, LLC Listing Broker: Jim Fijan and Will Mast, CBRE
Tempe 125,720 SF; $10,062,170 Buyer: Cal-Int Foods, Inc. Seller: Valley Citrus Packing, Co. Listing Broker: Steve Grossoehme, Rein & Grossoehme 5. Broadway Industrial Park
Tempe 101,601 SF; $9,077,000 Buyer: DCT Industrial Trust Seller: Prologis Listing Broker: Mark Detmer and Bo Mills, Jones Lang LaSalle
Multi-Family/Sales
2. Promontory Pointe Apartments
Phoenix 422,376 SF; $41,500,000 Buyer: Green Leaf Partners Listing Broker: Cliff David, Marcus & Millichap Chris Bancroft
Chris Epp
3. Gateway on Gilbert Apartments
Mesa 387,424 SF; $34,000,000 Buyer: Hamilton Zanze & Company Listing Broker: David Lord, Apartment Realty Advisors 4. Camden Sotelo
Brad Goff
1. The Hub on Campus Tempe 384,098 SF; $103,000,000 Buyer: Inland American Communities Group Listing Broker: Chris Bancroft, Chris Epp, Meredith Wolff, Brad Goff and David Lord, Apartment Realty Advisors
David Lord
Tempe 164,000 SF; $34,000,000 Buyer: Camden Property Trust Listing Broker: Mark Forrester, Hendricks & Partners 5. Desert Harbor Apartments
Meredith Wolff
Peoria 262,295 SF; $26,682,000 Buyer: Murray Hill Developments, Ltd. Listing Broker: Brad Goff, Apartment Realty Advisors Buyer’s Broker: Alon Shnitzer, ORION Investment Real Estate
17
HEALTHCARE
Healthy outlook Affordable Care Act means new healthcare opportunities in CRE
By ERIC JAY TOLL
“Tastes great!” “Less filling!” The old beer adage flavors trends in healthcare commercial real estate entering the Age of Affordable Care Act (ACA). There are tasty opportunities for new types of healthcare real estate and a glut of less-filled medical office buildings (MOB) that may result from consolidations. Healthcare providers are looking for patient-luring, high technology facilities and they want to pay less for the capital development. Facilities will be smaller, more flexible and expandable. Look for an airline-style hub-and-spoke system. The new law and changes in healthcare delivery are also going to affect real estate — building sales and leasing, and the value of physician practices and clinics. Many existing medical office buildings will have to readapt. Some older facilities may be destined for scraping and redevelopment into other uses. 18 | November-December 2013
Deadline on evolving trends Healthcare has been evolving over the past decade and ACA merely deploys previously evolving trends. All healthcare providers are now implementing change. To understand the future trends in healthcare, the ACA backend effect has to be understood. Cars and people both run better with 5,000 mile oil changes and 25,000 mile tune-ups — for people, it’s periodic blood tests and annual physicals. It costs significantly less to deal with preventive healthcare for people than treating preventable illnesses. “The top five illnesses in terms of cost and numbers are lifestylerelated and preventable,” says Mark Stapp, professor of real estate practice and the director of the Master of Real Estate Development programs at the W.P. Carey School of Business at Arizona State University. Stapp says ACA’s focus on wellness is going to have “profound effects on medical real estate and economic development.”
Banner MD Anderson Cancer Center in Phoenix. Photo / Gregg Mastorakos
While most political and public discourse focus on the consumer side of the law, healthcare providers are gearing up for what the law means in terms of delivering healthcare and the facilities required for delivery. ACA deploys three fundamental healthcare delivery changes: 1. Creation of Accountable Care Organizations (ACO) 2. Emphasis on keeping people healthy 3. Using hospitals for only the most acutely ill Meeting the standards of care financially rewards healthcare providers; failing to meet the new standards results in financial penalties. The solution is a model deployed by Banner Health in the Valley — deliver healthcare into neighborhoods using a hub-andspoke system. This is one reason Banner has built six health centers across the Valley.
Private sector healthcare organizations are not the only ones affected by the law. The Maricopa Integrated Health Service is considering a bond issue to fund its strategic plan. If passed, resulting construction and renovations will enhance its alreadyexisting hub-and-spoke healthcare delivery system. With thousands of Arizonans obtaining health insurance for the first time, there is an increased demand for healthcare providers. That component of ACA alone would seem to make MOBs an ideal real estate investment. The reality is, to obtain efficiencies, older buildings may not work. “There are a lot of medical office buildings and clinics that are going to be functionally obsolete; and not just old ones,” reports Tom Weinhold, managing director of Cassidy Turley’s healthcare practices group. “Owners are going to have adapt to general office use or possibly tear offices down and replace them with other uses. Medical infrastructure has requirements today that some buildings cannot accommodate.” 19
HEALTHCARE Stapp says it could be a double-whammy in an already over-built office market. “General demand for office space is decreasing,” he says. “Real estate has value from supporting an activity. If that activity goes, so does the value. The changes in medical care are driving changes in building design.” Stapp says there are prospects because of ACA, too. “Much of the public discourse is focused on the healthcare delivery, but there are rippling opportunities,” he says. “The emphasis on wellness is going to more broadly open that field. Community design, how and where people live, transportation options will all change development patterns. The population wants a healthy environment and business will find opportunities in that demand.”
Development opportunities “The days of the ‘build it and they will come’ hospital towers are over,” suggests Layton Construction’s Steve Brecker, executive vice president-healthcare. “Owners large and small are looking at their dollars much more carefully than before. There is a bigger analytical process in the decision to build or renovate a facility.” Brecker’s comment, which comes from the firm’s nationwide perspective, is that no healthcare organization is overbuilding. Everything is right-sized for staff efficiency. “Interiors are the focus today. Unlike the ‘70s and ‘80s, a lot of forethought goes into everything from the lobby design to the comfort of the waiting areas,” he says. At McCarthy Building Companies, Vice President of Business Development Chris Jacobson has a similar observation. “It’s a lot less expensive to build a clinic in an outlying area and bring healthcare to the patients as opposed to forcing patients to drive a long distance to a medical center,” he says. “The outlying clinics capture market share for a provider, and feed more acutely ill patients into the central medical center.” This is the gist of the hub-and-spoke system deployed by Banner. “Banner is the trendsetter,” Jacobson says. “They are using an accountable care model (as an ACO) and emphasizing wellness to save money.” Banner’s Vice President of Development and Construction Kip Edwards says, “We’re going to deliver care at the most convenient
Steve Brecker
Kip Edwards
Hamilton Espinosa
and accessible level to our patients. This means not only clinics, but online, telemedicine and other support and educational services. “What we’re doing is putting physicians, PAs and nurses into a neighborhood setting, so that a patient does not have to wait to see a doctor. In the current system, you’re sick today. You call the doctor and can be seen in three days or next week. You’re not sick next week, you’re sick today. Banner is developing the facilities so a patient can get into the doctor today at the place where all his records are located. Then, if he needs x-rays, prescriptions and a lab test, it’s all in one place; no more running all over town.” “What all this means for designers and builders is that owners are cautious and we’re not seeing new mega projects,” says Steve Whitworth, healthcare division manager for Kitchell Development. “Most projects these days are in the $5M to $10M range. We’re seeing outpatient space expansion, practices combining and technical upgrades.”
Clinics are being absorbed Banner, along with Vanguard, Cigna and other major providers, are buying up medical practices to be those family clinics. “Some of the practices are going to stay in their office condo or leased space,” reports Weinhold. “We’re seeing the big providers saying to doctors, ‘We’ll take your debt and administration, give you some up-front money, and you can work for us.’ Sometimes, there will be an agreement to keep current space for three to five years.” The consolidations and acquisitions have completely chilled the market for medical practice sales. Although not CRE, many physicians and groups used to plan on a practice buy-out — with or without real estate — that would fund retirement. “That’s just not the case anymore. No one wants to buy a medical practice except the accountable care organizations,” Dave Peterson says. The owner and designated broker of Arizona Business Intermediaries, LLC, has seen the market grind to a near halt, “It used to be I could take on a practice listing, send it out to a direct marketing list of other physicians and close a deal. Small physician practices used to value at two- to three-times earnings. Now, it’s sometimes less than one times earnings.” Peterson says that the big healthcare organizations are buying practices on set formulas and with some upfront money. In the end, he says, the now-employee doctors will move into a neighborhood or community clinic. “There are two impacts on the value of practices and the interest of physicians being their own boss,” he adds. “The first is [ACA]. It’s putting practices in the position of only one interested buyer — large healthcare organizations. The second, which a lot of people don’t consider, is the cost of medical school and its related debt. All of this makes working for a healthcare organization on salary appealing.” It also causes medical practice values to plummet — dental clinics, cosmetic surgeons and other discretionary practices are not affected by ACA.
New opportunities
Chris Jacobson 20 | November-December 2013
David Peterson
Mark Stapp
“With the emphasis on efficiency and limited dollars, today’s builder is a construction manager and trusted advisor,” observes Layton Construction’s Brecker. “We’re not waiting for plans and giving estimates, we’re involved in the design to use our experience to help the owner and architect design a project that delivers what’s needed for the dollars available. It’s different than just a few years ago.”
Investing in the Future of America’s Healthcare as a Leading Owner and Manager of Medical Office Buildings
HEALTHCARE TRUST OF AMERICA, INC. KEY MARKET PRESENCE
HTA’S NATIONAL PORTFOLIO Formation
2006
Phoenix, AZ
1,153,000 SF
8.5% of Portfolio
1,093,000 SF
8.0% of Portfolio
Enterprise Value
$3.5 Billion
Pittsburgh, PA
Gross Leasable Area (SF)
13.6 Million
Greenville, SC
965,000 SF
7.1% of Portfolio
Invested in Portfolio
$2.8 Billion
Albany, NY
879,000 SF
6.5% of Portfolio
Occupancy
91%
Indianapolis, IN
850,000 SF
6.2% of Portfolio
% Medical Office Buildings
90%
Houston, TX
692,000 SF
5.6% of Portfolio
% of Properties on In-House Platform
89%
Dallas, TX
682,000 SF
3.2% of Portfolio
% On-Campus or Healthcare System
96%
Atlanta, GA
597,000 SF
4.4% of Portfolio
Credit Rated Tenants
58%
Miami, FL
428,000 SF
3.2% of Portfolio
Investment Grade Credit Ratings
BBB- / Baa3
Boston, MA
359,000 SF
2.6% of Portfolio
* Portfolio information is as of June 30, 2013, inclusive of 3Q13 investments
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HEALTHCARE Hamilton Espinosa at DPR talks about ROI and efficiency, “As providers are pushing healthcare into the neighborhoods, they are going to spending less to build or remodel. At the hospitals and medical centers, major renovations are not going to be funded unless there is a return on investment.” Espinosa says full-time equivalent employees and energy are the biggest operating costs for a healthcare system. “If we can show that a renovation is going to increase staff efficiency and cut energy cost, the owner is going to be willing to put more capital into the project,” he adds. This is another example of the builder becoming part of the overall design team early in the process. Builders may have an opportunity for more development money if offsetting operational savings are part of the construction project. Following the Banner model opens other opportunities. “John C. Lincoln is developing a freestanding emergency department (off Carefree Highway and I-17, Phoenix). Scottsdale Healthcare is building neighborhood clinics and urgent care centers,” points out Kitchell’s Whitworth. “The freestanding (emergency department) is the seed of a future hospital. Dignity (Health) is doing the same thing in Glendale.” Kitchell is also using new construction techniques to build medical facilities. “It started with the Chandler Regional (Medical Center),” Whitworth explains. “We’re building modules in a warehouse and then bringing them to the site for installation. There’s a safety factor by cutting the number of people interacting onsite. Because healthcare organizations are almost using the same template for interior work, there is a cost savings building offsite.” Kitchell does not have its own facility, but uses partner warehouse space or on occasion, leases space, for the offsite panel construction. “We’re constantly looking for new ways to do things to reduce costs and increase quality,” he says.
“There is going to be a need for more, smaller neighborhood clinics, but telemedicine and web access are going to increase the call for data centers and call centers.”
Mayo Clinic expects to announce its first primary care clinic in an outlying community in the near future. Negotiations were not completed at press time. Mayo’s model is good news –Kip Edwards, for MOB leasing, but on Banner Health a small scale compared to the number of facilities. Its partnerships mean working with existing practices or newly consolidated groups. “There isn’t a relationship between MOB office space that will be delivered and population growth,” cautions Weinhold. “Welllocated space is being snapped up by REITs at premium prices. Outlying MOBs are seeing values decline. It’s not just a simple conversion to switch an MOB to a general office.” “There are a lot of different vehicles being used,” he adds. “Walgreens, CVS and Walmart are developing in-store mini-clinics. The urgent care centers, FastMed and NextCare, are going into retail center end caps. NextCare has started building on retail pads.” These options are not good news for owners of Class-B and -C office space. “I had physicians who were buying medical office buildings before and during the recession,” recollects Arizona Business Intermediaries’ Peterson. “Now they want to get out, but they’ll be lucky to recoup the purchase price on some of those properties. It’s not just recession-pricing, it’s that the buildings are going to be empty under [ACA].”
New moves for service delivery Other healthcare providers are getting ready to implement ACA strategies. Rather than acquiring practices and building all its own clinics, the Mayo Clinic seeks to affiliate and partner. This move is not at the exclusion of building its own clinics, but in addition to greenfield facilities. Mayo has affiliations with the new cancer center at Yuma Regional Medical Center and the Sierra Vista Regional Health Center is developing a Mayo telemedicine connection. “We’re putting less focus in inpatient services,” reports Cheryl Lisiewski, director of facilities project management for Mayo Clinic. “Our remodeling and expansion are creating a better environment for outpatient services and increased examination space.” Mayo is undergoing a nearly $350 million expansion on the Phoenix campus with a proton beam therapy facility and new cancer center. “We’re looking to develop new clinical offices, but primarily, the expansion allows us to renovate and backfill offices for departments that are now in compressed spaces,” she says. The expansion does generate some new inpatient beds, but it’s almost exclusively designed to meet outpatient needs. The investment on campus is not preventing Mayo from reaching into the community. “We may develop stand-alone and primary care facilities,” explains Lisiewski. “We’re also interested in strategic partnerships for the Mayo Care Network. It’s similar to what we’ve done in Minnesota and Wisconsin.”
Cheryl Lisiewski
Tom Weinhold
Steve Whitworth
John C. Lincoln Health Network North Mountain Hospital in Phoenix. Photo / Gregg Mastorakos 22 | November-December 2013
HEALTHCARE
Banner Estrella Hospital, in Phoenix, during construction phase. Photo / courtesy of McCarthy
“The Affordable Care Act is going to have profound effects on medical real estate and economic development.” – Mark Stapp, W. P. Carey School of Business
“The big problem, too,” explains Cassidy Turley’s Weinhold, “is that a medical office is not adaptable to a general office. Owners are going to need to come into these office condos and gut the place. It’s unlikely once vacated there are enough small practices to take up the space that’s going to be available.”
New buildings, new opportunities “New businesses are going to model around the new ideas that come out of [ACA],” projects Stapp at the W.P. Carey School of Business. “There’s a huge impact from wellness, because healthy people reduce healthcare costs. This is going to create opportunities for wellness business — and these businesses are going to need facilities. For example, there is a shortage of primary care physicians. This increases opportunities for complementary integrative medicine. That opens the door to small niche practices not impacted by ACA.” “Our marketing is going to change for healthcare,” McCarthy’s Jacobson advises. “Without the big projects, we need to adapt to smaller projects and facility upgrades. Cost is going to be a big driver in the process.” Jacobson say smaller facilities provide opportunities for builders to take on multiple projects using big medical center
24 | November-December 2013
experience: “The materials and systems are the same for the health centers. Redundancies are not required, but the electrical and HVAC still function the same way as a hospital.” Jacobson sees opportunities with delivering healthcare into rural areas, “Telemedicine, robotics and web services may not means anything more than a room in a rural clinic, but the backbone is going to require central facilities like call centers and data centers.” Whitworth echoes that comment, “We have a benefit at Kitchell that we can call a medical professional any time, 24/7, and they’ll tell us whether to take two aspirin, get to an emergency department or make an appointment for a doctor. That medical professional has to be located in a facility somewhere.” “Banner is going to spend $15B over the next 10 years renovating its medical centers and building clinics,” concludes Banner’s Edwards. “Sometimes, we might find a facility we can renovate or repurpose. Other times, we might have a greenfield building. Occasionally, we might lease space.” Multiply that by the number of healthcare organizations in Arizona, and the future of healthcare CRE has some potential. “I just don’t see it happening next year,” says Espinosa.
Eric Jay Toll is a freelance writer based in Scottsdale. He covers CRE, development and construction, business, medical and travel news for a variety of publications. His work appears in AZRE, Az Business, USA Today, CardioSource World News, and Toll is the senior correspondent for Arizona Builder’s Exchange. Toll spent three decades as a land planner, including 17 years in public agency development and economic development department management. He lives in Phoenix.
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HEALTHCARE By Amanda Ventura | Photo by Lillian Reid
Impact of Affordable Care Act on Healthcare Real Estate Scott Peters Chairman, CEO and President Healthcare Trust of America, Inc.
Healthcare Trust of America, Inc., is a leading owner of medical office buildings in the U.S. with more than 13MSF of MOBs in 27 states. HTA has 1.2MSF of MOB in Arizona, making the company the largest manager in the state. Chairman, CEO and President Scott Peters sat down with AZRE to discuss the Affordable Care Act, its possible effects on healthcare real estate and how investors can benefit from the changes. Q Healthcare is changing in the U.S., led by the implementation of the Affordable Care Act. HTA has a front row seat as one of the largest dedicated owners of medical office buildings in the U.S. What are the biggest changes you are seeing?
A The biggest change we’ve seen, certainly over the last two or three years, is that from a commercial real estate perspective now on-campus or medical office buildings that are across the street are really becoming core critical. That’s a key location now for (physicians’ and healthcare systems’) efficiency and for their ability to be cost effective when they deliver their services to patients.
Q How will the ACA affect the delivery of care in healthcare facilities?
A Hopefully, everyone will get better care, but from our perspective the Affordable Care Act has changed the way healthcare systems have looked at their real estate. It’s changed the way physicians and physician practices have begun to adapt to the future under the Affordable Care Act. Healthcare systems
26 | November-December 2013
Scott Peters
need to be more cost effective. They’re looking for 30M to 40M more folks who are going to be coming for services; (MOBs) need to make it effective from a cost-perspective. Physicians want a place where it’s most effective and they have their privileges, so they like the synergy. This is a very exciting time for us, when you think about medical office buildings as real estate.
Q How are owners of medical office buildings investing to meet these changing needs?
A Our view, as an owner, is that we’d like to double the amount we own today. We own about $3B in assets, and I’d love to say that in three to five years from now, we will have twice as much because we think it’s just going to continue to get better in value. The big thing you have to make sure of is that when you buy something you’re looking at the long-term. You want to make sure it’s cost-effective, meaning the rents are at market and the buildings aren’t too antiquated. Again, healthcare is changing and the owners have to change with it. The other big thing we’ve found is it’s become more traditional real estate. The healthcare system,
the physician and the practices that are occupying the space care about asset management. We do our own asset management, so that’s a very big part of our platform: Come to our building, have a relationship with us and we’ll try to manage this asset in the most effective way we can.
Q Are there things that operators of medical office buildings are not doing that they need to do to prepare for the ACA?
A The tremendous cost efficiency and burden that is going to come to the healthcare systems and physicians, that we’ve all read about, are going to come back to where can I get the best location, most efficiency for how I operate and then who and where can I be that I get the best service. That goes back to asset management, the property management, making sure the relationships that we as the owner of the asset has is directly with the physician and healthcare system so you can always have that communication. Historically, over the last 25 years, physicians don’t want to move, patients know where they are and healthcare systems can’t move. When you have a hospital, that’s $2M to $3M a bed. Physicians want to practice in hospitals or have privileges because the infrastructure to do what they do, which is cure people, is in those locations.
Q HTA is the largest owner of medical office buildings in Arizona. How is the changing healthcare landscape impacting your local operations?
A We like Arizona. Obviously, our corporate offices are here. I’ve lived here for the last eight years. We like the fact that Phoenix is projected to be one of the fastest growing cities in the United States over the next five years. One of the things we haven’t talked about that I think is a tremendous benefit of the Affordable Care Act is employment. It will mean a tremendous amount of new jobs. If you look at some of the projections, healthcare is supposed to be the leading employer over the next five or 10 years, almost 50 percent greater than any other sector from an employment perspective. That’s great for Arizona. That’s great for us. If you have a growing economy, if you have more and more folks coming to Phoenix and we’re already the fifth largest in the country, if you’re located on campuses with Banner or with some of the other healthcare systems I think that bodes very well for us.
Q What are you seeing in your other markets that you are not yet seeing in Arizona?
A We’ve seen a push for on-campus locations. We’ve seen healthcare systems have brought physicians to the campuses to make it more efficient, more localized. We haven’t seen that yet as much in Arizona. We’ve been in a recession, some would say a depression, and I think most recently Arizona adapted the exchanges and that’s going to help folks get signed up with the new Obamacare. I think over the next two to three years, you’ll see a more gravitation to the healthcare campus.
Q How has the ACA impacted HTA as an investor-owned REIT?
HTA’s Banner Sun City portfolio consists of 18 properties totaling 641,445 SF and includes Banner Del E. Webb Medical Center in Sun City West, Ariz.
A Before the Affordable Care Act, as a company when you said what are the significant macro-economic trends for owning this type of real estate you would have the agent and then you would have said well, as people get older they go to physicians more, but the Affordable Care Act changed it all. Healthcare systems are selling their assets, they need to be more efficient, and you’ve got the tremendous amount of employment coming through so you now have healthcare educators. We recently leased some space to some of the colleges that need to educate. The employment is not going to come from the doctors. It’s going to come from the physician assistants, the technicians, the nurses, the folks who are going to service these 30M to 40M more folks who are going to be seeking healthcare.
Q What kind of investment opportunities will come out of healthcare reform?
A Investment for us, again, I go back to the real estate side. If you
find a sector with such strong trends in it — the aging population, employment, the fact that healthcare systems need to look for other folks to make it more efficient for them — however one decides to invest, from a periphery perspective of healthcare, I think it’s a very strong opportunity. We know real estate, so obviously we’re going to focus on owning the assets in critical locations on-campuses across the country. Q 10 years from now, what will be the ACA’s biggest impact on medical office buildings? A That they’re just core critical. Everyone goes to a physician. When I started this company in 2006 and started selling to financial advisors and shareholders, I would talk to folks and everybody’s been to a medical office building, everybody’s been to a physician, everybody’s been to a healthcare campus, but the Affordable Care Act really changed the focus. Now, everybody knows about it. Everybody reads about it. They see what the changes are supposed to be, which is more and more folks getting access and more preventive medicine. Anyone under 35 now will start seeing a physician or healthcare system much more. The healthcare system, for us, as owners in this space, I think we have great opportunities to generate continued income and profits for our shareholders.
Visit AZREmagazine.com to see video from our interview with Scott Peters at Healthcare Trust of America in Scottsdale.
27
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HEALTHCARE By ERIC JAY TOLL
Healthy side effect
ACA’s emphasis on wellness could have an impact on CRE and sustainability
T
here’s another trend growing out of the Affordable Care Act’s (ACA) emphasis on wellness. Mark Stapp, a professor of real estate practice and executive director of Arizona State University’s Master of Real Estate Development program at the W.P. Carey School of Business, says the trend can benefit Arizona’s economic development efforts. “You say sustainability, and people think about energy, green building and conservation,” he says. “In reality, sustainability also includes a healthy workforce. When the workforce is healthy, productivity increases.” Stapp says a combination of Millennials’ lifestyles combined with an aging boomer population means changes in development patterns. “Improved healthcare and an emphasis on wellness shifts where and what space is in demand. The population wants healthy places to live.” Stapp sees the trends as drivers bringing
30 | November-December 2013
populations closer to city centers. He also believes a healthy community is a big economic development selling point. “The movement (in the Affordable Care Act) is to maintain and improve health rather than fix it,” he says. “This is crucial with the shortage in primary care physicians. It also means that healthy living is going to become integrated in other areas of the community.” Stapp sees new business models developing around the ideals of healthy living. “As (the ACA) evolves, its policies will change and encompass a broader range of health care and wellness options. Integrative healthcare will become far more important,” he says. What this means to economic development, Stapp explains, is that healthy cities are more productive. “Supporting healthy lifestyle choices becomes a competitive advantage,” he says. “This is a direct shift of a portion of healthcare responsibility from insurance
companies to communities.” Changing the types of medical practices and patterns will also change building design and usability. “Real estate has value to support an activity,” he says. “If an activity goes, so does building value.” Stapp sees a gradual change in office environments. “There is a shrinking demand for space. Can medical campuses withstand the test of time?” he asks. The bigger pie, in terms of health care and wellness, he says, is to look ahead to rapidly emerging trends that may make today’s medical office infrastructure useless. “People are capital,” says Stapp. “Businesses are going to protect capital, and that is going to lead to adaptation when the demand creates new opportunities with different office uses.” Mark Stapp
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31
AMERICAn Institute of ARchitects - ARIZONA
T
he American Institute of Architects Arizona Design Awards recognize excellence in design, planning and construction of projects located anywhere in the world that are designed by AIA Arizona architects registered and licensed in Arizona. The awards honor the highest standards of design in response to user requirements, site, context, climate and environment. Each entry, regardless of size or classification, is judged individually on the basis of total design merit. Awards are given the categories of honor, merit and citation (in order of importance). Certificates were presented to award-winning AIA Arizona members at the AIA Arizona Design Awards Gala held Nov. 2 at the AE England Building at Civic Space Park in Phoenix.
32 | November-December 2013
2013 AWARDS
DESIGN
HONOR Project: Tom’s Thumb Trailhead in the Scottsdale McDowell Sonoran Preserve Architect: Fucello Architects, LLC Owner: City of Scottsdale Contractor: Redden Construction Inc.
Tom’s Thumb Trailhead provides access into the Scottsdale McDowell Sonoran Preserve multi-use trail network leading to the northern mountain tier, which has long been a destination for rock climbers seeking its world-renowned granite crags and notable rock formation. The project site is located at the northern base of the McDowell Mountains amid a sprawling watershed defined by a relentlessly steep undulating topography and numerous desert washes. Minimizing site disturbance and preservation of natural habitat were underlying values for sustainable design. The facility provides parking for 224 vehicles, interpretive displays, a formal gathering area for educational venues, equestrian access and waterless restrooms. Sustainable design strategies create efficiency, self-sufficiency, and low-maintenance as the site is remote from municipal infrastructure – no water, no sewer, and no electric services. Through responsible environmental planning and design, this project exemplifies a commitment by Scottsdale and its citizens in achieving environmental stewardship. - Tina Litteral, AIA Executive Director
Photos: Tom’s Thumb Trailhead in the Scottsdale McDowell Sonoran Preserve
33
AIA ARIZONA
HONOR Project:
Desert Courtyard House
Architect: Wendell Burnette Architect Owner: Steve and Beverlyn Elliott Contractor: The Construction Zone, Ltd.
Mass informed how the designers proceeded to give this home its defining qualities — from the courtyard plan to the split-massing and all the way down to the fittings and fixtures that one touches with the hand or the eye. For instance, the millwork is volumetric only revealing contents within when a contoured bronze void is touched with the fingertips allowing the mass to be gently cracked open. Long fissures in the mill-finish steel plate ceiling reveal light while maintaining the quality of nothingness at night. Mass and the improbability of delicacy discovered within it is what gives the Sonoran Desert its remarkable presence. — Tina Litteral, AI A Executive Director
MERIT
1.
1) Project: Central Arizona College Maricopa CampuS Architect: SmithGroupJJR Owner: Pinal County Community College District Contractor: CORE Construction 2) Project: Casa de Nido Ospre Architect: Jones Studio, Inc. Owner: Lisa Johnson and Eddie Jones Contractor: Design and Building Inc.
2. 3.
3) Project: University of Arizona Health Sciences Education Building Design & Executive Architect: CO Architects Associate Architect: Ayers Saint Gross Owner: Arizona Board of Regents & City of Phoenix Contractor: DPR Construction/Sundt Construction, a Joint Venture
CITATION 1) Project: Shade Platform, Maricopa County Security Building Roof Repair/Renovation Architect: SmithGroupJJR Owner: Maricopa County Contractor: The Weitz Company
1.
2.
3. 34 | November-December 2013
A B
a) APS ENERGY AWARD Project: Fireside Elementary School Architect: DLR Group Owner: Paradise Valley Unified School District Contractor: CORE Construction
2) Project: Arizona State University Health Services Building Architect: Orcutt|Winslow Design Architect: Lake Flato Owner: Arizona State University Contractor: Okland Construction
B) APS ENERGY AWARD and SRP SUSTAINABLE BUILDING AWARD Project: Energy Systems Integration Facility Architect: SmithGroupJJR Owner: National Renewable Energy Laboratory Design Build General Contractor: JE Dunn Construction
3) Estrella Hall Expansion + Renovation Architect: Richärd+Bauer Architecture LLC Owner: Maricopa County Community College District Contractor: Okland Construction
C) SRP SUSTAINABLE BUILDING AWARD Project: Tom’s Thumb Trailhead in the Scottsdale McDowell Sonoran Preserve Architect: Fucello Architects, LLC Owner: City of Scottsdale Contractor: Redden Construction Inc.
C
35
AIA ARIZONA
MAKING IT NEW AGAIN
36 | November-December 2013
Adaptive reuse trend repurposes and re-energizes the community
A
By Amanda Ventura
church turned into a Taco Guild. An old automotive dealership and service station turned into a restaurant complex. A 60,000 SF building that once housed a television studio renovated to service a health center, theater, pharmacy and vitamin shop. To a city’s residents, a building finding a new purpose is a novelty. But to developers and architects in the Valley, it’s a trend that preserves the cityscape and — with the help of incentive programs and building code leniencies — is cost effective and time efficient. Adaptive reuse of standing buildings has been a recent trend in the Valley, particularly Phoenix, which has been searching for sustainable solutions to add density to its core areas. The City of Phoenix first piloted its adaptive reuse program in April 2008. The program became permanent six months later. Phoenix is the only city in the Valley with an established incentive program geared directly toward adaptive reuse development. “There are a lot more people looking at existing buildings than looking to develop land,” says Jason Blakley, a program manager in Phoenix’s planning and development department. “There has been an increasing trend over the last few years, but I think things are starting to swing back toward new development.”
Building Incentives The city continues to spread word to potential developers. Since implementing a financial incentive on July 1 to offset development costs, the city has received seven project applications and given away $13,000. The city has split projects into three tiers based on square footage. Incentives per project can reach up to $4,500. Citywide advantages include revitalizing neighborhoods that haven’t seen much development or change over the last few years, Blakely says. He adds that scrapping a site and developing from scratch creates significantly more materials that will get carried off to a landfill. Adaptive reuse peripherally supports green incentives. “We’ve witnessed over the last decade more viability of existing building for projects,” says Diane Jacobs, a principal with Holly Street Studio Architects. Jacobs recently worked on the Southwest Center for HIV/AIDS, the aforementioned Channel 12 building, and the renovation of a 1930s era post office into a recreational space for Arizona State University students. Southwest Center for HIV/AIDS, soon to be Parsons Center for Health and Wellness, is set to officially open in November. It had limited resources and prioritized a central location in Phoenix to building from the ground up. It was unique, Jacobs says, because one half of the building was constructed in the 1950s and the rest in the 1970s. “What we wanted to do was take a building split into different parts and pieces and give it an epicenter — a physical manifestation of what they’re trying to do with their organization,” Jacobs says. “They serve all walks of life and want to be a central place.” OLD SCHOOL: Old School O7, on the corner of 7th Street and Osborn Road,
was a $2M adaptive re-use and urban in-fill project by RSP Architects, Wetta Ventures and Chasse Building Team. Phase I, which was completed 4Q 2013 includes the 1,700 SF Starbucks (left). PHOTO BY JAMES NEAL 37
AIA ARIZONA
CLOCKWISE FROM TOP: Culinary Dropout at The Yard; Little Cleo’s at The Yard; Southwest Center for HIV/AIDS; Student Center at
ASU Post Office.
Preserving history “Adaptively reused buildings come with their own history,” says Jacobs. “By history, I mean not just the story of who was there, but the physical archeology of what was there. It’s our job not to cover up the building, but let its best qualities be revealed. It reminds people there were other people in the building using it. When you have limited resources and you have your parameters set tighter for you, it helps you think about your priorities.” Jacobs also recently worked on another adaptive reuse project for Arizona State University for which Holly Street helped turn a 1930s post office’s workroom into a student center near the Downtown campus. There are few absolutes regarding what makes a building ideal for adaptive reuse. Jacobs says buildings must have an open, flexible structure. If the program just doesn’t fit over the structural grid, she says, then the location won’t work. Though City of Phoenix doesn’t know the exact number of eligible buildings within the city limits, any existing structure permitted before 2000 and measuring up to 100,000 SF is viable for adaptive reuse and will fall into one of the city’s three tiers of incentives. “Projects with ambitious programs want to start fresh,” Jacobs says. “(Developers are) finally catching onto things architects have known all along (about older buildings). It’s a recent trend because of the economy and slowdown in growth. It made us understand we couldn’t keep up with this building and growing and moving out further, but to just look at the resources we already had.”
Urban movement In the last two years, RSP Architects’ Michael Rumpeltin has tackled two adaptive re-use projects — a Starbucks at Osborn Road and 7th Street, within a development known as Old School O7, and The Yard, the repurposed automotive and morotcycle repair shop mentioned earlier. “I truly believe that there is a cultural shift going on in the Valley,” Rumpeltin says. “The city itself is maturing and we’re seeing a great deal more interest in urban places throughout Phoenix. In addition to repurposing these older buildings, or simply renovating and updating them, it is also important to be thoughtful about how you add to the existing building stock ... I consider myself a steward of 38 | November-December 2013
these buildings and my ability to help breathe new life into them ensures — at least for the immediate future — that they don’t disappear and instead remain a part of the urban fabric.” One thing Jacobs and Rumpeltin agree on is the citywide benefit of adaptive reuse projects: it brings the community together. “When we talk about repairing or infilling or rebuilding urban places, these kinds of social spaces are exactly what we need to bring people together and serve the community,” Rumpeltin says. “Unlike an office building or a private residence, these places are more public and because of that can be shared and enjoyed by more people within the community.” Venue Projects and John Douglas Architects recently formed a partnership that is a prime example of such a space. Their project, The Newton at Camelback and 3rd Avenue, will house a Changing Hands Bookstore and The Lively Hood community workspace in the former Beef Eaters restaurant. The Newton, named for Beef Eaters founder Jay Newton, will be finished in spring 2014, with the mission to Jason Blakley centralize community members. RSP Architects, Rumpeltin says, begins a project by identifying the audience, researching the surrounding neighborhood and accounting for the building’s history and future before the design process begins. “I can’t drive down the street without seeing a building that I start imagining a new restaurant in, or new shops or a boutique hotel,” says Rumpeltin, who keeps Diane Jacobs a journal of buildings throughout Arizona he’d like to revitalize. “As much as trying to match locations with developers and users, I like to be very involved in the creation of a project’s identity.” Though he didn’t share specifics, he’s working on one such building that has been in his notebook for more than a decade. He says the project will open in a year. Mike Rumpeltin
2013
INSIDE:
Forever Changed
pg 44
All Systems Go
pg 48
2013 TOBY Awards Q&A
pg 52 pg 54
Effect of recession on property management issues The benefits of integrating building maintenance systems
w/ Executive Director Mark Covington
686
Football Fields In the past year, CBRE completed 32,932,646 square feet of transactions in Arizona*—the equivalent of more than 686 football fields measured sideline to sideline, goal line to goal line.
Talk about home-field advantage. At CBRE, we put a game plan in place to help our clients achieve their real estate objectives, one goal at a time. With a team of local experts backed by the industry’s premier full-service platform, our clients always have home-field advantage.
© 2013 CBRE, Inc. * Transactions completed 6/30/12–6/30/13
#1 in real estate serViCes worldwide T 602.735.5555 | cbre.com/phoenix T 520.323.5100 | cbre.com/tucson
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IIDA Building owners and Managers association By DONNA HOGAN
FOREVER
CHANGED Since recession, commercial real estate owners drive property management issues
A
A decade or so ago, commercial real estate property managers might be considered a generic lot. Not that they didn’t have a full roster of responsibilities. They kept the buildings looking spiffy, made sure the trees were trimmed and the elevators inspected, and they provided standard financial reports of income and expenses to often faceless pension plan accountants or other absentee building owners. To those investors, the bottom line was the only determinant of how well the property manager was caring for their assets. Then the recession happened. Tenants foundered and moved out or moved home. New businesses available to snatch up their suites or shop spaces were few, and vacancy rates shot up in all sectors of commercial real estate. Building owners started paying attention to the detail above the bottom 44 | November-December 2013
line, and property management changed forever, said John Orsak, director at international real estate firm Hines. Increasingly, the building owners drive the business, determine how their properties are managed, what kind of reports they receive and when they get them, and have a say in just about every management aspect down to the light bulbs and landscaping — or at least how eco-friendly they are. Savvy property management companies are meeting the newly involved building owners’ demands and tailoring boutique services for each client, from organizing food truck parties to developing “green” programs to feeding financial data into the owners’ proprietary reporting systems. “It used to be the property manager had to make sure the trash was taken out, the lights were on, the tenants were comfortable and the owner got the reports,”
said Orsak, who has been with Hines for 12 years. “That was enough then.” Now sophisticated business owners want reports “their way” and on their reporting cycles, he said. Hines manages 406 properties totaling 148.5 MSF, more than half of that for third-party owners. Among its Arizona properties are US Airways headquarters in Tempe, the Renaissance Square office complex in downtown Phoenix, and 24th and Camelback , two luxury office buildings with a combined 600,000 SF of space in the prestigious Camelback Corridor. All have different management criteria and in common only the ultimate goal: to maximize property values by keeping the buildings full of contented tenants, Orsak said. “In a recession, you focus inward,” he said. “That’s when everybody refocused.” Alisa Timm, director of management
Lincoln Property Company’s Desert West Region manages 6 MSF of commercial space, including the 52-acre, 11-building Broadway 101 Commercial Park in Mesa (above).
services for Lincoln Property Company, which manages more than 150 MSF nationally, agreed. Lincoln’s Desert West Region, which includes Arizona, manages 6 MSF of commercial space, including the 52-acre, 11-building Broadway 101 Commercial Park in Mesa. “The recession was a big factor,“ Timm said. The competition for tenants changed the playing field, and building owners, still eyeing the bottom line, saw the need for differentiating their buildings from the many other nice but too-empty properties in the marketplace. Instead of providing building owners with a checklist of services it offers, property management providers are sitting down with the owners to listen to their demands and tailor a plan to meet their needs, Timm said, “There was a growing recognition that a property is nothing but a liability without tenants,” she said.
Before, especially in a desirable market, the issue was “what the landlord would give” in terms of tenant improvements and other incentives to woo a would-be business to the building, Timm said. “Now it’s a much different negotiation. I don’t think we’ll ever go back to that disconnect between landlord and tenant.” Timm said the emergence of large, experienced building buyers, such as the big national REITs, has also changed the focus. “Ownership of commercial real estate is different now. Owners are more sophisticated,” said Timm, who has been in the industry since Sheryl Brisbin 1986. “Almost
“I don’t think we’ll ever go back to that disconnect between landlord and tenant.” — Alisa Timm, director of management services for Lincoln Property Company anybody going into a building is looking at resale, maybe exiting in seven to 10 years. “The sophisticated owners understand that property management is the key.” Andi St. John, senior director of asset services at CBRE, has spent 17 years in property management. CBRE manages 22 MSF in 140 buildings throughout Arizona, including Biltmore Commerce Center in
45
BOMA MEMBER PROFILES Phoenix and Raintree Corporate Center in Scottsdale. “I see a change in property management because what a client needs has changed,” St. John said. She agreed that a client’s goals— that is, whether to hold property for the short- or long-term— is a factor, as is a property’s desirability to tenants based on a host of factors from location to age to technology to sustainability. “Government leases require sustainability (standards) and certain other tenants have that requirement in their leases,” she said. “Sustainability is critical in the market now. It’s the number one way to reduce expenses, which increases value.” If an owner doesn’t see a return on investment in upgrades within the time frame they plan to hold a property, that’s a non-starter. Instead of offering a standard contract for management services, CBRE approaches a building owner first in a consulting capacity to determine what the owner’s goals, budget and needs are, and then, in a collaborative effort, to devise the sphere and direction of the management services, she said. Cathy Zoccoli, senior property manager at Phoenix Corporate Tower at 300 N. Central Ave., sees it the same way. “We have an owner’s perspective,” she said. “If they want X, we give them X. Building owners expect us to understand the building, get our arms around it.” One owner may be into maximizing efficiency, another not willing to spend the upfront cash, she said. The property manager’s job is to work with the owner to determine how to re-brand, revitalize and tweak a building’s operation to meet the owner’s goals, said Zoccoli , who has been in the business for 15 years, 11 of them in Arizona, the last five with California-based The Muller Company. “It’s The Muller Company culture,” she said. “We are more of a boutique company.” Not all building owners want to pilot their own portfolio. Sheryl Brisbin, of Cushman & Wakefield, has spent the last 19 years in property management. She now oversees the Camelback Esplanade’s expansive mixed-use property. Brisbin said a greater number of building owners want to inject their initiatives, but many still want to tap a solid property management company’s broad experience and expertise to determine standards for everything from budgeting to reporting to marketing. “It’s very owner specific, depending on the type of asset and the type of owner, from small mom and pop (owners) to large institutional owners,” she said. Brisbin said recent ups and downs of the economy have made property management issues “increasingly complex.”
John Orsak 46 | November-December 2013
Andi St. John
Cathy Zoccoli
MARicela Nunez Senior Real Estate Manager, CBRE Years with CBRE: 5 Years with BOMA: 5 Professionally, what does it mean for you to be a member of BOMA? Being a member of BOMA is an important step in anyone’s career. As a property manager, BOMA is the most effective way for me to stay up to date on the best practices, green technology and new laws that can help me ensure my properties will remain at the top of their class for my tenants and my clients. What about BOMA do you find to be the most rewarding? Besides the numerous professional development, networking, and community service opportunities that BOMA offers its members, the most rewarding aspect of BOMA, for me, is engaging with the Phoenix metropolitan area’s civic and business leaders at our monthly luncheons. Their invaluable advice and experience strengthens my commitment to our industry and community.
Tiffany Lauchlan Director of Sales & Marketing, A.M.E. Southwest Years with A.M.E. Southwest: 1.5 Years with BOMA: 6 with BOMA Greater Phoenix Professionally, what does it mean for you to be a member of BOMA?
I was a commercial property manager for 20 years before moving to the vendor side. Since I spent so much time on the management side, now I get to build a new career on the vendor side with those same colleagues and build new relationships with the associate members of BOMA. Was there a moment when you realized being a BOMA member was invaluable? I have two. As a manager, when I won a TOBY. My team worked so hard to accomplish that goal and it was amazing for my team to be recognized by our peers that we were worthy of a TOBY. As a vendor, every time I get a phone call/email from a BOMA manager asking for my company to participate in an RFP, bid a renovation project or ask advice about how they can increase the curb appeal at their property. That means they have faith in my company and that they are supporting their BOMA associate members.
By DONNA HOGAN
ALL SYSTEMS
GO Integrated building maintenance systems bring big benefits for customers and contractors
TOP: Phoenix Children’s Hospital lobby BOTTOM: Phoenix Children’s Hospital is among the buildings adopting automated integration of mechanical systems, including the abovepictured water pipes.
If the main air handling unit at Phoenix Children’s Hospital suddenly fails, another equally powerful chiller kicks in within seconds. Simultaneously, the medical complex’s high-tech control system sends an alarm to the 24-hour-monitored security panel and an alert to a facility technician’s hand-held device — essentially a text messaged work order to fix the downed system ASAP. While a hospital has unique issues — among them, immobile patients and pricey medical equipment with critical temperature limits — linking building maintenance operations to each other and to the human beings who can fix them is an escalating trend within all commercial real estate sectors. Chris Hernandez, president of Phoenix-based Hernandez Cos., which has been providing general contracting and maintenance services for office and industrial properties for 37 years, said 75 percent of his customers have some level of automation that integrates the mechanical systems. “We see it with HVAC, electrical systems, plumbing,” he said. “Everything we do has a technology component. It’s a natural progression.” Far from a burden to those who have to install, repair and/ or maintain those mechanical systems, the real-time problem detection, auto shutdown of expensive equipment if the temperature exceeds safe operating ranges, and immediate notification to a building engineer, are a boon to all parties involved, Hernandez said.
Even if it means getting a late-night gig. “If you have an (HVAC) problem at 7 p.m., you can get somebody working on it and have it fixed by 8 a.m. when people get to work,” he said. “A building is a living, breathing place. It’s telling us when it needs attention.” Property managers are on board, too. At Gaedeke Group’s 2800 Tower, “You can turn up the heat from your smartphone while you are sitting at a concert,” said Laura Crosby, property manager for the 21-story Class-A office building in downtown Phoenix. That’s a tenant perk, she said, but if the heat spikes because of a problem with the core cooling system, chief engineer Rod Harmon’s cell phone gets buzzed. Harmon can check, via Wi-Fi, any of the building’s 400 heat pumps, diagnose the problem, press a virtual reset button and/or turn a faulty unit on or off. “It’s the direction everything is headed,” he said. All PCH’s critical building operations are integrated through technology that provides multiple levels of redundancy and ensures patient and employee safety and satisfaction aren’t compromised, said Farid Melki, facility management director. If there is a fire detected anywhere on the 34-acre campus, for example, the system alerts the fire department, shuts down elevators, activates fire doors, and blasts notifications to impacted areas, the hospital safety officer, security, facilities technicians and hospital administrators. PCH’s upgraded programmable building integration
I
48 | November-December 2013
49
BOMA IIDA
BOMA MEMBER PROFILES
framework was installed three years ago when the hospital underwent a major expansion. The payback was immediate, Melki said, in such quantifiable terms as energy savings, extending equipment life, keeping warranties valid, and eliminating the cost of redoing a procedure — say, if an MRI had to be shut down mid-scan because the room temperature topped 70 degrees. Add to that unquantifiable measures such as keeping patients cool and comfy and a “crisis” invisible to all except those who need to resolve it, he said. One category of commercial real estate contractors has watched job responsibilities expand with automation and integration, said Anderson Security CEO Kim Matich. Since security may be an office or industrial property’s only 24/7 operation, it is often the primary recipient of building system alarms. In the last decade, security operations have become more sophisticated to accommodate the trend, Matich said, and security personnel job descriptions have expanded to include making minor repairs to late-night malfunctions. At the Galleria Corporate Centre in Scottsdale, for example, security as well as the on-call engineer get text alerts for building maintenance problems. The problems can range from a wet sensor tripped to an exterior door opened to a chiller shutdown, Matich said. The Anderson Security officer at Galleria is charged with making stop-gap measures, communicating with the on-call engineer, and, if requested by the engineer, taking instructions to fix the problem.
50 | November-December 2013
Owner, Patriot Mechanical
Years with The Muller Company: 5.5 Years with BOMA: 2
Years with Patriot Mechanical: 8 Years with BOMA: 2
What about BOMA do you find to be the most rewarding?
Professionally, what does it mean for you to be a member of BOMA?
To spend time with other professionals who are providing best-of-class service. Was there a specific moment when you realized being a BOMA member was invaluable?
Recognition and validity within the commercial market. What about BOMA do you find to be the most rewarding?
Being recognized by your peers as doing a job well done is invaluable for The Muller Company, our tenants, our vendors and our people.
Kim Matich
ABOVE: Phoenix Children’s Hospital
Christian Phillips
Senior Property Manager, The Muller Company
Going through the TOBY process really showed me the professionalism, hard work and dedication of the members. They really are the best of the best! Professionally, what does it mean for The Muller Company’s Biltmore Commerce Center in Phoenix to win a TOBY?
Chris Hernandez
Farid Melki
Cathy Zoccoli
Building relationships with a diverse group of local business leaders. Was there a moment when you realized being a BOMA member was invaluable? The realization that the decision makers are available through relationships at BOMA. How does your company benefit from BOMA? It allows Patriot to build relationships with market sectors that are important to our business model i.e. building owners, property managers and facilities managers.
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SCOTTSDALE • PHOENIX
BOMA - Toby Awards
TOBY
Awards
2013
TOBY Awards will be presented on November 15 at The Renaissance Phoenix Downtown. To the right are notable finalists in this year’s categories, provided by BOMA Greater Phoenix Executive Director Mark Covington.
52 | November-December 2013
Government Building
250,000 - 499,999 SF Cont.
Arizona Game & Fish Dept.
Portales Corporate Center
500 W. Carefree Hwy., Phoenix Owned by: Arizona Wildlife Finance Corporation Architect: Will Architects Managed by: Kelly Bast, Senior Property Manager, Lincoln Property Company
4800 N. Scottsdale Rd., Scottsdale Owned by: Principal Real Estate Investors Architect: DFD Conoyer Hedrick Managed by: Julie Schulze, Property Manager and Leasing Consultant, Forum Property Services, LLC
Medical Office Building
VIAD Corporate Center
McCauley Medical Office Building 500 W. Thomas Rd., Phoenix Owned by: LaSalle Investment Manager Architect: BLM Group Managed by: Mercedes Marquez, Real Estate Manager, CBRE
1850 N. Central Ave., Phoenix Owned by: MS MCC 1850 North Central, LLC Architect: HKS Managed by: Patricia L. Mayes, General Manager, McCarthy Cook & Co.
Renovated Building 100,000 to 249,999 SF & Corporate Facility Freeport-McMoRan Building 333 N. Central Ave., Phoenix Owned by: N/A Architect: Smith Group Managed by: Mary Anne Lanoue, General Manager, Transwestern
250,000 to 499,999 SF One North Central 1 N. Central Ave., Phoenix Owned by: One North Central, LLC Architect: SmithGroup/Form Design Managed by: Rosaleen Keller, Senior Property Manager, Ryan Companies
Max at Keirland 16220 N. Scottsdale Rd., Scottsdale Owned by: Artis REIT Architect: Keating Khang Managed by: Marie Dunn, Senior Real Estate Manager, CBRE
Scottsdale Financial Center III 7272 E. Indian School Rd., Ste. 215, Scottsdale Owned by: CJK Investments Architect: Phoenix Design One Managed by: Matt Manning, Real Estate Manager, CBRE
Park One 2111 E. Highland Ave., Ste. 100, Phoenix Owned by: MS MCC Park One, LLC Architect: GSA Architects & Planners Managed by: Lorraine MacGregor, Property Manager, McCarthy Cook & Co.
Suburban Office Park Low-Rise SanTan Corporate Center I & II 3100 and 3200 W. Ray Rd., Ste. 135, Chandler Owned by: Wells REIT II-SanTan Corporate Center, LLC Architect: DFD Architectural Managed by: Maricela Nunez, Real Estate Manager, CBRE
53
Containing costs Covington says BOMA tries to combat anything that might increase costs to the commercial real estate industry
Mark Covington manages Building Owners and Managers Association International-Greater Phoenix’s office in the support of the association’s 310 local members who collectively manage more than 60 MSF of office, industrial, retail, medical and other commercial real estate in Metro Phoenix. “The commercial real estate industry contributes more than $1.8 billion annually to the Arizona economy,” Covington said. “Our buildings house and support more than 47,000 jobs and $600 million in personal earnings each year. Our members strive to make their buildings the most attractive, comfortable, healthy and efficient for their tenants. We’re proud of our contribution to making Phoenix and Arizona a great place to live and work.” AZRE caught up with Covington to talk about BOMA’s optimism and what we can expect to see in Arizona in the future. What are some reasons for BOMA members to be optimistic and what challenges do you still see in the future? While many economists are very optimistic about the outlook for commercial real estate, there are still many concerns. One of our key advocacy goals is to convince Congress to extend the Terrorism Risk Insurance Act (TRIA) program. BOMA feels the TRIA program must remain in effect until the reinsurance industry is prepared to accurately underwrite and assume the whole risk. Without adequate insurance, it is difficult, if not impossible, to operate our acquired properties, refinance loans and sell
TRASH
TALK
BOMA launches sustainability program to reduce waste By Lauren gephart 54 | November-December 2013
commercially backed securities. Leasehold improvements are another area in which we need government action. To appreciate leasehold improvements at a rate of 1/39 year until the improvement goes “out of service” runs counter to common sense and the reality of the marketplace. It’s a hidden and inequitable tax in the commercial real estate industry and the text that should be amended to more closely reflect the reality of the marketplace. We are also working very closely with the International Code Council (ICC) to ensure the upcoming versions of our building, plumbing, fire and energy codes are reasonable and accomplish the purposes for which they are intended without overly onerous provisions that increase costs without providing commensurate benefits.
Mark Covington
What are some property management trends in Phoenix? One of the key trends, which is not confined to Phoenix, is a requirement to be more and more productive. Property managers have increasing portfolios and are required to practice better time management and use technology as productively as possible to maximize what they can accomplish in a day. What is on BOMA’s radar for 2014? At the local and state level, we intend to continue to oppose any measures that increase costs to the commercial real estate industry. We also intend to support measures that help to cap unreasonable valuation increases for commercial property.
BOMA Greater Phoenix announced it will launch the Golden Dumpster Awards, a sustainability program that promotes and encourages waste reduction and environmental efficiency. According to the City of Phoenix, city workers drive nearly 7 million miles to transport solid waste every year. The amount of trash sent to the landfill each year could fill Chase Field seven times. In response to this, BOMA officials designed an awards program to motivate building managers to increase the amount of trash recycled to minimize waste production, city expenses and create a better environment.
BOMA- Greater Phoenix Executive director
BOMA
We would also strongly support measures that would further discourage metal theft by increasing penalties. At the national level, we will continue to support tax incentives for energy efficiency upgrades and other efforts that encourage CRE participation but do not mandate specific building improvements. BOMA supports voluntary incentive-based programs to reduce greenhouse gas emissions. We also support incentives to promote investment in water-efficient products or commercial buildings such as toilets, urinals, faucet shower heads, side irrigation systems and efficient HVAC systems. In the financial area, BOMA strongly opposes altering tax codes requiring carry interest be taxed as ordinary income. BOMA also supports efforts to reduce or eliminate taxes on capital gains. BOMA strongly supports efforts to make the depreciation of leasehold improvements more realistic. The tax code should be amended to more closely mirror marketplace reality.
“Most of our members’ buildings already have a recycling program in place, but getting reliable metrics to benchmark waste diversion is one of our program’s early challenges,” said Executive Director Mark Covington. Covington said businesses will be rewarded for their efforts in recycling, waste reduction and education of their employees. “We hope the awards give our members and other participants in the program inspiration to minimize the amount of waste we create, re-use what we can and properly sort and recycle more of our trash,” said Covington. The Golden Dumpster Awards program is set to launch in 2014.
2013
INSIDE Pillars for the Future
p. 60
Confidence Builds Universal Appeal Energizing Growth Q&A with Joyce Grossman
p. 64 p. 66 p. 68 p. 70
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Arizona Association for Economic Development By ERIC JAY TOLL
pillars
for the future
AAED’s strategic plan strengthens its economic development role 60 | November-December 2013
H
ear the word “pillars” and you envision strength, tall and straight. There have been three pillars standing on the foundation of the Arizona Association for Economic Development. The association starts its next 40 years with a new strategic plan minted early last month by its board of directors. The timing meshes with Arizona’s exit from the dark days of the recession into recovery’s light. “It’s a new chapter in AAED’s history,” says AAED president Eric Larson, who is also AVB Development Partners’ director of acquisitions. “We’ve invested a lot of thought into the process. This is going to move the organization forward by growing and broadening our position in Arizona.” Larson is responsible for the first months of the plan’s implementation and is shepherding soft previews around the state this month. The association’s December 13 meeting is the formal deployment. Firming AAED’s strategic plan as 2014 begins is fortuitous. Larson, and next year’s president Danielle Casey, economic development director for Scottsdale, envision the organization becoming the “go-to” source for economic development information and advocacy. “The recession gave us a number of lessons about Arizona’s economy and an overdependence on home construction and real estate,” says Casey. “We need to share experience from across the state and use what we’ve learned to keep a stronger focus on a diverse and healthy economy.” “What does AAED want to be when it grows up?” asks Larson rhetorically. “Using this as the foundation, we seriously looked at the relevancy and representativeness of our organization’s ‘pillars.’ The strategic plan answers those questions and sets out a plan for the next five years. We reinforced that our ‘three pillars’ are still what holds us up.”
The three pillars Education, advocacy and collaboration are the three pillars raising AAED’s membership of public and private economic development professionals. The sum of the effort is improving Arizona’s economic competitiveness. While the economic development agencies — Arizona Commerce Authority, Greater Phoenix Economic Council and Tucson Regional Economic Opportunities and others — are the state’s sales representatives, AAED members are the faces of implementation. “It’s a marriage in growing the economy,” emphasizes Angela Talbot, GPEC vice president of business development. “[ACA], GPEC and others go out “Our plan is to ensure elected and bring businesses officials understand responsible into Arizona. It’s the economic development.” — collaboration that closes Danielle Casey, president-elect, the deals. That impresses economic development director, businesses thinking about Scottsdale an Arizona move. “No matter how we represent the state to businesses in the U.S. and globally,” Talbot continues, “the local governments have to understand tax policy, effective incentives and business decision-making. AAED is the forum where all the players come together and share knowledge.”
Education “It’s not just that AAED puts on conferences and training seminars,” Casey says, “The members share knowledge. When I started in economic development, I had a steep learning curve. With AAED, I not only had training, but, more important, mentors. Members share experience and knowledge. We’re not competing in the AAED forum.” “The collaboration and education is really important to my colleagues,” explains Mignonne Hollis, executive director of the Sierra Vista Economic Development Foundation. Hollis chairs AAED’s rural committee. “AAED helps bring together rural and remote Arizona,” she says. “What does AAED want to “My markets don’t have be when it grows up? The new the budgets to travel for strategic plan answers the training, AAED brings question and sets out a plan opportunities to learn to for the next five years. We our area.” One size doesn’t reinforced that our ‘three fit all, she says, “but, all pillars’ are still what holds us benefit when we bring up.” — Eric Larson, president, everyone to high standards director of acquisitions, AVB of professionalism.” Development Partners Getting training across the state is one of AAED’s major strategies. The International Economic Development Council (IEDC) is the major organization certifying economic development professionals. It offers continuing education programs certified economic developers (CEcD) are required to pass. “IEDC is expensive, but we have to take courses every year,” says Casey. “With agency budget cuts, it’s a real burden. AAED now offers accredited courses in Arizona that are much more affordable. I can send my staff and keep the training budget under control.” The new strategic plan puts an emphasis on more of those courses. Professional demand drives the topics as well. This fall, the association offers courses in infrastructure as economic development tools. “This teaches cities and developers how an effective incentive can be developed for project backbones,” Larson says.
Collaboration “AAED is a positive, valuable organization,” says Joe Snell, president and CEO of TREO. “Our organization participates and serves in the association. It’s a very valuable tool for small economic development groups. We find AAED shares best practices and keeps us connected with trends.” “We used to say ‘networking’,” says Casey. “But it really is collaboration. You can see it at every level. I learn a lot, not only from my mentors, but sharing ideas with other members in all sectors. You can’t help but learn when we get together.” With the variety of members on its rolls, AAED creates opportunities to bring parties with common challenges together. “For the first time, we have rural and tribal economic developers collaborating,” Hollis explains. “Although we sit on separate committees, we’re now jointly meeting to pool resources and opportunities. Without AAED, this couldn’t happen.” “(Small markets) don’t have the ability to draw the types of businesses that Tucson and Phoenix pull in, but AAED collaboration helps us in two ways,” says Hollis. “It gives us a voice at the table 61
AAED when economic development decisions are being made and it helps leverage stronger economic development tools.” The organization is continuing its lunch meetings and quarterly roundtables. The strategic plan stretches the collaborative sessions further into the state with meetings slated in the various regions. “The real value in AAED is the convening of members and sharing of ideas,” concludes Snell.
Advocacy
supporting current businesses — large and small.” “There are a lot of diverse opportunities in the state,” echoes Hollis. “AAED’s legislative committee is tasked with looking at impacts for all regions.” AAED works for legislation specific to helping the state’s economy and also provides the legislature with a sounding board at how other legislative issues may affect Arizona’s attractiveness to new companies.
Building on success
Talbot says AAED wants to strengthen its advocacy role. “AAED is the dominant force and knowledgeable source of Larson has half his term remaining to kick the new strategic economic development education and collaboration,” she says. plan into effect. Casey will be accountable for making it the “We want to be the one place the legislature looks to when it needs fundamental theme of her term next year. information about economic development. The large cross-section “I’ll be rolling it out in December,” says Larson. “The board and of members means all voices are heard when it comes to policy.” I will need to reach our full membership to demonstrate how the AAED was heavily involved in the governor’s policy changes three pillars are going to be “It’s a very valuable tool for for Arizona over the past few years. It was a major participant in part of everything AAED small economic development legislation leading to the state’s new tax and incentive policies accomplishes. Then it’s groups. We find AAED sharing for business. Danielle’s (Casey) turn.” best practices and keep us “We were very much in the loop with the governor’s Competitive It’s an ambitious agenda Package in 2011,” says Larson. “That [$25-million closing cost] fund connected with trends.” — Joe for the organization over Snell, president and CEO, TREO is paying off today for business recruitment.” the next five years. An “Economic development and quality job growth is key extensive effort went into to what we need to do for the next five years,” says Casey, drafting the strategic plan. Being the ‘go-to’ organization is not a who’ll be at the organization’s helm for its first full year of slogan for AAED, it’s the plan’s objective. plan implementation. “We’re transcending the boundaries of “The key to AAED’s future is keeping everything in focus,” says individual agencies’ economic development with state-level Snell. “It’s important we don’t spread our strategies beyond the toolkits. Our plan is to ensure elected officials understand capacity of our budget and members’ energy.” responsible economic development.” “We’ve got a great staff working with Joyce (Grossman, AAED DPR’s Rauschenberger views AAED as an advocate for more executive director). It makes a president’s role a lot simpler,” says responsible development. Casey. “I’ve got to carry the standard a long line of strong leaders “Their involvement with the solar energy incentive made a have passed to me. My job is to find ways to education leadership difference with the legislature,” he says. The Renewable Energy Tax and community and stay within the resources we bring to economic Incentive Program has added more than 6,300 jobs and close to development.” The AAED member experience and resources, Casey $2 billion in capital investment, making Arizona a leader in solar enumerates, are very formidable. energy opportunities. “We’ve seen 14 new companies come into the market and stay as a result of the program,” Larson says. “Our government affairs committee is really strong,” Casey says about AAED’s role in upcoming legislative year, “We want AAED to be in a position of providing the legislature with economic development information that they trust.” AAED’s objectives for the coming legislative “Local governments have year were in front to understand tax policy, of its board on the effective incentives and same agenda with the business decision-making. strategic plan. Becoming AAED is the forum where all the “go-to” group for the players come together economic development Danielle Casey Mignonne Hollis Eric Larson and share knowledge.” — puts the government Angela Tablot, board member, affairs committee vice president of business in a crucial role this development, GPEC fall. The group sees advancing Arizona’s competitiveness as an important legislative focus. As economic developers, the vision is not only bringing in new jobs but growing Arizona’s export markets. “We have a lot to sell to bring business in,” says Talbot. Mike Rauschenberger Angela Talbot Joe Snell “However, the AAED program places as much importance on
62 | November-December 2013
AAED
AAED MEMBER PROFILES
By ERIC JAY TOLL
Confidence builds
Grenee Celuch
Developers see aggressive optimism in marketplace
I
nvesting in spec buildings may – or may not – be an anomaly in the marketplace. Dan Withers, president of D.L. Withers Construction, says he’s seeing risk-taking entrepreneurs coming back into the market. “It’s been difficult for people to assess the timing in this recession,” he says. “There is enough optimism out there that we are seeing projects starting.” Kitchell Vice President Dick Crowley is less effusive but still optimistic. “In our core markets, we’ve noticed limited appetite for our customers to build speculative projects,” he says. “Lenders are still holding on to more conservative underwriting strategies.” “Developers are being cautious, but we’re seeing more activity,” echoes Bo Calbert, president of McCarthy Building Companies’ Southwest Division. “Some industries are being a little bolder than others, such as hospitality, higher education and renewable energy. We’re building three large hospitals, but most big healthcare projects seem to be in a holding pattern.” On the design side of the market, Rebecca Timmer, a corporation relations representative for Dibble Engineering says a few companies have broken ground on large spec projects but not many. “We’re seeing end users dictating the decision,” Timmer says. “If they find what they need in an existing building, it is cheaper to go that route.” Michael Rauschenberger, DPR Construction corporate office leader for the Southwestern United States, has been asked to look at proposals for a number of large buildings, including office towers, over the past months. “Maybe about half of those will be built, but even if it’s just half, add it to Hayden Ferry, State Farm, and the number of projects in the southeast Valley, and that’s a lot of big projects coming on the market,” he says. Many builders kept afloat during the recession with smaller projects and tenant improvements. “By volume, they were a big part of the market,” says Timmer. “As things are improving, we’re starting to see increases in volume for projects of all sizes.” McCarthy reports that its job order contracting business is busy. “We’ve expanded that division,” says Calbert. “It results in a significant increase in the amount of work we can do for our longstanding and new clients on smaller projects. To make it work, we have to be efficient and bring personal expertise into the jobs.” Withers agrees, “There is a definite upturn for small business expansion. The result is existing building expansion and infill of existing buildings. That fuels an overall expansion and optimism in the marketplace.” 64 | November-December 2013
Director of marketing and business development Concord General Contracting Years with company: 6.5 Years with AAED: 2
Impact of membership in AAEE: Part of Concord’s long-term goals are to be a more active player in the municipal market sector. AAED has been a valuable resource by connecting me to economic developers throughout the state to expand our network and build business. If I had to put a number on my network, I would say 50 percent of my connections come from AAED. Most rewarding aspect of AAED: It is by far the people I meet. I regularly attend the luncheons in both Phoenix and Tucson and always walk away with a new contact. Not only do I grow professionally in AAED, but I have also gained many friendships from the organization. Value of AAED membership: “You get out of an organization what you put into it.” This statement is one of my favorites because of the honest truth that it holds. As I continue to get more involved in AAED, it continues to pay me back in immeasurable value. I do not look at value from a financial aspect but from personal and professional development, which is absolutely priceless.
David Couture
Manager, key account services and economic development UNS Energy Corporation, parent company of Tucson Electric Power Years with company: 16 Years with AAED: 2
Impact of membership in AAEE: As the largest publicly traded company based in Tucson, TEP is committed to helping the community thrive. We care about where we live and that’s why we strongly support efforts to strengthen and expand our regional economy. As a member of AAED, I have contact with some of the most knowledgeable and influential economic development professionals in the state. With the many events and gatherings hosted by AAED, I have multiple opportunities to interact and learn from individuals who are talented and resourceful. Most rewarding aspect of AAED: The AAED has been a very valuable organization for me and Tucson Electric Power. Continuing education is an important part of the organization’s philosophy and they offer exceptional learning opportunities. Members are active and knowledgeable and AAED’s collaborative programs give them the opportunity to interact. Although AAED is dedicated to improving economic development in Arizona, its members’ breadth of knowledge about economic development opportunities extends beyond the state’s borders. Value of AAED membership: I attended this year’s AAED Spring Conference in Tucson and was extremely impressed with the program presenters and conference attendees. I realized that AAED’s membership was not just worthwhile but essential for companies like TEP that are truly interested in growing our local and state economy.
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AAED By ERIC JAY TOLL
Universal appeal
Economic development groups are bullish on Arizona
T
hey are our sales representatives, those intrepid souls knocking on doors in California, China, Germany and New York. They are the smiling faces standing behind CEOs, mayors and the governor when a new business arrival is announced. They are the economic development organizations of Arizona. It’s an alphabet soup of agencies, but they are working for one goal – if it’s good for one location in Arizona, it’s good for all of Arizona. Cities are not competing with each other, they are now a state competing against 49 others. “People ask me if Tucson is competing with Phoenix for businesses,” points out Joe Snell, president and CEO of Tucson Regional Economy Opportunities (TREO). “I tell them, no, we are not. Tucson is a submarket of Phoenix. We’re both part of the Sun Corridor.” The big guns in business attraction work together. TREO, the Arizona Commerce Authority (ACA) and Greater Phoenix Economic Council (GPEC) are collecting frequent flyer miles talking with businesses about doing business in Arizona. Earlier in the summer, GPEC CEO Barry Broome said Arizona could expect a corporate headquarters relocation. “It’s getting closer to reality,” confirms Angela Talbot, GPEC vice president of business development. “Moving a headquarters is not like opening a satellite office; there is a lot involved.” While trips to Germany and China make news for the organizations, the heavy action is next door. “We’re doing a lot of direct recruiting,” says Talbot. “[Arizona] Commerce has offices in California and we’re with them talking to site selection consultants, brokers and heavily prospecting.” What’s piquing interest among California companies is that Arizona has the workforce for business success and low costs of doing business. “Some California companies tell me they can no longer make an effective profit there,” she says. Teri Drew looks at the regional picture for the Northern Arizona Council of Governments (NACOG). The immediate past AAED president, she serves as NACOG’s regional director and is responsible for economic development. “We’re encouraging new business and supporting business expansion in our 24 communities,” she says. “We’re heavily invested in supporting entrepreneurship with business incubators and assistance centers.” NACOG’s efforts reflect its rural membership and the multitude of “home-preneurs” in its area. A flagship project ventured with the Northern Arizona Center for Entrepreneurship and Technology created the Flagstaff “Innovation Mesa.” Drew’s focus for NACOG reaches well into rural northern Arizona. Efforts are centered on growing the business infrastructure to make the area more appealing to recruitment efforts. In southeastern Arizona, major efforts come out of the Sierra Vista Economic Development Foundation (SVEDF). Led by CEO Mignonne Hollis, the SVEDF uses its existing assets in aerospace and defense, healthcare and cyber security to draw smaller businesses that find synergy in the industries based there. “Fort Huachuca gives us something to leverage,” says Hollis. “We are also an area with a lot of assets for Unmanned Aerospace Systems. We don’t call them ‘drones’ anymore,” she says. “Infrastructure is a challenge, but the military-related operations here give us a very strong workforce in place. We just rethink our resources and recruit businesses that fit our environment.”
66 | November-December 2013
AAED MEMBER PROFILE Misty Kimball Client relations Ashworth Construction, Inc. Concord General Contracting Years with company: 1
Impact of membership in AAEE: AAED opens doors to both the public and private sectors statewide for its member and that’s what it has done for me as well. The ability to stand beside folks that advocate for our economic future, educating its members in so many capacities, while creating and building both professional and personal relationships is invaluable. Most rewarding aspect of AAED: I believe in service. So servicing our members and our leadership in the capacity of vice chair and now chair of the PR/Communications Committee provides me , specifically, the fulfillment of connectedness, value and friendship that I think we all desire. Value of AAED membership: To add to the first question; It has been a challenging year, both professionally and personally, being a part of this organization helped with not only business opportunities but the support needed to remain focused.
AAED By ERIC JAY TOLL
Energizing
growth Utilities aim to provide infrastructure to meet Arizona’s continued growth
W
hen economic developers head into the marketplace to sell Arizona’s benefits to interested relocation prospects, one item on that list is plentiful: reliable and well-priced utilities. While some cities deliver electric power in addition to sewer and water, the power grid is essentially divided between Arizona Public Service, Salt River Project and Tucson Power & Electric. With multiple agencies busy knocking on doors around the world to bring home the business, Arizona’s utilities plan to deliver that promise. “APS is typically looking 15 to 20 years into the future to anticipate future power generating resources,” explains Alan Bunnell, external and media relations representative for APS. “We want to be sure we have the infrastructure to meet Arizona’s continued growth and ensure a vibrant economy.” Over at SRP, Senior Economic Development Project Manager Ed Grant says, “SRP’s resource plan is designed to meet our peak demand requirements plus a 12 percent planning reserve. We use a mix of conventional resources, renewables, energy efficiency programs and market purchases.” SRP works with its various planning groups to maintain a long-term resource plan to meet growing needs. Arizona’s economy is a roller-coaster ride over the decades. Each climb is
68 | November-December 2013
higher than the last. As the economy exits the latest recession, Arizona looms as an economic powerhouse with new businesses coming into the market. As each peak rises higher, utilities planning efforts ensure the power is not a stumbling block. “APS has experienced the full weight of Arizona’s economic recessions many times in the past,” Bunnell says. “We have a reasonable sense of how to meet future demands. We’re already working on the power generation of the future. We are prepared for how and when those supplies will be developed and delivered.” SRP has responsibility for delivering power and water in its service area. Grant explains that the future is bright, “Extensive planning efforts at SRP ensure the region enjoys an abundant supply of water and power. Long-term planning for power means SRP is able to meet longterm area needs.” Water for America’s sixth largest metro is a challenge SRP is well-prepared to handle. “SRP has a diverse water supply,” says Grant. “We’re obtaining water from the Colorado River, our own system and treated wastewater. Developers are required to demonstrate an assured, renewable water supply.” Recently, SRP joint-ventured with the Gila River Indian Community for the Gila River Water Storage program. The program creates a system of Central Arizona Project water credits and storage credits covering more than 100 years of usage.
APS and SRP are among the co-owners of the Navajo Generation Station in the Four Corners Region. The coal-fired power plant has been operating under an EPA-generated regulatory cloud that may require unaffordable air quality improvements to the facility. The generator powers the CAP project and serves Arizona, the Navajo Nation and the metro area. “NGS is one piece of a large and diverse generation portfolio,” says Charles Duckworth, SRP’s senior director of energy management reports. “SRP is working on steps necessary to affordably keep the Navajo Nation operating. However, we have a highly flexible resource plan that gives SRP confidence in its ability to meet long-term customer needs.”
Alan Bunnell
Charles Duckworth
Ed Grant
I N
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Photo By Lillian Reid
AAED Executive director
AAED
JOYCE GROSSMAN Joyce Grossman became executive director of AAED in 2011. She has a B.A. from the University of California-Davis and a M.P.A. from California State University, Sacramento. Prior to joining AAED, Grossman was a deputy director with the City of Phoenix. She helped in attracting the International Genomics Consortium/Translational Genomics Research Institute.
What is AAED’s mission? AAED’s mission statement, “AAED serves as Arizona’s unified voice advocating for responsible economic development through an effective program of professional education, public policy and collaboration,” should actually be called an “action statement.” We are proud of our Economic Development Academy of Arizona, which provides quality professional training specific to Arizona. In 2014, we will award the AZED PRO designations to our first Academy graduating class. Beyond education, we are busy working on economic tools to strengthen our economy. To that end, 70 | November-December 2013
AAED works with lawmakers and is visible at the state capitol. Who are the members? AAED has a statewide membership of 480. It is a tight-knit community that works collaboratively for a strong economy in Arizona. Fifty-three percent of the membership is comprised of economic development and workforce practitioners. The other 47 percent are service providers who work in support of economic development in the fields of real estate, banking, construction, architecture, engineering and communications. Membership is open and encouraged for individuals who have a vested interest in advancing the economic development success of Arizona. A benefit of membership will be the lasting business relationships that will come from joining. What are economic developers saying about Arizona’s economy? Our members are “lacing them up” and running. If you can get economic practitioners to stop long enough to talk, they will likely tell you building permits
are up and the retail dollar continues to be strong. They tell me that their phones are busier than they have been in years with quality prospects. This is great news for a state that dropped from No. 2 in job growth in 2007 to No. 49 in 2010. I was gratified to read that Forbes Magazine and Moody’s Analytics recently ranked Arizona at the top of U.S. cities for projected job growth over the next five years. One thing I know for sure is our members are in the economic development race to win projects that produce quality jobs for Arizona.
Any other observations? Arizona is being lauded nationally for its comeback, particularly in the housing market. In addition, the health industry grew during the recession and continues to outperform other sectors for growth in the state at the moment. While I am optimistic about our economy, I would be remiss if I did not note that we still have pockets of high unemployment in rural areas of the state. AAED counts many rural economic developers amongst our ranks. We hold rural economic development roundtable discussions to learn what impediments are impeding economic development and our Governmental Affairs Committee uses the dialogue in development of our legislative agenda for the year. How is AAED different from when it started 40 years ago? AAED predated many of the economic development organizations that exist today. In the early days of AAED, then the Arizona Association for Industrial Development (AAID), the association organized annual sales trips that would include industry leaders, services providers and the governor of Arizona. As regional organizations and cities opened their own economic development offices, AAID evolved its mission to be in support of economic development through professional education, advocacy and a place for collaboration and networking amongst like minds.
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