SEPTEMBER-OCTOBER 2019
OFFICE
EVOLUTION
INSIDE:
Cool Offices p. 32 | AMA p. 41 | NAIOP p. 65
Witnessing something special
I
t is truly a rare opportunity to watch a building project unfold right before your eyes. We here at AZ Big Media are extremely fortunate that we get the chance to watch the Creighton University Health Sciences Campus building rise up out of what was formerly a parking lot at Park Central. But that’s not all we are witnessing as we look out our office windows here along Central Ave. Work is well underway on the 10.5 story, 658,000 square foot Catalina Parking Garage, the tallest parking structure in Arizona. We can see the rebar pillar forms waiting to go up, just like the structural columns did next door at the Creighton University building. From our windows we can see these two developments, but these are just a small fraction of the growth people all over the Valley are seeing. We have new freeways, new light rail extensions, new schools, new warehouses, new apartments and new office buildings. We’re enjoying a robust development cycle in Phoenix that some experts feel may roll on well into the 2020’s. What’s different about the current boom is its diversity. In this issue of AZRE Magazine, we highlight some of those different industries that are making inroads in the Phoenix market. In our special NAIOP supplement, we look at how financial technology companies and technology-focused companies are setting roots in the market and how this influx is challenging the office sector. Also, we examine some factors that are making Phoenix a very attractive market for distribution, warehouse and logistics developers. This edition also includes a sneak peek inside some of the Cool Offices around the city, a look back on 25 years in Arizona for Ryan Companies US and what the Arizona Multihousing Association is doing to help more people find a good place to live. It is truly a special time for the commercial real estate industry in the Valley, so let’s sit back and enjoy the view.
President and CEO: Michael Atkinson Publisher: Josh Schimmels Vice president of operations: Audrey Webb EDITORIAL Editor in chief: Michael Gossie Associate editors: Steve Burks | Alyssa Tufts Interns: Kaya Broady | Ane Pulu Contributing writers: Alison Bailin Batz | Casey Blais Tim Lawless | Tom Pitts | Deb Sydenham ART Art director: Mike Mertes Design director: Bruce Andersen Intern: Ane Pulu MARKETING/EVENTS Marketing & events manager: Keith Chandler Digital strategy manager: Gloria Del Grosso Marketing designer: Michael Bodnar OFFICE Special projects manager: Sara Fregapane Executive assistant: Briana Villa Database solutions manager: Amanda Bruno AZRE | ARIZONA COMMERCIAL REAL ESTATE Director of sales: Ann McSherry Director of business development: Carol Shepard AZ BUSINESS MAGAZINE Senior account manager: David Harken Account managers: April Rice | Kim Bailey AZ BUSINESS ANGELS AZ BUSINESS LEADERS Director of sales: Sheri Brown HOME & DESIGN EXPERIENCE ARIZONA | PLAY BALL Director of sales: Donna Roberts RANKING ARIZONA Director of sales: Sheri King
Steve Burks Associate editor, AZRE steve.burks@azbigmedia.com
2 | September-October 2019
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. ©2019 by AZ BIG Media. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from AZ BIG Media.
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CONTENTS
FEATURES 2 Editor’s Letter 6 Trendsetters 10 Executive Profile 12 After Hours 14 New to Market 16 Big Deals
24 Ryan Companies
32
28 Adaptive Reuse
32 Cool Offices 41 Arizona Multihousing Association
14
65 NAIOP
65
On the cover:
777 Tower at Novus
4 | September-October 2019
GO TO store.azBIGmedia.com to purchase subscriptions, digital issues and plaques
24
LUXURY INTERIOR DESIGN
SANDY BLACK INTERIORS
LUXURY INTERIOR DESIGN
sandyblackinteriors.com | 480-209-7704
TRENDSETTERS
Multifamily stats reflect active market
The Greater Phoenix multifamily market has enjoyed a robust first half of 2019, with $1.95 billion in transactions during the first two quarters, according to the ABI Multifamily Q2 Snap Stats. That total for transactions marks a 26.9 percent increase year over year, with 2018 seeing $1.54 billion over the same period. ABI Multifamily’s Snap Stats show a steady rise in the average price per unit, up 3.0 percent to $154,050. The average price per square foot also ticked up slightly (0.6 percent) to $183.65 per square foot. Rents increased $94 per unit between Q2 2018 and Q2 2019. That rise has done nothing to slow the occupancy rates, which sit at 95.6 percent. New construction numbers show that 1,112 units were delivered in the first two quarters of 2019. There are also 14,192 units currently under construction in the market, with another 20,992 units planned.
Rent is UP UP UP
Average rents in Arizona have all seen an upward evolution, especially when compared to June of 2018 and to those registered at the beginning of 2019. Here are the highlights of RentCafe’s Mid-Year Rent Report for Metro Phoenix and Tucson:
Phoenix average rents have reached $1,084 in June, after a $93 increase over one year, and $59 since the year started. In Scottsdale, rents are $1,495 on average, up $130 compared to last June and $34 more than at the beginning of the year. Tempe follows with average rents of $1,383, adding $90 more than same time last year and $66 since January. Chandler ($1,335) and Gilbert ($1,298) both saw large spikes since last year: $119 and $101, respectively. Peoria rents clock in at $1,188, which $41 more since the year started. Mesa rents reached $1,054 after rising by $60 in the first half of the year, and by $101 since June 2018. Glendale is not lagging behind either, with growths of $72 in one year and $44 since January, rents have now reached $993. Rents are cheapest in Tucson, however, at $870. Here the growth was not as large as in the other cities: $50 over one year, and $25 since January. 6 | September-October 2019
Forbes names Evergreen Devco a
“SMALL GIANT”
Evergreen Devco, Inc., a leading retail and multifamily development company, has been named to Forbes’ Small Giants List, representing one of 25 companies in the United States that value greatness and people over growth. The recognition comes on the heels of Evergreen’s 45th anniversary year, which the company is celebrating in 2019. “We’re truly honored to be named to the 2019 Forbes’ Small Giant List and recognized for growing our business in a thoughtful, people-focused way,” said Andrew Skipper, co-founder and CEO. “As we celebrate our 45th anniversary, this award is a great way to recognize the values that have kept us on track and contributed to our ongoing success over the decades.” Each year, Forbes in partnership with the Small Giants community celebrates 25 standout businesses that favor greatness over growth. The companies are all privately owned, profitable, at least 10 years old and are selected based on community involvement, commitment to team members and industry excellence.
Sundt is highest-ranked Arizona firm on ENR
TOP 400 LIST
Tempe-based Sundt Construction, Inc. climbed 11 spots to No. 54 on Engineering News Record’s (ENR) 2019 Top 400 Contractors list. ENR, the construction industry’s principal trade publication, generates its list of Top 400 Contractors based on the prior year’s construction revenue. “Last year was exceptional for our company,” said G. Michael Hoover, Sundt’s President, CEO and Chairman of the Board. “Our employee-owners showed relentless dedication to fulfilling our mission to be the most skilled builder in America, and it is reflected in our ranking.” Sundt reported $1.4 billion in construction revenue during 2018. In addition to being No. 54 on ENR’s Top 400 Contractors list, Sundt also ranked No. 36 on the publication’s Top 50 Domestic Heavy Contractors for its transportation, sewer and water projects. A few of Sundt’s Phoenix-area projects contributing to the 2018 revenue figures include: Arizona State University Sun Devil Stadium (a joint venture with Hunt Construction) in Tempe, Signal Butte Water Treatment Plant in Mesa, Embry-Riddle Aeronautical University Classroom and Laboratory Building in Prescott, the Union Tempe project in Tempe, Valley Metro Gilbert Road Light Rail Extension in Mesa and the Thousand Trails Road improvements for the Arizona Department of Transportation in the Verde Valley north of Phoenix.
More beds coming to Downtown Phoenix Phoenix is becoming a destination for major events and conventions and a lot of that activity is centered in the downtown Phoenix core. Downtown Phoenix, Inc. recently boasted that Downtown Phoenix is expected to see just under 4,000 hotel rooms in the urban heart of the Valley by 2020. Many of those rooms will be brand new as part of projects like the 127-room Cambria Hotel, which is expected to be completed in late 2019. Also, a good deal of the Downtown Phoenix hotels have undergone renovations. DTPHX noted that the Sheraton Phoenix Downtown is in the middle of a massive renovation project and is working to renovate all of its 1,000 rooms. The 693-room Hyatt Regency Phoenix is also upgrading its property and all of its guest rooms. Another notable renovation project is in progress at the Renaissance Phoenix Downtown Hotel.
Rest your head in DTPHX
Here’s a look at hotel projects in Downtown Phoenix for the past eight years: How contractors with an active presence in Arizona stacked up in the top 100 of Engineering News Record’s 2019 Top 400 Contractors list 1. Bechtel (Reston, Va.) 2. Fluor Corp. (Irving, Texas) 4. Aecom (Los Angeles) 5. The Whiting-Turner Contracting Co. (Baltimore, Md.) 6. Kiewit Corp. (Omaha, Neb.) 7. Skanska USA (New York, N.Y.) 8. PCL Construction Enterprises Inc. (Denver) 10. DPR Construction (Redwood City, Calif.) 11. Gilbane Building Company (Providence, R.I.) 12. Tutor Perini Corp. (Sylmar, Calif.) 15. Hensel Phelps (Greeley, Colo.) 16. Mortenson (Minneapolis) 17. Balfour Beatty US (Dallas) 21. McCarthy Holdings Inc. (St. Louis) 22. JE Dunn Construction Co. (Kansas City) 26. Holder Construction Co. (Atlanta) 44. Layton Construction Co. LLC (Sandy, Utah) 48. Burns & McDonnell (Kansas City, Mo.) 49. Ryan Companies Inc. (Minneapolis) 79. Okland Construction Co. Inc. (Salt Lake City) 82. The McShane Companies (Rosemont, Ill.) 99. The Weitz Co. & Affiliates (Des Moines, Iowa)
Top Arizona-Based firms on the ENR 400 54. Sundt Construction Inc. (Tempe) 85. Core Construction Group (Phoenix) 130. Kitchell Corp. (Phoenix) 328. Chasse Building Team (Tempe) 343. Depcom Power (Scottsdale) 362. Wespac Construction Inc. (Phoenix) 369. Haydon Building Corp. (Phoenix) 373. Chanen Construction Co., Inc. (Phoenix) 382. FNF Construction Inc. (Tempe) 390. Willmeng Construction (Phoenix)
2011: Westin Hotel in Freeport McMoRan Tower – 242 rooms 2012: Hotel Palomar – 242 rooms 2016: Hilton Garden Inn – 170 rooms 2016: FOUND:RE – 105 rooms 2017: Residence Inn and Courtyard Marriott – 320 rooms 2018: Hampton Inn – 210 rooms 2019: Cambria Hotel - 127 rooms 2020 (and beyond): Godfrey Hotel and Meow Wolf Hotel Source: DTPHX.org
7
TRENDSETTERS
Office
It’s not a surprise that the Greater Phoenix industrial market remained a hot commodity during the second quarter of 2019. According to the Colliers International in Arizona report, businesses are expanding and relocating to the metro area, fueling demand for all types of commercial real estate, especially industrial. During the second quarter, Greater Phoenix posted industrial space net absorption of 1.4 million square feet. This was a 160 percent increase in absorption during second quarter, compared to first. Some of the largest leases were National Indoor RV Center’s 107,625-square-foot space in Surprise; Walmart’s lease for 121,895 square feet in Tolleson and United Foods International’s lease for 109,620 square feet on 67th Ave. near Buckeye Road. Net absorption for 2019 is forecasted to reach 6.3 million square feet, which will fall below the amount of new construction being added. New industrial projects under construction rose to 8.9 million square feet during second quarter. Development of new industrial space is particularly active in the Southeast submarket (2.8 million square feet) and Southwest (4.5 million square feet.)
The Valley’s office market is humming along, with plenty of forward momentum heading into the final quarter of 2019. According to Marcus & Millichap’s Q2 2019 Office Market Report, trading is strong, the demand for all office types is high and increased investor demand and a limited inventory has driven pricing higher, compressing cap rates in the market. Increased development activity in the Phoenix office market added roughly 10 million square feet since the end of 2014. During that stretch of time, the metro vacancy rate has steadily declined to its lowest point at the end of the first quarter of 2019. The depth of the talent pool and the relatively low cost of living are drawing corporations to relocate entire divisions and headquarters here, including Northern Trust, Freedom Financial, Deloitte and McKesson. The market is also favorable for medical office space. Some of the local hospitals are expanding, which will drive demand for existing medical space in the surrounding areas. Full construction pipeline will deliver big projects to the East Valley. The Grand at Papago Park in Tempe will add nearly 350,000 square feet of Class A office space. In addition, Tempe is expecting the first phase of the Watermark, a mixed-use office tower on the north side of Tempe Town Lake, and RIO2100 Phase V, which totals just under 170,000 square feet, to be finalized before the year’s end. Chandler is currently host to several projects as well, with the largest being the Offices at Chandler Viridian. At this point, the project will bring more than 180,000 square feet of available space to market. On the other side of the Valley, the Westgate Healthcare Campus will add 223,000 square feet of medical office space to the metro inventory by the end of next year.
BOOM getting louder
Terracon is clean and beautiful The Tucson office of engineering consulting firm Terracon recently presented a $3,500 check from its foundation to Tucson Clean and Beautiful, which will use the money for its youth environmental leadership mentoring program. The Terracon Foundation Board selected TC&B as its grant recipient. Terracon Senior Associate and Tucson Office Manager Derek Koller submitted the nomination. Koller recently was promoted to Senior Associate based on his exemplary leadership at Terracon and his community involvement. The funds will be used to support the Youth Environmental Leadership, Learning and Action (YELLA) school mentoring program. YELLA allows high school students to mentor school-based youth groups to develop and implement action projects that result in environmental improvements on campus and changes in environmental attitudes and behaviors of students. “It was my honor and privilege to present this wonderful organization with a Terracon Foundation grant,” Koller said. “I am especially excited about the YELLA program because it will give high school students the opportunity to mentor younger students and encourage creativity and volunteerism.” 8 | September-October 2019
Investors see opportunity in Phoenix Investors are increasingly focused on net-lease investment opportunities in high-growth markets such as Phoenix, according to the latest research from CBRE. Investment in Phoenix net-lease assets — comprising office, industrial and retail properties — totaled $1.7 billion in 2018, doubling the previous year’s investment volume. Overall, rising demand for U.S. net-lease real estate led to $68.3 billion in investment volume in 2018 — the highest annual total since CBRE began tracking the market in 2002 — with gateway markets such as New York City, Washington, D.C. and Chicago having the largest gains. Net-lease transaction volume in the U.S. is expected to remain elevated in 2019, with increasing investor demand for net-lease office, industrial and retail assets. Net-lease investment volume has totaled $212 million in Phoenix in the first quarter of 2019. “Investor demand for single-tenant net-lease assets in Arizona and nationally is unprecedented,” said Joe Compagno, senior vice president of CBRE’s Net Lease Property Group Phoenix. “Investors are competing for properties with long-term leases to publicly traded companies that offer a high-level of security.”
Phoenix a
Top-10 Markets by Net-Lease Investment Volume
1 2 3 4 5 6 7
New York City Chicago Dallas/Ft. Worth Los Angeles Washington, DC San Jose Seattle
2018
$5,654 M
April YTD 2019
$3,783 M
2018
$$4,379 M
April YTD 2019
$763 M
2018
$3,476 M
April YTD 2019
$405 M
2018
$3,319 M
April YTD 2019
$2,309 M
2018
$2,521 M
April YTD 2019
$358 M
2018
$2,349 M
April YTD 2019
$1,349 M
2018
$2,206 M
April YTD 2019
$1,455 M
2018
$1,805 M
8
Atlanta
April YTD 2019
$316 M
9
Phoenix
2018
$1,733 M
April YTD 2019
$212 M
2018
$1,710 M
April YTD 2019
$503 M
10
Boston
TOP 20 tech talent market
Rank (2019) 1 2 3 4 5 6 7 8 9
Market SF Bay Area, CA Seattle, WA Toronto, ON Washington, D.C. New York, NY Austin, TX Boston, MA Denver, CO Atlanta, GA
Score 84.79 73.82 69.88 69.83 65.12 62.10 60.26 59.43 58.08
10 11 12 13 14 15 16 17 18 19
Raleigh-Durham, NC Dallas/Ft. Worth, TX Vancouver, BC Montreal, QC Baltimore, MD Salt Lake City, UT Portland, OR Minneapolis, MN San Diego, CA Ottawa, ON
57.68 57.63 56.25 55.54 55.28 52.99 52.65 52.02 51.33 51.10
20
Phoenix
50.57
Phoenix is No. 20 on CBRE’s Tech Talent Scorecard, part of its annual Scoring Tech Talent Report, which ranks 50 U.S. and Canadian markets according to their ability to attract and grow tech talent. The top five markets for tech talent in 2019 were the San Francisco Bay Area, Seattle, Toronto, Washington, D.C., and New York, all large markets with a tech labor pool of more than 50,000. With over 85,000 tech workers—a figure that has grown by 12.3 percent over the last five years—Phoenix has the 17th largest tech labor pool in North America. Tech employment accounts for 4.1 percent of its total employment, compared to the national average of 3.7 percent. The Tech Talent Scorecard is determined based on 13 unique metrics, including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth and market outlook for both office and apartment rent cost growth. Phoenix stood out in the report in a number of other key areas: ● Phoenix is the 8th largest producer of tech degree graduates, adding more than 24,400 new tech grads between 2012 and 2017. The metro has produced more than 15,000 more tech graduates than the market could employ. ● Phoenix’s millennial population grew by 8.3 percent since 2012, more than three times the national average of 2.5 percent. That’s 14.1 percent of total population growth. ● Phoenix stands out as an affordable city to live in with regard to housing and relative cost of living. The rent-to-tech wage ratio is 15 percent. The average apartment rent for a year in 2019 is $13,242 ($1,104/month), and the average annual tech wage is $88,342. In the most expensive market, New York (Manhattan), NY, those numbers are $49,445 ($4,120/month) and $113,500, (a rent-to-wage ratio of 43.6 percent) respectively. “As the Phoenix tech ecosystem continues to grow, tech companies will have an ample supply of talent to choose from given Phoenix’s fast-growing millennial population and a large supply of well-educated tech graduates being produced by Arizona’s higher education institutions like Arizona State University, the University of Arizona and Grand Canyon University,” said Kevin Calihan, Executive Vice President with CBRE. “A continued focus on tech job-creation will ensure our skilled tech workers remain in the metro.” 9
EXECUTIVE PROFILE
Earning his place Sellers has proven he’s the right man to lead LGE Design Build By STEVE BURKS
A
s the son of the company founder, a lot was assumed about David E. Sellers and he knew what those assumptions would be. “Anytime you’re coming in as a son or a daughter of a founder, I think people are looking at it like you got a free pass,” said Sellers, who followed his father, company founder David R. Sellers, as President and CEO of LGE Design Build. “If you pay attention to that, you’re not going to be able to do anything. I would rather focus on the things that I knew that I wanted to do to be successful in the business. “I’ve always put in as many or even more hours than anybody here. I always wanted people to see that I am working really hard and I’ve always wanted to treat people really fair. And after a while, any of the people that doubted me saw that I was in my
10 | September-October 2019
position for a good reason.” The younger Sellers has definitely done a lot to prove his worth as the company’s top executive since 2010. Under Sellers’ leadership, LGE has expanded its reach. First, LGE launched its architectural branch, LGE Design Group, in 2014, and in 2018, LGE expanded into development with its Creation arm. Then, in July, LGE announced it is expanding into the residential building sector with LGE Residential Design Build. With these recent additions, LGE has jumped to more than 70 employees, 70 active projects, and revenues are growing each year. “I’ve been part of the LGE team for nearly 20 years and if my dad was around today, I think he would be floored by the amount of passion and talent that our team has,” Sellers said. “I think he would also be impressed with the direction we have taken this company.” His father founded the company in 1994, and Sellers grew up in the industry. He admits that there were a lot of opportunities afforded him in the business, but he wasn’t always ready for them.
“My dad, he almost gave me opportunities too fast because I really didn’t know what I was doing at that point,” Sellers said. “But, it allowed me to mess up in areas that I did mess up. I learned pretty quick and I learned on the job. "Pretty early on, I was able to get in and implement things that I wanted in order to grow the company.” Sellers said he and his father had a special relationship and that his father’s passion wasn’t in construction or development, but in simply working with his hands. Sellers said his father was quick to point out how other generational companies functioned, and Sellers remains thankful for the way his father treated him as he prepared to hand over the reins. “Typically, what we would see, and my dad would always point this out, was that the dad’s would never want to let go. That was their life, that business,” Sellers said. “There would always be tension between the father and son. The son couldn’t make any decisions and the father was still running it.” For Sellers, expanding LGE’s focus has been important to future success. Also, he said that the design-build model is “just a really fun process.” “We’re able to be part of every piece of these projects,” Sellers said. “The collaboration that happens from the very first step makes it a faster process and we end up with a higher quality product for a better price.” LGE Design Build has really made its presence felt in the Valley the last five years, with projects like Overstreet in Chandler, Heritage Marketplace in Gilbert, The HUB Goodyear and Scottsdale Galleria. Sellers said the LGE approach is simple: Build the box as efficiently as possible and then fill that box in with high-quality features. “We are very hyper-focused on building the box as simply as we can and making it look as great as it possibly can as opposed to over engineering a very simple building and having to skimp on everything after that,” Sellers said. “You look at our buildings and they have a specific look to them and we think it’s best in class because we are able to put a little more into the buildings.”
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11
AFTER HOURS
Bend it like Price By ALISON BAILIN BATZ
S
leeping is overrated. At least if you’re Maricopa Mayor Christian Price, who also serves as president of the Arizona League of Cities & Towns. “With more than 53,000 residents, the City of Maricopa is the second most populous incorporated city in Pinal County, and growing by leaps and bounds, “ says Price. “In fact, it’s the 18th most populous city in Arizona.” Maricopa, like many cities across the country, is in an era of unprecedented opportunity. They are seeing aggressive home construction
12 | September-October 2019
and increasing home values. Large national retailers are finding a welcoming community as they open new locations in Maricopa. And, according to Price, the city continues to expand its treasured quality of life offerings, strengthening its K-12 education and creating strong alliances with Central Arizona College and local employers. “Top among our goals is to earn the designation of Smart City,” says Price, explaining a Smart City brings together technology with government, including economic development and planning, to create a city that is not only attractive for residents and visitors, but to businesses looking for a great place
to locate, offering a better place to work for its employees. Price believes strongly in collaboration and therefore is committed to being an active participant with Maricopa Economic Development Alliance (MEDA). MEDA, which was established in 2009, is the City of Maricopa’s private-public partnership for economic development. “MEDA champions strategies and solutions that foster economic growth
and prosperity in the City of Maricopa,” says Price. Beyond that, Price spends significant time through the Arizona League of Cities and Towns representing the interests of cities and towns before the legislature, and secondarily by providing technical and legal assistance, coordinating shared services and producing high-quality conference and educational events. He is also a partner of the Sierra West Group, a Registered Investment Advisory firm, and an involved father and husband. “Anyone who has ever heard me speak likely knows my passion for the above endeavors. But, not everyone knows my passion for striking, acing and racing,” says Price, alluding to his favorite pastimes playing soccer, volleyball and running. For Price, soccer came first and will always hold a special place in his heart.
“I started playing at 5. Growing up in Tucson, it was a year-round sport,” says Price, who played nearly every position, but excelled as a left wing striker, forward and middle fielder. However, in high school, Price hit some growing pains, quite literally. “I ended up with Osgood-Schlatter, a common condition in teens where rapid development causes pulling of the tendons on the growth plate of the knee in adolescents,” says Price. “Doctors suggested I get into a sport with lots of jumping to help alleviate the pain.” As a result, Price tried out for and made the high school volleyball team. A natural, once in college he also made the NAU volleyball team, helping earn them a trip to the National Intramural and Recreational Sports Association national championships in 1999. “After college, I moved to the Valley and got back into soccer in a big way.
Today, I still play in a men’s league every Monday in Maricopa,” says Price. “I continued competing in volleyball for years as well, and still play when I can, though I am the first to admit I don’t jump as high as I used to.” Beyond that, Price wakes up as early as 4:30 a.m. to ensure he makes time to run regularly. “In addition to it helping my endurance playing sports, I also dabbled in more competitive running in recent years,” says Price. Most notably, over the past five years the City of Maricopa has hosted a mud run. Not only has Price competed in it annually, but he has hosted a competition where anyone who beats his time gets a custom medal from him. “I’ve given out a medal or two (okay, more), but it’s all in good fun. Maybe I should start challenging our residents to volleyball or soccer next,” jokes Price.
13
NEW TO MARKET A
D
E
MEDICAL A DIGNITY HEALTH CHANDLER REGIONAL MEDICAL CENTER MEDICAL TOWER DEVELOPERS: Dignity Health GENERAL CONTRACTOR: McCarthy Building Companies, Inc. ARCHITECT: Devenney Group Architects LOCATION: 1955 W Frye Rd, Chandler SIZE: 220,000 SF VALUE: WND START/COMPLETE: July 2019/Spring 2021
14 | September-October 2019
RECREATION B LEGACY SPORTS ARENA AND HOTEL DEVELOPER: Legacy Sports Arena, LLC GENERAL CONTRACTOR: A.R. Mays Construction ARCHITECT: Milberger Architectural Group (Sports Arena), K&I Architects & Interiors (Hotel) LOCATION: 2727 W. Bronco Butte Trail, Phoenix SIZE: 171,000 SF (Sports Arena), 58,000 SF (Hotel) VALUE: $67 million START/COMPLETE: May 2019/August 2020
MULTIFAMILY C CABANA ON WASHINGTON DEVELOPER: Greenlight Communities GENERAL CONTRACTOR: Greenlight Construction ARCHITECT: Worksbureau LOCATION: 5300 E. Washington St., Phoenix SIZE: 226 units VALUE: $32 million START/COMPLEGTE: April 2019/Spring 2020
C
B
F
INDUSTRIAL D AMERICAN GROVES SENIOR LIVING DEVELOPER: Markets Enterprises, LLC GENERAL CONTRACTOR: Willmeng Construction ARCHITECT: Ware Malcomb LOCATION: 91st Avenue and Buckeye Road SIZE: 720,000 SF VALUE: $53 million START/COMPLETE: Q4 2019/Q2 2020
INDUSTRIAL E SM202 COMMERCE PARK DEVELOPER: Trammell Crow Company General Contractor: ARCHITECT: Butler Design Group LOCATION: Loop 202 South Mountain Freeway at 40th St. SIZE: 700,000 SF VALUE: WND START/COMPLETE: December 2019/ September 2020
SENIOR LIVING F AMERICAN GROVES SENIOR LIVING DEVELOPERS: American Care Concepts and Reichmann International Realty Advisors GENERAL CONTRACTOR: Layton Construction ARCHITECT: Allen + Philp and Partners LOCATION: 941 E. Elliot Rd., Gilbert SIZE: 105,000 SF VALUE: WND START/COMPLETE: July 2019/Spring 2020
15
Perfect storm
Tolleson Logistics industrial sale a sign of the times By STEVE BURKS
I
t was the perfect storm of circumstances that created what could be the new standard for industrial sales in the Greater Phoenix market. The Tolleson Logistics Center, a state-of-the-art 329,400 square foot industrial project at the southwest corner of 99th Ave. and Van Buren Street, was recently sold for a jawdropping $106 per square foot (or just under $36 million), an envious price per-square-foot in Phoenix for an industrial product. The August transaction between Trammell Crow Company, the developer of the project, and Cohen Asset Management may have set a new market standard, one that will likely be eclipsed often in the near future. “There’s a lot more stuff like the Tolleson Logistics Center that is going to sell, so it might not be a big deal for long, it may just be a new standard,” said Will Strong, Executive Managing Director, Mountain West Region for Cushman & Wakefield, the broker on the sale. “There’s just been a lack of supply out there and with this one, it was the perfect storm; brand new building, perfect location, so it had all of the makings to be a big sale. It’d be like selling the Esplanade of industrial, it would be our version of a trophy property.” The facility was developed by Trammell Crow, but there was more to the development process than normal. Trammell Crow purchased the 35 acre lot that was originally zoned commercial. In order to get the rezoning for industrial, Trammell Crow had to donate 1.5 acres to be set aside for a new Veterans of Foreign War facility, and another 12 acres of the property was to remain commercial pads.
16 | September-October 2019
“It’s almost like the perfect grand slam for a developer,” Strong said. “You buy a site for a great price, you spin off some land, you make a donation to a charity that anybody can get behind, veterans, and that allows the rezoning.” The donated 1.5 acres sits along the Van Buren frontage to VFW Post #6310. The plan is for the development of a new 8,000-10,000-square-foot headquarters building. The new facility will serve administration of the organization as well as provide a meeting area for cultural and patriotic events for the residents of Tolleson. The Tolleson Logistics Center sits on the remaining 22.2 acres. It was designed by Butler Design Group and built by Willmeng Construction, which completed construction in July of 2018. The cross-dock building is 781 feet long and 421 feet deep with a clear height of 36 feet and 190-foot truck court depth. Strong said more than 200,000 square feet of the space was leased up before construction was completed. Serta Simmons Bedding had outgrown its production facility elsewhere in Tolleson and was looking for a new location. The Tolleson Logistics Center was a perfect fit and came along at the right time. “Serta Simmons was already in Tolleson and if this building wasn’t there, they may have had to leave the community to find a facility,” said Strong. “For a city, it’s important that they stayed in Tolleson.” The value of the facility was reflected in how quickly Cushman & Wakefield found a tenant for the remaining 100,000 square feet of space. Cintas Uniform Services located a distribution center in the remaining space less than seven months after the facility was completed. “We had leased up about two-thirds of it while it was under construction, and then, obviously, it’s a sign of a good economy when you’re pre-leasing buildings, at good rents,” said Strong. “And then the remaining space sat vacant for only seven months. With industrial, you usually underwrite about 12 months of downtime, so in the industrial world, that’s about half of the time you would think a space would be vacant.” After the facility was fully leased with major, national tenants, Strong and his team set off to find a buyer, which wasn’t difficult. “We had a crazy amount of interest,” Strong said. Strong cautioned that while $106 a square foot sale price was a new high mark in the Valley, it would not be unreasonable to expect to see prices above $110 a square foot before 2019 ends. “I think you’re going to see Phoenix close down the gap between here and Southern California and Denver industrial markets,” Strong said. “It’s going to get more expensive.”
Waypoint sale tops $100 million
I
t’s a great time to be selling Class A office products in the Scottsdale, Tempe and Southeast Valley submarkets, so it was no surprise that Waypoint, a four-building office campus that sits on the border of Mesa, Tempe and Scottsdale, attracted the highest office sales price of the year. New York-based Innovatus Capital Partners, LLC, purchased Waypoint for $107.6 million in midAugust. The project, which sits near the confluence of the Loop 101 and 202 freeways within the Riverview District, was the result of a development partnership between Harvard Investments and Lincoln Property Company. “Waypoint was developed with a clear vision in one of the tightest, growing and popular office markets in metro Phoenix,” said Bradley Seiden, Managing Director of Innovatus. “The property is a very strong addition to our diversified portfolio of U.S. office properties located in emergent toptier markets. Waypoint provides an opportunity to leverage our team’s operational expertise, provide additional improvements for our tenants and potentially develop another building.” Waypoint features nearly 500,000 square feet of office space and is 98 percent leased, currently, to a list of national and local tenants including Cognizant, Verra Mobility, Mitel, Ashton Woods, Beazer Homes, Nextcare, Udall Shumway and EPS Group. “Waypoint features a collection of strong and diversified tenants, many of whom have deep roots in Mesa,” said CBRE’s Barry Gabel, who, along with Chris Marchildon and Will Mast, brokered the sale. “Below-market rents will allow the buyer to take advantage of a stabilized rent roll with upside upon renewal and new leasing, as well as the ability to go vertical with another Class A office building. These factors make this asset a solid investment for years to come.” 17
MULTIFAMILY/SALES
$141.2M | 625,000 SF DENIM SCOTTSDALE 7791 E. Osborn Rd., Scottsdale BUYER: Bluerock Real Estate LLC SELLER: TruAmerica Multifamily Inc. BROKER: CBRE
$85.7M | 450,880 SF AVENTERRA AT DOBSON RANCH
1960 W. Keating Ave., Mesa BUYER: BH Management Services SELLER: The Blackstone Group LP BROKER: CBRE
$77.2M | 495,306 SF COVINGTON PARK APARTMENTS 2902 W. Sweetwater Ave., Phoenix BUYER: TruAmerica Multifamily Inc. SELLER: The ConAm Group BROKER: CBRE
$69.2M | 275,000 SF
JEFFERSON CHANDLER 3950 W. Chandler Blvd., Chandler BUYER: Rosewood Corporation SELLER: JPI/TDI BROKER: Cushman & Wakefield
$65.4M | 368,436 SF
AVENTURA 10350 W. McDowell Rd., Avondale BUYER: Eaton Vance Real Estate Investment Group SELLER: Boston Capital BROKER: Institutional Property Advisors
RETAIL/SALES
$41.5M | 65,200 SF
AVONDALE TOYOTA SCION 10005 W. Papago Fwy, Avondale BUYER: Apollo Net Lease Capital Corp. SELLER: Brookfield Property Group BROKER: N/A
$18.4M | 101,000 SF
$5.5M | 21,000 SF
CAMELBACK & MILLER PLAZA 4370-4408 N. Miller Rd., Scottsdale BUYER: Weingarten Realty Investors SELLER: Fry Investments BROKER: N/A
SERVICE KING 13820 W. Test Dr., Goodyear BUYER: 31990 Highway 79 LLC SELLER: 126 Tactical LLC BROKER: Marcus & Millichap
$15.5M | 63,323 SF
$5M | 9,771 SF UNION HILLS NORTH
ANCHOR & SHOPS 21307-31313 N. Scottsdale Rd., Scottsdale BUYER: Holualoa Companies SELLER: Value Rock Realty Partners BROKER: Newmark Knight Frank
18 | September-October 2019
8285 W. Union Hills Dr., Glendale BUYER: Armstrong Capital Development SELLER: Barth Dascoli BROKER: ROI Properties
It’s the big deals and the brokers who close them that make the market an interesting one to watch. Here are the top notable sales for the months of July and August. Sources: Daniel Zawisha at Cushman & Wakefield Research.
OFFICE/SALES
$92.25M | 210,202 SF FBI REGIONAL HEADQUARTERS 21711 N. 7th St., Phoenix BUYER: NGP Management LLC SELLER: Artis Real Estate Investment Trust BROKER: N/A
$60.25M | 218,387 SF
CAMELBACK ESPLANADE III 2415 E. Camelback Rd., Phoenix BUYER: C-III Capital Partners, LLC SELLER: Crow Holdings BROKER: CBRE
$52.4 | 214,303 SF WELLS FARGO-PAPAGO PARK CENTER 1150 W. Washington St., Tempe BUYER: Menlo Equities SELLER: Greenwood & McKenzie BROKER: N/A
LAND/SALES
$46M | 185,000 SF THE CIRCUIT 615 S. River Dr., Tempe BUYER: Strategic Office Properties SELLER: Everwest Real Estate Investors and CarVal Investors BROKER: Cushman & Wakefield
$19.6M | 147,731 SF
BLACK CANYON TOWER 10851 N. Black Canyon Hwy., Phoenix BUYER: Mikhail Holdings Ltd. SELLER: Fenway Capital Advisors BROKER: Newmark Knight Frank
INDUSTRIAL/SALES
IMAGERY ©2019 GOOGLE
$21.6M | 251,463 SF 3100 W. Camelback Rd., Phoenix
BUYER: Grand Canyon University SELLER: First Southern Baptist Church of Phoenix, Arizona BROKER: SJ Fowler Real Estate
$19.6M | 4,056,307 SF
NW E. Elliot Rd., & S. Signal Butte Rd., Mesa BUYER: RagingWire Data Centers SELLER: LKY Investments LLC BROKER: JLL
$12.7M | 3,113,677 SF
$29.5M | 319,860 SF ROYAL PAPER CONVERTING
2060 S. 51st Ave., Phoenix BUYER: Nuveen Real Estate SELLER: Sepehr Dardashti BROKER: Realty Advisory Group
$18M | 99,597 SF
PROGRESSIVE INSURANCE 600 E. Curry Rd., Tempe BUYER: Camden Property Trust SELLER: The Progressive Corp. BROKER: N/A
$15.83M | 226,436 SF
NWC Signal Butte Rd., & US-60, Mesa BUYER: Bela Flor Management Inc. SELLER: Prudential Financial BROKER: Lee & Associates
PAPAGO DISTRIBUTION CENTER 1010 N. 47th Ave., Phoenix BUYER: CapRock Partners SELLER: Clarion Partners BROKER: JLL
$12.3M | 2,448,943 SF W. Elwood, Phoenix
$11.2M | 58,200 SF SAIA TRANSPORTATION
BUYER: Richmond American Homes of Arizona SELLER: Raintree Investment Corp. BROKER: Nathan & Associates
$10.5M | 3,439,729 SF
NE 128th St., Scottsdale BUYER: Taylor Morrison SELLER: Diversified Funding Group BROKER: N/A
4301 W. Mohave St., Phoenix BUYER: Saia, Inc. SELLER: CenterPoint Properties BROKER: N/A
$3M | 12,490 SF
1301 W. Broadway Rd., Mesa BUYER: RV Retailer LLC SELLER: Bradley E. Leach BROKER: N/A 19
LEGISLATIVE UPDATE
Changing laws open door for rebirth of Arizona wine industry
S
panish explorers introduced European wine-grapes into Arizona in the 16th century and they did well here. Henry Schuerman was producing over 60 tons of winegrapes per year (equivalent to over 4,000 cases of wine) in Sedona prior to Arizona imposing stringent prohibition laws in 1915, five years before U.S. Prohibition was enacted. The Arizona law stopped production and even made sacramental wines illegal. When Federal Prohibition was overturned in 1933, people completely forgot about the Arizona laws, which continued to forbid winemaking. The first modern era winery was established in 1982 following a law change, but still under very restrictive rules. A ruling by the U.S. Supreme Court forced Arizona to re-write its laws in 2006 to conform
20 | September-October 2019
Tom Pitts AAED
to the U.S. Constitution, allowing wineries to operate essentially as they do today. Since then, over 100 new wineries have been licensed in the state and the industry is booming! It turns out that Arizona is a great place to grow wine grapes.
The vineyards in Arizona are typically located at higher elevations in the Willcox and Sonoita/Elgin areas of Southern Arizona and in the Verde Valley to the north, where the combination of sun, soil, and temperatures are ideal. To show how fast the interest in the industry has been re-established, a tourism impact study I co-authored with NAU for the Arizona Office of Tourism (AOT) in 2017 showed that the wineries in those three rural areas alone were already drawing over 600,000 visitors per year. The interest continues to grow. People like to see where their wine is made. Slowly but surely, Arizona laws continue to evolve to bring us closer to how the rest of the world operates. One change allowed wineries to add off-site tasting rooms in our metropolitan areas, which has led to a growing concentration in Scottsdale. Another change in this year’s legislature makes it legal for the first time to include a winery’s or craft distillery’s product in the sale of a production company. Up until now, you could not include your wine in bottle, barrel, or any other phase of production in the sale. The Arizona Association for Economic Development (AAED) is supporting efforts to re-establish a state commission or committee to deal specifically with wine industry issues, such as increasing the low production limits currently imposed on wineries, to encourage continued growth. This year we worked with the Arizona Wine Growers Association to secure a $100,000 budget line item for AOT for Arizona wine promotion. Successful wine regions elevate property values. Land in the Napa Valley now sells by the square foot rather than by the acre. And, of special importance to Arizona, wine-grapes are an arid region plant historically popularized in the deserts of the Middle East and require only a fraction of the water needed to grow cotton, alfalfa, or tree crops. Once established, they will continue to produce for 50 years or more. In Arizona, we’ve only just begun! Tom Pitts serves on the AAED Board of Directors and was honored as the AAED Member of the Year in 2017.
Major job creation threat to CRE industry on horizon
R
ecently, the Helios Foundation had a “confidential” written draft proposal to go to the November 2020 ballot for an historic $1.5 billion tax increase where $500 million would be an increase in the state TPT (sales) rate and $1 billion from a new statewide property tax. The revenue would be utilized for K-12 ($1 billion), early education ($100 million), community colleges ($100 million), and universities ($300 million). Their stated public desire is for the State Legislature to REFER the proposal to the ballot and have Gov. Doug Ducey endorse this approach rather than outright seek a costly signaturegathering campaign to take a proposition directly to the people. Given, however, the Governor’s stated aversion to a major tax increase and the current composition of the State Legislature, most observers believe it is NOT likely a referral would be forthcoming, thus the possibility has increased for a citizen-led initiative pitting the people against their elected reps to see how this may play in proverbial “Peoria”. What is particularly troublesome is that the $1 billion proposed property tax increase involves a NEW special statewide taxing district which is the first in Arizona history. In particular, this is an increase of $1.60 per $100 of assessed value of all properties in the entire State. This new $1 billion property tax increase would fall disproportionately on the commercial real estate industry
Tim Lawless
BOMA Greater Phoenix as our assessment ratio used to calculate property tax bills is 1.8 times the burden on residential properties (18 percent versus 10 percent). Put another way, while Class 1 (Commercial Property) has only 21 percent of taxable property in the State, we pay 36 percent of the roughly $8 billion levied annually where almost half goes to K-12 schools versus Class 3 (Residential) which has roughly 50 percent of taxable value yet only contributes a small share more than us at 37 percent. (The other seven classes pick up the balance of 27 percent of all property taxes levied.) Our current disproportionate share would only be exacerbated with a new added $1 billion property tax. We already have among the highest commercial property tax burdens in the U.S. where many blue-ribbon committees like the Citizen’s Finance Review Commission (CFRC) from the early 2000s found it to be a major impediment
to job creation. While BOMA Greater Phoenix and CREED support more funding for K-12 education and are open to a less egregious tax being raised (i.e., a tax that is less anti-economic development or job killing such as ONLY a more modest sales tax rate increase), it is important to know that this proposal contains NO accountability or academic performance standards. Hence, if we continue to pour more money into the education system, we need to make sure we spend more of each dollar in the classroom rather than administration overhead as a percentage than we did in 2000 which was the main purpose of Prop 301 and where we have lost ground in the interim. Besides the imposition of a new special statewide taxing district which would be a first, we also are potentially facing the largest single tax increase, if passed, in state history. It is almost an outright 15 percent annual increase for the entire state budget! In short, this is the single greatest direct policy threat to our industry and continued job creation since the Portland urban growth boundary proposal that was defeated by the entire business community led by our CRE colleagues in 2000. Stay tuned as there will be many twists and turns over the next year. Tim Lawless is the executive director of BOMA of Greater Phoenix and the president of Commercial Real-estate Executives for Economic Development or “CREED”. 21
LEGISLATIVE UPDATE
Creative placemaking leads to tangible benefits
C
reative placemaking strategies apply broadly across many facets of the built environment. These strategies can be used in the design of housing and commercial space, public plazas, bike paths and pedestrian walkways, transit systems, and more. Real estate development projects – ranging from mixed use transitoriented development in urban cities, to affordable housing, to neighborhood revitalization projects in smaller towns – can lead with arts and culture, and deliver promising returns. Creative placemaking brings art and culture, in tandem with great design, to a real estate development project. This helps shape not only the physical but also the social, cultural, and economic identity of a place. Community benefits include enhanced social cohesion, greater well-being, and safer neighborhoods. Economic benefits include increased patronage of local businesses and increased tax revenues. Real estate developers have reported faster lease-ups, streamlined approvals and lower overall project costs. Americans for the Arts (AftA), a national non-profit arts advocacy organization, has done some excellent research aimed at quantifying the economic value of art and culture. Every five years, AftA produces an Arts & Economic Impact (A&EI) study report, with the latest version in 2015. Extracting data from the U.S. Bureau of Economic Analysis, the A&EI study shows Arts & Culture
22 | September-October 2019
Deb Sydenham ULI
industry ranking high among the top 2014 Private Industries contributing to Gross Domestic Product. In fact, Arts & Culture in the U.S. represents $734 billion or 4.2 percent of its GDP. Arts and Culture ranked just behind retail and above Construction, Transportation, Mining, Travel & Tourism, and Utilities. Furthermore, AftA’s research reveals arts drive tourism and revenue to businesses, enhancing the value of a real estate development investment. Americans agree that art is important to the economy and also to quality of life. According to a 2016 and 2018 AftA survey of over 3,000 American adults, 82 percent believe arts and culture are important to local businesses and the economy, and 87 percent believe arts and culture are important to quality of life. Similarly, ULI Members recognize the value of art and culture on real estate development. A survey of ULI U.S. members in 2016,
revealed that 91 percent of members surveyed agree arts and culture add value to real estate development projects and 97 percent agreed that the real estate industry has an important role to play in enhancing arts and culture in communities. Optimizing the benefits of creative placemaking and ensuring that all stakeholders share in its rewards, requires the skillful application of best practices. Ten best practices for real estate leaders and practitioners, gleaned from lessons learned on many projects, include the following: 1. Begin with the end in mind. 2. Bring in artists and the community early. 3. “Mine” local art and cultural assets. 4. Engage local artists. 5. Understand and articulate stakeholder benefits. 6. Form cross-sector partnerships. 7. Identify the critical skills needed to deliver on project goals and outcomes. 8. Look for early wins to generate excitement, visibility, and buy-in. 9. Maintain a long view. 10. Pursue creative financing. In the context of real estate development, creative placemaking leverages art and culture early in and throughout the real estate development process, along with proactive engagement with the community, strong design fundamentals, all with a focus on enhancing social equity. Together, these strategies can promote more equitable and healthy community outcomes and enhance the overall value of real estate projects across the built environment, ranging from infrastructure, parks and public spaces to residential and commercial properties. There is a dividend to be realized from creative placemaking. Ed McMahon, Senior Fellow for ULI, said it best, “people stay longer, come back more often, and spend more money in places that attract their affection.” Deb Sydenham is the executive director of ULI Arizona District Council. This story was excerpted from ULI’s Creative Placemaking Overview.
ARE YOU IN THE KNOW?
FIND OUT NOVEMBER 2019
AZRE Magazine combines the top people to know with the top projects to know—all in one annual issue. Let PTK Magazine introduce you to the best commercial real estate people and projects that define the industry. Make sure you’re in the know, and pick up a copy of PTK when it launches in November.
RYAN COMPANIES
Turning the Ryan Companies has earned stellar reputation during 25 years in Arizona By STEVE BURKS
I
t’s not often that people just happen to stumble upon a favorite restaurant or vacation spot on their own. Most of the time, it’s a recommendation from a friend or neighbor that guides people to places that they fall in love with. For Ryan Companies US, Inc., it was one of its Minneapolis neighbors that pulled the company to Arizona for the first time in 1992 and it didn’t take long for Ryan to settle in and make Arizona a regional home for the company. “In 1992, Target, one of Ryan’s long-term customers, asked us to build four stores in Arizona,” said John Strittmatter, chairman of the Southwest Region for Ryan Companies. “That got us interested in pursuing additional opportunities in Arizona. After acquiring two more build to suit projects and thereby realizing Ryan could compete in Arizona, we decided to venture permanently to the Southwest. Personally, the challenge of
introducing Ryan to a new high growth market outside of the Midwest was exciting along with the fact that I would never have to shovel snow again!” Ryan’s Phoenix-based Southwest Region is celebrating 25 years in operation in 2019 and the company’s fingerprints are all over the Valley. Ryan Companies projects are some of the most high profile in the Valley and the company has established a sterling reputation in the market. “The Ryan team met every deadline and was a pleasure to work with,” said John Graham, president & CEO of Sunbelt Holdings, who partnered with Ryan in the development of the largest office development in Arizona history, the 2 million square foot Marina Heights project along Tempe Town Lake. “Our relationship is one of mutual respect and has resulted in another quality project for our client. We look forward to working with Ryan on many
more developments in the future.” The company was founded in 1938 in Minneapolis by James Henry Ryan, along with his sons Francis and Russel. It began as a lumber company, grew into construction and has continued to evolve into a full-service commercial real estate company. Ryan Companies provides general contracting services, project design (architectural and engineering), development, management and financing. The third generation of the Ryan family leadership tree, Patrick Ryan, is company chairman and in 2018 the firm employed more than 1,200 and enjoyed $1.75 billion in revenue nationwide. Ryan Companies has come a long way from its first foray into Arizona, which was building four new stores for Minneapolis-based Target. Ryan Companies built two Target stores in Tucson, one in Flagstaff and another in Ahwatukee to begin its time in
RYAN COMPANIES' 25 YEARS IN ARIZONA 1994
1998
Ryan opens Southwest Region offices at 3200 E. Camelback Rd. in Phoenix
1992
Minneapolis-based Ryan Companies is awarded four Target projects in Arizona 24 | September-October 2019
First of 10 projects completed at ASU Research Park in Tempe
1997
Ryan completed The Dial Corporation’s new headquarters
2001
2009
Completed construction of and moved into One North Central
2000
Establish real estate management department in Southwest Region
Musical Instrument Museum completed
2005
Axon headquarters completed
desert green Arizona. Pat Ryan attended an Urban Land Institute conference and met Phoenix broker Bill Gosnell. Ryan told Gosnell to let him know if any build-tosuit project opportunities came up. One of the first opportunities came when KB Toys requested proposals to build a 400,000 square foot distribution center. Strittmatter led the Ryan Companies’ pursuit of the project and they won it. After being awarded another project in Arizona, the National Computer Systems office building in Mesa, Pat Ryan felt the time was right to set up an office in Phoenix. “We were on a flight home from Arizona and Pat asked me to move to Phoenix,” Strittmatter said. “Me and my family moved here in December of 1993.” With Strittmatter at the helm, the Ryan Companies Southwest Region office opened in 1994. “We had a small staff move down
here from Minnesota and we started to gradually hire more local people,” Strittmatter said. The timing of Ryan Companies’ move into Phoenix came right as the market was starting to regain some positive growth after suffering through a recession in the late 1980s and early 1990s. “Developers were limited due to the downturn,” Strittmatter said. “Since we opened in 1994, a lot of the developers had departed. We got in the que for build-to-suit proposals quickly because developers wanted more than one option to go to.” Ryan Companies’ first high-profile project was The Dial Corporation headquarters in Scottsdale. That project was followed by the first of ten buildings that Ryan Companies developed at the Arizona State University Research Park in Tempe. Since it established a foothold in the region, Ryan Companies has enjoyed
2012
2014
Completed construction of FBI Phoenix Division office
2010
Completed construction of and relocated Ryan offices into 3900 Camelback Center
2015
GoDaddy Global Technology Center completed
2014
Rick Collins becomes regional president
steady growth, and even spun off two additional regional offices- the West Region, located in San Diego, and the Northwest Region, in Bellevue, Wash., were both established through the Southwest Region office. Strittmatter remained at the helm of the Southwest Region through mid2014, when Ryan veteran Rick Collins relocated from Minneapolis to assume leadership of the Southwest Region, and ultimately the West Division, including San Diego and Seattle Recently, Molly Ryan Carson become Market Leader of the Southwest Region. The Southwest Region office has tripled in size since the turn of the century, growing from 61 employees in 2000 to 185 today. “The biggest accomplishment generally is the list of relationships that we’ve built in the marketplace,” Strittmatter said. “Those relationships continue to provide us opportunities.”
Hayden Ferry Lakeside III completed
2015
Amkor Corporate HQ at ASU Research Park completed
2017
Marina Heights completed
2016
Architecture + Engineering Department established in Southwest Region 25
RYAN COMPANIES
Ryan Companies marquee projects The Dial Corporation
Musical Instrument Museum
Marina Heights
Arizona State University Research Park
Maricopa County Court Tower
Circa Central Avenue
Completed: July 1997 Type: Class A office Size: 129,689 SF Location: 15501 N. Dial Blvd., Scottsdale
Completed: February 2017 Type: Mixed-Use Size: 2,040,000 SF Location: 300 E. Rio Salado Pkwy., Tempe
Completed: December 2009 Type: Museum Size: 191,000 SF Location: 4725 E. Mayo Blvd., Phoenix Completed: November 2011 Type: Public County Courthouse, LEED-NC Gold Certified Size: 695,000 SF Location: 101 W. Madison St., Phoenix
(10 buildings) First building completed: July 1998 Final building completed: April 2017 Types: Healthcare, Class A office, data center, medical office building Total size: 926,866 SF Location: 8750 S. Science Dr., Tempe
FBI Phoenix Division
Completed: November 2001 Type: Class A office tower Size: 460,000 SF Location: One N. Central Ave., Phoenix
Hayden Ferry Lakeside, Phase III Completed: September 2015 Type: Office, LEED Gold Certified Size: 267,430 SF Location: 40 E. Rio Salado Pkwy., Tempe
3900 Camelback Center
Completed: December 2009 Type: Class A Office, LEED Gold Certified Size: 185,000 SF Location: 3900 E. Camelback Rd., Phoenix
Generations at Pinnacle Peak Completed: January 2019 Type: Senior Living Size: 170,000 SF Location: 23733 N. Scottsdale Rd., Scottsdale
Completed: January 2012 Type: Office, Public Sector, LEED-NC Gold Certified Size: 210,202 SF Location: 21711 N. 7th St., Phoenix
One North Central
Completed: December 2018 Type: Multifamily Size: 227 units Location: 1505 N. Central Ave., Phoenix
Amazon AR Sort Fulfillment Center
Completed: May 2019 Type: Industrial Size: 2,318,598 SF Location: 6701 S. Kolb Rd., Tucson
RYAN COMPANIES' 25 YEARS IN ARIZONA 2017
Arizona Oncology completed
2017
Farmers Insurance Phase I completed 26 | September-October 2019
2018
Phoenix College Physical Sciences Building completed
2017
Banner Health at Desert Ridge completed
2019
First senior living project in Southwest Region (Generations at Pinnacle Peak) completed
2018
Circa Central Avenue completed
2019
Amazon AR Sort Fulfillment Center completed
2019
McKesson Campus completed
COMING MARCH 2020
2020
THE 13TH ANNUAL RED AWARDS Real Estate and Development Awards Arizona’s most comprehensive annual real estate awards CATEGORIES
• BROKERAGE • EDUCATION
• HEALTHCARE • INDUSTRIAL
• MIXED-USE • MULTI-FAMILY
• OFFICE • PUBLIC
• REDEVELOPMENT • RETAIL
Call for sponsorship information: 602.277.6045
ADAPTIVE REUSE
Redeployed spaces T
he Valley is seeing a notable uptick on adaptive reuse and repurposing projects. The Circuit Tempe transformed a former semiconductor plant into a modern, Class A office product, and the highly-visible Park Central redevelopment by Plaza Companies and Holualoa Companies is revitalizing Midtown. While those projects are two of the most visable in the Phoenix market, there are other, equally impressive, projects to know.
occupied by an Albertson’s, but the most recent tenant was an Ultimate Consignment store.
H-MART
How they’ll do it: The design process has been long and deliberate, with
What it was: The building was a former anchor retail pad at an 1980s era strip mall at Main St. and Dobson Rd. in Mesa. The space was originally
What it will be: H-Mart is a New Jersey-based Asian grocery store with more than 65 locations nationwide. The Mesa location is its first in Arizona. The space is 63,000 square feet and will feature a bakery, pharmacy, a variety of small shops and an Asian food court with authentic offerings and a bar.
H-MART: An Asian food court is one of the features of the new H-Mart store.
concerns for the customer experience and layout needs. To accommodate so much under one roof and yet still offer good flow and efficiency required considerable attention to the design. After subsequent redesign to facilitate a more open and functional environmental concept, Sigma Contracting started this project in March of 2019. It was hoped that much of the existing mechanical system could be reused. Upon the discovery that most of the system was antiquated equipment, Sigma helped H-Mart evaluate several options for replacement, including the cost of the equipment as well as the operational cost. Because most of this equipment resides on the roof, the roof framing system needed to be modified.
HEIDI’S VILLAGE
What it was: Former ADOT emissions testing center. What it will be: Heidi’s Village comprises a 40,000 square foot animal shelter and veterinary clinic, the first of its kind in Arizona. Once complete, it will feature nine total buildings with thoughtfully developed boarding space for up to 250 dogs and 200 cats. The boarding area will be spacious and allow for outdoor recreation for dogs in limited play groups. Heidi’s Village will also feature a grooming facility, walking paths, obstacle courses, a bone-shaped play pool, as well as full medical suites to provide surgery to animals. Cats, like the dogs, will have outdoor space of their own as well. How they’ll do it: The $20 million project was made possible by the Virginia B. Jontes Foundation. The first 28 | September-October 2019
challenge for the Chasse Building Team (the general contractor on the project) was the mitigation of harmful substances associated with auto emissions testing. Also, the City of Phoenix and the State of Arizona had made a mistake in how they platted the lot. Negotiations were entered into for additional right of way dedications for access to develop sites to the west of the property.
HEIDI'S VILLAGE: 40,000-square-foot animal shelter and veterinary clinic.
SNOOZE: AN AM EATERY AT THE STEWART
What it was: The original building at Central Ave. and McKinley in the Roosevelt District first served the Stewart Motor Company, a Studebaker dealership which opened in 1947. After its years as a dealership, it became a record shop, Circles, and had a run from 1972 to 2010. What it will be: What was once the main showroom and sales offices for Stewart Motor Company will now be a restaurant, Snooze: An AM Eatery. Snooze will take up nearly 4,000 square feet of space and that will leave an additional 1,300 to 1,400 square feet for other retail tenants. The space will feature the original mezzanine level in the building.
THE STEWART: From automobile dealership to luxury apartment.
How they’ll do it: The Stewart Motor Company building was saved from the wrecking ball thanks to some hard work by Roosevelt District advocates, as well as the developer, Aspirant Development. Now, with the 19-story The Stewart luxury apartment complex completed, the attention has shifted to turning the old dealership structure into a restaurant space. The biggest challenge for the building was shoring up the structure, so UEB builders had to install a good amount of structural steel to give the space more lateral support and bring it up to modern code. The original mezzanine and stairs were restored and more support added to both. Also, the original spire on the building, with rotating neon signage will be restored to its old glory... almost. New neon signs for Snooze and The Stewart will go up on the freshly restored spire, but city code will not allow the sign to rotate as it did in the first 60-plus years it was in operation. 29
ADAPTIVE REUSE
LINCOLN UNION
What it was: The building, built in 1970, is located at 475 E. Lincoln St. in the Phoenix warehouse district and was a former refrigerated distribution center owned by Pearce Beverage Co., which was the first Coors distributor in the Valley. What it will be: The high clearance allowed the developer, Montana Avenue Capital Partners (which also was behind the renovation of the historic Heard Building) to add a second floor, bringing the total available square footage to 93,500. The space will be a multi-tenant, Class B office space with four options, ranging from 35,320 square feet to 9,440 square feet. It features flexible, open spaces for work and gathering, outdoor dining spaces, a two-story common area with skylights, and collaborative outdoor spaces. The large lot provides the developer the option of future phases that will include a parking structure and a nearly 200,000 square foot office building. How they’ll do it: The architect on the project, SmithGroup, and the general contractor, Okland Construction, did a number of things to embrace the original use of the building. They repurposed three overhead cooler doors, three sliding cooler doors, and signs found in the original building, and turned pieces of the old wood mezzanine into tables. 30 | September-October 2019
Two flatbed rail cars were sourced from Tucson and are being repurposed as patio spaces on the east side of the building. That installation required the crew to re-lay 140 feet of actual railroad track in the same position it had previously been when there was an active rail spur dropping off kegs to the facility. A custom cage was built out of 54 kegs and had the Pearce Beverage Co. logo from the 1960’s hand painted by a local artist to further celebrate the building’s previous life. The existing skylights and roll up doors were used to provide indoor/ outdoor space. But other than that, there were no windows on the site. The addition of the second level inside the existing structure was difficult, but a necessary step to ensure the building could have a large enough square footage to justify both the cost of the renovation and the use of the site in a rapidly developing submarket.
IDEAS COLLIDE
What it was: This location was the Brownmoor School for Girls which had moved into what had been the Ingleside Inn, between Indian School and Thomas roads along the Crosscut Canal, in 1945, and operated as a boarding and day school through 1958. The former Ingleside Inn was converted to Brownmoor Estates, which was designed for senior living that had a business/community center facing Indian School Road. This was Architect Charles Polacek’s last project; he
LINCOLN UNION: A former refrigerated distribution center.
passed away in 1961 shortly before the official opening in 1962. The space was converted to business suites known as The Scottsdale Building. What it is: In 2017, after completing a comprehensive renovation of the entire first floor, Ideas Collide became the primary tenant with building signage carrying the company name. Ideas Collide is a strategic communications agency that specializes in designing and launching customized marketing solutions. The space now houses a video studio, photo studio, amphitheater for client presentations, outdoor working space patio and two large kitchens. How did they do it: The entire 9,200 square foot interior space had to be gutted to build out the comprehensive office rebuild, all without shutting down business operations. As they peeled back the layers in the building, you could see prior iterations that once lived in the space. The original steel beams were discovered behind old walls and ceiling panels with their original Arizona Ornamental Co. markings. The renovation was completed in partnership with the building owner Clayton Co. (Tom Frankel), Carrie Hup (CDot Studio), Brian Krob (Aline Concept Architects) and Ideas Collide owner, Matthew Clyde.
in the deeds themselves, which can be easily overlooked in the review process. Title review should be done at the due diligence stage or anytime a new use is being considered. For existing retail centers, careful attention should be given to review leases for specific use restrictions that may prohibit an adaptive reuse of property.
ZONING AND LAND USE Having a clear understanding of zoning regulations and limitations on development is necessary for a successful repurposing project. Zoning attorneys provide valuable skills and information when working with municipalities and neighbors to help ensure the proposed project is approved.
By CASEY S. BLAIS
Y
ou’ve heard it said: “The only thing constant is change.” My parents would say that, and I have learned change can be a hard pill to swallow. Many years later, I have also learned this saying applies to real estate, and perhaps more now than ever. For at least two decades, redevelopment and urbanization have been a common trend. More recently, however, we have seen much more than remodels and building updates. Current trends are a complete change in use or repurposing of real estate. Examples may include converting unused retail space into office buildings, restaurants or mixed-uses with high-density residential. Even more creatively, U-Haul recently purchased an empty Kmart store located in South Mountain, which it intends to convert into a self-storage facility. Adaptive reuse is making a big impact on commercial real estate and likely will for several years to come. According to the Urban Land Institute’s Emerging Trends in Real Estate (2019), the repurposing trend is likely to continue over the next decade. As real estate professionals, we had better be prepared to adapt. Many of the changes are fueled by new technology and consumer preferences. While millennials may be the first to embrace these changes, it is becoming more common across all generations. Perhaps the most obvious changes are seen in the retail space. The impact of e-commerce has disrupted the typical brick-and-mortar stores that we grew up
SURVEYS Title review should definitely include a review of an ALTA or NSPS survey, which will indicate easements and other potential restrictions. It is not uncommon to discover shared parking arrangements in mixed-use and larger developments, which could impact your proposed use.
Casey S. Blair
Burch & Cracchiolo, P.A. frequenting. Companies like Amazon, Walmart, and others are investing big dollars in online shopping and it’s working! Some real estate professionals believed this would cause a collapse of the brick-and-mortar stores, but stores are proving to be more robust than previously thought. Good retailers are looking for ways to limit their building footprint so they can provide other ways to buy their products (i.e., in-store, online, online with in-store pickup, using an app, etc.) – which has led to the concept of “omni-channel” marketing. Adaptive reuse can be tricky, and there are several important considerations that arise in these transactions, particularly during the due diligence period. Below are some suggestions.
USE RESTRICTIONS A careful review of recorded use restrictions and CC&Rs should be taken to ensure the proposed use is compliant. Sometimes prohibited uses can appear
SPECIAL ZONES OR DISTRICTS Opportunity zones have become incredibly popular, and consideration should be given to whether your proposed use is within these zones. Municipalities also have adopted area specific zones and districts, which could help or hurt your proposed use.
BUILDING CODE AND ADA Repurposing buildings will most likely trigger properties to conform to existing building codes and current ADA regulations. Architects and engineers can provide valuable insight and estimates on these costs, which can occur both onsite and offsite. When it comes to embracing change in real estate, developers and property managers should not be afraid to think outside the box. Real estate trends are constantly changing, and only those who adapt will survive. If you stop and think about it, there may be adaptive reuses that compliment and add value to your property. Attorney Casey S. Blais is a Shareholder at Burch & Cracchiolo, P.A., bcattorneys.com. 31
COOL OFFICES
WORKSPACE DONE RIGHT By STEVE BURKS
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he offices of today are the product of decades of trial and error in how the space is decorated and designed. We’ve seen trends come and go, but one constant remains: Functionality. Modern employees spend more time than ever at their workplace, and these offices reflect that trend. The spaces are more inviting, more comfortable and more flexible. Modern office spaces allow employees to get a workout and a shower in at the office, cook a meal and even have a little fun from time to time. All these functions are available without sacrificing production. We have gathered below examples of these modern, functional offices in Phoenix and tried to learn what makes them cool and a pleasure to work at. A
digg clubhouse at CIS
General Contractor: RBI Architect/Designer: digg CIS, The Interior Construction Division Location: 3311 E. Broadway Rd., Phoenix Size: 1,035 square feet Value: $ 275,000 (includes furniture, DIRTT and GC scope) Start/Completion: November 2018-February 2019 Why it’s awesome: The digg clubhouse at CIS is an area that was previously under-utilized warehouse support for Corporate Interior Systems. The design assist focused team needed an environment which fostered the creative collaboration while utilizing the current capabilities of DIRTT’s Solutions. The result is a timber mezzanine that provides storage, phone room, reading nook and an elevated meeting space, all wrapped with the integrated solutions, millwork and integrated technology. The studio has an area of 840 square feet and provides designated stations for six, meeting area for eight and soft seating for 12; all in a modern, comfortable and adaptable environment. 32 | September-October 2019
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Elevation Marketing
Owner: Nationwide Realty Investors General Contractor: Jokake Construction Architect: (Interior) Strong Project Modern Office Design Brokerage: Lee & Associates Location: 275 E. Rivulon Blvd., Gilbert Size: 7,186 square feet Start/Completion: January 2018-August 2018 Why it’s awesome: In order for Elevation’s employees to effectively deliver results they must be able to create and collaborate with other team members, and the agency’s office space is designed exactly for that. Elevation’s office features a large, open concept with desk pods, along with five meeting rooms of varying sizes to maximize collaboration and communication between departments. Elevation’s office also features a kitchen and lounge area, allowing for a nice change in environment to enhance creativity and relaxation. Lastly, the collaborative work space offers several sources of natural light illuminating the office and allowing employees to stay focused and engaged throughout the work day. Some of the things Elevation’s employees love most about the office are the spacious kitchen which is perfect for office events or socializing on lunch breaks, the natural lighting which creates a more uplifting environment, and the open desk space which allows employees to easily collaborate creating a genuine community throughout the office.
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COOL OFFICES C
Concord General Contracting
Owner: Concord General Contracting, Inc. General Contractor: Concord General Contracting, Inc. Architect: iDesigns Location: 2240 W. Broadway Rd., Suite 105, Mesa Size: 14,000 square feet Value (or cost of the project) : $1 million Start/Completion: August 2018-November 2018 Why it’s awesome: Take a walk through the Concord General Contracting office and you will see the company brand come alive through thoughtfully chosen bright colors, materials, and group spaces that represent a team that is “Building Collaboration” on a daily basis. Nothing about the office is traditional by intention — the space is filled with natural light, ability to throw open the overhead doors to enjoy the outdoors, no closed office space, and a fitness space promoting healthy living.
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with sofas in meeting and lounge spaces, “family” photos on the walls, and even home names for meeting spaces like the “Living Room,” “Workshop,” and “Sundeck” — a floating mezzanine in the center of the building. It’s an open floorplan that allows collaboration and there are also many rooms and nooks to hold meetings and huddles. Dave Haroldsen, Head of Brand at Offerpad and lead on the headquarters’ design, explained, “We like to see our people as a family. Everyone comes in every day expecting to work toward their goals and the way we want to encourage that is by creating a comfortable home environment that helps them take on the company’s mission — which is centered on happy customers having excellent home experiences. We really wanted to bring that part of our brand to life for our employees and visitors.”
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Offerpad
Owner: Douglas Allred General Contractor: Willmeng Construction Architect: Phoenix Design One Locations: Germann and Cooper, Chandler Size: 38,000 square feet Start/Completion: September 2018-March 2019 Why it’s awesome: Offerpad moved into its new space in March of 2019 after substantial growth made it a necessity to find a new work environment. The new office is a fully Offerpad-designed space that showcases brand identity. It has all the space the company needs with room to grow. The modern space is meant to feel like home, 34 | September-October 2019
E LGE Design Build Headquarters
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Owner: LGE Design Build General Contractor: LGE Design Build Architect: LGE Design Build Location: 1200 N. 52nd St., Phoenix Size: 22,000 square feet Value: $4.3 million Start/Completion: July 2018May 2019 Why it’s awesome: This project exemplifies the excellence of LGE Design Build’s work. Built from scratch, the project was built with LGE Design Build’s workflow in mind, from design to accounting. The space includes a large gym with frequent instructor-led classes, a large break area with cold brew on tap, an outside area with cornhole and other yard games, several custom artworks throughout, vintage Jeep models, breakout conference and private call rooms and much more.
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Rose + Moser + Allyn
Owner: Jason Rose General Contractor: hardison/downey Architect: Pinnacle Design, Inc. Location: 7144 E. Stetson Dr., Suite 400, Scottsdale Size: 2,000 square feet Value (or cost of the project): $200,000
Why it’s awesome: Is this what Alice sees when she peers through the looking glass? As you approach the entrance, you have to make a choice of how to enter this uniquely imaginative PR firm’s world, which will determine your destiny. Your experience will be pure adventure without conformity. Every individual can take a magical “trip” through the space. Welcome to the tea party!
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Shepley Bulfinch
Owner/Developer: Geddes and Company General Contractor: Chasse Building Team Architect (Original): W.A. Sarmiento Architect for Renovation: Shepley Bulfinch Location: 3443 N. Central Ave., Phoenix Size: 9,000 square feet Brokerage Firm: Cassidy Turley/BRE Commercial LLC Value: $517,000 Completion: 2014 Why it’s awesome: Occupying the revitalized mid-century iconic building designed by noted architect, W.A. Sarmiento, the Shepley Bulfinch studio is an awe-inspiring space. The modernized
design has expansive dimensions, with the ground floor serving as the studio space and a former bank vault reimagined as a gallery. The spherically shaped building is encircled by floor-to-ceiling windows that hug the light, nature and the bustle of downtown, and keeps the Shepley Bulfinch team energized all day. The open floor space has a combination of desks, couches, roundtables and conference rooms. A monumental staircase leads to a mezzanine where events, all office gatherings, or casual conversation over lunch can take place — stimulating connection and creativity, and promoting a thriving collaborative culture. And the proximity to the light rail makes it easily accessible. Fun fact: the space once served as a movie set. 35
COOL OFFICES H
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DLA Piper
Owner: LBA Realty General Contractor: SAB – Southwest Architectural Builders, Inc. Architect: Gensler Location: 2525 E. Camelback Rd., Esplanade II, Suite 1000, Phoenix Size: 23,000 square feet Start/Completion: Fall 2018-Summer 2019
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Why it’s awesome: The new office presents the latest in technology and office enhancements, as well as a bright and open atmosphere, to meet the needs of the next generation of clients and the lawyers who serve them. Key features include: • An expanded lobby and reception area to host firm, charitable and educational activities; • An enhanced "telepresence" capability linked to all DLA Piper offices around the world and to major clients; • A group-focused café that is an attractive location for lawyers and employees; • Multiple and divisible conference areas and caucus rooms providing the latest in modular arrangements with state-of-the-art sound-proofing; • Office additions to facilitate the growth of the office and to handle the ever-increasing visits from out-of-state lawyers and clients; and • Improved offices, work stations (in every office the desks raise on hydraulics to accommodate a standing position), and other features targeted at collaboration across offices.
FITCH
Owner: Excel Trust General Contractor: TK Interior Construction Company Architect: AAD:FITCH, Inc. Location: 16435 N. Scottsdale Rd., Suite 195, Scottsdale Size: 18,826 square feet Completion: April 2007 Why it’s awesome: The FITCH office is an architectural and interior design studio that serves some of the world’s most notable brands. The company designed its own space in The Promenade, and the office tells the FITCH company story through vignettes and physical ‘nods’ to its history. For example, FITCH was founded in London in 1972, so there is a very real double-decker bus in the lobby that serves as a conference room, and has a lounge area on top. The office also received a LEED certification for “Commercial Interiors” when originally completed. 36 | September-October 2019
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Phoenix | Tucson | GLHN.com
37
COOL OFFICES J GLHN Architects & Engineers, Inc.
General Contractor: Westpac Architect: GLHN Architects & Engineers, Inc. Brokerage firm: Cushman & Wakefield Location: 3636 N. Central Ave., Suite 160, Phoenix Size: 2,000 square feet Start/Completion: July 2018 – October 2018 Why it’s awesome: GLHN’s new office features an open arrangement with flexibility. Envisioned as a “think tank,” the goal was to break down silos and foster creative collaboration and interaction. To enhance the creative environment and to provide an uplifting and inspiring atmosphere, maximizing natural light was critical. By using natural finishes and bright colors, the light coming into the space through the glazing is enriched and provides a warm relaxed environment without artificial lights. Keeping the office environment casual and unpretentious was important in creating a creative atmosphere. A mural of a pink cow, in the spirit of midtown’s local street art, was K
DP Electric
Owner: DJP Enterprises General Contractor: Overton Builders Architect: FORM Design Location: 2210 S. Roosevelt St., Tempe Size: 35,000 square feet Value: $2 million Start/Completion: March 2018August 2018
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38 | September-October 2019
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created to provide a whimsical element to the space. Multiple types of seating were provided, including sit and stand desks, casual seating and group seating. Using current technology, employees can sit where they like from day to day or even work from
home. Allowing for this flexibility promotes greater satisfaction from staff and more efficient use of the space. The flexibility of the seating also allows for employees from other GLHN offices to “dock” and work remotely from the new office.
Why it’s awesome: The DP Electric office is an incredible space to work in. It is open, airy and has a great collaboration effect. Offices are open air and able to be accessed easily and the rest of the space is an open concept working environment. There are many rooms and areas for collaboration or quiet time, as well. The décor is modern with touches of company history and
thought provoking ideas, including the DPE Mission Statement and Core Values. In the kitchen, the DP logo is front and center as a photo collage of the team working and bonding at company events. A tenure wall focuses on how many employees join DPE and become “lifers.” This speaks to the culture of family and community. There is also a timeline showcasing the humble beginnings of the company and the exciting growth in the construction industry. This is all about teamwork! And the front office showcases well earned company awards. The idea is to focus the space on the importance of a company as a community. Amenities in the office include a full gym with showers and lockers, café and break room for events with a keg and wine bar. A beautiful deck opens to the event space for dining and entertaining in nice weather and a training room for company education and DP University classes. Also included in the office is a prefabrication shop and warehouse, so all the workings of DP Electric are housed under one roof. The notion that most people spend more time at work than at home was most important when building the new space. It is inviting and everyone enjoys all the wonderful spaces for collaboration!
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AMA
Big hearts, bigger impact
42 | September-October 2019
AMA’s charity efforts having meaningful effect in community By STEVE BURKS
W
hen the Arizona Multihousing Association team turns its focus in one direction, the impact can be tremendous. For 15 years, the AMA has put its focus on raising money for various charitable groups that serve at risk individuals, families and children in Arizona. The group has raised more than $1 million during those years and that money has gone on to truly impact the lives of many in the community. “This is totally a ‘boots on the ground’ campaign,” said AMA board member Mark Schilling, Executive Vice President and Partner at MEB Management Services. “We do have a membership that can pull together and have an impact in the community and help a lot of people.” The AMA charity work began in 2004 when the board of directors launched Big Hearts for Little Hands. The early efforts were focused on helping organizations that aligned with the AMA’s interest in stable family housing. Several members of the board during that time were active supporters of UMOM New Day Center and that organization was one of the first in Phoenix that Big Hearts donated funds to. In Tucson, Big Hearts raised funds for New Beginnings for Women & Children, which is now Our Family Services. YEARS OF FUNDRAISING LEADS TO FORMATION OF AMCF In 2011, after several years of successful fundraising, the AMA decided to form a nonprofit organization to support the efforts of the Big Hearts Committee and the Arizona Multihousing Charitable Foundation (AMCF) was born.
The fundraising campaigns involve not just members, but the hundreds of thousands of residents at AMA member communities. One example of the grass-roots fundraising that the AMCF Big Hearts sponsors is the Dollar-aDoor initiative, which is quite simple, but effective. It began like many other fundraising efforts, with a can or a jar in the community offices at AMA member communities throughout Phoenix and Tucson. As residents would pass through the office, they’d drop a little money in the jar and it would add up fast. “There’s something like 270,000 rental units in our member properties, so that’s touching a quarter-million people,” Schilling said. “If you get just one dollar from every person, that’d be a whole lot of money.” Since those simple beginnings, the campaign has become more about bringing the multifamily residents together with fun, social gatherings. Some communities will host ice cream socials and solicit donations for AMCF, or movie nights and sell popcorn and other snacks, with the proceeds going to charity. “Some communities have gotten creative,” said Lauren Romero, the AMA Tucson area association executive. “We’ve seen community garage sales, raffles for gift baskets and rent discounts. These fundraising activities go on year-round in our AMA communities.” The Phoenix AMCF hosts a yearly Bowl-a-Thon which raises more than $35,000 and is one of the more enjoyable events for AMA members. Other events in Phoenix include the Walk the Walk to End Homelessness event in September,
Mark Schilling
Nicole Wray
the Autism Speaks Walk in October and a raffle for a 2006 Hummer H2. Members also generate money with restaurant nights and selling parking spots at the AMA offices in the Roosevelt District on the very popular and wellattended First Fridays. Tucson AMCF recently held its first Bowl-a-Thon event, raising more than $16,000. Other fundraising events include participation in the El Tour de Tucson, one of the largest cycling events in the nation, with more than 9,000 riders. AMA members participating in the ride generate money by getting jersey sponsors, with those funds going to AMCF. They also do a car raffle through Jim Click Millions for Tucson program, a raffle for a vacation in a Rocky Point condo and the Tucson AMCF is sponsoring a Rainbow Run family fun race. “In 2018, the Tucson AMCF grossed more than $56,000,” Romero said. “That’s one of the things about this group that is really unique. They network for a great cause and they have events and fundraisers and it’s about bringing them together. They compete to see who can raise the most money, 43
AMA but when they all come together, it’s all about camaraderie and that strengthens the industry.” ARIZONA CHARITIES BENEFIT GREATLY Both the Phoenix and Tucson AMCF support the Julie Hurst and Steve Peters Education Fund, which is a scholarship fund for those in, or from, the multifamily industry. The AMCF in Phoenix also continues to provide support to the UMOM New Day Center. More than $600,000 has been raised for UMOM since 2004. Through the joint efforts of AMCF and AMA member companies, more than $487,000 has been donated to Autism Speaks and the Southwest Autism Research and Resource Center. In Tucson, Our Family Services remains a recipient of AMCF funds, as does Tucson Homeless Connect. “AMCF is a key component to the charitable work and dedication that the multifamily industry in Arizona has for the betterment of the community,” said Nicole Wray, Managing Director, Real Estate for Greystar. “AMA members contribute time, money and numerous resources that are essential to making a difference in the everyday lives of thousands of people to include children, veterans and the homeless.” Schilling said he saw first-hand the impact that the AMCF support can have for the community when he went to the UMOM New Day Center. “I’ve been to UMOM and the work they do is nothing short of spectacular,” said Schilling. “I’ve seen women in difficult situations get back on their feet and back in the workforce. They are putting their lives on a good path and UMOM played a key role in that.” This year, the AMCF support of the UMOM New Day Center has helped the group to build an affordable housing project at 2011 W. Morten Ave. in Phoenix. The 54-unit 19West apartments opened in March and feature underground and surface parking, two- and three-bedroom
UMOM: Support from AMCF helped the UMOM New Day Center build its fourth apartment community, 19West Apartments. 44 | September-October 2019
apartments available at reduced rent to individuals and families with demonstrated need. Each unit has a full-sized washer and dryer, large kitchen and spacious bedrooms. UMOM built the four-story community to help put a dent into the growing affordable housing issue that the city is facing. That community joins three other affordable housing communities owned by UMOM; Legacy Crossing, Parsons Village and Sunland. Wray and Greystar are active in
both AMCF work, as well as Greystar’s own charitable initiatives, which include generating $109,000 in 2019 to support Camp Hope, a foundation that serves veterans with PTSD. Greystar is also sponsoring a walk/ run to benefit Saint Jude’s as part of their charitable initiatives. Greystar’s work is just one example of the efforts AMA members put forth to support not just the AMCF, but their own charitable work. Other examples include CREST Cares, which
AMA CHARITY EVENTS: AMA members take part in fundraising efforts like the Bowla-Thon, top, and First Fridays.
autism and their families through advocacy and support; increasing understanding and acceptance of autism spectrum disorder; and advancing research into causes and better interventions for autism spectrum disorder and related conditions. Autism Speaks enhances lives today and is accelerating a spectrum of solutions for tomorrow. www.autismspeaks.org AMCF TUCSON PROVIDES SUPPORT TO: OUR FAMILY SERVICES Our Family Services provides shelter and support to homeless children, youth and families through transitional housing, counseling and case management. They help build stronger communities, promote skill building and provide services for elders and adults with disabilities live safely & with dignity in their homes. They are also licensed as a behavioral health care institution by the Arizona Department of Health Service and help provide information and referrals. www.ourfamilyservices.org
raises funds for several groups like Sister Jose Women’s Center in Tucson and Crisis Nursery; MEB Gives, which works with groups like St. Vincent de Paul, Phoenix and Sunshine Rescue Mission in Flagstaff; CoStar Group has charitable initiatives nationwide; and Alliance Cares sponsors groups like New Pathways for Youth, Toys for Tots and The Boys and Girls Club. Those initiatives are just a sampling of charitable work by AMA member companies and communities in Arizona and nationwide.
in Phoenix has changed throughout the decades, and UMOM has risen to the challenge of providing food, clothing, and shelter to those in need since its inception. UMOM provides families facing homelessness with safe shelter, housing and support services so they can reach their greatest potential. UMOM’s mission is to prevent and end homelessness with innovative strategies and housing solutions that meet the unique needs of each family and individual. www. umom.org
AMCF PHOENIX PROVIDES SUPPORT TO: UMOM NEW DAY CENTERS Since 1964, UMOM new day centers has been dedicated to helping homeless families. The face of homelessness
AUTISM SPEAKS Autism Speaks is dedicated to promoting solutions, across the spectrum and throughout the lifespan, for the needs of individuals with
46 | September-October 2019
TUCSON HOMELESS CONNECT The mission of Tucson Homeless Connect is to provide a single location where local agencies, government, businesses, medical providers and the faith community collaborate to help homeless persons with basic needs, referrals and advocacy. www. tucsonhomelessconnect.org BOTH GROUPS SUPPORT: JULIE HURST AND STEVE PETERS EDUCATION FUND In memory of Julie Hurst, a Senior Vice President of Riverstone Residential, and Steve Peters, a Senior Portfolio Director with Shelton-Cook Real Estate Services. Both Julie and Steve served on the Arizona Multihousing Association Board of Directors, were very influential in the industry and were education advocates. The fund provides college scholarships to AMA members and their dependents attending Arizona colleges and universities full or part time.
AMA
with AMA Board Chair John Carlson
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ohn Carlson, president of MarkTaylor Residential, is 2019 AMA Board Chair. He guides a board that is 50 members strong in an industry that has seen tremendous growth in Arizona, particularly in the Valley. He has been with MarkTaylor — one of the largest apartment developers and property managers in the Western U.S. — since 2002. Q: Describe your experience with AMA and the value that you’ve received from being involved in the organization? A: Next year marks the 53rd year of the Arizona Multihousing Association (AMA) taking a leadership role in shaping the success and progress of our industry in Arizona. As I reflect on our long history and countless organizational accomplishments, I cannot help but draw inspiration from the unyielding dedication and hard work it took to achieve them. Being involved in the AMA has given me the opportunity to broaden my knowledge of the multifamily industry, understand the political landscape that impacts our business and build relationships with trusted partners in our state. This experience has provided tremendous value as I translate these learnings into my own organization and leverage the knowledge gained to better Arizona’s multifamily landscape as a whole. Q: What are the biggest challenges facing the multifamily housing industry in Arizona? A: I would say the two most
48 | September-October 2019
significant challenges facing the multihousing industry today are rent control and the negative perception of property owners as it relates to evictions. Although rent control is not in place in Arizona today, it has gained momentum in unexpected states throughout the country over the past few years. Rent regulation policies are government-enforced price control measures limiting the rents that property owners may charge in market rate rental housing that are harmful to residents and housing providers. It is the position of the AMA and National Apartment Association (NAA) that rent control distorts the housing market by acting as a deterrent and disincentive to develop rental housing, and expedites the deterioration of existing housing stock. While done under the guise of preserving affordable housing, the policy hurts the very community it purports to help by limiting accessibility and affordability. If government and private industry are unable to adequately meet the affordable and workforce housing needs, rent control could become a major issue in the near future. The other major challenge facing the industry is negative perception coupled with negative reporting as it relates to evictions. This perception is not just a statewide issue but a national issue as well. As property owners, we make a concerted effort to work with each one of our residents when issues occur. As an industry, we go to great lengths to create safe and secure places for our residents to call home. Significant time and resources are spent on building relationships and fostering long-time residents. If you were able to spend some time with management teams onsite or even talk to the majority of residents, the lifestyle and overall experience are often very positive in nature. Q: What role do you feel AMA plays in finding solutions to those challenges facing the industry? A: The AMA’s mission is to unite multifamily housing leaders in one trusted voice for Arizona’s rental community. This one trusted voice for
the industry has and will continue to play a major role in ensuring apartment owners and operators have the ability to run their businesses and continue to provide much needed housing for residents throughout the state. If public policy such as rent control starts to negatively affect the apartment industry, the negative economic impact to businesses, cities and the state as a whole would be substantial. According to the Elliot Pollack Apartment Market Analysis, the apartment industry generates $3.8 billion in annual economic output each year. For perspective, the total annual economic output activity for construction and operations would be equal to hosting 10 Super Bowls each year in Arizona. Additionally, the operations of the estimated 575,000 units throughout Arizona generates an estimated $561.8 million each year in government revenue. Moving forward, it’s imperative that AMA continues to protect the industry by building upon its position of strength with more than 270,000 units in membership, strong engagement, operational discipline and forward-thinking organizational leadership. The AMA is also very active in finding solutions to the lack of affordable housing. Q: What advice would you give a young person just starting out in the industry or considering a career in the industry? A: Multifamily is a darling within the real estate space. It is an asset class that has drawn in continual investment dollars, provides ample opportunity for growth and offers its customers the ultimate expression of their identity — a home. Being a part of this industry means taking on numerous challenges; no day will be the same. The right person to join our industry is prepared and excited to take on new challenges, gets out of their comfort zone consistently, handles problems quickly and focuses on providing premier service to their residents and owners. There is great opportunity for advancement for young people entering the industry.
49
ARIZONA MULTIHOUSING ASSOCIATION
Affordable housing crunch Industry, residents facing an issue of less supply, more demand By ALYSSA TUFTS
T
here’s no feeling like home. The sense of belonging, having a place to relax, making memories and enjoying the company of friends and family. However, for some Arizonans, that dream of being a homeowner or having a place to call home is a dream out of reach. The reason? A lack of housing, more specifically, affordable housing. The reason? A lack of housing, more specifically, affordable housing. According to the NAA/ NMHC study, between now and 2030, Arizona will need to build 16,855 new apartment homes each year to accommodate household growth and losses to the stock. However, producing enough new apartments to meet demand may require unique development approaches, more incentives and fewer restrictions. Brian Swanton, president and CEO of Gorman & Company, said the crux of the affordable housing issue comes
50 | September-October 2019
down to supply and demand. “It’s not a new problem and it’s a problem that’s growing and finally impacting so many households that it’s become more of a crisis and it’s being paid attention to as an issue,” Swanton said. “There’s massive levels of demand due to a lack of household income growth, while at the same time, housing costs are skyrocketing." Gorman & Company has about 1,300 affordable rental housing units in Arizona alone and have about 500 households on average on their waiting lists to get into their properties, Swanton said. “In Arizona we’re doing what we’ve done since 1986, we’re using limited federal resources to address the affordable housing problem and it’s inadequate,” Swanton said. To afford a one-bedroom apartment, a minimum wage worker would have to work 57 hours a week. Some progress has been made, as the Arizona
Mike Shore
Brian Swanton
Legislature appropriated $15 million to Arizona’s Housing Trust Fund this year, which is one of the largest investments towards housing and homelessness the state has seen in almost a decade. The legislature also considered a State Low Income Housing Tax Credit program that is similar to the federal program. The AMA supports the creation of a fiscally responsible state LIHTC program and has long
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AMA K E Y F A C T S
204,134 OR
23%
Renter households that are extremely low income
$24,600
Maximum income for 4-person extremely low income household (state level)
-153,331 Shortage of rental homes affordable and available for extremely low income renters
$38,390
Annual household income needed to afford a two-bedroom rental home at HUD's Fair Market Rent.
78%
Percent of extremely low income renter households with severe cost burden
(Source: National Low Income Housing Coalition )
supported the full restoration of the housing trust fund. There are many obstacles multifamily developers face when building apartments at all price points. As much as 32 percent of multifamily development costs are attributable to complying with local, state and federal regulations, in a quarter of the cases that number can reach as high as 42 percent according to the NMHC / NAHB June 2018 study. In addition to escalating costs, land use regulations, financial resources and lack of community or political support make it almost impossible to build affordable housing. HOM Inc., which operates Permanent Supportive Housing (PSH), Rapid ReHousing (RRH) and other permanent housing programs for vulnerable individuals and families experiencing homelessness and housing instability, helps craft solutions to the affordable housing crisis. “We look and act a lot like a private
housing authority for families and individuals who are experiencing homelessness,” said Mike Shore, president and CEO of HOM Inc. “We do that through partnerships with nonprofit homeless services organizations, mental health and integrated health care organizations who are serving those populations.” The affordable housing shortage is an increasingly complex problem that affects many populations in Arizona. While Arizona and Phoenix, in particular, are still considered very affordable in comparison to other metropolitan areas, an estimated 32 percent of households pay more than 30 percent of their income for housing expenses, according to the Arizona Apartment Analysis, a report conducted by Elliott D. Pollack & Company for the AMA. According to the National LowIncome Housing Coalition, Arizona has just 25 affordable and available rental units for every 100 extremely
low-income rental households. The national number is 37 for every 100. Only two states have a greater shortage, Nevada and California. With efforts from organizations and companies who champion more funding for affordable housing projects, passing legislation that makes a positive impact and providing programs that help lower income residents get into a home, progress is being made steadily and surely. The Pollack report suggests there is a strong need for future supply to address a lack of affordable housing, a portion of which will be met by aging apartment communities that have historically lowered rents over time. “The supply that is being planned and built appears to be primarily in high end of the market,” said Courtney LeVinus, President and CEO of the AMA. “The report illuminates what we’ve been saying – ‘this is where the supply/demand imbalance is most noticeable in Arizona.’”
BARRIERS AND MISCONCEPTIONS
the ability to have that affordable workforce rental housing, is affecting those people most vulnerable in our community,” said Gloria Muñoz, Executive Director of the Housing Gloria Munoz Authority of Maricopa County and an AMA Board Member. “It impacts homelessness; it’s a visual thing in the community. As a united force – and I keep going back to working together – it’s so true that if we work on the same issues and work towards the same outcomes, that is being united.”
A recent National Apartment Association survey ranked metro areas by relative ease of developing new apartments. Director of Industry, Research and Analysis, Paula Munger, presented details of barriers that impede the construction of more affordable housing projects across the country. “Across the board, the No. 1 concern and No. 1 factor was NIMBY-ism; not in my backyard,” Munger said. “Next were construction cost, shortage of labor and land cost. Everyone can agree they want their city to grow and progress. You need jobs, and these people need a place to live. “A lot of reasons people don’t want apartment development are misguided. These include crowding and traffic. But
52 | September-October 2019
these are people, teachers of their children and servers in the local restaurants, that need affordable housing,” Munger said. There are other obstacles multifamily developers face when building apartments at all price points. As much as 32 percent of multifamily development costs are attributable to complying with local, state and federal regulations. In a quarter of the cases, that number can reach up to 42 percent, according to an NMHC/NAHB June 2018 study. In addition to escalating costs, land use regulations, financial resources and lack of community or political support make it almost impossible to build affordable housing. “The affordability crisis we are in right now,
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AMA
Arizona’s apartment industry is an economic engine
E
ach year, thousands of jobs are created throughout the state in the construction industry from new apartment development. The estimated $1.1 billion in annual construction activity generates approximately 14,400 jobs with wages of $746.6 million and a total economic impact of $2 billion. Apartment construction also pays an estimated $182.5 million in impact fees and taxes to the state, counties and local governments. Real estate consulting firm Elliott D. Pollack & Company reviewed the most recent year’s apartment activity within Arizona and found that the industry continues to consistently produce significant benefits for the state and its counties and local governments in the form of jobs, wages, economic output and tax revenue. As of 2018, there are approximately 575,000 apartment units in Arizona.
56 | September-October 2019
The Arizona apartment industry is estimated to employ more than 12,000 people throughout the state. The operations of the communities create a ripple effect that generate an estimated 9,800 indirect and induced jobs. The apartment industry generates an annual impact of 21,900 jobs, $695.9 million in wages and $3.8 billion in annual economic output each year. Apartment operations also generate significant revenues for governments including property taxes, retail sales taxes on supply purchases, residential rental taxes, utility taxes and secondary revenues from employees. The state, counties and local governments collect an estimated $561.8 million each year from the Arizona apartment industry operations. The Elliott D. Pollack & Company report also addressed future needs in Arizona for apartment housing, including barriers and solutions to
development and affordability issues. The analysis found that demand for multifamily housing in Arizona is higher now than any other period of history. A significant percentage of millennials (the largest age cohort in the U.S.) are reaching their peak rental years and, because they are delaying marriage, will prefer apartments for a longer period of time. In addition, the retirement home cycle also appears extremely strong. The pool of baby boomers selling houses and renting is also likely to increase. Arizona renters will also demand a variety of rental housing ranging from low-income all the way up to luxury class. Overall, there is currently strong demand in all sectors, but affordability is becoming a persistent issue in terms of supply. There is strong demand for reasonably priced housing in all forms (for-sale housing, single family rentals,
MULTIHOUSING MUSCLE The total annual economic impact within Arizona’s apartment industry is the equivalent to the state playing host to more than 10 Super Bowls each year. Numbers tell the story:
$3.8
$699
730
Thousand
Thousand
131
235.9
$3.8 billion in economic output annually
$699 million in wages annually
730,000 rental home residents
131,000 jobs supported
235,963 new apartment homes needed by 2030
Billion
Million
Thousand
Sources: Elliott D. Pollack & Company; weareapartments.org
$1
Million
Arizona Multihousing Association has raised more than $1 million to benefit at-risk families and children in Arizona
818 North 1st Street | Phoenix, AZ 85004 602-296-6200 | AZMULTIHOUSING.ORG 57
AMA and apartment communities) that are close to employment centers and transportation routes that do not cost the household more than 30 percent of their monthly income to own or rent. There is a strong need for future supply to address this need going forward, a portion of which will be met by aging apartment communities that have historically lowered rents over time. Based on the median family income, a family in Arizona can afford a home priced up to $269,500. By comparison, for new homes, the median new home price in Metro Phoenix is reported to be just over $303,000 and the median resale price is $253,000. Thus, families at the median income are largely priced out of the new home market. For families who earn less than the median family income, home ownership becomes even less attainable. Housing affordability has become a top priority of many governments across the state. Many communities are well aware of the persistent and growing need for affordable housing solutions for their residents. Major factors that contribute to affordability, such as land prices and the cost of labor and construction materials, are outside the control of governments. In these areas, innovations in housing development are sorely needed. Within the control of government, there are policies that can be adopted that would help create more opportunities for affordable and workforce housing. There are meaningful solutions that governments can participate in to help eliminate barriers to affordable housing development. This includes a review of regulations that could be reduced or minimized if they impede the development of affordable housing, adjusting land use restrictions, parking requirements, or speeding up the permitting process. All could help to reduce overall construction costs and provide a better outlook for lowering required rents. There are also many ways to help encourage affordable housing, including density bonuses, expedited approvals, below market pricing of underutilized government land, and various forms of tax incentives made available to developers who include affordable housing. Overall, apartments continue to be a viable solution for affordable housing at each level of income in the state. Story courtesy of Elliott Pollack & Company. 58 | September-October 2019
Arizona Apartment Industry Impact Summary (2018 Dollars) Economic Impact Jobs (direct, indirect, induced) Wages ($ mil) Economic Output ($ mil)
Construction 14,374
Operations 21,907
$746.6
$695.97
$2,030.6
$3,758.6
Fiscal Impact State of Arizona
$75.6
$56.0
County Governments
$28.0
$162.5
$78.9
$343.2
$182.5
$561.8
Local Governments TOTAL
1/ The total may not equal the sum of the impacts due to rounding. (Source: AMA; Elliott Pollack & Co.; IMPLAN)
Renter Households by Income - 2017 State of Arizona Income $1,000,000 $900,000 $800,000
$150,000+
20%
$100,000 to $150,000 $75,000 to $100,000
$700,000 $50,000 to $75,000
$600,000 $500,000
Luxury Housing Segment
48% $25,000 to $50,000
$400,000
Workforce Housing Segment
$300,000 $200,000 $100,000
32%
< $25,000
Affordable Housing Segment
$0 (Source: U.S. Census 2017 American Community Survey 1-year Estimates)
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AMA
TACKLING HOUSING
AMA passes bill to preserve existing affordable housing opportunities for Arizona families By ALYSSA TUFTS
M
ore people are moving to Arizona each year, and the influx of new residents is contributing to a shortage of affordable housing, and is creating a larger problem that impacts the real estate industry including developers, landlords, tenants and residents. In the 2019 legislative session, the Arizona Multihousing Association (AMA) supported a key measure aimed at protecting existing affordable housing programs. Courtney LeVinus, president and CEO of the Arizona Multihousing Association, said the shortage of affordable housing in Arizona comes
60 | September-October 2019
down to inventory. “We don’t have enough rental units available at workforce and affordable housing price points. It’s really that simple. The lack of available rental units is exacerbated due to significant population growth, demographic changes with the younger generation waiting longer to form households,” LeVinus said. “Baby Boomers are becoming renters by choice. We need to preserve as much of the existing affordable housing and workforce housing stock that we can.” While creating new housing options is critical for Arizona, maintaining the current supply of affordable housing programs in the state was the focus of the AMA in 2019.
HB2358, which was introduced by Rep. Ben Toma (R), protects existing affordable housing voucher programs after an unfortunate court decision threatened to dismantle many housing-related programs. A Maricopa County Superior Court ruling in 2018 determined that when a rental owner accepts a Section 8 voucher on behalf of the resident, then the rental owner is prohibited from evicting the resident for any prior breach of the rental agreement. The ruling was based on the court’s plain reading of the “partial payment: statute in the Arizona Residential Landlord Tenant Act (ARLTA). If the housing provider was in the process of evicting a resident and then
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AMA the Section 8 payment arrived via direct deposit the rental owner would have to stop that eviction process. “Under the court ruling, a resident could assault another resident on the property, and the rental owner could do nothing in terms of removing the person who committed the violent act if they received a Section 8 voucher, LeVinus said. “This ruling was bad for the rental owner from a risk management perspective, but it was also terrible for other residents on the property who had to potentially live near an unruly resident.” Because of the Court’s ruling, housing providers were contemplating leaving Section 8 or other government assisted housing programs because AEROTERRA: One of the newest affordable housing communities to accept the Housing Choice Voucher in Phoenix was completed in 2017.
62 | September-October 2019
the Court essentially increased the risk for owners to participate in such programs. Had the Arizona Legislature not corrected this Court decision and housing providers determined that accepting Section 8 vouchers created too much of a financial risk, then the supply of affordable housing would have plummeted. HB2358 passed out of the Legislature with bipartisan support in both the House and the Senate. HB2358 amends the ARLTA to clearly exclude certain types of housing assistance payments, including Section 8 payments, made by government agencies for the purposes of the state law dealing with “partial payments” of rent. It became effective on August 27. For the 2020 legislative session, LeVinus said the AMA will continue to focus and advocate for more affordable housing and reduce any barriers to develop workforce and affordable housing going forward. "We're really trying to educate
Courtney LeVinus
Rep. Ben Toma
elected officials and the general public on why apartments and different types of housing are so critical," said LeVinus. "And really advocate for more apartments and more multifamily because we're seeing such a huge need. "We want to put Arizona in a position where we can continue to accommodate this amazing growth that we’ve had, and housing is critical for economic development and the employers of Arizona need quality housing for their employees.”
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NAIOP
NAIOP ROUNDTABLE 2019
68 | September-October 2019
By STEVE BURKS
T
he national economic growth cycle moved into uncharted territory on July 1, as the United States broke the record of 120 months of economic growth, according to the National Bureau of Economic Research. As of September 1, the run has reached 122 months of economic growth. Here in Arizona, we are seeing that growth firsthand, most notably in the development of office and industrial properties. Nearly 3 million square feet of
office product and 7 million square feet of industrial space is expected to come online before 2019 ends. Absorption rates remain solid and vacancy rates are at or below record levels while rents continue to climb. So it’s safe to say that the Phoenix market is enjoying robust activity and AZRE Magazine gathered some of NAIOP Arizona’s finest members to learn more about what’s going on in the market, how it compares to other markets in the country and what they see in their crystal ball.
NAIOP Roundtable participants
MR - Molly Ryan Carson, Senior Vice President, Market Leader, Ryan Companies US, Inc.
DS - Danny Swancey, Partner, ViaWest Group
JO - John Orsak, Vice President, Lincoln Property Company
JW - Jim Wentworth, Principal, Wentworth Property Company
DP - Darren Pitts, Executive Vice President, Velocity Retail Group, LLC
AC - Andrew Cheney, Principal, Lee & Associates
CT - Cathy Thuringer, Principal, Trammell Crow Company
CO - CJ Osbrink, Executive Managing Director, Newmark Knight Frank 69
NAIOP
1. “What has changed in our local commercial real estate industry over the past year?” DP: All sectors of the commercial market have been affected by rising construction costs and the shortage of skilled tradesmen. The costs for materials, site work, labor, and rising land costs are all factors that are affecting the economics of new projects coming out of the ground. Discussion of tariffs has added additional uncertainty to this dynamic in the marketplace. CO: We have continued to see more out-of-state and even foreign capital venture into Phoenix in search of best-in-class assets with attractive yields. This surge of out-of-state capital is a direct result of compressed yields in gateway markets that are seeing a much deeper and more aggressive buyer pool. If you look at the breakdown of the buyer pool over the last two years, for multi-tenant office over $10 million, only 19 percent of the buyers are based in Arizona, whereas 81 percent are out of state and 29 percent are from California. JO: Big Tenant activity! The big tenant activity started an up tick more than a year ago, but in the past year it has really picked up a lot of momentum. You see large firms dip a toe in the Phoenix market with a 7,000 – 10,000 square foot space. They see the quality of labor, the quality of life and cost of doing business and quickly decide to take a much larger position, some of which end up being several hundred thousand square feet. AC: Increased confidence. The drive along Loop 202 from Gilbert through Tempe is a good example of the growing faith that businesses have in our region. New office buildings have popped up on either side of the freeway including Rivulon, Park Place, Viridian, One Chandler, Discovery Center 70 | September-October 2019
Rio 2100, SkySong 5, The Grand, Watermark, I.D.E.A. and Novus. It’s exciting to see brand new companies come to Greater Phoenix and occupy these buildings, or existing businesses grow here in a major way. JW: The number and quality of institutional investors has changed in
You see large firms dip a toe in the Phoenix market with a 7,000 – 10,000 square foot space. They see the quality of labor, the quality of life and cost of doing business and quickly decide to take a much larger position, some of which end up being several hundred thousand square feet. – John Orsak
the past year. Many of these investors are looking at Phoenix for the first time as a result of getting priced out of the tier 1 and coastal markets. Phoenix has very solid fundamentals and the investors are getting much better risk adjusted returns here. Our economy is more diverse this cycle and is giving comfort to the investors. DS: More speculative development
in select submarkets sparked by continued positive absorption, tightening vacancy, and rates that are at or quickly approaching replacement costs. CT: From an industrial standpoint, the biggest change has been the proliferation of data center users entering the market and paying significant amounts for industrial land. In addition to reducing the inventory of available land for industrial development, the pricing levels paid by data center users inflate the expectations of land sellers which, in addition to rising construction costs, equate to additional strains on spec development economics. MR: This isn’t so much of a change, rather a continual, steady growth across the board for product types. Arizona continues to attract companies seeking affordable educated employment and a great quality of life; spurring continual relocations and expansions for companies in a multitude of businesses. (technology, financial, insurance and healthcare being the most active), Farmers Insurance and McKesson being two of the most recent expansions. Our business friendly/focused Governor and superior Universities continue to help Arizona be a desirable location for growing companies. 2. “How would you compare our Metro Phoenix commercial real estate market to other major markets throughout the nation and specifically the Western U.S.?” DP: Phoenix is one of the strongest growth markets in the nation and remains the “Bargain of the West”. We are also one of the country’s leading markets in new single family permits annually. Compared to the coastal markets of Seattle, Portland, San Francisco, Los Angeles and San Diego
and inland markets of Las Vegas and Denver, our market here in Phoenix on both the residential and commercial side remains very affordable. This coupled with a strong labor pool make Phoenix an attractive choice for corporate expansions or relocations. We provide a desirable lifestyle and affordability. CO: Phoenix is well-positioned relative to other major US markets and specifically on the Western US given its attractive yield and going-in basis with the consistent and positive fundamentals we have witnessed over the last few years. When you can buy a Class-A multi-tenant office building in the low to mid $300 per square foot (PSF) range, compare that to what we are seeing in markets like Los Angeles ($1,400 per square foot+), Orange County ($600 per square foot+), San Francisco ($1,500 per square foot+), Palo Alto ($2,000 per square foot+), and Denver ($700 per square foot+). AC: The difference in Greater Phoenix to other Western markets is simply opportunity. We have the most of it. We have the nation’s most innovative university in ASU, plenty of quality real estate (both existing buildings and sites) and incredible momentum. Both investor/ landlords and end users recognize we are the next best thing to a gateway market. This is because of our favorable business climate, quality of life and extensive labor force. No other western market can boast this same combination. JW: For office and industrial, Phoenix was late to rebound this cycle compared to other major markets. We have finally hit our stride while still showing discipline and not overbuilding. We are currently one of the more desirable markets for institutional investors. Also, Phoenix is continuing to attract good quality companies and is seeing relocations or expansions from other Western U.S. markets. This is due to the
The difference in Greater Phoenix to other Western markets is simply opportunity. We have the most of it. We have the nation’s most innovative university in ASU, plenty of quality real estate (both existing buildings and sites) and incredible momentum. Both investor/landlords and end users recognize we are the next best thing to a gateway market. – Andrew Cheney
access to quality employees and a lower cost of doing business. DS: Looking at most of the key quantitative and qualitative metrics that CRE folks track, Phoenix is performing extremely well on a relative basis both regionally and nationally. CT: Though we still encounter those who want to view Phoenix in the rearview mirror, our consistently steady population and job growth levels together with our pro-business focus and measured and disciplined growth this cycle are propelling Metro Phoenix
as one of the top real estate markets in the country. MR: Metro Phoenix remains a strong secondary market, which I believe is a terrific place (to be). We remain attractive for the reasons I mention above. 3. “What are the biggest opportunities that exist in the Phoenix market over the next three to five years?” DP: The Phoenix area continues to create new jobs and attract new residents. Phoenix adds 174 people daily just from inter-state migration, of these 37 percent are coming from California. Governor Ducey and GPEC have excelled in their efforts to attract companies to Arizona as we continue to be known as a pro business state. Phoenix is finally seeing significant urban renewal and infill redevelopment projects, including a new Fry’s Food & Drug store in downtown Phoenix. Additionally, the long-awaited redevelopment of Park Central will develop as a vibrant new urban core adding mixed-use density in the heart of our marketplace. CO: The Phoenix economy has recently posted very healthy and attractive statistics with respect to population growth, job growth, corporate migration, and cost of living relative to other gateway/primary markets. I believe we are going to continue to see these attractive fundamentals have a positive impact on rent growth, absorption/ vacancy, and eventually new inventory which will provide ample opportunities for the commercial real estate industry across the board (developers, architects, leasing/sales brokers, escrow/title, etc.) JO: I think that Phoenix will continue to capitalize on the population growth and in-migration to the absolute benefit of the commercial real estate industry. We are seeing new construction that is more urban and dense in nature whether it be high rise residential in downtown 71
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or office mid-rise campuses in North Tempe. It looks like that opportunity will continue as long as the economy continues to expand. AC: There’s been a huge rise in Office supply in the Southeast Valley. The next three to five years there will be about 3 million square feet of office space built with more room for growth for many years to come. The biggest opportunities that exist in our market are delivering what tenants want: a vibrant place to work with amenities and parking nearby. This can be accomplished by repositioning older buildings or delivering modern, compelling buildings at great sites. JW: If we keep our costs in check, metro Phoenix will continue to see strong population and job growth over the next five years. There will still be capacity for well-located and functional office and industrial buildings. Infill locations near freeways are more and more difficult to find but those that find them at the right basis will be heavily rewarded. MR: YES! As companies continue to expand and relocate office space will continue to be in demand, IF we continue to be responsible/modest with increasing our rental rates. Select sub markets remain ripe for office development at market rents. Tempe’s office vacancies remain sub 3 percent and office space is nearly non-existent in Central and South Scottsdale; speculative product would allow for expansions and new tenants looking to enter the market. There is still strong demand for speculative Industrial at both the small and large scale. Nationwide the industrial sector remains healthy and stable, this is true for greater Phoenix. Rents remain at near all-time highs in several submarkets. A slight slowdown 72 | September-October 2019
could occur in late 2020 depending on how interest rates behave. Multi Family and Senior Living are speculative by design, Metro Phoenix seems to have a long run ahead of itself in both sectors. With 50,000-100,000
Hottest submarket is the Southeast Valley (specifically Tempe and Chandler) when you look at rent growth, absorption, and office vacancy as well as depth of buyer pool. That submarket is driving over 40 percent of the workforce in the Phoenix MSA and has access to ASU. – CJ Osbrink
people net per year projected to move to AZ each year combined with the large number of people entering their golden years, these market sectors will continue to be successful IF we maintain market rate rents. One of the biggest opportunities Phoenix has is affordable housing. Phoenix is projected to keep growing 50k-100k people net per year for the next 10 years. Most apartments being built are luxury high rent projects. Most
of the population can’t afford these rents and their neighborhoods suffer with little new product being built. If Phoenix wants to sustain this growth it must built in affordable locations with affordable product, but also needs to incentivize developers because the numbers don’t normally pencil. 4. “What is the hottest sub-market right now and what is the next hot submarket?” DP: 3 key markets on the retail side - Queen Creek, Laveen & Surprise. Queen Creek’s housing growth is very attractive to retailers and is still underserved from a retail perspective. Expect a new 370,000 square foot power center to be built at the northwest corner of Ellsworth Road / Queen Creek Road along with a new Aldi-anchored grocery center on the northeast corner of the same intersection. Laveen’s new regional retail intersection at the newly created diamond-interchange at Loop 202 / Baseline Road will be the focal point for more than 300,000 square feet of new retail space. Finally, Surprise continues to see strong housing growth - look for a new Costco and a new Sprouts along the Waddell and Cactus interchanges on the 303 in 2021. CO: Hottest submarket is the Southeast Valley (specifically Tempe and Chandler) when you look at rent growth, absorption, and office vacancy as well as depth of buyer pool. That submarket is driving over 40 percent of the workforce in the Phoenix MSA and has access to ASU (and a young millennial workforce), multiple freeway systems, the light rail, Sky Harbor Airport, and more. I think we have already begun to see this spillover into the neighboring submarket of Gilbert, which I would call the next hot market.
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JO: It’s hard to argue with the North Tempe story right now. With record low vacancy rates and an impressive roster of tenants that have located there, Tempe is definitely the belle of the ball. AC: The hottest submarket in the Phoenix metro is Tempe. Tempe is the highest rent in the Phoenix metro and the second lowest vacancy of 8.2 percent. Chandler is the next hottest submarket. There will be about 2-3 million square feet of office buildings built within the next couple years. Tempe then central Scottsdale, south Scottsdale and downtown. Clearly Tempe is still the darling of the entire market with the lowest vacancy, highest demand, and highest rates. The next hottest area will be either South Scottsdale, Downtown and Chandler. All of these areas have unique stories, very cool new construction and sound fundamentals. DS: North Tempe continues to set the pace from an office perspective with several other core sub-markets humming along nicely. Regarding next hot sub-market, Downtown certainly has a lot of key ingredients that are attractive to tenants and I believe it will continue to increase its relative competitive position over the next few years. CT: For industrial, the Southwest Valley continues to outperform given its concentration of big box product. Next hottest submarket for industrial would be the Southeast Valley communities of Chandler, Gilbert and Mesa. For multifamily, Downtown/ Midtown and Scottsdale are at the forefront in terms of overall activity. Similarly, North Tempe is the hottest office submarket given the inventory of projects underway. Chandler and North Scottsdale are both poised to see an uptick in activity over the next 2-3 years. 74 | September-October 2019
The more insulated markets like Tempe and Scottsdale can still handle spec buildings but the developers will need to find equity and debt that understand the metro Phoenix market. At this stage of the cycle, lenders and equity investors are increasingly cautious of spec developments. – Jim Wentworth
5. “Are there any product types or submarkets where you feel supply and demand are out of balance?” DP: Tenant demand for big boxes has softened while demand for visible multi-tenant pad buildings continues to be very intense. This has added additional fuel to the big box glut that plagues many shopping centers in the Phoenix area. Competition for in-fill pad sites is strong as developers and end-users compete for superior sites at prime intersections. CO: It feels like there is an imbalance in supply and demand for Class-B/C office in secondary locations within the Valley. There is certainly no shortage of it, but the demand for
that type of product is not as broad as we have seen for the best assets in the best locations. Outside of office, we are also seeing a fairly large disconnect in supply and demand in the Power Center retail sector. There is no shortage of Power Centers in the Valley, and compared to 36 months ago, the demand for this type of product has fallen off significantly. AC: After being the hot spot in the last cycle, North Scottsdale has been slower this time around…but is making a turn. The supply has not been out of balance as much as the new demand has been lacking. Stay tuned for next quarter, however, as a couple of large uses could change the momentum up there quickly. CT: Probably the West Valley and availability/supply of office product. The labor story is very compelling, and rents have improved slightly, but it is still difficult to make spec development economics pencil given the rise in construction costs and land pricing expectations. 6. “Is the Phoenix market still ripe for spec building? If so, where and what type of buildings?” CO: We have started to see more spec office buildings pop up but in markets that can justify the rents to build and tenant demand. Markets like Tempe (i.e. The Grand). Otherwise, unless it is a submarket with high barriers to entry, attractive (and growing) rents, and high tenant demand- it feels most activity would be centered around build-to-suit or larger tenant pre-leased product. JO: So far demand has outstripped supply and there has been a very healthy level of new deliveries to the market. As long as that continues, we will still see some developers building spec product. The demand side of the equation still feels really good. Likely the biggest
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deterrent to spec building will be banks' willingness to lend into this long recovery. A recovery won’t die of old age, but it sure will make the lending community a little more cautious. AC: Yes in several areas! Metro Phoenix demand is on track to outpace supply in 2019. Again, tenants crave vibrant new places in which to work and relax. Multi story class A office will continue to do well in Tempe, South & Central Scottsdale and Chandler. The surprisingly tight area that could also use new product is Peoria. Whoever gets a new office project up in the Arrowhead area will be handsomely rewarded. JW: Metro Phoenix still has capacity for spec office buildings in select locations. The more insulated markets like Tempe and Scottsdale can still handle spec buildings but the developers will need to find equity and debt that understand the metro Phoenix market. At this stage of the cycle, lenders and equity investors are increasingly cautious of spec developments. DS: There are definitely submarkets where both industrial and office spec development pencils. The challenge for many developers as it relates to spec office is the lack of attractive debt solutions. Many lenders are still not keen on spec office without substantial pre-leasing and/or heavier recourse. This can create challenges when large tenants’ have shorter-fuse timing requirements and cannot wait for a build-to-suit. 7. “What is the current state of the retail market in metro Phoenix? What changes do you expect to see for retail over the next few years?” DP: The retail market has returned to a healthy vacancy rate of 7 percent which is the lowest it has been since 2008. New construction is 76 | September-October 2019
minimal with most projects being fully committed prior to the start of construction. The market has averaged about 1.35 million square feet of new construction post-recession compared to 7 million square feet pre-recession. New construction in retail is a fraction of what it has been historically. Retailers continue to evolve. To survive today, they must provide value and instant convenience to the consumer. Delivery options are plentiful and allow the consumer to get what they want when they want and where they want. Retailers are
Retailers continue to evolve. To survive today, they must provide value and instant convenience to the consumer. Delivery options are plentiful and allow the consumer to get what they want when they want and where they want. Retailers are embracing omni-channel options and revising stores to accommodate the demands of the consumer. – Darren Pitts
embracing omni-channel options and revising stores to accommodate the demands of the consumer. We will see more of these operational and physical changes in the coming cycle as retailers continue to channel data, use geolocating, and provide targeted offers to customers. Also look for significant changes in restaurants and their food delivery networks & systems. 8. “How have the needs of industrial occupiers changed with the acceleration of the e-commerce trend in recent years?” JO: There is no doubt that industrial is hot! E-commerce has fully transformed the industry. The needs of industrial occupiers are much different now. Long gone are the days of hot, dusty industrial buildings with a crew of forklifts grinding away the day. Occupiers today are employment centers. They need to attract skilled labor and RETAIN that labor. The buildings are now fully air-conditioned and will let with the latest LED lighting packages. There are cafeterias and break-rooms full of arcade games, TV’s and fitness facilities. The high-ceiling warehouse space is still a necessity, but the approach to the employee experience has made a complete shift. CT: The need for facilities closer to consumer bases is, for some users, resulting in establishing multiple smaller footprints across targeted MSAs. In climates such as Phoenix, most facilities are trending to all A/C environments based on product needs, but also to attract and retain labor. Material handling technologies continue to advance to get product in and out quickly and more efficiently. When designing speculative projects for potential e-commerce users, primary project attributes need to
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include 1) abundant power with expansion capability, 2) upsized structural load capacities, 3) ample and expandable auto parking, and 4) efficient truck circulation with plentiful trailer parking. 9. “Do you see industrial cap rates increasing, decreasing, or remaining stable over the next year?” JW: It is obviously interest rate dependent, but I believe they will be stable over the next 12 months and may even go down for some of the best product. Obviously, the credit of tenants and lease terms factor into this. Industrial is currently the most favored product type amongst institutional investors across the country and it is very difficult for them to get enough of it. Most of them are “under-weight” on industrial and are willing to stretch on pricing for it. This is particularly true when it comes to newer and functionally relevant industrial buildings. We are still considered a good value compared to the coastal markets. DS: For multi-tenant product, I believe you’ll see them remain fairly stable as you’ll likely have improving operating fundamentals offsetting any mild upward interest rate pressures. CT: Cap rates will decrease on best-in-class newer product that is brought to market in 2019 and 2020 if interest rates remain stable and cap rates for like-kind product in gateway markets continue at current levels of compression. For all other industrial product, cap rates should remain stable over the next year given the amount of capital seeking investment in industrial projects. 10. “How have co-working spaces changed the market? Do you expect this trend to accelerate or have we 78 | September-October 2019
Co-working operators have made big moves in metro Phoenix over the past 12 months and have signed major leases in downtown Phoenix, Tempe and Scottsdale. This has happened in metro Phoenix later than other major markets. Corporate America sees co-working spaces as a flexible way to expand or contract in markets and are becoming larger users of the co-working spaces. – Jim Wentworth
maxed out on the number of coworking facilities?” JO: Co-working spaces have changed the office landscape by offering what is now so important to tenants… short term flexibility. For a Landlord, we begin to wonder if co-working is a benefit or a competitor for our business. I think the answer is both, so long as there is balance. It remains to be seen how much of this type of operation the market can absorb. At some point, there will be winners
and losers, but I don’t think anyone can really tell when that might happen. There will likely be some sort of consolidation event that will eventually start to set that boundary and answer the question of how much is too much. AC: Co-working groups are competing for more significant users, not just small companies like they have done in our market previously. They are doing this through flexibility- chasing after users who typically would look at longer term leases and offering them significant amounts of space at a healthy premium, but at much shorter terms. We expect all the players here to continue to grow. And I wouldn’t be surprised if WeWork doubles in size over the next two years. JW: Co-working operators have made big moves in metro Phoenix over the past 12 months and have signed major leases in downtown Phoenix, Tempe and Scottsdale. This has happened in metro Phoenix later than other major markets. Corporate America sees co-working spaces as a flexible way to expand or contract in markets and are becoming larger users of the co-working spaces. The co-working spaces are no longer just for the startups and small businesses. As a result, I would expect them to continue to expand in metro Phoenix. DS: One of the primary impacts of co-working is tenants now have an option that provides term flexibility, albeit at a premium. For high-growth tenants this is often important so there are some pressures on traditional landlords to consider shorter-term leases to compete with co-working. The flip side is that landlords are benefiting from tenants becoming more accepting of less-customized tenant improvements which can significantly lower upfront leasing costs.
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GOODS TIME Phoenix becoming a magnet for distribution and warehouse facilities By STEVE BURKS
A
s the Phoenix Market grows, so does the demand for goods and places to sort, store and ship them. At the same time, the cost of doing business in coastal markets is becoming unmanageable for some companies, so Phoenix is a very attractive (and much more affordable) alternative. This double whammy has turned Phoenix into an emerging hub for new warehouses and fulfillment and distribution centers. “There are several factors positioning Phoenix as a distribution/warehouse leader in the region,” said Mike Sacco, vice president of the Western Regional office for EastGroup Properties, a major industrial developer in the U.S. “Major factors include its geographic location in relation to other major markets, an overall favorable business environment, the lack of natural disasters, reliable and relatively cheap energy and the climate, which virtually eliminates weather related transportation delays.” About 35 million consumers in the Western United States are within a day’s truck haul from warehouses in Phoenix, one of the hottest industrial markets in the country right now as developers rush in to meet e-commerce and third-party logistics demand. Phoenix is well positioned not just because of its location, but also because it has a robust freeway system. New freeways like the Loop 303 and the South Mountain Freeway have opened up new areas of development that will put more square footage within close proximity to major freeways. According to the Colliers International Q4 2018 Industrial
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Market Report, developers delivered 7.8 million square feet of new industrial space to the Phoenix market in 2018. Of that space, 5.4 million (or 70 percent) was warehouse space and 1.6 million was distribution space. The figures for 2019 are trending in a very similar fashion, according to Cushman & Wakefield’s 2019 Q2 Industrial Market Report. As of the end of Q2, there was 7.6 million square feet of industrial product under construction in the Greater Phoenix market and 4.1 million square feet of that is distribution related space. The majority of this new distribution space is centered in the Southwest submarket, with 2.6 million square feet in the pipeline. Glendale has 1.5 million square feet under construction and the Gilbert/Gateway Airport submarket and the Chandler submarket combine for 2 million square feet. This new burst of distribution space is not like the old school warehouses. Past warehouses were tiny compared to the modern industrial buildings, and the new generation of distribution center is more efficient, both in functionality and in cost to operate. “The old buildings had low clear height, tight coverage ratios, little car parking, little to no trailer parking, old metal halide lighting, maybe evaporative cooling, if any cooling, and were located in more infill areas like Sky Harbor Airport, Grand Avenue, Tempe/Chandler/Mesa,” said Will Strong, executive managing director for Cushman & Wakefield, whose focus is industrial sales. “New buildings have 30-feet to 40-feet clear height,
Michael P. Sacco
Will Strong
generous all concrete truck courts, heavy car and trailer parking, or just more functional layout. Now, areas like Tolleson, Goodyear, Deer Valley, and far Mesa are booming.” Modern distribution centers are breaking barriers when it comes to energy efficiency. In 2016, the REI distribution center, located in Goodyear, achieved LEED (Leadership in Energy and Environmental Design) Platinum certification, the highest level in the U.S. Green Building Council’s (USGBC) green building rating system. It was the first distribution center in the U.S. to achieve both LEED Platinum certification and Net Zero Energy. The facility is the first distribution center to earn Platinum certification in 2016 and, at 400,000 square feet, is the second largest Platinum-certified distribution or warehouse facility in the U.S. “Major efficiencies as it relates to sustainable features in EastGroup’s new Phoenix development projects include full LED lighting with motion sensors, R-38 insulation at the roof deck, white reflective 60 mil TPO roof membranes, insulated loading
doors, low shading coefficient glass and drought resistant landscaping with smart sprinkler timers,” said Sacco, whose company is currently building the 317,978 squre foot Gilbert Crossroads Business Park just south of the Loop 202 in Gilbert. “These physical design features coupled with the fact that EastGroup’s buildings are generally located in in-fill locations near major transportation features such as freeways and airports create a synergy helping our customers operate efficiently and quickly move product.” Inside many of the new distribution centers are miles and miles of conveyor belts to move the products and floor-toceiling storage racks to hold them. There are also high-tech sorting and retrieval systems. Amazon has five fulfillment AMAZON: The modern distribution and fulfillment center, below, is a maze of conveyor belts and chutes that move and sort products. In some facilities, robots are taking on greater roles in the product retrieval and sorting process.
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NAIOP centers in Maricopa County and another recently built facility in Tucson. Some of these facilities feature robotic, automated retrieval and stacking systems that are state-of-theart and rely less and less on human handling of products. Current major distribution projects underway in the Phoenix market span the entire Valley. The 539,000 square foot Central Logistics Center is being developed just south of Downtown Phoenix, the SM202 Commerce Park is bringing 700,000 square feet of space to the newly opened South Mountain Freeway corridor and in the Southeast Valley, the Lotus Project, which will feature both manufacturing and warehouse and distribution space, is nearing completion in Chandler. The biggest cluster of new distribution space is being built in the Southwest Valley market, in cities like Avondale, Buckeye, Goodyear and Tolleson. There are several projects in various stages of development in the Southwest Valley and Goodyear added to that list in late August when it was SKYBRIDGE: Air cargo hub to house both U.S. and Mexican customs and become a premier destination for auto parts, food processing, manufacturing and e-commerce businesses.
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announced that Quetico, LLC and The Fullmer Company, LP are teaming up to build a 719,520 square foot logistics building. Quetico Logistics is moving its California operations to the new Goodyear facility when it is completed late in 2020. “We looked at many other markets during our search to move and expand our operations,” said Tom Fenchel, CEO of Quetico Logistics. “Goodyear just made sense. The location is near the Phoenix–Goodyear Airport and major interstates with coast-to-coast connectivity. The site has Foreign Trade Zone possibilities which, combined with the competitive cost of doing business in Arizona, made our decision easy.” Founded in 1994, Quetico Logistics provides specialized wholesale, inventory management, and thirdparty logistics services of consumer products (mainly apparel and soft goods) to big-box retailers and brand name manufacturers in North America and abroad. In addition, Quetico has smaller facilities in Canada, Mexico and Panama. Strong sees the Loop 303 corridor and Goodyear submarket as areas that will continue to see strong industrial development in the next few years, as long as the investment dollars continue to get deployed in the market.
“I see a ton of investment coming into this market, it’s not slowing down,” said Strong. “There are a few factors working against continued development. Cap rates have come down a lot and it’s getting really expensive to buy here. It used to be a good alternative to primary markets. But as long as California cap rates push down we will see the same thing happen here. Also, it’s harder to find good land sites for new development, especially infill.” Sacco is looking to the east for future distribution facility development. He sees the East Mesa/Gateway Airport submarket as a hotbed for new projects, much of which will be centered around the Skybridge Arizona project. Skybridge will be located at Phoenix Mesa Gateway Airport and will be the first air cargo hub to house both U.S. and Mexican customs officials. It is expected to be the primary entry and exit point for goods traveling by air between Mexico and the United States. The project is in the early stages of development, but if it reaches its full potential, it will have more than 3.5 million square feet of industrial space, much of which will be distribution space for the tons of goods expected to pass through.
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High times for high tech Phoenix office market adjusting to influx of technology companies By STEVE BURKS
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rizona is in the midst of a stellar economic growth cycle, much of which is being driven by companies relocating to or expanding their footprint in the market. In 2018 alone, Greater Phoenix welcomed three new corporate headquarters and 42 businesses that opened offices in the market or expanded their current operation. According to numbers released by the Greater Phoenix Economic Council, the economic impact was $1.18 billion in capital investment and more than 8,600 new jobs. All of these new companies require office space, and the property owners and brokers in the Phoenix market are learning what these companies desire in an office. While the most vital of these demands are universal, each company has their unique requirements and budgets. “A focal point of most modern companies is attracting and retaining
talent which means that they will typically be willing to pay more for locations, buildings, and suites that allow them to have a leg up in the war for talent,” said Danny Swancey, partner at ViaWest Group, which develops, purchases and manages office properties in the Western U.S. “On the other end of the spectrum, warehouse tenants with low-margin business that may be heavily automated might be more price sensitive when it comes to their occupancy costs.” So who are these new companies moving into the Valley and what unique demands do they bring with them? Over the past 10 years, Phoenix has seen a huge influx of financial tech and other high-tech related companies. Some of these companies have been drawn here by Arizona’s Regulatory Sandbox Program (RSP), which was created in March of 2018. Companies like Early Warning Services, LLC,
CHANDLER VIRIDAN: Stantec, a high-tech engineering and architectural firm, was the first tenant at the Offices at Chandler Viridian.
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the creator of Zelle online payment system, and Verdigris Holdings, have large workforces located in the Greater Phoenix market as a result of the RSP. This “FinTech Sandbox” allows financial services companies to test innovative products and technology in the market for up to 24 months without obtaining a license or other authorizations that might otherwise be required. Along with financial technology, Phoenix is seeing a variety of technology-related companies set up shop in the market. “With ASU as one of the top ranked engineering schools in the country, that has in turn drawn tech companies to the area for a high talent pool of new graduates,” said Alissa Franconi, associate principal, RSP Architects, and one of her firms’ top office interior designers. “This has caused other industries in the Valley to renovate or explore new workplace strategies to RIVULON: Deloitte will employ more than 1,000 at its Gilbert location.
Adrian Evarkiou recruit and retain the top talent.” In just more than a year, the Phoenix market has witnessed many high-tech companies set up roots in Arizona, including: Airbotics, Creighton University, Deloitte, Nationwide Insurance, Nikola Motor Company, Oscar, Prenexus Health, Scheidt & Bachmann USA, Inc., Sends and Voya Financial, Inc. These companies will require space for just a few dozen employees to more than 1,000 employees like Voya Financial expects to hire in the next 5 years. While new companies are coming into the market at a high rate, office brokers are seeing some drop off in certain, longstanding tenant classes. “I’ve seen a consistent increase in nearly all sectors, but law firms and other professional service firms are shrinking,” said Bryan Taute, executive vice president for CBRE and NAIOP’s 2019 Office Broker of the Year winner. “They
require less support and are providing more flexibility to work from home.” The financial tech and high tech companies have similar office demands. They want Class A space with ample amenities and prefer the open office concept, but not too open. “They are still cramming a lot of people in smaller spaces,” said Adrian Evarkiou, partner at The Boyer Company, which has developed office projects like Freedom Financial, Benchmark and Rio 2100 in Tempe. “They want open floor plans with not many offices, except for on the interior. They are looking for custom design, open office, more amenities expected in the park or building.” “We are seeing an increased request for more amenities, both internal and external,” added Franconi. “From work cafes, walkable amenities to their office, pickleball courts, quiet library focus areas, more choice in how and where they work. The reason to create these amenities is to
Alissa Franconi
Bryan Taute
keep employees engaged with each other in the office environment.” One of the ways that some companies are dealing with the move into the market is by utilizing co-working spaces. This allows them access to the kind of Class A spaces they want, but with flexible terms and the ability to expand or contract quickly. “The biggest difference is often determining the best way to handle future growth or lack thereof,” said Swancey. “The unknowns of tenants in dynamic industries often make it challenging to predict head counts, configuration, and overall space needs. This is one of the reasons why flexible office, aka co-working solutions, can be a great stopgap for companies during seasons of their life cycle where there may be less predictability.” For office brokers, these new tenants are looking for flexible lease terms, along with the aforementioned amenity
THE GRAND: Tempe development is close to completion of second building.
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NAIOP filled buildings. Also, they are focused on locating in urban settings, if financially feasible. And if not located in an urban setting, an office that has an urban feel. The current office products under construction reflect that desire for the urban work environment. Of the 1.6 million square feet of office space under construction in the first half of 2019, just under 1 million square feet OFFICES: Above, The Department; below, Chandler Viridan.
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of that is in the Tempe North (near Arizona State University and Tempe Town Lake) submarket. Projects like The Watermark, 777 Tower, I.D.E.A. Tempe, The Grand Phase 2 are best-inclass type products that will be leased up quickly. Downtown Phoenix is second on that list with 328,402 square feet of office space under construction, 200,000 square feet of that in one project, Block 23. Since 2016, Downtown Phoenix has leased more than 620,000 square feet of office space to tech companies as they are drawn to
the Central Business District. “Yes, some companies have recognized that the ‘cool clubhouse’ (new build in good buildings) is helping with employment retention,” said Evarkiou. On other factors, there are some difference in opinions from office experts. Two of those are customization or tenant improvements, as well as open vs. drop-tile ceilings. “Most prefer open ceilings, but noise concerns are causing more clouding or dropped ceilings in portions of the space,” said Taute. “Outside of professional services firms, almost all spaces are laying out very similarly. Tech company, insurance companies, financial services, etc. all tend to look very similar. Most users are not looking to customize.” “Due to a more competitive talent pool, we are seeing an increase in office customization,” said Franconi. “Companies are using their space as a tool for recruitment and creating an experience as a potential candidate comes in for an interview.” Other factors new tenants to the Valley must deal with are the rising asking rents in the market. Overall vacancy in the Phoenix market was 15.3 percent in the second quarter of 2019, according to the Q2 Office Market Report from Cushman & Wakefield. This was more than two percent below the historical five year average and was a major factor in pushing asking rents up to $26.25 per square foot. For Class A office product, the overall asking rent was $30.56. In the past, human resource staff was not heavily involved in the selection process for a new office but modern companies are seeing the value of having the HR point of view when deciding what kind of office space fits their workforce. “Human resources definitely has more influence today than ever before,” said Taute. “It’s a combination of real estate, HR and finance. You need to appeal to all to have the most success.” “There’s no doubt that more tenants are incorporating HR into real estate decisions,” echoed Swancey. “For larger companies, we often see committees comprised of HR, finance, facilities, and executive team personnel.”
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NAIOP T member projects hereâ&#x20AC;&#x2122;s no shortage of office and industrial projects in the production pipeline in the Greater Phoenix market, and the NAIOP-AZ members are front and center in the majority of those projects. From nearly 1 million square foot industrial behemoths, to office towers to airplane hangers, these are just a sampling of the NAIOP member projects in the Valley.
200 EVB
Developer: ViaWest Group General Contractor: Stevens Lienweber Architect: RSP Location : 200 E. Van Buren St., Phoenix, AZ 85004 Size: 240,000 SF (building size) approx. 75,000 SF in redevelopment Brokerage Firm: Colliers - Ryan Timpani Value: Withheld Start/Completion Date: February 2019/ Q4 2019 Subcontractors: Adobe Drywall, RCI Systems, Wholesale Flooring Project Description: The repositioning of this iconic building includes rebranding, a new signage plan, full renovation of the lobby, and floors two and three, including restrooms. Spec suites will be built out on the second floor and a full floor spec suite is planned for the third floor, a 25,000 SF floor plate. In addition to upgraded aesthetics, the lobby will feature a new security command center and upgraded security access to the elevators. Press Coffee Roasters has signed a lease to open up a location in the lobby, which will have a patio accessible from street. The parking garage is undergoing a LED retrofit and the addition of new security gate access. 88 | September-October 2019
777 TOWER AT NOVUS
Developer: Ryan Companies US, Inc. & University Realty LLC General Contractor: Ryan Companies US, Inc. Architect: DAVIS Location: 777 S. Novus Plc., Tempe, AZ 85251 Size: 169,000 SF Brokerage Firm: JLL Start/Completion Date: April 2018/July 2020 Subcontractors: Kraemer Consulting Engineers, Meade Engineering, Speedie & Associates, Suntec Concrete, Sun Tech Glass Project Description: The six-story office building will feature an open floor plan with penthouse office space, retail on the ground floor and an urban plaza; activating the public space for Novus employees, residents and visitors. The architectural design of the building is designed to convey a high-quality, contemporary and sustainable aesthetic which is technologically sophisticated; complimenting the stateof-the-art office core of Novus Innovation Corridor. The building is walking-distance from dining options, sports venues, ASUâ&#x20AC;&#x2122;s Tempe Campus, downtown Tempe and the Rural Road light rail station.
AIRPORT 40
Developer: Conor Commercial Real Estate General Contractor: McShane Construction Company Architect: Ware Malcomb Location: 3030 S. 40th St., Phoenix, AZ 85040 Size: 320,700 SF Brokerage Firm: Cushman & Wakefield Value: $35 million Start/Completion Date: March 2019/May 2020 Subcontractors: Jenco, Suntec, SDC, Progressive Roofing, Ikon Steel Project Description: Airport 40 is an assembled 18.8 acre infill industrial development in the land-constrained Sky Harbor Airport submarket. The two-building spec development will feature 320,700 SF of class A rear-load industrial space with 32â&#x20AC;&#x2122; clear, ample auto parking, and yard and trailer parking available to tenants. For more information please visit www.airport40.com 89
NAIOP AIRPORT GATEWAY
Developer: Baker Development Corporation General Contractor: Layton Architect: Butler Design Group Location: 224 N. 143rd Ave. & 215 N. 143rd Ave. – Goodyear, AZ 85338 Size: Lot 1 – 113,153 SF & Lot 2 – 213,229 SF Brokerage Firm: JLL Value: $15.2 million Start/Completion Date: Q4 2019/Q2 2020 Project Description: The project is located in the airpark gateway master plan and will be developed by Baker development based out of Chicago, Illinois. The project consists of two, single-story industrial shell buildings of 112,000 SF (lot 1) and 220,000 SF (lot 2), and associated truck court areas. The anticipated uses include light manufacturing and warehouse distribution with supporting office components. The design of the
elevations will provide flexibility to create the primary tenant entries at either of the building corners. Corner design elements
include 14’ tall glass, reveals, punched openings and stepped parapets.
ALLRED PARK PLACE – BUILDINGS 15 & 16
Developer: Douglas Allred Company General Contractor: Willmeng Construction Architect: Balmer Architectural Group Location: 1650 and 1700 S. Price Rd. Chandler, AZ 85286 Size: 302,000 SF Brokerage Firm: CBRE Value: $83 million Start/Completion Date: Q1 2018/Q2 2019 Project Description: The project consists of two separate three-story buildings at the southwest corner of Willis and Price Roads, totaling 302,000 SF. Both buildings will have three-story lobbies and share an exterior courtyard centered in-between each. The site will also include landscaping and a parking structure.
ANDERSEN WINDOWS
Developer: Opus Development Company, LLC. General Contractor: Opus Design Build, LLC. Architect: Opus AE Group, LLC. Location: 4395 S. Cotton Lane, Goodyear, AZ 85338 Size: Phase I (of a two phase project) will consist of a 550,000 SF manufacturing, assembly, and distribution facility. Brokerage Firm: JLL (Landlord) and Cushman & Wakefield (Tenant) Value: Phase I total costs of $105 million inclusive of land acquisition, building construction, exterior improvements, interior tenant improvement build-out and fixtures & equipment. Start/Completion Date: January 2019/ March 2020 Subcontractors: Hunt Electric Corporation, Horwitz, Inc., Suntec, Saguaro Steel Industries, LLC. Project Description: The Opus Group is acting as 90 | September-October 2019
lead developer, designer and contractor on a 550,000 SF manufacturing facility for Andersen Windows. The facility will
represent Phase I of a two phase project and will be fully operational by the first quarter of 2020.
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NAIOP BANNER IRONWOOD MEDICAL OFFICE BUILDING II
Developer: Ryan Companies US, Inc. & Plaza Companies General Contractor: Ryan Companies US, Inc. Architect: Butler Design Group Location: 37200 N. Gantzel RD., Queen Creek, AZ 85140 Size: 61,837 SF Start/Completion Date: November 2018 /August 2019 Subcontractors: Schuff Steel Management Co, Commonwealth Electric Co of the Midwest, Commercial Air Inc, McKinney Glass, CDS Framing Inc. Project Description: Following the success of our first project with Banner Health, we were selected to build a medical office building on the Banner Ironwood Medical Center campus in Queen Creek, Arizona. Ryan Companies US, Inc.
is co-owner, co-developer and general contractor. Plaza Companies is co-owner, co-developer and is managing the leasing efforts. This threestory, multi-tenant, steel-shell building will add almost 62,000 square feet of office space to the
campus, providing a convenient, comfortable setting for healthcare practices. Queen Creek is looking forward to enhanced medical services, while we look forward to continued partnerships within this community.
CENTRAL LOGISTICS CENTER
Developer: ViaWest Group General Contractor: Nitti Builders Architect: DEUTSCH Location: 111 E. Buckeye Rd., Phoenix, AZ 85004 Size: 272,973 SF Existing 267,000 SF New Development Brokerage Firm: CBRE Start/Completion Date: Q4 2019/Q3 2020 Subcontractors: Kimley-Horn Project Description: Located at Central Avenue and Buckeye Road, just south of downtown Phoenix. This 25-acre site includes over 12-acres of vacant, developable land in addition to an existing fully leased 196,672 SF 30â&#x20AC;&#x2122; clear, cross-dock warehouse, and a vacant 76,301 SF freezer storage facility. ViaWestâ&#x20AC;&#x2122;s plans include renovating the freezer building and developing two new 32-foot clear height buildings on the vacant land including a 94,000 SF building divisible to two tenants, and a 71,000 SF industrial warehouse adjacent to the cold storage building. Ultimately, the combined projects (Superior) will add over 650,000 SF of industrial space.
CREIGHTON UNIVERSITY HEALTH SCIENCES CAMPUS
Developer: Plaza Companies General Contractor: Okland Construction Architect: Butler Design Group Location: Central Avenue (Park Central), Phoenix Size: 200,000 SF Brokerage Firm: N/A Value: $100 million Start/Completion Date: July 2019 /Spring 2021 Project Description: Creighton University will build a new 200,000 square foot health sciences campus at Park Central in Phoenix. The building will be located along Central Avenue and is expected to be complete in spring of 2021. When completed, the building will be home to nearly 900 students seeking 92 | September-October 2019
degrees in medicine, nursing, pharmacy, physical therapy, occupational therapy and physician assistant programs. Plaza Companies
is the developer and Okland Construction will be the general contractor for the building; Butler Design Group is the architect.
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NAIOP
DAIMLER
Developer: Merit Partners, Inc. General Contractor: The Renaissance Companies Architect: Butler Design Group Location: 17017 W. Indian School Rd., Goodyear, AZ Size: 263,606 SF Brokerage Firm: CBRE Value: $24 million Start/Completion Date: January 2019 /August 2019 Subcontractors: Suntec, King Insulation
Project Description: Daimler is a 263,000 SF build to suit on approximately 13.7 acres in the PV303 West II area. The project is defined by Indian School, Cotton Lane and the 303 freeway. The facility will be used for the storage and distribution of product including 8000 SF of office in addition to the warehouse area. Building will be 36’ clear with all dock doors located on the south side, away from the Cotton and Indian school street frontages. The dock area will be further screened by an 8’ high masonry wall with decorative sliding gates.
ELEVATE 24
DONOR NETWORK OF ARIZONA
Developer: Donor Network General Contractor: Wespac Construction, Inc. Architect: Shepley Bulfinch Location: 2010 W. Rio Salado Pkwy., Tempe, AZ 85281 Size: 70,944 SF Brokerage Firm: Lee & Associates Value: $18,517,107 Start/Completion Date: March 2019 /May 2020 Subcontractors: Suntec Concrete, Schuff Steel, Wilson Electric, Integrated Masonry, Alpine Mechanical, Ryan Mechanical 94 | September-October 2019
Project Description: Providing a much needed expansion for its 200+ incredibly dedicated staff, this unique, two-story, 70,000 SF building will consist of new office, support and laboratory spaces. As the nonprofit, federally designated organ procurement organization for the state of Arizona, Donor Network of Arizona is dedicated to working with healthcare and community partners to support donor families; while encouraging people in our community to donate life! Scheduled for completion in 2020, Wespac is proud to partner with Cresa Phoenix, Shepley Bulfinch and Donor Network of Arizona on this very important and exciting project!
Developer: Regent Properties General Contractor: Brycor Builders Architect: Krause Location : 4722 & 4742 N 24th St., Phoenix, AZ 85016 Size: +/- 130,000 SF Brokerage Firm: CBRE Value: $4.5 million Start/Completion Date: Q4 2017/Q1 2019 Project Description: Re-positioning of the entire 2 building campus, with a new drop off including 14 surface parking stalls added to enhance the 24th street address that was previously overlooked. Contemporary Landscaping has been added throughout the entire property for greater user connection between the two buildings while making the raised plaza a new found destination for tenants. A new conferencing center, tenant amenity rooms, fitness center, and Café have been overhauled within the 2 buildings. Including a custom kinetic sculpture designed by Arizona local artists at the buildings center atrium.
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NAIOP
FARMERS INSURANCE AT 17 NORTH CORPORATE CENTER PHASE II
Developer: Ryan Companies US, Inc. General Contractor: Ryan Companies US, Inc. Architect: Butler Design Group Location: 23800 N. Farmers Way, Phoenix, AZ 85085 Size: 150,000 SF Brokerage Firm: Landlord Rep: CBRE; Tenant Rep: JLL Start/Completion Date: August 2018 /September 2019 Subcontractors: Hardrock Concrete, Wilson Electric, Cutting Edge Fabrication, Tpac Project Description: After completing a 150,000 SF build-to-suit for Farmers Insurance in 2017, Farmers continued to grow and needed more space. To accommodate this, Ryan is developing and constructing an additional 150,000 SF of office space and a parking structure at the 17 North Corporate Center. The campus is a positive, productive and exciting workplace for Farmers employees and our team was honored to bring the campus to life. The three-story campus includes a gym, full-service kitchen and outdoor gathering areas.
GILBERT CROSSROADS BUSINESS PARK, PHASE I
Developer: EastGroup Properties General Contractor: Willmeng Construction Architect: Butler Design Group Location: 425 & 435 E. Germann Rd., Gilbert, Arizona Size: 139,732 SF (Phase I) - 317,978 SF at full buildout Brokerage Firm: Colliers International 96 | September-October 2019
FIRST PARK PV 303 WEST III BLDG. 1
Developer: Merit Partners, Inc. General Contractor: Layton Construction Company Architect: Butler Design Group Location: 3600 N. Cotton Lane, Goodyear, AZ Size: 643,798 SF Brokerage Firm: CBRE Value: $60 million Start/Completion Date: April 2019 /December 2019 Subcontractors: SECON, Suntec Concrete Project Description: First Park @ PV 303 West III Building 1 is a single building development proposed for the Southwest corner of Osborn Road and Cotton Lane. The project is located on approximately 39.26 acres in the PV303 West III area, defined by Indian School, Cotton Lane and the 303 freeway. First Park @ PV 303 West III Building 1 will be approximately 644,000 square feet in size. This facility's anticipated uses are for distribution of product for Ferrero Rocher Candy. The building will be 40foot clear height and have dock doors on the north and south sides, away from the Cotton street frontage, screened by 8â&#x20AC;&#x2122; high masonry walls with decorative sliding gates.
Value: $12.5 million (Phase I) Start/Completion Date: 2Q 2019/4Q 2019 Subcontractors: Hardrock Concrete, Hawkeye Electric, Apache Pipeline & Structures Group Project Description: Gilbert Crossroads is a new state-of-the-art light industrial development located ž of a mile southeast of Gilbert Road and the 202 Freeway. The project is being constructed with sustainable features including
R-38 roof deck insulation, white reflective 60mil TPO roof membranes, drought tolerant landscaping, insulated loading doors and full LED lighting. With 1,600 lineal feet of Germann Road frontage, highly desirable demographics, proximity to the 202 Freeway and building depths ranging from 130 feet to 180 feet, the project is well positioned to accommodate showroom, will-call, light manufacturing and last mile distribution requirements.
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NAIOP GILBERT GATEWAY COMMERCE PARK
Developer: Trammell Crow Company & Principal Real Estate Investors General Contractor: Layton Construction Company Architect: Ware Malcomb Location: Loop 202 & Power Road, Gilbert Size: 416,377 SF Brokerage Firm: CBRE (Evan Koplan, SIOR, Serena Wedlich, Mitch Stravitz) Value: $40 million Start/Completion Date: July 2019 /January 2020 Project Description: Gilbert Gateway Commerce Park is a Class A Industrial Project delivering January 2020. The project is comprised of three (3) buildings totaling 416,377 SF with clear heights ranging from 28 feet to 32 feet, grade level loading and truck wells, ESFR, concrete truck
courts, Loop 202 freeway visibility and divisible to approximately 8,000 SF. Gilbert Gateway Commerce Park is located immediately off the
full diamond interchange at Loop 202 & Power Road with less than a two minute drive to Gilbert Gateway Towne Center.
HANGAR 37 @ PMGA
GLEN HARBOR BUSINESS PARK
Developer: Creation General Contractor: LGE Design Build Architect: LGE Design Group Location: SEC of 107th Avenue and Northern Avenue, North of the NWC of Glen Harbor Blvd. Size: 355,500 SF Brokerage Firm: Lee & Associates Arizona Value: $42 million Start/Completion Date: Q2 2019 /Q4 2019 Project Description: NW101 Commerce Park is 355,500 sf of state of the art industrial 98 | September-October 2019
space with best of market clear height, parking ratio, and loading area dimensions. Strategically located to serve the needs of the growth in the West Valley within Glen Harbor Airpark. NW101 Commerce Park will boast an atmosphere that enhances the working environment for all of the employees to enjoy. Surrounding retail and entertainment developments include numerous restaurants, the Arizona Cardinals Stadium, Westgate Mall, Tanger Outlets and Desert Diamond Casino, all which will support the recruitment of employees for companies that are located there.
Developer: Wetta Ventures, LLC General Contractor: Fleming Complete Architect: Larson Associates Architects Location: 6253 S. Sossaman Rd., Mesa AZ 85212 Size: 53,000 SF Brokerage Firm: None Value: $12 million Start/Completion Date: July 2019 /June 2020 Project Description: Construction of a 53,000-square foot commercial aircraft maintenance, repair, overhaul (“MRO”) hangar with two bays and two office suites with runway access at the Phoenix-Mesa Gateway Airport (“PMGA”). The hangar can accommodate two Boeing 737 aircraft and is under a long-term lease to Belguim-based Aerocircular. The property is located within an Opportunity Zone, and is the first private development at PMGA in over ten years.
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NAIOP LOTUS PROJECT
Developer: Conor Commercial Real Estate General Contractor: McShane Construction Company Architect: DLR Group Location: 6511 W Frye Rd., Chandler, AZ 85226 Size: 473,516 SF (Phase I) Brokerage Firm: CBRE Value: $55 million (Phase I) Start/Completion Date: August 2018 /September 2019 Subcontractors: Scott Diversified Construction, Suntec Concrete, CJS, Structures Group, Roofing Southwest, Ikon Steel, Olympic Fire West, Jenco Project Description: The Lotus Project is a 53-acre mixed-use employment park consisting of over 650,000 SF of Class A industrial and office space built in two phases. The site is situated off the Loop 202 freeway in the City of Chandler. Phase I is being developed on a speculative basis, which includes four industrial buildings totaling 473,516 SF. Phase II will consist of either two office buildings totaling 200,000 SF or three industrial buildings totaling 216,000 SF. Phase I of construction began August 2018 with completion slated for September 2019.
MERIT DEER VALLEY
Developer: Merit Partners, Inc. Architect: Butler Design Group Location: W. Pinnacle Peak Rd. & 16th Drive Size: 116,000 SF Brokerage Firm: DAUM Commercial Value: $14 million Start/Completion Date: October 2019/Q2 2020 Project Description: MERIT DEER VALLEY is a two building, 8.4 acre development located on the Southwest corner of the Pinnacle Business Park P.A.D. area, defined by Pinnacle Peak Road, 15th Avenue, Williams Drive, and 19th Avenue. Building “A” will be 60,000 square feet in size on a 4.5 acre site. Building “B” will be 55,000 square feet on a 3.9 acre site. Both facilities will be constructed as shell structures. Anticipated uses are for storage and distribution and office uses in addition to the warehouse areas. 100 | September-October 2019
NIKOLA MOTOR CO.
General Contractor: Okland Construction Co., Inc. Architect: Architectural Nexus Location: 4141 E. Broadway Rd., Phoenix, AZ 85040 Size: 154,250 SF Brokerage Firm: Unknown Value: $75 Million Start/Completion Date: August 2018 /May 2019 Subcontractors: Comfort Systems USA Southwest Project Description: The $75M Nikola Motor Co. Phoenix headquarters and research and development facility is 2-stories and 150,000+ square feet. It is a place for the hydrogren-electric truck company to show off its vehicles, design, and test new features and designs, and manufacture limited production runs.
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101
NAIOP OGAN & WEBB ALMA 202
Developer: Andy Ogan & Webb Management General Contractor: Okland Construction Architect: Butler Design Group Location (exact address): NEC of Loop 202 & Alma School Road, Chandler Size: 155,000 SF Brokerage Firm: Lee & Associates Value: $50 million Start/Completion Date: October 2019/ December 2019 Subcontractors: Clayton Floor Coverings Project Description: Alma 202 is a mixeduse, 4 building development located at the northeast corner of Alma School Road and loop 202 in Chandler, Arizona. The 12 acre site has primary access off Alma School Road and secondary access from Pecos Road. Plans include a 3-story and 2-story office of approximately 60,000 SF and 50,000 SF
RIO 2100 EAST
Developer: The Boyer Company General Contractor: Wespac Architect: Butler Design Group
RIVULON COMMONS
Developer: Nationwide Realty Investors General Contractor: Layton Construction Company Architect: Butler Design Group Location: 400 & 410 E. Rivulon Blvd., Gilbert, AZ 85297 Size: (2) 2-Story Office, 100,000 SF EA Brokerage Firm: Lee & Associates Start/Completion Date: January 2019/October 2019 Project Description: This second phase of the Rivulon Commons project adds two tilt-up office buildings, organized around and extending a central courtyard that encourages outdoor tenant engagement. 102 | September-October 2019
respectively, a 2-story fitness center and one restaurant pad with a drive-thru. Cross-access and parking agreements, combined with a strong
Location: 2142 E. Rio Salado, Tempe, AZ Size: 174,000 SF Brokerage Firm: CBRE Value: $24.9 million
network of pedestrian walks and architectural compatibility, will create a connected campus development to serve the regional sub-market.
Start/Completion Date: January 2019 /March 2020 Subcontractors: Coreslab, Saguaro Steel, Spectrum Mechanical, DP Electric Project Description: Rio 2100 / EAST is a four story, approximately 174,000 SF Office building located on a 285,040 SF (6.54 Acre) site. A single-level-over-grade parking structure has 888 parking spaces in addition to 101 surface parking spaces for approximately 6:1000 parking. The primary wall structure for the building is EIFS over steel framing with linear and punched window openings. Further articulation around the building will include masonry veneers, metal wall panels, exposed steel or similar elements that together combine to provide an elegant design solution.
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103
NAIOP SKYSONG 6 AT SKYSONG, THE ASU SCOTTSDALE INNOVATION CENTER
Developer: Plaza Companies General Contractor: DPR Construction Architect: Butler Design Group Location: 1355 N. Scottsdale Rd., Scottsdale Size: 340,000 SF Brokerage Firm: Lee & Associates Value: $54 million Start/Completion Date: Q1 2020 /Summer 2021 Subcontractors: Suntec, Saguaro Steel Project Description: SkySong 6 will be located at the northwest corner of SkySong, The ASU Scottsdale Innovation Center, fronting on both Scottsdale and McDowell Roads. The new Class A office will include approximately 340,000 square feet of leasable space in six
stories with adjacent structured parking. This new development joins neighboring restaurants, hotel, high-density residential and more than
750,000 square feet of existing office in a vibrant, collaborative environment.
SUPERIOR LOGISTICS CENTER
Developer: ViaWest Group General Contractor: Nitti Builders Architect: DEUTSCH Location: 4240 E. Superior Ave., Phoenix, AZ 85040 Size: Approx. 150,000 SF planned Brokerage Firm: CBRE Start/Completion Date: Q4 2019 /Q3 2020 Subcontractors: Kimley-Horn Project Description: ViaWest plans to develop 2 Class A, mid-bay industrial buildings totaling Âą150,000 SF divisible to Âą18,000 SF on the 9.17-acre vacant land site located just south of Sky Harbor Airport. The property is one of the last sizeable vacant land sites in the submarket, these projects will bring much needed space to the Sky Harbor Submarket, which has an industrial base over 75 million SF, and vacancy rate of only 6.85%.
THE HUB
Developer: Creation General Contractor: LGE Design Build Architect: LGE Design Group Location: SSEC Van Buren Street / Bullard Avenue, Goodyear, AZ Size: 793,000 SF Brokerage Firm: Jones Lang LaSalle Americas, Inc. (JLL) Value: $50.3 million Start/Completion Date: Q2 2019 /Q4 2019 Subcontractors: Denny Clark Masonry & Concrete, Phoenix Commercial Electric, Inc., Suntec Concrete Inc, Arc Steel LLC Project Description: A flagship 104 | September-October 2019
project that showcases the full-service approach offered by LGE Design Build. The streamlined, modern aesthetic is designed to captivate and brand its future tenant. With a layout designed to accommodate both single and multiple tenants, elements like 40-foot clear height and 190-foot deep truck yards allow for maximum circulation of industrial vehicles inside and out. Office suites sit between the stretches of metal panel and glazing brings in natural daylighting at the entrances. The design brings a fresh, playful approach to common tilt-panel concrete construction with a lengthy list of features that include energy efficiencies and occupant-centric amenities.
105
NAIOP THE WATERMARK | TEMPE
Developer: Fenix Development General Contractor: Okland Construction Architect: Nelsen Partners Location: 410-430 N. Scottsdale Rd., Tempe, Arizona Size: 1,900,000 SF Brokerage Firm: CBRE Value: $150 million Start/Completion Date: Q3 2017 /October 2019 Subcontractors: Nelsen Partners, Erickson & Meeks, ESD Mechanical, Design Workshop, Civil & Environmental consultants, Trademark Visual, Suntec Project Description: The Watermark is Tempe’s newest premier mixed-use development located on the north shore of Tempe Town Lake. Watermark offers the most unique mixed-use environment in the Phoenix Metropolitan Area and contains over 1.9 million square feet of thoughtful development. Total square footage is ±600,000 square feet of Class A office space which includes ±265,000 square feet in Phase I and ±340,000 square feet in Phase II.
WEST 80 INDUSTRIAL
Developer: Wentworth Property Company General Contractor: Willmeng Construction, Inc. Architect: Butler Design Group Location: 8001 W. Buckeye Rd., Phoenix, AZ Size: 379,828 SF Brokerage Firm: Cushman Wakefield – Will Strong Value: $26.7 million Start/Completion Date: Q4 2018/Q2 2019 Subcontractors: Suntec Concrete, Inc., Hawkeye Electric Project Description: West 80 is a 379,828 SF state-of-the-art cross dock distribution center situated on 22.038 acres. The building features 36-foot clear height, 4 potential office locations, excellent loading, an ESFR sprinkler system, over 100 dock doors, 2% skylights and a gated concrete truck court with trailer parking. The property is located in the heart of the Southwest Valley, at the intersection of Buckeye Road and 79th Avenue.
106 | September-October 2019
WILLIS PHASE II
Developer: ViaWest Group General Contractor: Nitti Builders Architect: McCall & Associates Location: 1600 S. Hamilton St., Chandler, AZ 85286 Size: Building A: 65,892 Building B: 74,480 Total: 140,372 SF Brokerage Firm: Cushman & Wakefield: Andy Markham, Mike Haenel, Phil Haenel Start/Completion Date: August 2019/February 2020 Subcontractors: CEG Applied Sciences Project Description: ViaWest Group controls 7.741 acres in the Chandler Airport submarket and is developing two general industrial buildings totaling 140,372 SF. These buildings, likely divisible to 16,000 to 35,000 SF and feature 28-foot clear heights, ESFR sprinklers, mix of dockhigh and grade doors, and a 180’ shared concrete gated truck court. These buildings will complete AZ 202 Commerce Park, ViaWest delivered the first phase, a build-to-suit for PODS, in April of 2018. Phase II has a planned delivery of February 2020.
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NAIOP
NAIOP works to shape public policy both locally and nationally By STEVE BURKS
108 | September-October 2019
I
t’s easy to take notice of all of the events and programs that the Arizona Chapter of NAIOP has going on. While the mixers and Night at the Fights are popular and enjoyable for the NAIOP membership, it’s the work that the members don’t see that is perhaps the most vital part of NAIOP’s mission. NAIOP’s work locally at the Arizona Legislature and nationally in Washington, DC promotes the interests of the commercial real estate industry. NAIOP’s Arizona Chapter president Suzanne Kinney works closely with the NAIOP board of directors and public policy committee members to develop policy positions and strategy to address those issues with Arizona officials. “NAIOP’s public policy positions at the state level are developed based on a view toward helping Arizona’s economy thrive in a manner that drives demand for commercial real estate development,” said Jeffrey Sandquist, director at Veridus LLC, a government relations advocacy firm in Phoenix that assists NAIOP with governmental affairs. In Arizona, the large influx of new residents has provided a great deal of opportunities for commercial real estate companies. That population shift, however, has had other effects that NAIOP has watched closely at the Arizona statehouse. “In the last five to 10 years, the voters have moved Arizona from a consistently conservative state towards the middle,” Sandquist said. “You can see this in the makeup of the Arizona Legislature, the congressional delegation moving to a 5-4 Democrat to Republican split and by the 3-2 Republican to Democratic split among the five, major statewide offices. “This shift has required organizations like NAIOP to be even more mindful of the importance of bipartisan support where possible and building coalitions to advance or defeat legislation.” Sandquist said that NAIOP’s top priority continues to be opposition to new taxes, fees and other regulatory burdens for the commercial real estate industry. NAIOP has worked hard to protect the GPLET economic development tool and ensuring 109
NAIOP it is utilized property. NAIOP is also focused on promoting initiatives that will improve education in Arizona, as well as workforce training. “A qualified, high-skilled workforce is key to attracting and growing businesses in Arizona,” Sandquist said. “NAIOP supports policies that increase education funding and improve K-12 and university outcomes, provided they do not increase costs on the commercial real estate industry.” Education funding remains a looming issue for NAIOP in Arizona, and the organization is active in helping come up with solutions that do not stifle development. Sandquist also noticed that NAIOP is working to ensure that the enacted reforms to the municipal Speculative Builders tax are effective. Sandquist did point out that, by and large, Arizona’s political climate is very positive for developers, but more can be done. “Arizona is indeed very businessfriendly and we applaud Arizona’s leaders for their focus on this goal,” Sandquist said. “However, we can
110 | September-October 2019
“NAIOP supports policies that increase education funding and improve K-12 and university outcomes, provided they do not increase costs on the commercial real estate industry.” – Jeffrey Sandquist
always improve. Commercial property taxes remain very high compared to residential property taxes, and NAIOP members have had to wrestle with complicated and opaque local taxes. We encourage our elected leaders to continue to improve in these areas while preserving the great progress the state has already made.” While Kinney, with ample help from
Veridus, monitors and works on policy for the Phoenix market, NAIOP is very active in Washington to promote the interests of the group on a national scale. NAIOP’s Government Affairs office is led by Aquiles Suarez, the vice president for government affairs, Toby Burke, senior director of state and local affairs, Alex Ford, director of federal affairs, and Richard Tucker, director of public policy communication. On national level policy issues, NAIOP strives to identify policies that will help the membership succeed and seeks the consultation from standing committees that are made up of NAIOP members. “If a member identifies a problem, we can go to the committee and find out how members in other states are dealing with the same thing,” said Tucker. “Sometimes, that may be obvious: lower tax rates and a reduction in regulatory red tape are two things that are important to anyone in business, so we’ll advocate for those. “Those committee members play a key role in helping us understand the
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I-17 and Pinnacle Peak (Photo courtesy ADOT)
real-world implications of proposed legislation, and ultimately formulate a position that is beneficial to the industry as a whole.” Tucker said that on a national level, the key issues for NAIOP are Infrastructure and transportation, tax policy and energy efficiency and the environment. “The first two issues are primarily congressional, and the third is a mix between legislative and executive branch,” Tucker said. “On the first two, we meet with members of Congress and their staff to discuss what good policy should look like. We also host fly-ins, where NAIOP members from particular states come to D.C. and meet with representatives and senators from their state to provide a firsthand account of how these issues impact them.” On energy and the environment, Tucker noted that NAIOP will participate in the regulatory review process by drafting letters to EPA and other agencies that explain what good policy, that protects the environment while also allowing necessary development, looks like. NAIOP will also advocate for laws that 112 | September-October 2019
NAIOP knows that an effective infrastructure network is crucial to boosting property values and improving supply-chain operations and productivity provide incentives for sustainability and energy efficiency in buildings, rather than those which impose unachievable mandates. In all three cases, NAIOP works to shape public opinion. The organization can do that by writing blog posts and op-eds to run in important states and districts and educate the public about these issues. Another national level issue that NAIOP has been helping advance is transportation and infrastructure initiatives. NAIOP knows that an effective infrastructure network is crucial to boosting property values and improving supply-chain operations and productivity. Tucker said NAIOP
is in support of federal funding for important projects and the expanded use of innovative funding mechanisms, such as public-private partnerships. “Just before the August recess began, the Senate Committee on Environment and Public Works voted unanimously to advance a $287 billion highway bill,” Tucker said. “The measure also has support in the House of Representatives and the White House. When lawmakers return after Labor Day, the Senate Finance Committee will consider ways to pay for the highway bill. NAIOP will encourage lawmakers to fully fund crucial projects.” With national elections quickly approaching in 2020, Tucker said NAIOP does not see the need to alter its approach to advocacy as the political parties trade control from election cycle to election cycle. “The leadership in the White House or Congress may change from election to election, but that doesn’t alter NAIOP’s approach,” Tucker said. “We work with members of both parties and with career regulators in the executive branch to advance good policies that support a healthy American economy in a responsible, balanced way."
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Preparing to prosper
NAIOPâ&#x20AC;&#x2122;s Young Professionals Group and AZ Connections program aim to foster Developing Leaders By ANE PULU
A
rizonaâ&#x20AC;&#x2122;s NAIOP chapter is breaking ground with constructive programs for young people in the real estate industry. The highly esteemed commercial real estate development association is a national organization that has thousands of members across the U.S. Among the many programs NAIOP boasts, AZ Connections and the Young Professionals Group (YPG) are two distinctive programs that members of the Arizona chapter were inspired to initiate to mentor and foster developing leaders in the state. Comprehensively, NAIOP provides eminent networking and educational
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opportunities for its members, while branch programs like AZ Connections and YPG provide focused opportunities for individual participant development. Coinciding with the national organization in Washington D.C., the Young Professionals Group was established in Arizona in 2011. The six-month program entails the commitment of Developing Leaders (DL) spending time skill building with other young professionals and career coaches. The YPG program is designed to educate, develop, connect and elevate the next generation of commercial real estate leaders. This is accomplished through education,
a case study, networking, mentoring, leadership training, and accessibility. To become a DL, interested candidates must be a NAIOP member under the age of 35. Candidates are directed to the online application that is found on the NAIOP YPG website. A maximum of 16 students are admitted into the program per term and are then guided through the six month journey by a mentee. The educational aspect of the program includes panels about brokerage, marketing, development, finance, architecture, construction and other real estate disciplines. Throughout the six months, the DL work in groups on a case study that revolves around
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NAIOP building the necessities of a completed development plan. “The program is all about teaching how a development deal comes together, what things developers think about and what’s important as you’re planning projects working through city entitlement processes and then ultimately, completing a successful project,” said YPG vice chair, Josh Tracy. Amid the process, students will be expected to meet with their assigned mentors at least six times throughout the span of the program. The hopes are that they develop a connection that will last a lifetime. Tracy, who is the director of development with Ryan Companies US, Inc., was a mentee in YPG for two years. He reflected on his experience with the program saying he “saw it as an opportunity to learn more about the industry as well as connect with other industry professionals and start building relationships that
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The YPG program is designed to educate, develop, connect and elevate the next generation of commercial real estate leaders. would hopefully last a career while in commercial real estate.” More recently NAIOP adopted and launched a new program called AZ Connections. The unique program aims to foster confidence in DL by connecting them with industry professionals. Chair of AZ Connections, Chelsea Porter, recalled when she first started in the field and would walk into events, intimidated by the crowd of faces she was unfamiliar with.
“I honestly think I was shaking. I’m not 100 percent outgoing,” said Porter, who is the director of marketing for The Renaissance Companies. “I’ve learned, adapted and forced myself to become like that, but if I had this program back in the day I would’ve been so much more comfortable.” Inspired by Toronto’s chapter, NAIOP board member Cathy Thuringer decided to kickstart the exceptionally concentrated program in Arizona to help DL get acquainted with professionals and encourage exposure to various aspects of the field. Also a six month program, AZ Connections supported 200+ DL this past session by providing the opportunity to meet individually with their choice of industry leader among the 30 mentors listed. Dissimilar to YPG, NAIOP members interested in joining AZ Connections do not have to undergo an application process, but simply sign up
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and reserve a session with a mentor on the online portal. “Creating this, we wanted developing leaders to become more involved, we wanted them to have a place where they can go and easily reserve some of the top people in construction, architecture, development, brokerage, and law; where they can expand their knowledge and ask mentors questions,” Porter said. “They’ve been doing exactly what we want them to do, they’re meeting with people outside of their field.” Although the program just launched this year, members expect growth and continued success for future DL and mentors. The YPG and AZ Connections programs have proven to be a great success for NAIOP members. The programs have helped mold and develop young professionals, who find themselves returning to reinvest their time and energy into up and coming leaders in the industry. “After I participated as a mentee, I was asked to be co-chair of it this last year. Now I’m helping lead the program,” Tracy said. Thuringer, a principal at Trammell Crow Company, has been a mentor for YPG for the past four years and has found her personal commitment enriching. “The mentors are there really to kind of help guide the mentees. We’re there to be a backdrop, to help with our expertise,” Thuringer said. “I think the greatest impact it has on mentees is, it opens their eyes a little bit more to the complexities of the development business. It’s complicated. I think people who have been exposed to the development process really open their eyes to all of the things that are involved in a project.” 118 | September-October 2019
Chelsea Porter
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