Issue 1, 2018 by Commercial Executive Magazine

JDM

PA R TN ERS All for One One for All CEM-AZ.COM â&#x20AC;¢ ISSUE 1, 2018

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Rentable SF:

±2,000

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Avg Cap Rate: 4.55% All Cash, California Investor

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$3,000,000

Rentable SF:

±5,239

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±3,200

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Cap Rate:

5.82%

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5.34%

Cap Rate:

5.33%

All Cash, Arizona Investor

CEM_Fullpage_8.875x11_Feb2018.indd 1

All Cash, California Investor

1/26/2018 2:55:28 PM

EXECUTIVE PUBLISHER Mandy Purcell mandy@mpmediaaz.com MANAGING DIRECTOR Karen Gallagher karen@mpmediaaz.com

20 32 2

EDITOR Celina Busse celina@mpmediaaz.com EDITORIAL Celina Busse Tim Randall Wayne Schutsky

PHOTOGRAPHY Carl Schultz

14 27

All rights reserved. No part of this publication can be reprinted or reproduced without publisher’s permission. Opinions expressed are those of the authors or persons quoted and not necessarily those of CEM. 2920 East Camelback Road, #228 Phoenix, AZ 85016 602-955-2899

Letter from the

PUBLISHER

oming together is a beginning; keeping together is progress; working together is success. —Henry Ford

There’s something to be said about new beginnings. Whether it’s new people, deals, opportunities or goals, there’s always excitement in fresh starts. /// This is our first issue of 2018 and it’s very exciting for the MP Media team. We look forward to a very steady, successful and powerful year, featuring unique stories with a twist that readers look forward to. Commercial Executive Magazine truly appreciates the continued support from our readers, advertisers and friends. /// Speaking of powerful starts to the year, our cover story features JDM Partners, one of the biggest names in the Arizona commercial real estate industry. I was thrilled to sit down with them and discuss the Marina Heights purchase as well as their continued success in the industry. I have called this team my friends for years, and we are proud to have featured them in various issues over the decade of Commercial Executive Magazine. /// We’ve all heard the saying, “The new year brings new opportunities,” but in this case, the new year truly did bring new opportunities. Please join me in welcoming back Karen Gallagher. Karen will be the Managing Director and will oversee the many moving pieces of MP Media, as we continue to improve and advance our print and online platforms to better serve our clients. If you’re interested in getting in touch with Karen, please email her at: karen@mpmediaaz.com /// We also have a new Editor, Celina Busse. She comes to Commercial Executive Magazine with 2 years of strong editorial experience and graduated from the Walter Cronkite School of Journalism and Mass Communications at ASU. Our editor also possesses expertise in social media and public relations. Please reach out to her regarding any editorial questions: celina@mpmediaaz.com

Enjoy,

Mandy Purcell

Our mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. ULI has nearly 40,000 members globally, representing the entire spectrum of land use and development disciplines in private enterprise and public service.

“Engaging our members to lead and make an impact... CONNECTING PEOPLE – providing members exclusive opportunities to connect and deepen professional relationships within and beyond membership through networking, mentoring, and problem solving FOSTERING LEADERSHIP – creating learning experiences to help students understand the dynamics of urban redevelopment and mentoring young professionals as they strive to excel in the industry SHARING KNOWLEDGE – delivering the gold standard in research and educational programs that explore thoughtprovoking topics at the forefront of real estate trends THINKING BIG – leading collaborative solutions that broaden perspectives and drive innovation for what’s next in land use and real estate policies and practices BUILDING BETTER COMMUNITIES – offering comprehensive local

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FULLMAGV10wPETER_EDITS.indd 42

12/7/17 3:12 PM

Annual Commercial Real Estate Finance Conference

(CREF)

Let the Good Times Roll CREF is the nationâ&#x20AC;&#x2122;s largest convention held annually between all major capital sources and commercial mortgage bankers. As expected, everyone is upbeat after another recordsetting year of loan production, and each lender has increased their allocation of loans for 2018. 6

Annual Commercial Real Estate Finance Conference

(CREF)

DEBT FUNDS GEARING UP TO FUND CONSTRUCTION, JV EQUITY AND MEZZANINE LOANS

Life Companies Originations in 2017 were well in excess of $70BB with each representative reporting they are overweight commercial mortgages going into 2018. Competition is going to be fierce for quality assets which mean spreads are likely to compress. Spreads for life companies have dropped below 100 basis points for low leverage trophy assets and we’re seeing spreads in the 125-135 range for leverage in the 55%-60% LTV range. Higher leverage and smaller loans will see spreads as high as 205 over the 10 year UST. The drastic range is based on debt coverage ratio, quality of asset, geographic area and leverage. Life companies are more likely to compete by lowering their spread, offering prepay flexibility & interest only versus drop their underwriting standards or lesson their current requirement for good quality assets. Some life companies are rolling out prestabilized loan programs for Class A multifamily assets nearing but not yet stabilized.

SECURITIZATION

Agencies $140BB in originations purchased by Fannie and Freddie! No immediate change on the horizon and no letup in volume expected. These two originators are expected to be the dominant force throughout 2018. Life companies are picking off the trophy assets as they can be as much as 4050 basis points lower in rate for the right trophy asset. /// The “Wall of Maturities” is no longer seen as a threat and to the contrary, we’d all like there to be a few more maturities in 2018 & 2019! With all the liquidity in the lending market, despite the spiking 10 Year UST yields, increases in LIBOR and a projected lower volume of loan maturities in 2018, it’s easy to conclude that competition among lenders is fierce and has resulted in spread compression and new products in order to pursue opportunities to hit their funding allocations. One large investment bank is even rolling out a “B” retail mall bridge lending program.

One notable takeaway is the increased number of debt funds looking to offer high loan to cost, nonrecourse construction financing, joint venture equity and mezzanine financing for to be built Class A properties. Pricing for high leverage nonrecourse construction loans is in the 750-850 over LIBOR range. We met with numerous funds and they want to see opportunities in the Phoenix area. Loan to cost is up to 80%, JV equity to 90% and Mezzanine Debt up to 90%. There are also high leverage bridge loans available for existing assets. Debt funds are pricing their bridge loans for existing assets in the 325-425 range over LIBOR. Some larger investment banks are offering aggressively priced floaters on Class A assets ($40MM and larger loan amounts) in the 200-250 range. CMBS Originations in 2017 by conservative estimates were $90BB compared to $76BB in 2016 and drastically lower than the all-time high of $230BB in 2007. For a vanilla deal, CMBS rates are currently hovering at plus or minus 4.75%. /// Wall of Maturities Dissipates Rewind to 2008 & 2009 and we see a market where there weren’t many originations on either the CMBS or life company side of the business. Ten years later, there aren’t many maturities either. The volume is expected to come from 5-year loans originated in 2013 as well as acquisitions. /// Risk retention was implemented in early 2017 and there weren’t any real issues that arose. Lenders are holding a small portion of the loans and in many cases are able to hold a small sliver of each capital stack (a vertical tranche) versus the first loss piece alone, which mitigates reserves the banks have to set aside for holding these tranches and in turn, lowers costs.

CMBS TRENDS

Look to CMBS lenders to compete in the 150-175 range for lower leverage opportunities. Spreads are compressing as we see more buyers than originators can satisfy, due to the lack of maturities. © Copyright 2018 by MP Media, LLC

James DuMars is a financial intermediary and serves as Managing Director of NorthMarq Capital’s Phoenix office.

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AIL

Executive

PROFILE

Andrew Cheney Lee & Associates

Named NAIOP Chairman

Character, charm, personality, and a passion for commercial real estate define Andrew Cheney, Principal with Lee & Associates. With those attributes, it’s not difficult to see why he was chosen as the 2O18 Chairman for NAIOP Arizona.

heney learned about the world of real estate at The Village Tennis Club in Phoenix at a young age. /// “I saw various professionals who worked in real estate,” he says. “It looked like they had fun working and also had time to spend with their families.” /// After receiving his bachelor’s degree in civil engineering from the University of California at Irvine with a minor in business management, Cheney played tennis on the ATP’s minor league circuit for four years before moving back to Phoenix and getting involved in commercial real estate.

Real Estate Cheney credits one of his mentors, Daryl Burton, as the force behind his decision to become a broker. Burton’s industry contacts were at Cheney’s disposal. In 2003 Cheney met his next mentor and current business partner. /// “I was Craig Coppola’s runner for two and a half years,” 10

Cheney recalls. “It was brutally painful, but worth it.” /// Cheney and Coppola bonded over their shared ventures in sports. Coppola played baseball for the Minnesota Twins organization in 1983. /// “I wanted to make sure I had the best possible mentor in real estate,” Cheney says. “And I did. He’s the best.” /// Burton says of Cheney, “Andrew is a great deal maker and probably made the toughest deal any broker has done in the last decade: He convinced Craig Coppola that he was the partner Craig has been looking for the last 20 years and that he, Andrew should be a full partner. He also got married and became a father while keeping up with Craig 24/7/365.” /// Cheney and Coppola have been partners at Lee & Associates since 2006. The Coppola Cheney Group has completed more than 3,500 transactions and Craig has been awarded NAIOP Office Broker of the Year six times. Cheney is a past winner of NAIOP’s Emerging Broker of the Year and Developing Leader of the Year.

“

Executive

PROFILE

Andrew is a great deal maker and probably made the toughest deal any broker has done in the last decade: He convinced Craig Coppola that he was the partner Craig has been looking for the last 20 years

”

- Daryl Burton, President, Reliance Management

NAIOP “I’ve been involved in NAIOP since my first week in the business,” Cheney says. “I learned very early on in my career that all the relevant players in the office and industrial world are involved in NAIOP.” /// NAIOP (National Association for Industrial and Office Properties) is the nation’s largest commercial real estate trade organization; the Arizona Chapter is the sixth largest in the U.S. /// In addition to meeting various heavyweights in the industry, Cheney also met his wife, Carolyn, at NAIOP’s biggest event in 2012, the Best of NAIOP. /// As Chairman of the 2018 board, Cheney says there are exciting changes coming to NAIOP this year, including revamping the Best of NAIOP awards show. In addition to networking, Cheney says the industry group is focusing on increasing education programs. /// “In the past, people would associate NAIOP with networking only, not

necessarily education. I would counter that. Our educational offerings are just as good as everyone else’s, if not better.” /// On the public policy front, as always, NAIOP’s number one priority remains reducing and opposing taxes, fees and regulations for the commercial real estate industry.

Future With more than 40 NAIOP events a year, Cheney has his hands full with a growing family at home and his continued work at Lee & Associates. /// It’s nothing he can’t handle, however. /// “There’s a need to achieve, for better or for worse,” he says. /// Cheney credits his talented teams at both Lee & Associates and NAIOP. /// “When you have a good team, everybody wins,” he says proudly. /// Cheney has a bright future with NAIOP. With a focus on education and public policy, he is continuing efforts to benefit commercial real estate in Arizona.

Best of NAIOP 2017, Andrew Cheney, Jeff Foster, Mark Detmer, Tom Johnston 11

SINGLE, SUCCESSFUL AND SELECTIVE... SIMPLY TOO BUSY?

NEW YEAR NEW LOVE

Amber Kelleher-Andrews CEO

Awarded Top Global Matchmaker

Peter Bauman, Dennis Desmond, Tivon Moffitt

Perfect

PARTNERSHIPS

Some partnership stories have a familiar start. Two young dealmakers rise through the ranks together. A father brings his son into the fold. A team emerges from shared sector expertise. This isn’t that kind of story.

Desmond Moffitt Bauman

his is the story of a former secret service agent (Dennis Desmond), a former New York-based management and strategy consultant (Tivon Moffitt), and a former investment expert specializing in geology exploration at sites across the globe (Peter Bauman). /// In their own way – and in their own time – each found their calling in commercial real estate. And, to put it bluntly, they’ve been killing it ever since. /// This unexpected trio is © Copyright 2018 by MP Media, LLC

using its collective expertise to carve out a new, lucrative future pairing buyers and sellers with institutional-level, multi-tenant, and national net leased investments. While their deals can range from office to industrial to retail, and have spanned properties in more than 30 states, their focus is on office buildings starting in the +100,000-squarefoot range with a value of $20 million and higher. /// “The past decade has seen a significant migration of capital to net leased assets,” Bauman 15

Perfect

“

PARTNERSHIPS

The sale of Marina Heights elevated the Valley’s reputation among large investors, and that has the power to fuel a great deal more institutional-level transactions in Phoenix

- Dennis Desmond

”

said. “This is a unique subset of buyers who focus on stability, credit tenancy, and location. They see their investment directly tied to a corporation’s credit, and will usually hold a leased building for a decade or more. If that building becomes vacant, they’ll work to re-stabilize with a similar credit tenant, or transition to a multi-tenant use and lease that way.” /// To succeed with this type of client requires a broad understanding of corporate operations and financial strategy, and the ability to navigate acquisition, disposition, and lease negotiations in the large-scale, single- and multi-tenant sectors. All proficiencies that this partnership enjoys. /// Desmond’s expertise stems from 40 years in commercial real estate brokerage. He joined JLL in 2009 as Senior Managing Director. In 10 years he grew the Phoenix office into a fullservice, 46-broker-strong enterprise. /// Moffitt transitioned into brokerage in 2004, first as a tenant rep team member for Grubb & Ellis in Florida, and then with Colliers International. He specialized in institutional-quality and single-tenant net leased investments. Bauman joined Colliers in 2013 in the same specialty. Three years later the pair moved to JLL to serve as Senior Vice Presidents in the Capital Markets and Net Lease Property Group. /// “Last year, we had the opportunity to work with Dennis on the sale of a Class A office building that was fully leased by Raytheon Company, and we clicked from the start,” Moffitt said. /// When asked what makes the team the perfect partnership, the answers come easy: Integrity. Knowledge. Professionalism. Commitment. /// “Peter and Tivon have a level of wisdom and proficiency that created an immediate sense of trust on my side,” Desmond said. “These two don’t need coaching from me, other than what we can learn by sharing experiences.” /// To this, Desmond’s partners quickly interject: “Don’t 16

let Dennis fool you,” Moffitt said. “He’s had an illustrious capital markets career and he continues to show us new and innovative ways of doing things. Peter and I have a lens of understanding as to what corporate America wants, and how to achieve that through commercial real estate; Dennis can speak to the detailed history of a client or market. That is an invaluable combination as we map out an investor’s best future.” /// Bauman adds that the team comes to the table with the same set of values. /// “Treating our clients well, with a stellar work ethic, is our priority one,” he said. “And it’s about having fun. We have a lot of fun together.” /// All three see their relationship growing, particularly as Phoenix takes a more prominent position on the national commercial real estate stage. /// “The sale of Marina Heights elevated the Valley’s reputation among large investors, and that has the power to fuel a great deal more institutionallevel transactions in Phoenix,” Desmond said. /// In the first quarter of 2018, Desmond and his new team will bring Papago Gateway Center to market. The asset is a 245,670-square-foot, Class A office building located at Washington Street and Mill Avenue in Tempe. It is the long-term global headquarters for First Solar. /// Other recent listings by the team include the Banner Health Desert Ridge Outpatient Center in north Phoenix; an office building in Chandler fully occupied by Walgreens; and Canyon Corporate Plaza, a twobuilding, 302,521-square-foot office campus located in northwest Phoenix. /// “JLL has the ethos of putting the best team on the playing field,” Moffitt said. “We are here to connect the dots to fully serve our clients in whatever market and product type they are involved. We’re not here to be the quiet guys in the corner. We’re here to make an impact on the marketplace. We’ll be making our presence known.” © Copyright 2018 by MP Media, LLC

Perfect

PARTNERSHIPS

ALWAYS...

WORKING TOGETHER Our Team thrives on the ideas and stories behind the structures we have built, which have been possible by some of the most renowned Owners, Architects, Engineers and Contractors in the industry. We take pride in partnering with the best teams to build what starts as a simple concept and becomes a reality. Contact Suntec Concrete to discuss your next dream project.

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CONGRATULATIONS

TO OUR 2017 TEAM OF TOP PRODUCERS

“I am proud to present our 2017 top producers. We had an outstanding year in 2017 thanks to these brokers and their unwavering commitment to unsurpassed client service.” - Mark Seale, Principal & Director of Brokerage Services

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Void of Empty Suits

Cover

STORY

JDM

PARTNERS Everything’s been built on relationships. That’s why we’ve been successful. - Jerry Colangelo

Cover

STORY

Cover

STORY

ARGER THAN LIFE

It’s

Creating... lifestyle, communities, relationships

s p o r t s franchises

and

entertainment

Friday

venues.

afternoon in mid-January

/// The deal these

and Jerry Colangelo, David Eaton,

power players were discussing is

and Mel Shultz are sitting around

the largest single office purchase

a table at JDM Partners’ Phoenix

in Phoenix history. JDM closed

office, discussing the historic deal

the sale-leaseback deal with State

they closed in the Valley which

Farm Automobile Insurance Co. in

gained

attention.

December of 2017. /// JDM Partners

JDM Partners has more than

joined forces with Transwestern

60 years of history in real estate

Investment Group (TIG), based

acquisition,

and

in Houston, Texas, to acquire

management. The firm is a major

the expansive Marina Heights

player in numerous Arizona-based

development in Tempe, Arizona,

///

professional

international

development,

Cover

STORY

for $928 million. /// The word “humble” comes to mind when describing this team of movers and shakers. Eaton’s comment on the deal is inherently modest. /// “It speaks for itself,” he says. /// The Marina Heights project, located along Tempe Town Lake, includes five State Farm office towers, four retail areas, and two below-grade parking garage levels. /// The development encompasses approximately 2 million square feet. In addition to the State Farm offices, it includes a lakeside plaza open to the public, an Honor Health Facility, Mountainside Fitness, and Starbucks.

and management of commercial properties in Arizona and Colorado. /// In 1985, JDM Partners purchased the Arizona assets of Eaton International Corporation which was previously operated by David Eaton and his father, Ralph Eaton. Eaton International Corporation pioneered several major projects, many of which can still be seen throughout Arizona including the design and development of large residential communities, and business and office parks. David Eaton operated Eaton International Corporation before partnering with Colangelo and Shultz in 1983.

BACKGROUND

JDM SPORTS

The unique partnership that exists between Colangelo, Eaton, and Shultz was forged with a handshake, a foundation to many great American enterprises. /// “Everything’s been built on

In 1987, under the direction of Colangelo, (commonly referred to as “the Godfather of professional sports”), JDM Partners expanded its portfolio with JDM Sports. This included the inception of JDM’s

If you are not willing to risk the usual, you will have to settle for the ordinary. — Jim Rohn relationships,” Colangelo says. “That’s why we’ve been successful.” /// With more than $2 billion in office, commercial, and resort real estate in 16 states; through four investment funds and more than 100 transactions under their belt, success speaks for itself.

professional sports and entertainment projects. It resulted in the purchase of the NBA’s Phoenix Suns and MLB’s Arizona Diamondbacks, an expansion franchise awarded in 1995. /// Over the years, these ventures involved developing, operating, and constructing both the Suns’ and Diamondbacks’ venues. Originally America West Arena and Bank One Ballpark, they are now called Talking Stick Resort Arena and Chase Field. /// Colangelo’s expansion of JDM Sports never strayed from its fundamentals. “I spent 50 years in pro sports on a handshake,” he says, “The point is, that’s who 23

Cover

STORY

We’re excited about the bright future for Phoenix. — Jerry Colangelo

we are.” /// In addition to the Suns and the Diamondbacks, JDM’s portfolio also included the WNBA Phoenix Mercury, the AFL Arizona Rattlers, the ECHL Phoenix Roadrunners, Major League Tennis, Arizona Sandsharks professional soccer, and Comerica Theatre. /// In 2004, JDM sold its interest in the Suns and the Diamondbacks in 2005; it continues to own Comerica Theatre.

VISIONARIES While Colangelo built JDM Sports, Shultz and Eaton focused on expanding JDM’s real estate portfolio. /// In 1998, JDM Partners acquired 286 acres of land near Phoenix Sky Harbor International Airport, known as Cotton Center. JDM Partners and its team developed the mixed-used project that encompasses 3 million square feet and is home to several major businesses. /// JDM Partners was instrumental in developing business parks, office, retail, and master-planned communities including Mesa Commerce Center, East Valley Commerce Center, Eaton Freeway Park, University Center, 2400 E. Arizona Biltmore Center, and Paradise Mansion Estates.

THE FUTURE In 2002, JDM Partners acquired Douglas Ranch, a 33,800-acre property. Five years later, 3,000 acres of Trillium property were added, which made JDM one of the largest owners of entitled land in the state of Arizona. /// “We’re excited about the bright future for Phoenix,” Colangelo says. “Over the next 10 years, it’s estimated we will have a million more people coming to the Valley.” /// In partnership with El Dorado Holdings, JDM is planning to develop a community of 112,000 residential units and 60 million square feet of business and commercial space, which according to the Douglas Ranch website, will be the largest master-planned community in Arizona. 24

DOING THINGS DIFFERENTLY While some say mixing business and pleasure comes with risk, this group prospers on its relationship with one another. /// They are friends more than they are business partners, they all agree. /// “Everyone looks forward to spending time together, getting into the office and living our lives together. And we’re doing business along the way,” Colangelo says. /// Just as they are committed to their work, each partner is devoted to their faith and family. They may each share a different background, but thier strong faith in God and mutual trust only makes them appreciate each other more. /// “What’s unique about us is we all have different interests and backgrounds. We appreciate and love our differences; we relish them,” Shultz says.

SYNERGY It’s easy to see why this business partnership works. /// “All these years, we’ve never really had a disagreement,” Eaton says. /// Shultz agrees. “Everything we do is either unanimous, or we don’t do it,” he says. /// The key to their success might be more than just synergy. /// “When it comes to business, you have to think young,” Colangelo says. /// That attitude might make JDM Partners absolutely unstoppable. /// “Retirement is not a consideration. You go as long as you can, as hard as you can, until you can’t,” Colangelo reflects. /// While the firm’s roots run deep in the Southwest soil, its legacy extends coast to coast. Extensive experience, amazing relationships, talent, and scalability make JDM one to watch and a company built for the future.

Cover

STORY

“WHEN YOU’VE LEARNED TO BELIEVE IN YOURSELF, THERE’S NO TELLING HOW GOOD A PLAYER YOU CAN BE.” – ROD CAREW

MAJOR LEAGUE BASEBALL FIRST BASEMAN

WE BELIEVE.

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Roberts & Boyle cushman & wakefield Jerry Roberts and Pat Boyle move to Cushman & Wakefield: A true family affair Presented by Willmeng Construction

Broker Team of the

MONTH

hile the brokers are busy representing several of the most prominent new Class A office projects around the Valley, Marketing Coordinators Erin Roberts — Jerry’s daughter — and Kaleigh Boyle — Pat’s sister — support the duo by providing dynamic promotional materials clients expect from the team. /// Kaleigh has been with the team for more than a year; Erin — a former property manager with CBRE — joined during the move to Cushman & Wakefield. /// Roberts and Boyle pride themselves on doing the leg work necessary to successfully lease the properties they represent. From tours to marketing materials, the team crosses every “t” and dots every “i.” /// That means staying in constant communication with tenant reps and doing the research necessary to know the needs of potential tenants before the two parties ever actually meet. That way, when they come face to face with a rep or a tenant, they can put their best foot forward and only show properties that meet the tenant’s needs. /// “We try to talk the tenants through every tour and really find out what is important to them and what’s not,” Roberts says. /// The team also takes its marketing materials seriously. They are not satisfied with a one-page fact sheet and rely on their marketing coordinators to produce high-quality, compelling, and relevant material. /// “A lot of our material is very in-depth and our marketing materials can be anywhere

“

Back then I just wanted to get hired and learn the business, so for the first 5 to 6 years it was not about the money; it was just about becoming more knowledgeable, - Jerry Roberts

”

from 4 to 20 pages,” Boyle says. /// That type of hands on involvement has paid off for Roberts and Boyle, who now represent many of the most prominent new office properties in the Biltmore area, Downtown Phoenix, Tempe, and Chandler. /// That includes Block 23 At CityScape, The Offices At Chandler Viridian and The Grand At Papago Park – Phase II. /// The Grand in Tempe is a multi-building Class A office development in the booming Tempe office market and is one of the most ambitious projects in Metro Phoenix. /// “Large user activity in Tempe is second to none in the Valley right now,” Roberts says. /// At full build out, the project is slated to include 1.8 million square feet of Class A office space /// Because of its sheer size, The Grand is a good fit for the many large users coming to the Valley that will require the need to expand over time. /// “Here, they know there is enough growth that they can plant their roots and not have to figure out where they want to grow down the road,” Roberts says. /// With several phases of

Block 23 at City Scape

Broker Team of the

MONTH

Viridian

development, The Grand will keep the team busy for years to come,. But with their long resume of success, it’s nothing the team can’t handle. /// Prior to making the move to Cushman & Wakefield in November, Jerry Roberts and Pat Boyle worked at CBRE alongside Tom Adelson and Jim Fijan as part of one of the most prominent office teams in the Valley. /// Roberts spent several decades as a member of that partnership and brought Boyle under his wing several years ago after the junior partner spent two years at CBRE as a researcher and three years as a runner. /// Boyle could not have asked for a better mentor than Roberts, who has three decades of experience leasing highend office space in Metro Phoenix. He has many strong relationships going back thirty years or more including one of his college friends, David Krumwiede of Lincoln Property Company. /// “Jerry has great relationships with his clients,” Boyle says. “He is friends with most of them, which is a testament to his character and how long he’s been doing it.” /// Roberts got his start at what is now CBRE working for Adelson and Fijan while Roberts was still a college student. He worked three days a week for the team and continued working for the team through his senior year. /// After graduation, he continued to hustle on that parttime schedule until he was hired by the company in 1988. While those early years were lean, Roberts says, it was all worth it. /// “Back then I just wanted to get hired and learn the business, so for the first 5 to 6 years it was not about the money; © Copyright 2018 by MP Media, LLC

Broker Team of the

“

MONTH

I really enjoy the energy Jerry and Pat bring to our project at the Grand. Jerry’s knowledge and love of new construction, for a broker, makes him uniquely qualified to work on some of our most prominent Projects,

”

- Dave Krumwiede, EVP, Lincoln Property Company

it was just about becoming more knowledgeable,” Roberts says. /// In Boyle, Roberts found a kindred spirit who showed a similar work ethic in his early career. In training his protégé, Roberts flouted industry traditions. /// “When Pat started, a lot of people wrongly made junior brokers do grunt work, but Pat was basically my shadow,” Roberts says. “We went everywhere together, so he learned, at least in my opinion, how to do it right.” /// The duo was part of a large team at CBRE, but Roberts and Boyle essentially focused on leasing while the other members took to their specialties, including investments and tenant representation. /// Now on their own, Roberts and Boyle are working in a new dynamic as the entire team is focused on landlord representation. The change also provided more opportunities for career advancement for Boyle, who is on track to become an equal partner with Roberts by the time he is 32. Not an easy feat. /// On their former team, it was easier for the junior partner to get lost in the shuffle because of the sheer size of the group. /// “Pat sees a clearer path to career advancement,” Roberts says. /// When the team made the move, Roberts went out of his way to reward Boyle, who he calls the son he never had. In Boyle, Roberts recognizes that he is not afraid to put in hard work early in his career despite not reaping the financial rewards right away. /// “Ironically, he had the same view as I had but I wanted him to be rewarded for it,” Roberts says. /// Boyle adds: “I have to work extra hard to make sure he doesn’t regret his decision.” © Copyright 2018 by MP Media, LLC

Banking

UPDATE

STAYING RELEVANT

Banking

UPDATE

OUTLOOK FOR 2O18 FROM TOP BANKERS

PAUL ENGLER

HUMPHREY SHIN

MARK YOUNG

Banking

UPDATE

PAUL ENGLER “ Alliance Bank of Arizona

I’ve seen him take great strides in the many projects he’s taken on and I’m really proud of the leader he has become with all that he’s accomplished. I look forward to seeing many more successes in his career.

”

- Don Garner, CEO Alliance Bank of Arizona

Starting Points Engler’s role at Alliance Bank of Arizona, a division of Western Alliance Bank, which recently was ranked number two on the Forbes 2018 Best Banks in America list, consists of managing the operations and strategic direction of the commercial real estate (CRE) division. “The bank and the CRE department had a great 2017, and we are very excited about 2018 and the terrific pipeline we have built,” he says.

Background

“Our clients are going to have more free cash flow to deploy, and as a financial company we are going to have more capital to lend.” - Paul Engler

n the spirit of Paul Engler’s Iowa roots and his passion for sports, a twist on the famous Field of Dreams quote: “If you build it he will come” seems appropriate. For the Head of Commercial Real Estate at Alliance Bank of Arizona, his version would be: If you dream it, you can build it. “I was attracted to the business world early in life, he says. “I could not wait to get into the business world and wear a suit and tie every day.”

Growing up in the rural Hawkeye State, Engler did not have his sights set definitively on banking. “I had big dreams of being a Chief Financial Officer for a public company,” he says. “My first mentor was a sophomore high school business teacher who introduced me to my first Annual Report.” Matriculating from The University of Iowa with an Undergraduate Finance Degree, Engler’s first position was at a local bank in Iowa City. “My uncle formed and ran a bank in the Midwest and he encouraged me to go into banking,” Engler says. /// The next move on his career path was a banking position in Indianapolis. “Although I still was not positive that banking was the right choice for me,” he says.

Banking them loving the desert. “We both wanted to see another part of the world other than the Midwest and Phoenix was very attractive,” he says. /// Engler sought out a role at Bank One (now J.P. Morgan Chase) and spent a decade there before the Great Recession hit. “I had a decision to make, I still had thoughts of being a CFO and figured this might be my time to try something new,” he says. Engler tried his hand in the REIT sphere working at Acacia Capital and Alliance Residential until 2013, when he made the call to re-enter the world of banking with Alliance Bank of Arizona. “I realized I was built to be a banker,” he says. “I am conservative in nature, my personality fits banking.”

Phoenix Moving to Alliance Bank of Arizona was an easy decision for Engler, particularly because of his connections with Don Garner, Chief Executive Officer at Alliance Bank of Arizona. “I had worked with Don at Bank One and we kept in touch,” says Engler. “Alliance Bank wanted to expand their CRE division and it was the perfect fit.” /// As the largest locally headquartered bank in Arizona, Alliance Bank of Arizona continues to grow their portfolio of commercial banking with 10 locations across the Valley. “We are a business bank with a national scope, we are not a retail bank, and we pride ourselves on the personal connections we have with our clients,” he says. “It is not uncommon for a client visiting their banker to have a conversation with Robert Sarver, Chairman and CEO of Western Alliance Bank, or executive management members.”

Sarver and Garner Engler’s relationship with both Sarver and Garner is not only important professionally, but personally as well. “I am fortunate to call Don a really close friend, and now sitting in the role that Don used to occupy is a real honor,” Engler says. “I am incredibly lucky to be working for Don, to have weekly interactions with him, I’m really proud. He is incredibly bright and passionate.” Garner shares the same respect for Engler, “It has been amazing to watch Paul grow over the past 17+ years we’ve known each other,” says Don Garner, CEO for © Copyright 2018 by MP Media, LLC

UPDATE

Alliance Bank of Arizona. “I’ve seen him take great strides in the many projects he’s taken on and I’m really proud of the leader he has become with all that he’s accomplished. I look forward to seeing many more successes in his career.”

Alliance Bank 2018 promises to be a memorable year for Engler and Alliance Bank of Arizona with the passage of tax reform and the reduced regulatory footprint for business. “Our clients are going to have more free cash flow to deploy, and as a financial company, we are going to have more capital to lend,” he says. “We think 2018 is going to be bigger and better than 2017.” /// One of Engler’s great thrills is driving around the Valley and seeing the projects the bank has financed. “It is very fulfilling to see the impact we have made for businesses and the community,” he says. /// Helping and protecting those clients is not just about a line-of-credit or SBA loan, rather Alliance Bank of Arizona is highly focused on technology and cybersecurity. “Every employee here has cybersecurity as a top priority,” he says. “We need to protect information and the flow of funds.”

Home Without question, Engler’s greatest passion in life is his wife and two boys, who are 7 and 11 years old. “We are very involved with their sports and activities,” he says. “My wife, who left a lucrative and successful career in sales and marketing to be at home with them, is truly amazing.” Engler and his wife, who both love athletics, coach the boys’ baseball and soccer teams. “Sports are important for kids, it teaches them teamwork and hard work,” he says. “The boys are learning that hard work pays off.”

Ending Points Engler has achieved a rewarding work-life balance and expects for 2018 and beyond to be fulfilling years. “I have a remarkable family and a great career,” he says. “I have worked at large banks and small banks, and now I work at the right bank.” Engler did indeed build his dream. 35

Banking

UPDATE

HUMPHREY SHIN FirstBank

“

Humphrey is relentlessly positive and a true professional, he has great knowledge and experience, particularly in commercial real estate. More important, he is a great person who draws people in with his charisma and caring nature for others.

”

- Bryce Lloyd, Phoenix Market President, FirstBank

Starting Points

“By investing heavily in technology, the experience is easy for our users and it doesn’t require them to come into the bank” - Humphrey Shin

ince starting with FirstBank 14 years ago, Humphrey Shin has worked his way to the top of the banking industry in Phoenix. Shin moved to the Valley seven years ago and is currently Phoenix Market Executive Vice President of FirstBank, the nation’s third largest privately held bank. Commercial Executive Magazine sat down with Shin to discuss everything from his upbringing to his take on new technology in the banking industry.

Shin starts his day before the sun is up. He is at the office after a robust gym session spent boosting his heart rate and reviewing market reports. He forged a leadership role at FirstBank working hard and smart, but most credit him with discipline and consistency.

Background Shin credits his traditional Korean upbringing for establishing his deep-rooted perseverance. Growing up a second-generation American in Aurora, Colorado, was no easy feat. His childhood was a balancing act between his parents who wanted he and his brother to blend in, and his grandmother, who allowed only Korean to be spoken in her home. /// Shin credits his work ethic and education success to his late father’s influence growing up. /// “He would tell us, you have to work twice as hard as everyone else,” Shin reflects. © Copyright 2018 by MP Media, LLC

Banking

UPDATE

History

The Work

Along with the principles his father instilled in him, timing has also played a significant role in Shin’s climb up the banking ladder. After joining FirstBank in 2004 as a management trainee, he quickly worked his way up the ranks and received the opportunity to be part of the early stages of FirstBank’s branch openings in Arizona.

Talented bankers who skillfully advise clients are hard to find. Complex solutions require skilled advisors ready to go the extra mile. Relationships are becoming more and more strategic while supporting expanding portfolios. /// It takes time to develop these skills. However, those born with genuine qualities gravitate to the top. /// “Humphrey is relentlessly positive and a true professional,” says Bryce Lloyd, Phoenix Market President of FirstBank. “He has great knowledge and experience, particularly in commercial real estate. More important, he is a great person who draws people in with his charisma and caring nature for others.”

Phoenix Shin is not deterred by a challenge. His career move to Phoenix came during the heart of the Great Recession. The timing of his move, combined with his focus on new business in his position at FirstBank, turned out to be a trial he would end up winning. /// He credits part of his success during this time to seeing opportunities in the market. He recalls industry challenges back in 2011 when many banks were on the sidelines. /// “We established a great customer base during the recession because many lenders weren’t lending. I think our customers are loyal to us today, because of that,” he says.

Technology Shin is not intimidated by change. He embraces and leverages new technology in banking. A major factor in Shin’s success with FirstBank is driving investment in technology for customer convenience. /// “By investing heavily in technology, the experience is easy for our users and it doesn’t require them to come into the bank,” he says. /// To put the numbers in perspective: There were 10 million online logins to FirstBank in 2013. In 2017, FirstBank exceeded 36 million online logins. /// Shin says that staying relevant when it comes to technology is essential to business — and it’s not just online — it’s mobile. /// “We have routinely been ahead of the curve. When the iPhone X was released, we were able to immediately support the facial recognition logins to our mobile app. That is due to our IT department being able to program quickly and keep up with the latest updates,” Shin says. © Copyright 2018 by MP Media, LLC

Ending Points Shin says a major factor in his business is balance. While technology is a driving force at FirstBank, providing face-to-face interaction is just as important. /// “Ultimately, to beat the competition you have to have that great customer service,” Shin says. /// Keeping those brick-and-mortar locations for customers who want that experience, while at the same time being at the forefront of mobile and online technology, is his way of staying balanced. /// Balance is something Shin also values at home. He and his wife stay active by golfing, hiking and cycling. He says they also enjoy traveling and spending time with their dog, Happy.

Banking

UPDATE

MARK YOUNG “ National Bank of Arizona

Mark has a terrific credit acumen and balances his risk management philosophy with the understanding and drive to fulfill the needs of customers. It’s been a mutually beneficial relationship for many years, and I am proud to call him my friend and associate.

”

- David Blackford, EVP, CEO of California Bank & Trust

Starting Points Voted for 14 years as Arizona’s No. 1 bank by Ranking Arizona, National Bank of Arizona serves its customers as a subsidiary of financial leader Zions Bancorporation. With 59 branches, as well as an innovative financial services technology platform, National Bank of Arizona provides its clients with the complete gamut of banking services.“We are a relationship bank focused on speed, certainty and execution for our clients,” Young says. “We deliver customized financial solutions and that is our differentiator.” “The tax cut offered us a chance to provide many associates with a 5 percent raise in salary at the beginning of the year and bonuses to be paid at year end” -Mark Young

ark Young, president and CEO of National Bank of Arizona, has been proud to call Arizona his home since 1964. “I have been very fortunate to spend most of my life in Arizona and particularly the Valley,” he says. “As an organization, we are highly committed to the customers and communities we serve across the state.”

Background Young was born in Spokane, Washington. His only long-term departure from Arizona came during his high school and college years when he attended the University of Southern California. He earned a Bachelor of Science in finance. Returning to Arizona, Young took a position at Valley National Bank. /// “I never thought of being in the banking industry, I always thought of myself as an entrepreneur. I put myself through college running my own valet parking service,” he says. “I did think though that banking would provide a unique perspective on how accomplished individuals become successful.”

Banking

UPDATE

History Beginning as a teller, Young worked his way up through the organization: consumer, commercial, real estate, syndicated loans, and corporate. “I was there for 16 years,” he says. “Valley was an innovative and a conservative entrepreneurial financial institution, which is what National Bank of Arizona embraces.” /// It was also at Valley National Bank where Young seized on the break he needed to jumpstart his career. /// “I was fortunate to meet David Blackford in 1989. David became my mentor,” Young recalls. “To have success in banking you need to have talent, but you also need to form a relationship with someone in a position of authority who can guide you.”

Evolution The pair worked together at Valley National Bank for close to a decade before striking out on their own in 1998. /// “We joined Robert Sarver (now Chairman and CEO of Western Alliance Bancorporation) to start California Bank & Trust,” Young says. “When Robert left, David became CEO and I ran the real estate banking division. California Bank & Trust is now a subsidiary of Zions Bancorporation.” /// Blackford says of Young: “Mark has a terrific credit acumen and balances his risk management philosophy with the understanding and drive to fulfill the needs of customers. It’s been a mutually beneficial relationship for many years, and I am proud to call him my friend and associate.” /// Young has worked under the umbrella of Zions Bancorporation for close to 20 years. Currently, in addition to his responsibilities at National Bank of Arizona, Young serves as Executive Vice President of Zions Bancorporation and sits on the Bancorporation Executive Management Committee.

2018 Building on the great successes of 2017, Young predicts a wealth of opportunity in 2018. /// “We had a very good year in loan growth and revenue,” he says. “With corporate tax reform, we will garner

great benefits as a regional bank, have more cash to lend and the ability to provide competitive pricing to our customers.” /// Young also points to a significant upside from technological implementation at the bank, as the organization adds greater capacity and capabilities to their digital infrastructure, to complement its brick-and-mortar footprint. /// “We are delivering more products and services to our clients from an omnichannel and omnipresent perspective,” he says. “We are excited about these platforms catapulting us ahead of competitors.”

Personal When not crafting the bank’s strategic plans, Young enjoys time with his family. /// “My wife and I have two daughters and a son, and now we have our first grandchild,” he says. “We love to snow ski, water ski, and travel.”

National Bank of Arizona The bank’s dedication to its clients and communities extends to the realm of philanthropy. /// “We are the eighth-largest philanthropic organization in the state,” Young says. “We have a real emphasis on education and continuing to improve Arizona education. /// Generosity from the organization also flows to bank employees. /// “The tax cut offered us a chance to provide many associates with a 5 percent raise in salary at the beginning of the year and bonuses to be paid at year end,” he says.

Ending Points Moving forward, National Bank of Arizona has a bright future with Young at the helm. /// “We let our customers tell our story; they are terrific ambassadors,” he says. /// As for Young, his choice to pursue and continue with banking proved right on the money. /// “It has been a great career,” he says.

Com munity IS OUR CORE associates serving on more than

25 nonprofit boards

supporting more than

logging more than

150 nonprofits

5,100 volunteer hours

Our associates have dedicated their careers to serving their communities. When we say community is our core, we mean it.

NBAZ.COM | A division of ZB, N.A. Member FDIC

The Best of the Best

Marcus & Millichap proudly honors its top commercial real estate investment professionals in the Phoenix office. These individuals provided superior service to clients by helping them meet their investment objectives. They are market leaders setting a standard for dedication, expertise, and achievement. We look forward to being a part of your success in 2018.

Congratulations to our Top Investment Professionals of 2017 Peter Katz

Steve Gebing

Cliff David

Executive Managing Director Institutional Property Advisors Student Housing/Multifamily

Senior Managing Director Institutional Property Advisors Multifamily

Senior Managing Director Multifamily

Jamie Medress

Mark Ruble

Hamid Panahi

Senior Managing Director Net-Leased

Pete Te Kampe

Josh Tammen

Vice President, Invesments Institutional Property Advisors Multifamily Rich Butler

First Vice President, Invesments Multifamily

Associate Hospitality

Senior Vice President, Invesments Multifamily Ryan Sarbinoff

Regional Manager/Vice President 602-687-6700 ryan.sarbinoff@marcusmillichap.com

Bar Napkin

PRODUCTIONS

Royal Palms Bar 42

Bar Napkin

PRODUCTIONS

BAR NAPKIN PRODUCTIONS To say that Bar Napkin Productions is a passion project would be an understatement as the story behind the do-it-all creative agency is inextricably linked to the partnership between its founders, Haley Balzano and Jeffrey Rausch. Â© Copyright 2018 by MP Media, LLC

Bar Napkin

PRODUCTIONS Whenever I would do something like play with my dolls, I would never actually play with the dolls. I would spend all my time rearranging the furniture and building pieces of furniture out of Styrofoam.

he team, now husband and wife, spent many years as professional counterparts before their relationship blossomed into something more. /// Now, the couple is happily married and running a thriving business, but the road to that reality was anything but straight. /// Though both ended up in architecture and interior design, the paths that led Haley Balzano and Jeffrey Rausch to those industries, and each other, could not be more different. /// Balzano was a natural-born architect and told her parents she wanted to pursue the profession as a young girl. Her grandmother even got her a subscription to Architectural Digest at the age of eight. /// “Whenever I would do something like play with my dolls, I would never actually play with the dolls,” Balzano says. “I would spend all my time rearranging the furniture and building pieces of furniture out of Styrofoam.” /// That passion led her to a pre-college summer program at Carnegie Mellon University in Pittsburgh as a high school senior. She then earned a B.A. in architecture with a minor in architectural history from the university. /// She also spent time abroad in Florence, Italy while in college and credits the experience for inspiring her love of cooking and wine as much as her love of architecture. /// Rausch’s path to the industry was not as direct. /// He initially attended Marquette University in Milwaukee and studied business and marketing, but changed course in his last year because he wanted to do something creative. /// “My dad ran

Bar Napkin

PRODUCTIONS

My dad ran a big business, and I always thought I would be in business as well.

a big business, and I always thought I would be in business as well,” he says. /// He ultimately earned a B.S. in interior architecture from the University of Minnesota and moved to Arizona to escape the cold. /// That change of heart in college set Rausch on the path that would eventually lead him to Balzano, though neither anticipated a romance when they first met or for many years thereafter. /// After moving to Arizona in 1984, Rausch worked for several prominent design firms before starting his own business, Exclaim Design, in 1992. /// Balzano, who had become burned out working for another company in healthcare architecture, met with Rausch at the behest of a former coworker and began working at Exclaim Design in 2001. /// The rest, as they say, is history. And what a history it was. /// At first glance, Balzano did not fit in at Exclaim, where everyone seemed quiet and buttoned down. She was used to the more chaotic environment common at architecture firms. /// When she first arrived, Balzano thought “I don’t think I can work there. It’s too proper.” /// However, she soon found a kindred spirit in Rausch after the two spent time working together on a project. She knew they would get along. /// “I knew I finally had a comrade in this office,” she says. /// Still, their professional relationship grew for many years before a romance began. /// During the Great Recession, they both realized that they needed to do something different to survive the changing economic climate. They © Copyright 2018 by MP Media, LLC

Bar Napkin

PRODUCTIONS

Arizona Cardinals Bubble Lounge

came to this realization when responding to an RFP for an institutional project that had drawn interest from over 20 firms across Arizona, including the bigwigs. /// “We just knew that someone else was going to get the job because they underbid or were overqualified,” Balzano says. /// So, Rausch and Balzano became equal partners in a new venture: Bar Napkin Productions. /// The name of the company was inspired by Tokyo-based Super Potato. Balzano wanted a name that flouted the traditional formula that includes a few last names and associates. /// “(Super Potato) means nothing and everything all at the same time,” she says. “How do we do that?” /// While scribbling ideas on bar napkins at The Vig with Rausch, the new name hit her. /// That stroke of inspiration was a forbearer of things to come for the new company, which has experienced an average of 40 percent annual growth since 2008. While other firms struggled, Bar Napkin flourished. The creative agency even caught national recognition early on when Interior Design Magazine added them to its respected “Hospitality Design Giant” list. Bar Napkin has continued to stay on this list for the past five years. /// Much of that success has to do with the individual talents of Rausch and Balzano, 46

but it also has to do with their business model. They do not simply provide architectural and interior design services for restaurants and other hospitality clients; they provide a gamut of services to make sure everything - from interiors to menus - works together to ensure success for ownership. /// Those services include branding, names, logos, uniforms, place settings, architecture, interiors, social media, party planning, menus and more. /// “We do anything we can do to help advance (the client),” Rausch says. /// That vision and the company’s success has landed them some major clients, including the Arizona Cardinals. /// Bar Napkin also worked on Harkins Theatres new Camelview theater in Scottsdale and is doing more design work for the company that will be rolled out in theaters nationwide. /// Still, as their professional relationship matured, neither had an inkling that it could develop into something more. In fact, both profess they never really looked at the other one “in that way.” /// It wasn’t until © Copyright 2018 by MP Media, LLC

Bar Napkin

many years later, with Bar Napkin well under way, that something changed. It all happened after a birthday celebration for a friend when the two shared their first kiss in the parking lot at Phoenix restaurant Chelsea’s Kitchen. /// The romance did not immediately move forward from there, though. They were initially hesitant to address the kiss for fear of ruining their existing relationship. /// The couple was careful to make sure the relationship didn’t interfere with their work. Many clients did not even know they were dating because they did not want the relationship to undermine Balzano’s role in the male-dominated industry. /// “It is important and significant that (the relationship) didn’t get in the way of what she is and who she is,” Rausch says. /// That parking space would become an important spot for the couple as Rausch staged an impromptu proposal to Balzano in the very same spot about seven years later. In fact, he carried the ring around with him for six months waiting for the right moment. /// “There

PRODUCTIONS

are not enough words in my vocabulary to describe how much I love, cherish and adore this man,” says Balzano. /// The couple would then marry in the same spot about a year later. /// “The only spot that felt like it was meant for us was that parking spot,” Rausch says. /// So why, after so many years as professional partners, did sparks begin to fly? Rausch credits that existing relationship with laying a solid foundation for their romance. /// “We had a friendship first and we had respect first; those two things are hard to come by,” he says. /// In the end, the life - both personal and professional - that Balzano and Rausch built together is the product of the very things their business represents: hard work, creative inspiration, and some timing. /// “That is the best way to define creativity because you can’t confine it to single space or time,” Balzano said in reference to the company’s unconventional name. “It comes at 3 o’clock in the morning or someplace else - a lot of times at a bar scribbled on a bar napkin.”

Design Meeting

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LEADING PHOENIX WITH TOP TALENT

Newmark Knight Frank Phoenix adds Brokerage and Valuation & Advisory market experts— expanding services to meet the needs of our clients.

BROKERAGE, PHOENIX

CJ OSBRINK Executive Managing Director

TOM ADELSON Executive Managing Director

VALUATION & ADVISORY, SOUTHWEST

GAVIN MCPHIE, MAI, MRICS Senior Managing Director SW Market Leader

RANDY SCHNEIDER, MAI Executive Vice President

JOHN RUCKER, MAI Senior Vice President

NICK GRAVES, MAI Senior Vice President

CHAD ESCHMEYER Senior Vice President

BENJAMIN GREGG, MAI, Senior Vice President (Reno, NV)

CHRIS MCCOOK, MAI, First Vice President

RYAN MELZER Vice President

AVAREY WU Analyst

ZACHERY O’CALLAHAN Analyst

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ngkf.com

Market

UPDATE

Bottom line: we are poised for a long and steady recovery that will likely extend for quite a while.

k o o l t u O The

for the

Phoenix Housing Market

he Phoenix housing market is finally back. While markets such as Denver and Seattle roared back from the Great Recession, the Phoenix housing market was much slower to recover. The scars of the past kept our market in check more than most. /// During the Great Recession, housing in Phoenix was highly distressed and homes were trading substantially below replacement cost. Prices dropped nearly 50 percent between 2005 and 2010. Phoenix was targeted by large institutional investors who bought thousands of inexpensive homes and turned them into rentals. The investor buying frenzy lasted a few years and effectively reduced the supply of distressed inventory and caused home prices to increase sharply. The price of an existing home in

Market Phoenix increased 71 percent between 2011 and 2016 as distress was removed from the market and supply levels remained low. /// During this period, homebuilders struggled to compete with distressed resales and faced significant headwinds in the form of lot and labor shortages as well as increasing costs. Between 2008 and 2016, Phoenix did not record a single year in which single-family building permits reached 19,000. This compares to the period between 1994 and 2006 (excluding 2003-2005), when 28,000 to 40,000 single-family permits were pulled annually in Phoenix to house a much smaller population. /// Something changed beginning in 2016. The Phoenix housing market began to take off. Now we see few significant “risk factors” that would indicate that recovery is anything but sustainable. Resale home prices remain below the previous peak pricing levels, which many see as “room to grow.” Metro Phoenix

will add more than 50,000 jobs in 2018 and incomes are increasing. New homebuilders are moving to the periphery, where affordable price points can be offered to a growing class of entry-level buyers. FHA conforming loan limits were recently increased to nearly $300,000 in Maricopa County, which may be viewed as a statement of support for the Phoenix housing market. /// At the national level, disposable income levels are at all-time highs and the record highs in the stock market are creating a “wealth effect.” Consumer confidence is spiking. Tax reform, which was originally viewed as a potential setback for housing, has proven to be a slight boost for non-coastal housing markets such as Phoenix. Even Millennials are entering the housing market after enduring consecutive years © Copyright 2018 by MP Media, LLC

UPDATE

of apartment rent increases. It’s now cheaper to own a home in Phoenix than it is to rent one. /// One of the biggest concerns we hear is that the length of the national economic recovery is causing increased “cycle sensitivity.” While few believe that a recession is imminent, there is growing concern that a recession will begin within 24 to 36 months. We would argue that economic recoveries do not die of old age, but rather are assassinated by bad policy, overregulation, or unforeseen black swan events such as a war, natural disaster, or other unpredictable events. /// While the challenges of low inventory, labor shortages, and capital constraints remain in Metro Phoenix, we do not see any visible assassins in the near term. This makes it difficult to paint a downside scenario for Phoenix housing. /// Bottom line: we are poised for a long and steady recovery that will likely extend for quite a while.

By Steven La Terra, Managing Director, Meyers Research, LLC, a Kennedy Wilson Company (NYSE: KW) January 25, 2018 51

Industrial

UPDATE

No Signs of Slowing JLL Predictions for Phoenix Industrial Market

ndustrial absorption, rent growth and vacancy are all performing at record levels in Phoenix with no sign of slowing. Heading into 2018, this has Metro Phoenix positioned well to not only maintain its positive stride but likely continue to build on a record-breaking 2017. /// Among the benchmarks achieved in the past 12 months: More than 9.8 million square feet of total net absorption (the largest in market history), a 7.6 percent overall vacancy rate (the lowest in 10 years), and average rents of $0.52 per-square-foot (representing an annual rent growth of

4.2 percent but still below the $0.58 persquare-foot peak reached in 2008). /// Unlike previous cycles, which relied heavily on the homebuilding industry, current industrial demand runs the gamut of user types and sizes. These factors – combined with sustained economic and population growth, and overall affordability and accessibility – produce an environment with relatively low risk and exponential demand. /// In short, the Metro Phoenix industrial market has yet to reach its peak. /// According to JLL, total industrial net absorption in 2018 could exceed 10 million © Copyright 2018 by MP Media, LLC

Industrial

square feet with significant help by “hot” user groups such as e-commerce, food and beverage, manufacturing, and third-party logistics. While investors and developers have been more cautious during this cycle – a reticence that has helped avoid overbuilding and what amounted to one of the highest industrial vacancy rates in the country in 2010 – demand is pushing developers to get back into the game. /// The latest example is the January groundbreaking of TEN Distribution Center I, the first 1.1 million-square-foot building in Irwin G. Pasternack AIA + Associates’ planned 3.6 millionsquare-foot distribution park in Phoenix’s Southwest submarket. /// Though the fear that history could repeat itself with a major market bust is never out of mind, market data tells a different story. Vacancies are still in decline, absorption continues to outpace construction and rent growth is holding steady. This points to a very strong market with more runway to go.

UPDATE

 Bill Honsaker, Managing Director, JLL

“

All economic indicators are positive for 2018. Based on current and planned inventory, I expect absorption to somewhat exceed the 2017 total.

”

Prediction: 10.7 million square feet of absorption

 Rick Collins, Senior Vice President, JLL

“

While recent tax cuts and decreased regulation on corporate America will continue to stimulate the economy, I think the current geopolitical landscape will temper our overall absorption numbers. I am not expecting 2018 to be extraordinary, but I think it will still be great.

”

Prediction: 8.1 million square feet of absorption

 Anthony Lydon, Managing Director, JLL

“

Users of industrial space continue to grow their building footprints and capital improvements for their selected solutions.

”

Sector

UPDATE

Phoenix AREA LAND MARKET Metropolitan 2017 IN REVIEW AND PROJECTIONS TO 2020 The Land and Housing Market has enjoyed steadily rising performance over the past few years. We can look forward to continuing good times in land and housing for the foreseeable future. The volume of overall land transactions is a good predictor of near-term economic growth. The two graphs below depict the strength of the near-term economy: OVERALL LAND TRANSACTIONS

HOMEBUILDER LAND AND LOT SPEND

and transactions throughout the region have hit a recent high of $2.35 billion and Homebuilder Land and Lot Spend has averaged $1 billion for 2 years running. Overall land transactions have increased approximately 600% since the bottom of the market a decade ago. We expect to see land transactions increase to $3 billion and homebuilders to increase land and lot spend to $1.3-1.5 billion in the coming few years. /// The basis for increasing land and lot transactions

Sector

UDPATE

is economic growth. Economic growth provides jobs and attractive job markets attract population and increasing investments of all types. On the other hand, retracting economies lose or have stagnant population and investment. Below are graphs of the population and employment growth we have been experiencing:

METRO PHOENIX ANNUAL POPULATION GROWTH

Recent population growth has been impressive despite a dramatic slide in natural growth (births less deaths). Our natural growth is equal to what it was in 1980 when Phoenix’s population consisted of 2 million fewer people. In spite of the baby bust, our population is growing at the rate of approximately 90,000 annually. We believe we have now reached the bottom of the baby bust and expect to see a decent increase of “baby making” households over the next few years. /// The path of growth is also shifting dramatically. In 2005, 50% of housing permits and population growth were in the West Valley. When the market retracted in 2008-2011, the West Valley shrank to 25% of market share as the builders abandoned subdivisions in the West Valley and virtually shut down Pinal County. This past year alone, Southwest Valley permits have increased 25% and Pinal County has increased by over 40%, while the popular Southeast Valley has decreased by 2%. Today West Valley market share is over 40% and growing. /// Job growth this past year was average, declining to just under 45,000 jobs versus previous back to back years of over 60,000. Increasing land sales to users for employment-related purposes spiked in the past year. Great factors in play related to tax reform will continue to make neighboring high-cost California © Copyright 2018 by MP Media, LLC

JOBS ADDED / LOST ANNUALLY

less attractive. Year after year, California continues down a path of more regulation and taxation which creates a constant flow of jobs and population to our region. The Phoenix metro area once overlooked for high tech jobs in favor of California is now top listed. Additionally, we have become an attractive one-day truck to and from the Port of Los Angeles which is attracting huge tenants along the 303 freeway and Interstate 10. /// Infill and the highdensity urbanization of the metro area are still in relative infancy with strong catalysts and a growing platform to build upon. There will be a continuation of the positive impacts of light rail and high-tech job clusters promoting infill and high-density residential. We are just at the beginning stages of seeing dynamic growth in our triad of Down Town Phoenix, Tempe, and Scottsdale. /// One of the great assets of our housing market is the wide diversification of choices available to the consumer at affordable prices compared to nearby regions. Looking forward to 2020, expect to see singlefamily permits grow from 20,000 annually to over 25,000 and for multifamily permits to stabilize at 6-8,000. The shift of growth will continue along transportation corridors in the West Valley and to affordable outlets in the far Southeast Valley and Pinal County. 55

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