Phoenix Market News :: November 28, 2011

LOCAL NEWS

Arizona Indicators: Metro Phoenix is Running in Place

The Arizona Republic :: November 27, 2011
As metro Phoenix begins the climb out of its economic chasm, employers are creating more jobs here than in many cities around the nation. That's familiar territory. In boom times over the past two decades, metro Phoenix and Arizona ranked in the nation's top tier for annual job growth. But instead of the eye-popping job-creation numbers of the past, the number of jobs in metro Phoenix was up 1.8 percent from August 2010 to August 2011. The region doesn't have nearly the number of jobs it needs after shedding almost 11 percent of its jobs in the depths of the downturn. Renewable energy, bioscience and other innovations have provided thrust in recent months, but the region's key economic data paints a picture of an area operating largely with jobs that don't require college degrees and don't pay well enough to provide a comfortable lifestyle. The numbers characterize a region that could lag behind comparable cities.

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Valley Realty "Cliff" Cloud Loom

The Arizona Republic :: November 22, 2011

Commercial-real-estate analysts call it the "cliff." It is an anticipated explosion of mortgage loan-repayment deadlines on Phoenix-area office buildings, shopping centers and apartment complexes that could set off an avalanche of commercial-property foreclosures starting in 2012. A dramatic increase in commercial-property foreclosures would have wide-ranging economic effects, including huge losses for employee-pension funds, potential collapse of the community-banking industry and a longer and deeper freeze on small-business lending. Back in 2007, when the local investment market for commercial real estate was still white-hot, lenders issued an unprecedented number of short-term, interest-only loans for the purchase of tenant-occupied commercial properties. The repayment terms for such loans vary among five, seven and 10 years. In 2007, five-year loans were particularly popular, said Beth Jo Zestier, president and designated broker of Phoenix-based ROI Properties. Barring any extensions, each of those loans will reach maturity in 2012.

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Phoenix Optima Condo Developer Set for 3rd Effort

The Arizona Republic :: November 25, 2011
The developer of two luxury-condominium projects in the Phoenix area said it has secured land and financing to develop a new project near Scottsdale Fashion Square. The project will be called Optima Sonoran Village and will be located on nearly 10 acres at the northeastern corner of Camelback Road and 68th Street in Scottsdale, according to co-developers Optima Inc. of Glencoe, Ill., and DeBartolo Development LLC of Tampa. Like its sister project, Optima Camelview Village, 7177 E. Rancho Vista Drive in Scottsdale, Optima Sonoran Village will be a multiphase residential project made up of tiered levels covered with greenery, the developers said. Unlike the two previous projects, which include Optima Biltmore Towers, 4808 N. 24th St. in Phoenix, the next Optima project will begin as an apartment community. Optima Sonoran Village's first, 210-unit phase will be developed by Optima Sonoran Village Phase I LLC, a joint venture between Optima, a multifamily-housing developer, and DeBartolo, a real-estate investment firm specializing in multifamily, hospitality, retail and mixed-use projects. The first phase is scheduled to break ground in 2012 and begin leasing in 2013, the developer said.

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Washington, Jefferson Corridor Showing Signs of Growth

Phoenix Business Journal :: November 21, 2011
If Washington, Jefferson and Van Buren streets between downtown and 44th Street aren’t typically on your radar screen, you might not know all of the activity taking place along that portion of the light rail corridor. There are a multitude of projects in the works dominated in large part by the $1.5 billion PHX Sky Train under construction at 44th and Washington streets. The elevated train and loading platform — which looks like a scene out of “The Jetsons” cartoon — is coming along in spectacular fashion, even though completion of the first phase won’t be until 2013. That’s when travelers will be able to ride the Sky Train from the light rail stop to the East Economy Parking lot and Terminal 4 of Phoenix Sky Harbor International Airport. By 2015, the Sky Train will be built to Terminal 3. But there’s a lot more going on, as I discovered during a field trip I took last week with Don Keuth, CEO of the Discovery Triangle Development Corp. That nonprofit organization was created to promote investment, development and diversity in a triangular area the includes Phoenix Sky Harbor and is defined by a line that stretches from downtown Phoenix to downtown Tempe to Papago Park and back to downtown Phoenix.

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Marriott Planned for Downtown Phoenix; Changes for Wyndham

Phoenix Business Journal :: November 25, 2011
A California hotel company and Marriott International are moving forward with a 280-room urban concept hotel at Central Avenue and Madison Street in downtown Phoenix. Patty Johnson, CEO of Connections Marketing & Communications, said construction could start as early as next year. The project is going through the city’s planning and zoning approval process. The hotel will be part of redevelopment efforts at the Luhrs Tower. Irvine, Calif.-based Hansji Hotels has been looking to redevelop the Luhrs buildings, which are a few blocks west of US Airways Center and south of the new CityScape development.

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Phoenix's Home-Price Puzzle: How to Rise from Ashes?

The Wall Street Journal :: November 21, 2011
The Phoenix housing market is defying conventional economic theory. Inventories of homes for sale are low, falling 41% to 21,304 in October, compared to 35,732 at the same time a year ago for Greater Phoenix, according to the Cromford Report, a market research firm in Mesa, Ariz. The number of home sales is rising—to 6,428 in October from 5,443 in same month a year ago, according to the Cromford Report. The city's unemployment rate is inching down and is below the national average. The laws of supply and demand suggest housing prices should be rising, or at least stop falling. But they continue to decline, due to a flood of bargain-hunting investors who still dominate the market, as well as conservative bank appraisals. As a result, economic recovery in what was once one of the country's most dynamic cities is being held back. The monthly median price for a previously owned, single-family home in Greater Phoenix sank 5% to $120,000 in October from $127,500 a year earlier. The national median was $165,400 in September, the latest month reported by the National Association of Realtors.

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Gateway Foresees 1 Million Travelers

The Arizona Republic :: November 26, 2011
In an office just east of a Phoenix-Mesa Gateway Airport taxiway, Brian Sexton tabulated passenger numbers on a computer program and calculator. The airport spokesman accounted for variables such as more travelers during the holiday season, new destinations and additional flights. But for every total Sexton came up with, he couldn't account for a wild card that's expected to raise the annual passenger total to 1million or more for the first time in Gateway's history. "We just don't know yet what Las Vegas flights are going to bring," he said. Allegiant Air, the airport's only airline, announced in September that it would begin service from Gateway on Nov. 17 to and from Sin City, with six flights a week.

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NATIONAL NEWS

The Death of the Fringe Suburb

The New York Times :: November 25, 2011

Drive through any number of outer-ring suburbs in America, and you’ll see boarded-up and vacant strip malls, surrounded by vast seas of empty parking spaces. These forlorn monuments to the real estate crash are not going to come back to life, even when the economy recovers. And that’s because the demand for the housing that once supported commercial activity in many exurbs isn’t coming back, either. By now, nearly five years after the housing crash, most Americans understand that a mortgage meltdown was the catalyst for the Great Recession, facilitated by under regulation of finance and reckless risk-taking. Less understood is the divergence between center cities and inner-ring suburbs on one hand, and the suburban fringe on the other. It was predominantly the collapse of the car-dependent suburban fringe that caused the mortgage collapse.

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Available U.S. Retail Space to Drop for First Time Since 2005, CBRE Says

Bloomberg :: November 21, 2011

Space available for leasing at U.S. local shopping centers will decline next year for the first time since 2005 as a growing economy spurs retailer expansion, commercial-property brokerage CBRE Group Inc. said. The availability rate, a measure of space being marketed and ready for tenant construction within a year, will fall to 12.4 percent for neighborhood and community shopping centers at the end of 2012. That’s down from a peak of 13.3 percent in the second quarter of this year, according to a forecast from CBRE Econometric Advisors, a unit of Los Angeles-based CBRE Group. Purchases at U.S. retailers rose 0.5 percent in October, following a 1.1 percent increase the month before, Commerce Department figures showed last week. Sales at electronics stores climbed the most in two years. A lack of shopping-center construction will also help landlords rent existing space, according to Abigail Rosenbaum, an economist at CBRE Econometric Advisors in Boston. “We still have a lot of ground to make up for,” she said in a telephone interview. “There isn’t much supply coming on board over the next couple of years.”

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Retail Isn't Broken. Stores Are - An Interview with Ron Johnson

Harvard Business Review :: December 2011

Equity Residential, the apartment company headed by real-estate mogul Sam Zell, has emerged as the lead bidder in the contest to buy roughly half of rival Archstone in what would be one of the largest real-estate transactions since the downturn, according to people familiar with the situation. Equity Residential has offered more than $2.5 billion in cash and stock to buy the 53% equity stake in Archstone currently held by Bank of America Corp. and Barclays PLC, the people said. An agreement is still uncertain and a higher bidder could step in. The rest of the company is owned by the bankruptcy estate of Lehman Brothers Holdings Inc., which led a group that purchased Archstone in 2007 and is keeping its holding. Lehman and the banks earlier this year disagreed over how to unwind Archstone, leading the banks to put their stakes up for sale. The bid from Mr. Zell, a storied real-estate industry maverick, is the latest sign of the high level of interest among investors in rental apartments. While other forms of commercial property have suffered from high vacancy rates, apartment buildings have enjoyed high demand as home ownership rates have fallen.

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