Story - CEMquoted and not necessarily those of CEM. 4455 East Camelback Road #D250 Phoenix, AZ 85018...

Cover Story

A R I Z O N A ’ S P U B L I C A T I O N F O R T H E C O M M E R C I A L R E A L E S T A T E I N D U S T R Y

Refining Phoenix: UrbanExpansion and the CityScapewith

Phoenix Mayor Phil Gordon,Mike Ebert and

Larry Lazarus

BROKER’S ROUNDTABLEWhat is the Future of

Commercial Real Estate in Arizona?

Brokers of the MonthRyan Schubert and

Michael HackettCassidy Turley BRE Commercial

Company Profile

Kevin Rude Grubb & Ellis

Management Services’ Arizona Operations

FASTERFORWARD

Leading businesses around the globe have come to rely on Colliers International to advance their interests in real estate. With a greater sense of drive, coupled to teams of specialists around the world, we’ll help you move swiftly along the right track— to accelerate your success.

Accelerating success.

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11:29:23 AM

4

6 Cover StoryRefining Phoenix: Urban Expansion and the CityScape with Phoenix Mayor Phil Gordon, Larry Lazarus and Mike Ebert

11 Making HeadlinesThe Big Deals and the Brokers Who Made Them Happen

14 Brokers of the MonthRyan Schubert and Michael Hackett Cassidy Turley BRE Commercial

18 Brokers RoundtableWhat is the Future of Commercial Real Estate in Arizona?

26 Company ProfileKevin RudeGrubb & Ellis Management Services’ Arizona Operations

30 Executive Q&AShort Sale

36 On The Market

37 News You Can UseRetail Property Managers In The Spotlight

Executive PublisherMandy [email protected]

EditorKelsey [email protected]

Marketing and SalesDoug [email protected]

Creative DirectorBob [email protected]

Contributing WritersMary BarryKerry DuffKathleen O’Brien Thompson

PhotographyAmy PileggiScott SandlerLinda Lee StoryMichael Woodall

© 2010 by MP Magazines LLC

All rights reserved. No part of this publication can bereprinted or reproduced without publishers permission.Opinions expressed are those of the authors or personsquoted and not necessarily those of CEM.

4455 East Camelback Road #D250Phoenix, AZ 85018602-955-2899www.cem-az.com

6 14 18 26

Contents Issue 4 | 2010

5

Letter from the Publisher

Mandy PurcellExecutive [email protected]

We’ve all been told to make a list of goals; two-year goals, five-yeargoals, even lifetime goals. But more often than not those goals just become a static item on a list of ideas. The goals won’t getcrossed off with out a good plan and some hard work. Every goalrequires a strategy.

Our cover story, Mayor Phil Gordon and Larry Lazarus, have a veryclear goal that comes with a detailed strategy. The goal? Tocompletely transform downtown Phoenix into an urban Mecca ofculture and business. The strategy starts with development. Bothmen are investing in the future of downtown by developing newbuildings, encouraging new tenants and rallying community support.The plan is well researched, thought-out, detailed and focused.

Ryan Schubert and Michael Hackett of Cassidy Turley BRECommercial are also experts and building strategies and reachinggoals. Both men are very young, and very successful, which meanthey’ve reached their goals quickly and efficiently. It’s been less thanfive years since these two partnered up and they’re already the topproducers in their company. Their strategy? Taking a long-termapproach to business and doing lots of hard work. Interested more inlong-term success than instant gratification, these two are sure to bemajor players in the industry for many years to come.

As a loyal marathoner, Kevin Rude is no stranger to perseveranceand strategy. Like running a marathon, Kevin Rude knows thatsuccess doesn’t come with a forceful sprint, but rather withendurance, perseverance and hard work. Rude’s strategy to successincludes building programs that are unique and innovative to theindustry such as Grubb & Ellis’ customized client platforms.

No matter what your goal, it takes hard work and planning to getthere. So next time you sit down with that list of goals, take it a stepfarther and come up with a plan of attack.

What’s your strategy?

PHOE6

Refining Phoenix: Urban Expansion and the CityScape with Phoenix Mayor Phil Gordon, Larry Lazarus and Mike Ebert

With over $4 billion of private andpublic capital invested within the 1.5square mile area of downtown,development is an important issue.Nearly 83,000 are employed in thearea, and 10 million people visit thecultural, sports and entertainmentvenues each year. Yet, as the nation’sfifth largest city, Phoenix has neverreally had a very dense urbannucleus or the same draw as otherpeer cities. Three men have beentrying to change that. Phoenix MayorPhil Gordon, Larry Lazarus, Phoenixzoning attorney and Mike Ebert,managing partner and one of thefounders of RED Development.

The Progress, thePerception and the Plan

In their own way, all three men havededicated effort, expertise andresources to try to change the faceand the character of downtown. I satdown with each on separate occasionsto discuss their part in creating a newurban city center. While the three menagree on most topics, each has hisown plan and perception of what willensure the city’s long-term success.

Phoenix Mayor Phil Gordondiscussed the importance of makingPhoenix a world- class city and howstrategic alliances in the public andprivate sector have helped to makethis dream a reality. “Even now,there is so much developmentalgrowth underway in the downtownarea that half my day is dedicated toindividual projects,” stated Gordon,who had just returned from

NIX7

Cover Story

Washington D.C. The trip was dedi-cated to working on grants for thecity. “We are working on anything wecan do to foster the new economy.”As an example, he cites Freeport-McMoRan, who recently signed alease for a new building on Centraland Van Buren. They will occupy halfthe space, with availability for 250vendors to build out the remainder.

In addition, Mayor Gordon esti-mates that two million square feet oftenant improvements are takingplace, with much of it focused onlocally owned small businesses andentrepreneurs who will bring jobsand revenue. A push to change someold retail centers that have beenabandoned or underutilized intowork/live quarters for professionals isalso an area of focus.

Despite resistance from legislatorswho opposed university expansion,Gordon stated, “The projects are

going forward, just at a slower pace.They create jobs and a long-terminfrastructure that will be here ahundred years from now. The ROI isguaranteed.” Emphasizing the needfor what he called, “blue, green andwhite collar jobs,” he explained thatwhen the projects are completed,“There will be a need for educators,administrative staff, maintenancepeople and vendors. The universitywill produce students who are edu-cated and innovative and will helpkeep Arizona competitive with theglobal economy.”

In the face of opposition and grow-ing concern over the state budget,Mayor Gordon explains that, “Thebudget for downtown has been theonly place in the state where morebusiness and more income have beengenerated from the previous year.The state has acquired more propertyand sales tax because of development.”

After FiveAccording to Mayor Gordon, the

downtown area will see long-term jobgrowth and economic growthbecause of light rail and the universi-ties, but the expansion of downtownwill also continue because, “Phoenixis getting back to the days of gooddesign, and more people will want tobe here.” When asked to elaboratefurther, he explained, “The city plan-ners, the attorneys and thedevelopers they represent, the coun-cil, the neighbors, and the architectsare contributing to creating a uniqueenvironment – we have raised the barand raised the standards, and as aresult, we are seeing new design fea-tures being incorporated.” But hisfavorite change is more visceral.

“One of the most exciting thingsabout the progress is that morepeople are using downtown after fiveand on weekends,” Gordon explained.“There are diverse, eclectic groupsmeeting, and that is where the energyis created. The future isn’t dependenton the size of our downtown; it issteered by its educated force.”

In the Future Jobs willCreate Development

Larry Lazarus has been a land useattorney in Arizona for 35 years andhas seen a lot of change. Historically,in Phoenix, construction createdjobs. The new paradigm will be jobswill create development and con-struction. Lazarus explained, “Wehad the mindset that if you build it,they will come. That is not true any-more. What will be true in the future iswhen they come, you need to build it.”

In the past six to ten years, he hasseen more outside interest in down-town Phoenix, “because of what wehave done.” He is referring to thedowntown ASU Campus, the MetroLight Rail, the Phoenix BiomedicalCenter, T-Gen, the Phoenix ConventionCenter expansion and the addition ofthe Sheraton Hotel. “We created theperfect storm of opportunity inPhoenix. The infrastructure is here.”

“Phoenix is a great city and a safe placeto raise a family. Even though we arefacing unprecedented harsh economictimes, and dramatic cuts have resulted,Phoenix will recover quicker than many

of its peer cities and be strongerafterwards because we are taking theright financial steps to stay solvent.

”Mayor Phil Gordon

8

However, Lazarus also believes weare not done. “More attentionshould be given to developing theheart of Phoenix into a communitythat will maintain long-term vitalityand keep global pace, especially asthe world moves towards new inno-vation. Development that can supportcompanies that bring the creativeclass should be sought out. For me,it’s not just about zoning that pieceof property, that’s what I do for aliving. It’s about how this commu-nity, that I am an intricate part of,gets ready for the next generation.”

Bringing Outside InterestAlthough he confirms what many

already know, that speculative build-ing has dried up, he also sees greatopportunity. “I believe in downtownso much that we have started a newcompany, Urban Modus, which willhelp facilitate bringing new projectshere. We will assist out-of-statecompanies navigate urban develop-ment in Phoenix through aconsolidation of services.” He isquick to mention that other groups

share this focus. “The GreaterPhoenix Economical Council(GPEC) and the PhoenixCommunity Alliance (PCA) are con-sistently looking outside Arizona tobring opportunities here as well.”

Lazarus believes much of theattraction is the growth in educa-tion, the city’s ability to compete forlarge conventions, and the light rail,which now connects downtown toother areas. While he agrees thatPhoenix has seen an increase indesirable, affordable residentialproperties, he also sees that as thebiggest need. “There simply aren’tenough people living downtown. Itisn’t a 24-hour, 7 day-a-week city,”he explained. “I see mixed use as theanswer; we also need retail for peoplewho do live here.”

Changing the CityScapeMike Ebert and RED

Development, LLC have been in theforefront of downtown developmentand are hoping to fill that need.Phase I of their vision for Phoenix,called CityScape, has been sched-uled for completion in August 2010.The 1.8 million plus square foot,mixed use urban project is situatedat the core of Downtown Phoenixand will cover three blocks andapproximately seven acres. Hopingto become the focal point of the city,it encompasses urban living, bring-ing much needed retail,entertainment and neighborhoodpastimes.

CityScape is the company’s pas-sion and is almost completelyfunded. Ebert explained, “We are

“Downtown should be an area of concentration because it isthe major economic wheel driving the whole county and

even the state.

”Larry Lazarus

© Copyright 2010 by MP Magazines LLC

9

Cover Story

fortunate to have good partners andgood banking relationships. Weclosed one of the largest constructionloans in the US in 2009 and have agood track record of performanceand integrity.” The amount of privateinvestment when all three blocks arefully developed will total nearly a bil-lion dollars.

Under contract since November of2005, RED Development purchasedthe property at the center block ofCentral Avenue and First the weekthe bonds were approved by thevoters in March 2006, which pro-vided funds for the ASU DowntownCampus. “We knew it was a greatinvestment. We saw a trend aroundthe country towards urban retail andresidential, and it was the first time acity floated public bonds to bring apublic university to downtown,”Ebert said. Shortly after, the cityissued an RFP for the adjacent blockthat housed the unsuccessful Patriot’sPark. Ebert and company responded

and were awarded re-developmentrights. But he also noted, “The lightrail, convention center, and hotelswere the other keys to the project.”

200,000 square feet of retail andsome much needed services will beopening, including a grocery and thefirst pharmacy in downtown in morethan 30 years. Ebert hopes the influxof activity and entertainment willcreate energy and increase theamount of visitors to DowntownPhoenix. The Phase I office openedMarch 2010. Future office, hotel andresidential property is planned forthe near future.

Thoughtful ProcessHaving studied Denver and San

Diego, Ebert believed Phoenix couldbe a similar success story. Some im-portant city issues were addressed byRED Development, including how tomore appropriately develop Phoenix,given its unique characteristics. As aresult, 17 variances were granted.

Changes, such as a reduced setbackfrom the curb to the building wereincorporated. Ebert explained, “Webrought buildings closer to the streetso that we could engage the pedes-trian, create more shade, and producea greater pedestrian experience.”

RED Development was also able toamend the downtown sign code inorder to allow retailers to expressthemselves and liven up the streets.“We were committed to bringingdowntown back to life, and the citypartnered with us on that,” statedEbert. A public park that includes50,000 square feet of open space ispart of the plan. Nationally acclaimedurban landscape architects, Murase& Associates, will integrate shadedwalkways, water features and lushlandscaping throughout the projectbefore its completion.

Support from theCommunity

The amount of support they havereceived at every level has been posi-tive. “A thousand people participatedin our planning and discussions sur-rounding the remake of Patriot’sPark. The sense of community is out-standing, and the amount ofgovernment support has been great.It is the one reason we are movingdowntown,” stated Ebert. “We thinkthis project will become what peopleidentify as the starting point ofdowntown, and I’m thrilled to be partof the puzzle that creates that success.”

New Life for UrbanPhoenix

If big cities and their vitality drivethe success of a state, then investingin the development of downtown issomething that Mayor Gordon,Larry Lazarus and Mike Ebert are allhoping will influence the economicgrowth of Arizona. But more thanthat, all three men have dedicatedtheir time, energy and excitement tobetter the future of urban living inthe heart of Arizona. ��

“One of the biggest parts of what I do is impacted by my faithand the fact that we care. We want to see the people in

downtown do better.

”Mike Ebert

2375 E Camelback Road, Suite 300602.954.9000 | www.brephoenix.com

CAPITAL MARKETS CORPORATE SERVICES PROJECT & DEVELOPMENT SERVICESPROJECT LEASING PROPERTY MANAGEMENT TENANT REPRESENTATION

Cassidy Turley is a national team of dedicated commercial real estate

professionals, delivering superior results for our clients for more than

100 years. We leverage our world-class expertise, our local market

knowledge and our deep industry connections to deliver integrated,

tailored solutions around the globe.

Introducing Cassidy Turley Property ManagementWhen you work with Cassidy Turley, we become your knowledgeable adviser and trusted advocate. Our Property

Management specialists combine their passion for producing exceptional results with the dedication to maintaining

lasting relationships. You’ll bene� t from our strong ties and experience managing multiple national investment

portfolios, individual building ownerships and 420 million square feet of commercial real estate. We leverage our

extensive knowledge and industry understanding to ensure you every advantage and opportunity

REAL CONNECTIONS.

REAL PASSION.

REAL RESULTS.

REAL MARKET KNOWLEDGE.

11

MakingHeadlines

CB Richard Ellis Negotiates $43.5 MillionSale of Biscayne Bay Apartments inChandler, Ariz.

CB Richard Ellis (CBRE) has negotiated the sale ofBiscayne Bay, a 512-unit luxury apartment community lo-cated at 300 E. Warner Road in Chandler, Ariz, which is98% occupied.

Tyler Anderson and SeanCunningham of CBRE’s Phoenix of-fice represented Waterton Residentialon behalf of the seller, Fund IX BBChandler LLC, in negotiating the$43.5 million sale.

“Investors are flocking to metroPhoenix for multifamily assets, espe-cially Class A communities,” saidAnderson. “They consider the mar-ket’s current revenue slump atemporary situation and believe that

higher-end assets, like Biscayne Bay, will offer the greatestpotential for strong occupancy andrental growth in the near future.”

Biscayne Bay has beautifully land-scaped grounds, including tworesort-style swimming pools withspas and expansive sundecks.Volleyball and basketball courts, aputting green, barbecue and picnicareas and a progressive, children’splay area round out the other outdooramenities. Residents also have accessto a fully-equipped fitness center, in-door racquetball court, dry sauna and business center, aswell as billiards and theater rooms.

Cassidy Turley BRE Commercial Completes76,356-Square Foot Industrial Lease

Cassidy Turley BRE Commercial announced the signingof a 76,356- square-foot lease at 7676 N Glen Harbor Blvd.in Glendale. Linamar Solar Systems, Inc. leased 100 per-cent of the Class A warehouse/distribution space that wasbuilt in 1998

Linamar will produce and assemble power conversionunits (PCUs) used in Stirling Energy Systems (SES)SunCatcher™ concentrating solar power (CSP) systems.

Linamar Corporation (TSX:LNR) is a diversified globalmanufacturing company of highly engineered productspowering vehicles, motion, work and lives. The company’sPowertrain and Driveline focused divisions are world lead-ers in the collaborative design, development andmanufacture of precision metallic components, modulesand systems for global vehicle and power generation mar-kets. The company’s industrial division is a world leader inthe design and production of innovative mobile industrialequipment, notably its class-leading aerial work platformsand telehandlers.

Cushman & Wakefield completes leasewith Tiny Prints at 52nd Street Building

The Phoenix office of Cushman & Wakefield announcesthat Tiny Prints, Inc., a leading online retailer of premium,personalized stationery, is expanding through the additionof a customer service and design center at the 52nd StreetBuilding in Tempe, AZ.

Tiny Prints Inc. signed a lease for 25,350 square feet ofoffice space at 914 South 52nd Street, Tempe, AZ. Thecompany is headquartered in Mountain View, Calif. TinyPrints Inc.’s new location will create new jobs in the Valleyas well as increase its service capabilities to its clients.

The Big Deals and the Brokers Who Made Them Happen

Sean Cunningham

Tyler Anderson

Biscayne Bay

914 South 52nd Street, Tempe, AZ

continued on page 12

12

Making Headlines

The lessor, RREEF, was represented by Dave Seeger,Karsten Peterson & Mark Gustin of Cushman & Wakefield.Tiny Prints Inc. was represented by Pat Williams of JonesLang LaSalle. The transaction brings the 32,350-square-foot building to 78% leased.

Plaza Company Has Added 16 NewEmployees, 1.1 Million Square Feet To ItsReal Estate Portfolio

Plaza Companies has significantly expanded its staff andportfolio and their success has also included a strong per-formance in leasing of the properties in its 5.5 millionsquare foot portfolio — the company secured leases ofmore than 64,000 square feet of property in the first quar-ter of 2010 alone, at a value of $2.3 million.

The company has added a total of16 new positions in 2010 to help itmanage its expanded leasing, prop-erty management and constructionmanagement portfolio. Many of thepositions are the result of its new al-liance with Healthcare Trust ofAmerica, Inc.

“These are exciting days at Plaza,and I am very pleased with the terrificpeople who are both with the com-pany and are joining the company,”

said Sharon Harper, President & CEO of Plaza Companies.“We’ve been fortunate to have had the kind of foresight andstrong partnerships it takes to succeed despite the currentmarket conditions, and it’s a testament to the hard work ofour team in identifying sound business opportunities.”

In addition, the company has expanded its services to in-clude the construction management for SkySong, the ASUScottsdale Innovation Center, of which it is a co-developer.And, most recently, Plaza Companies secured the manage-ment contract for a boutique retail center in Glendale, andis working with Arizona banks regarding leasing and advi-sory services.

NAI Horizon Announces $445,000Transaction

Sellers Kevin A. Lewis and Carmen Lewis, representedby NAI Agent Matt McDougall have sold the 5,200 squarefoot industrial building at 660 E 38th Avenue in ApacheJunction. The buyer was RBS Investment LLC.

Kent Hanson of Cassidy Turley represented the buyer.

Sharon Harper

continued from page 11

To have an item of interest included in anupcoming edition of Making Headlines,email all submissions to [email protected]

Cushman & Wakefield, Inc. is pleased to announce the acquisition of Cowen Commercial’s retail group.

Their team’s proven track record enhances Cushman & Wakefield’s presence in the retail market, strengthening the capabilities of the

Phoenix office to better service our clients.

Cushman & Wakefield of Arizona, Inc.2555 East Camelback Road, Suite 300Phoenix, Arizona 85016 USATel: (602) 253.7900 Fax: (602) 253.0528www.cushmanwakefield.com

Jonathan CowenSenior Director

Adam MadisonSenior Associate

Joseph R. Hoye IIAssociate

Shannon O’KeefeClient & Marketing

Coordinator

14

Brokers of the Month

Partnership Destined forSuccess

By Julie Brown

Photos by Amy Pileggi

Ryan Schubert and Michael Hackettof Cassidy Turley BRE Commercial

15

Ryan Schubert & Michael Hackett

From CPA to Senior VPRyan is a numbers guy who loves

to sell. As a former Certified PublicAccountant with one of the Big Fiveaccounting firms, he has a solidunderstanding of the financial sideof business. Yet, the long hours andconstant traveling of a publicaccountant caused an early burnout.As a Valley native, just about thetime Ryan was looking for a newcareer, the real estate market in

Phoenix was booming. “Everyone Iknew was in real estate and it waswhere all the opportunities were,”shares Ryan.

In 2001, Ryan made the leap intocommercial real estate. His fatherand brother are both in the industryand one of them introduced him to abroker who was looking for a juniorguy. Lucky for him, his accountingbackground made for an easier tran-sition when it came to the financial

aspects of the business. He started asa runner, cultivated his sales skillsand worked his way up the ladder tosenior vice president. It wasn’t untilsix years later when Ryan was look-ing for a new partner; fate stepped inand he met Michael.

Investment in Real EstateMichael also has a love for money

management. He watched his fatherdabble in real estate with income

What happens when you pair up two successful retail investment brokers who are topproducers in their respective companies? It could be the recipe for fierce competitionand a clash of egos, but leave the drama to someone else. When it comes to thepartnership of Ryan Schubert and Michael Hackett of Cassidy Turley BRE Commercial,

this duo is young, energetic, focused and in total alignment. Their success has earned them the accoladeof top producers in their company and a 43 percent market share. They’ve been in the industry less thana decade, but are just getting started in their journey to build their careers and their families.

16 © Copyright 2010 by MP Magazines LLC

properties and channeled his studyof finances into commercial realestate. “The business was initiallyappealing because it seemedhalfway between selling stocks andreal estate; it’s selling long terminvestments,” says Michael. Afterattending the London School ofEconomics in 1998 and graduatingfrom Arizona State University in2000, this Midwestern native knewPhoenix was the perfect market tostart his real estate career.

“I was fortunate enough to get inthe business when transactionvolume was high and a young brokerhad the opportunity to make moneyand learn at the same time,” sharesMichael. He focused on the sales ofsmall strip centers where he learnedto work with many entrepreneurs. “Ihad the chance to work with peoplefrom all walks of life and differentcultures to learn about business,”adds Michael. As a top broker in hisoffice, Michael was looking for achange and crossed paths with Ryanduring a deal in the summer of 2007.

The Birth of a PartnershipRyan and Michael clicked when

they first met. Their common goalsand diverse experience in retailinvestment formed the basis of a suc-cessful partnership. “We were at thesame point in our careers and bothwanted the same thing,” says

Michael. That same thing was a longterm investment in their careers andthe goal of being the best at whatthey do year in and year out andstaying grounded through it all,according to Ryan.

Ryan’s experience working withlarger private clients and Michael’sknowledge of dealing with smallerentrepreneurs created a unique skillset which has allowed them both togrow. Their combined experienceand strong work ethics led them tobecome the top two producers atBRE Commercial in 2009.

“Our partnership is not about twopeople doing one job, it’s about twopeople being more productivetogether than apart,” says Ryan.They’ve definitely covered the Valleywith more than six million squarefeet of Arizona retail properties sold,which represents over $1 billion insales. The two have created a greatbalance so that they can leverageeach other’s strengths and continuethe momentum they created.

Building a Careerand a Family

In just the two years thetwo have been workingtogether, they’ve experiencedplenty of life changes.Michael got married, Ryanhad two children andMichael just recentlybecame a proud new father.Creating a balance for theirgrowing families and their

careers has been a top priority forthe duo.

“It’s important that we’re not justtop producers, but are the type ofpeople and family members we wantto be,” shares Michael. Having apartner that you trust and respecthas made it easier for the two tohandle the demands of family andwork, adds Ryan. In addition tospending time with their wives andkids, Michael enjoys playing basket-ball and golf and Ryan’s loves aregolf, skiing and of course watchinghis beloved Arizona Cardinals.

What it Means to Be the BestRyan and Michael have seen many

people and partnerships rise and fallin this industry and have strongideals of what it means to be thebest. “A lot of people have beenbeaten down, but we’re still youngenough we can’t have that mindset,”says Ryan.

The duo wants to be known as “the

Gilbert FiestaClosing date: November, 2009

Falcon GatewayClosing date: August, 2009

retail investment team in Phoenix”and to them that means being smart,honest, ethical and hardworking,according to Michael. “We want tobe the type of guys that people wantto work with and enjoy speaking toand spending time with.”

Their key to success is taking along term approach to the businessand lots of hard work. With theiryoung age and growing families, thisduo is in real estate for the longhaul. “This is a marathon, not asprint,” shares Michael. “You have tokeep your head down and work hard.”

The two also credit their familiesand assistant Laure Bietz for theiramazing support.

Staying Focused andMotivated

It’s clear that what motivates thisdynamic duo is their desire to be thebest, to be liked and to be known asgood people. Reputation and credi-bility are just as important as thevolume of their business or howmuch money they make, accordingto them both.

“There’s always someone out theredoing it better, making more moneyand being more efficient. We alwayslook to the leaders in the industry tosee how we can improve our busi-ness, which makes it hard to becomplacent,” says Michael.

When BRE Commercial rebranded

itself as part of Cassidy Turley earlierthis year, the duo viewed it as a hugeopportunity for their careers. “We’vegained a whole new circle of influ-ence and have the chance to workwith so many talented people whoare experts in their niche,” sharesRyan. The two also stay active in theindustry and are active members ofthe International Council ofShopping Centers and Michael ispart of the Urban Land InstituteYoung Leaders Group.

Even in a tough market, Ryan andMichael remain positive and arealways looking for opportunities.While it would be easier to throw inthe towel and just play golf everyday, that’s just not an option for thisteam.

“We are in a segment of the indus-try that’s very challenged and ourbusiness is changing as we speak,”shares Ryan. “We’re living throughthe high and low point of the marketand the challenge for us is to findopportunity, but it’s out there.”Phoenix has seen this type of cyclebefore, adds Michael. “Above all, thesun shines every day and peoplewant to be here, so there will alwaysbe opportunity.”�

[email protected]@brephoenix.com

17

Brokers of the Month

Secrets to a Successful Partnership:• Share similar values and work ethics.• Have common goals. It helps to be at the same point

in your careers so that you’re both focused and havelong term strategies.

• Recognize a partnership is a balance of give andtake. Be respectful of the other person’s down time.

• Don’t do one person’s job. You are two people doingtwice the work. It’s not about always working togetherall day, but working efficiently.

• Leave your ego at the door.• Trust is crucial. Respect your partner and what they

bring to the business.• Leverage each other’s strengths and use them to

your advantage.

Chase Ground Lease, Tempe. Closing date: March, 2010

18

Broker’s Roundtable

What is the forecast in your areaof specialty for the next 12 monthsand how is your answer differentthan one year ago?Haenel: The good news is that

industrial had positive net absorp-tion in the 4th Quarter of 2009. That’sthe first quarter of positive absorp-tion since the start of the recessionwhich took place in the 4th Quarterof 2007. We had negative absorptionin the 1st Quarter of 2010, but thatwas caused by a 500,000 square-foottenant vacating the market. I expectto have positive net absorption in themillion square-foot range for 2010.Braun: Office and industrial leas-

ing activity are in my opinion thebest barometers of how our marketis trending operationally. Usually it isa precursor to job growth. Haenel: Again, we are seeing a sig-

nificant increase in industrial leasingactivity. However, the rent is low andlandlords are making deals to fillvacant space.

Brad, are you seeing an increase inoffice leasing activity? If so, is rent

significantly discounted?Anderson: Activity is much greater

today than a year ago. Historically,on average our market sees five tosix million of gross activity withinthe office sector. In 2008, it wasabout 1.5 million, so that was brutal.In 2009, we did almost four millionsquare feet of gross. Today’s activityis driven by the larger tenants takingadvantage of soft rental conditions. Ithink this year we will do the same,maybe as much as five million squarefeet of gross activity, which is good.

Braun: Is that existing tenantsrelocating, or new tenants andemployers moving to the valley?Anderson: It’s people moving from

point A to point B. Although, thereare several good-sized tenants —close to 200,000 feet that we willprobably have in Phoenix — that willbe announced in the next quarter. Ithink there’s a chance we can do 1 to1.5 million square feet of net absorp-tion — something we have notwitnessed in over two years. Haenel: I talked to the Greater

Phoenix Economic Council and theyare working with 15 alternativeenergy projects totaling 1.2 millionsquare feet. They have an 80%chance of making a deal. These proj-ects could equate to 600-800 newjobs. These are new companies to themarket, which can be attributable tothe renewable energy tax credit billthat was recently passed. There’s areason to be upbeat and positive. Wehave affordable and available realestate including accessible trans-portation corridors. Plus, when youcompare our quality of life withcompeting markets, Arizona contin-

By Julie Brown

What is the Future of Commercial Real Estate in Arizona?A one-year retrospective of our market with an expert panel of Arizona brokers

One year ago, seven of the Valley’s top real estate brokers from different areas of specialization gathered to discuss the futureof commercial real estate in Arizona. Many of them had predicted the market would hit rock bottom in early 2010, butremained cautiously optimistic about what the future could bring in terms of recovery. The forecast included a lack of qualityproperties and raw land, competitive lease rates, aggressive deal making and job loss followed by increased vacancy.

Fast forward twelve months and our experts meet again to share their trials and tribu-lations and anticipate Arizona’s commercial real estate outlook. There is no doubt thisdownturn has dealt them some major challenges, but they have adapted and are nowredefining the way they do business. Whether we have hit the bottom yet or not, the con-sensus is that our market and the industry will bounce back and is already making stridestoward recovery. One absolute among our experts is that Arizona is the place to be. Homeaffordability is at its highest, employment is climbing and our quality of life is unrivaled.Special thanks to David Miller and Chicago Title for sponsoring the roundtable at Morton’sThe Steakhouse at the Esplanade and moderator Jon Cowen for bringing together the panel.

Jon Cowen, moderator

Sponsored by

19

ues to outperform. Also, Arizona isconsiderably cheaper than California.It has available, cheap real estate andaccessibility to the Interstate 10Freeway. On more of a macro level,rental rates are showing signs of sta-bilization towards the end of 2010. Asthe economy continues to grow withpositive gross domestic product,absorption will continue and vacancyrates should come down over thenext 12-24 months. We still see nosigns of new speculative developmentfor at least another 3-4 years. Braun: I am optimistic about the

operational strengthening of the mul-tifamily market during the next 12months, and there are several indica-tors that lead me to believe that themarket is starting to rebound. Theprimary indicator is job growth.According to the Arizona Department

of Economic Security, our markethas experienced positive job growthin six of the last eight months, for atotal cumulative gain of approxi-mately 30 thousand jobs. Last yearthe catch phrase was, “Why would Iwant to try to catch a falling knife” asinvestors try to gage when theMetropolitan Phoenix market wouldbottom. The prevailing sentimenttoday is that our market will proba-bly not experience a precipitous dropgoing forward, and at current com-pressed valuations, the upsideopportunity far out ways the downside risks. Additional green shoots ofoptimism are the significant reduc-tion of single-family homes that areavailable for rent and virtually nonew multifamily construction in thepipeline for late 2010 and 2011.Investors want a reason to jump back

into our market. This type of datawill help to strengthen an alreadyimproving market.

Mike, have you seen any geographicarea that’s getting more activity andattention from industrial tenants?Haenel: Southwest Phoenix proba-

bly has the greatest amount of squarefootage and prospective leasing activity.There is probably 4-5 million squarefeet of distribution companies look-ing at space with approximately 14million square feet of vacant buildings.Gabel: What is interesting on the

sales side from an industrial perspec-tive is, since we track properties thatare at least 20,000 square feet and $1million, there have been 17 transac-tions in that category that averagedabout $54 per square foot. In 2009,the average price per square foot was

There is no doubt this downturn has dealt them some major challenges, but they have adapted and are now

redefining the way they do business.

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Jon Cowen (retail)Senior Director ofCushman & Wakefield

Cowen is a market leader in the com-mercial real estate industry with morethan 20 years of experience. He hasbeen involved in over 500 lease/saletransactions totaling over 1 billion dol-lars. He is a member of ICSC andfrequent industry speaker. Cowenbrought the roundtable participantstogether and served as moderator anda panelist. Cowen Commercial LLCwas acquired by Cushman &Wakefield's Phoenix office.

Brad Anderson (office)Executive Vice President of CB RichardEllis, Brokerage Services

With over 20 years experience atCBRE, Anderson is a leading serviceprovider and consultant to commercialproperty owners, space occupiers,investors and developers. Completingover 1,800 transactions (for more than18 million square feet with an aggre-gate value exceeding $2.5 billion),ranks him among the firm’s highestachievers. Brad is considered to beone of the preeminent brokers withinthe greater Phoenix area.

Todd Braun (multi-housing)Senior Director of Cushman &Wakefield’s Southwest Apartment Group

Braun has been in commercial realestate in Phoenix since 1985 and con-centrates on the marketing ofmulti-family properties and land inArizona and New Mexico. He is respon-sible for the firm’s apartment salesoperations. Todd was a Phoenix topfive producer in 2004, 2005 and 2006,a Phoenix top 15 producer in 2007and a national top producer in 2005.He has been involved in the closing of25,000 apartment units and land witha value in excess of $1.5 billion.

Barry Gabel (investment properties)Executive Vice President of CB RichardEllis – Capital Markets Group

Gabel has over 25 years experience incommercial real estate including 13years as a capital markets broker. Hehas completed transactions totalingmore than 12.5 million square feetand $1.75 billion in value. Barry, andhis partner Mindy Korth, were awardedthe NAIOP Investment Sales Brokers ofthe year in 2003, 2008 and 2009. Heis involved with the Urban LandInstitute, Boys and Girls Club ofPhoenix, Phoenix Children’s Hospitaland NAIOP.

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just shy of $49 per square foot with64 transactions. The point I want tomake is that only two of those 17transactions were distressed sales.There have not been many distressed,foreclosed or special service assets onthe industrial side. We have provideda lot of broker opinion of values(BOV’s), which I am sure some of youhere have been involved in assistingwith, and very few have been indus-trial related. The bulk of therequested BOV’s have been for officeand retail assets.

Haenel: Do you see it happening inindustrial? Gabel: The majority of the big box

distribution product where most ofthe vacancy is located, is comprisedof institutional capital that is wellheeled and capable of riding out thestorm. They are the ones that are get-ting aggressive so that when a birdlands in their hand, they are closing itquickly and providing the conces-sions and the rents. Even if they get3-4% return they are happy with itbecause they are receiving some sort

of cash flow as they ride out the storm.They are not desperate to sell. I thinkthe users are making some good in-vestments right now in certain marketareas, particularly on the investmentside. The price per pound for indus-trial today is higher than it was onaverage for all of 2009, but again, weare only through one quarter.

Haenel: Are the buyers underwrit-ing flat rent for the next 24 to 36months?Gabel: Yes they are, but some are

also underwriting a spike in the rentgetting back to a normal high in fiveto six years from now. Most investorsagree with this.

Haenel: Is that at 5-8%?Gabel: Yes, it will be flat for a

couple of years then increasing 5-8%.

Braun: Are you seeing on theoffice and industrial investmentofferings that the price per pound ismore of a driving factor than theentry capitalization rate?Haenel: I am seeing the price per

pound play. However, it’s veryimportant to underwrite the deal ona conservative basis. This includesrelatively flat rent and a lease-uptime of 18-24 months, depending onthe location.

Are you seeing buyers looking atreplacement cost plays?Gabel: Definitely. Most everything

closing thus far in 2010 has been aprice per pound play. Through thefirst Quarter of 2010, there have onlybeen a total of 13 office transactions.Nine of them have been lenderrelated transfers and four have beendirect. It’s really quite the contrary asit relates to industrial. The directsales for office has averaged just shyof $100 per square foot and thelender related transfers have averagedless than $70 per foot. The overallaverage is approximately $77 com-pared to the previous year, which was$114. In 2008 it was $222. We’ve gonefrom $222 to $114 to $77, so I thinkthat supports a price per pound play. Cowen: In 2009 it seemed like

everyone in retail was in a daze,

Mike Haenel (flex/Industrial)Executive Vice President of Cassidy Turley

Haenel has 25 years experience in thesales and leasing of industrial/back-office buildings and land. He and hispartner Andy Markham, have completedover 621 million in transactions from2005 to date. They were top producersin their firm in 2008 and received theNAIOP Industrial Broker of the Yearthree separate years. Haenel is involvedwith the NAIOP, Urban Land Institute,and Phoenix Thunderbirds.

Todd Holzer (development)Vice President of Ryan Companies US, Inc

Holzer has 25 years of experience lead-ing office, industrial and retaildevelopment projects throughout theSouthwest. He handles all areas ofdevelopment from site selection andacquisition, to government approvals,design and construction coordination,as well as leasing and sales negotiation.He has built more than 40 projects, halfserving as the principal-in-charge.

Nate Nathan (land)President and Designated Broker ofNathan & Associates

Nathan & Associates, founded in1980, concentrates on brokering landacquisitions for master-planned com-munities, commercial, retail andmulti-family deals in Phoenix as wellas in California, Nevada, Colorado,Texas, Idaho and Hawaii. The firm hasexclusive listings on more than250,000 residential lots. Nathan isinvolved with the Urban Land Institute,Lambda Alpha International, theInternational Council of ShoppingCenters (ICSC), the Home BuildersAssociation of Central Arizona and sev-eral other organizations.

22


totally unsure about the market andwhat to do. There was a lot of nega-tivity anytime you met or talked toanyone. Now in 2010 I have defi-nitely seen a shift in attitude andconfidence level, like people have fig-ured out what to do in theirbusiness. Everyone recognizes weare at or near the bottom and willtake some time to come out of it, soit seems like it’s accepted and mosteveryone is grinding it out until wesee the light at the end of the tunnel.Holzer: In 2009, both locally and

nationally, we were in this recessionand were in a freefall. I don’t thinkanybody knew a year ago how badthis recession was going to feel. I’vetalked to other offices around thecountry that are in the same boat.The consensus is, at least within ourcompany and with development andconstruction, that we have hitbottom. We’re going to be bouncingaround the bottom for awhile, butthere is gross activity that can begrabbed by buildings. A good part ofthe gross activity in the office marketis the whole north Loop 101 fromDeer Valley to the north Scottsdaleoffice market. One year ago it wasArmageddon (Brad agrees). In thelast year, we’ve had great grossabsorption that has taken all or partsof the large, empty spaces in thatsubmarket’s office buildings.Developers and contractors like Ryanare sitting on the sidelines waitingfor, hopefully, the next wave of activ-ity. The good credit companies willwant to build. We think that is about18 months away. Nathan: My world is so different

than everyone’s here, but I can tellyou this. I’ve owned my company for31 years, and the first six months oflast year was the worst I’ve ever had.

Basically, in July we were at bottom.We had one $80 million land dealand six weeks to close it. I was stand-ing at beach in Del Mar and we hadput the package together and theWeb site up. I called the office andwe had 64 offers on it. The amountof money out there is crazy.Fortunately, everybody in the UnitedStates is saying the same thing —there is nowhere else in the countrywhere you can do what we can dofor the next 20 years in Phoenix.Look at the rate of our job growthand our population growth, that’sgoing to recover in the next two tothree years, and the lack of lots thatwe have. If you listen to the stats thatcame out from University of Arizonadays ago, we only have a 16-monthsupply of finished lots and then weare done.

Anderson: Based on what type ofabsorption?Nathan: About 1,000 a month.

Even if it goes to 700, it takes a yearand a half to build so the buildersare already in trouble. Here’sanother example, at the end of lastyear a public home builder listed7,500 lots in November and we hadthree weeks to close it. We had 94offers and probably 60 of the groupshad half a billion to three billion dol-

lars to spend. So, the finished lotgame is over. In the raw lot landgame we probably closed 8,000 acresof real deals since the first of theyear. Lots have tripled in value in theSoutheast Valley and doubled inGoodyear in the last six months. I’dtell you the peak was 2004 to 2005.It’s still 30-40 cents on the dollar towhere we were. It’s not going to getback to the 2006 level and won’t foryears. The world has all woken upand said I have to go to Arizona. Themost common question I get is howis this downturn recovery differentfrom the last one? I’d tell you that in1990 —unfortunately I’m old enoughto have lived through five of these —when we came out of this we had tocompete with California, Colorado,Nevada and Florida. All of the bigmoney was going there because theyall had affordability, jobs and trans-portation corridors. They hadeverything that we had. This timearound it’s a goose egg. There is notone state in the nation that has ourwater, our potential rates of growthor our transportation corridors. Therate of population and job growth,and the fact that we have the secondmost affordable housing in thenation next to Las Vegas, is crazy.I’m a bit reserved about my excite-ment, but we are just like we were in2003 to 2005.

Gabel: What is the affordability ofArizona versus other states? At onetime, we were a pretty expensiveplace to live.Nathan: In 2006, 33% of the popu-

lation in Arizona could afford a house.Right now it’s 81.5%. California wasabout 2 to 4% depending on the area.

Holzer: Are homebuilders going to

Are we headed in theright direction to get outof this recession or are

we stagnate

?

23


be expanding their offices and hiringnew employees?Nathan: They’re going to be conser-

vative but they’re going to have toexpand. We’re in the dysfunctionalpart of my business in that all of thebuilders dumped their assets the lastthree years. Now corporate and WallStreet are saying they need lots. Theyhave woken up just like they did in1992. They are out of inventory andare freaking out. Up until six monthsago, the builders were not allowed tounderwrite a 4.5% increase in houseprices. If you go back to 1982, that’swhat they did at a constant level until2004, then they went to 100%. Nowit’s back down to where had it stayedat 4.5% it’s back where it would havebeen. So the builders have said in thelast six months that they can’t makeany of their deals work becausethey’re already underwriting to fore-closures, which are still a problem,but they said too bad because theystill need lots. Theoretically, they areoverpaying for lots, but they are notbuying for 2010. They’re buying for2011 and 2012. Now what has hap-pened in the last 90 days is everyonehas run to land. All the brokers want

to get involved in land, which is okay.We have not talked about the banks,but when we came out of the lastdownturn there was a big glob of junkthat came through the banks, but ithasn’t come through yet and we prob-ably won’t see it.

Anderson: On the office side, wesee some selling being completedwithout the brokerage community—with bankers and lenders doing it ontheir own. The pricing spreadsbetween those sellers using a brokerversus those not, seem to be at ahigh level indicating lenders or sellersnot using brokerage assistance areleaving money on the table. I’m curi-ous about what you guys thinkabout that, is it happening and doyou agree with it?Gabel: We as a team, my partner

and I, have redefined ourselves interms of who we are doing businesswith more often than not. We’re stillworking with our clients and stayingin front of them, but we are alsodoing a lot of business with banksand special servicers.

My question to you Nate is with all

the activity you are experiencing,what percentage of your business isworking with the same homebuildersand investors you’ve worked withfor 30 plus years versus banks andthe different servicers?Nathan: I called all of my employ-

ees in our office one year ago and satthem all down and said you thinkyou’re all hot, but you’re not. Youbetter learn how to wash cars, shineshoes, explain who you are and do itall over again because everyone youthink you’re doing business with isgoing to be gone or moved. Trust me,I’ve seen it three times. If you don’tadapt to it, you’re gone. The differ-ence between this downturn and thelast is the rate and speed of informa-tion. Last time we came out of this wedidn’t have the Internet and the abil-ity to Google everything. Some peopleare redefining and some people arechecking out. I think everybody hasthe same opinion of the biggest prob-lem we have here and that is yearsago, when we were all younger, wehad the Phoenix 40.Gabel: I can tell you that last year,

even nine months ago, a controlledbid process could maybe have beenutilized in taking a property out tothe market. You might just conduct awhisper campaign and see if you cangenerate some activity, but controlledbids are the way to go in my opinion.That’s the differential between havinga financial institution go direct asopposed to having a brokeragecompany go out to the market andcast a net as wide and far as they canand then finesse and control thatprocess to try and raise theexpectations and get the pricing upby creating what Nate has been ableto do better than anybody. He isbringing in 60 to 90 offers and culling

24

it down to a few and then doing abest and final. We’ve done best andfinals with the three assets that we’vesold to date. Frankly, that may nothave happened a year ago.Nathan: Here’s the biggest problem

too, you keep spoon-feeding himdeals but you can’t do that anymore.Your long-term relationships arewondering why they didn’t get thedeal. What is amazing is that mybiggest hurdle in the past, which isnot anymore, is national companieswanting national exposure. With theInternet you can do a package anddownload more information thanever before and send it out to 130qualified entities. You can monitorhow long they’re on it, what they’vedownloaded and do weekly reportswith your offers. It’s unbelievable.

Are we headed in the right direc-tion to get out of this recession orare we stagnate? Have you seenincreased activity since last year?Cowen: In retail we feel like we

are near or at the bottom of themarket, what about in your area ofexpertise?Braun: In multi-family we hit

bottom on February 27 (the grouplaughs and asks at what time). Ithink a lot of people’s perception ismuch different than the last time wemet. I’m very bullish, on our market,especially based on an investmenttime horizon of three to five years.There’s not a lack of investor interest

in multifamily offerings. Capitalflows have been much moreaggressive. Arguably, it may be themost active period we haveexperienced as it relates to offersfrom well-capitalized multifamilyinvestors. When I talk to differentapartment owners and managers andhear the positive news on what’shappening with leasing activity andretention, again it’s these greenshoots of information that it isgetting better. On the operationalside, apartment owners andmanagers are well maintained, infillproperties are reporting improvedoccupancy and retention. It is thistype of feedback that leads one tobelieve that the market is slowlyrebounding. Gabel: Having Fannie Mae and

Freddie Mac on your side helps. It’sstill a mechanism to help facilitatetransactions where on thecommercial side (office andindustrial) it is very difficult. Braun: Multifamily does have the

benefit of Fannie Mae and FreddieMac. However, the majority oftransactions occurring in Arizona areon an all cash basis. With theemergence of Receiver/SpecialService offerings, we will see aresizing of existing CMBS debtwhich will help facilitatetransactions and push pricing. In myopinion, Fannie and Freddie are anexcellent post-closing financingvehicle. The additional time and

perceived transaction risksassociated with buyers needing thirdparty debt to facilitate a transactionis not the first choice of today’ssellers — especially when they havethe luxury of multiple cash offerscompeting for the same property.

Gabel: Would you say thatanother helpful ingredient to havingthe velocity of sales and the cap ratecompression that has taken place inthe multi-family sector is becauseyou’ve been able to identify and puta circle around rents, as opposed toother product types having tohypothecate where rents may goand when they will get back topeak? Wouldn’t you say it’s a prettyfair statement that you can cast outa net and be able to determine whatan asset is going to rent for andhave enough empirical evidence toprove where your rents are todaywithout having to guess?Braun: We now have the benefit of

transaction activity and sales compa-rables to help with valuations. Thereare definite bands of value for thevarious gradations of property qual-ity and location. Twelve to eighteenmonths ago, we did not have thatluxury, and therefore potentialinvestors in 2008 and early 2009 werehesitant to make offers because of alack of valuation barometers. Anderson: That is exactly what is

happening on the office side. Twelvemonths ago it was a total guess as to

Where do you see building costs today versus 12 months ago?

25


where the bottom would ultimatelyland. Nobody knew, and people weredeal searching to see how farlandlords would go and how fartenants can push the envelope. Idon’t know if we are at the bottom,but I think tenants feel comfortablewith the deal making that is on thetable right now. I don’t think it couldfall much further, if it does. On theoffice side, it is tough to say whenthe market was going to fall, but I’moptimistic that the deal flow willcontinue. Rents are where they needto be today to get people excited witha commitment. I think it is in themindset of that individual owner or

person as to whether or not they’vereached bottom because they mayhave never moved the needle fromwhere the others were. I get askedevery day if we have reached bottom.Well some people have, but othersmay not have. It depends on whereyour expectations are within thiscycle. I think a lot of people aresitting on the sidelines with thisthought that we’ve hit bottom so I’mgood to go at my expectations, butthat may not be the case.Haenel: It’s interesting. We’ve been

waiting for the flood of distressedindustrial real estate for the past 12months. It sure feels like that day

will not come. There will continue tobe one-off distressed real estateopportunities, but it’s becomingmore and more apparent that floodof distressed industrial real estatewill not occur.Anderson: At this point, it’s the

same for office.Haenel: The banks are working

with the borrowers, which I think isgood for the market – bad for theinvestor. It’s not perfect for thebroker but it helps stabilize themarket and protects the existing realestate owners not in default.


27

Company Profile

One of the best inthe worldGrubb & Ellis Management

Services is a subsidiary of Grubb &Ellis Company, a publicly traded cor-poration that’s one of the largestcommercial real estate services andinvestment companies in the world. Grubb & Ellis Management

Services’ Arizona operations oversee138 properties located in MaricopaCounty, Flagstaff and Tucson. TheArizona portfolio includes morethan 10 million square feet of office,retail and industrial properties, whichare managed by Kevin and his staff

of nearly 40 professionals located innine field offices in the state. Grubb & Ellis Management

Services’ in Arizona received twoBOMA Building of the Year awardsin 2008 and 2009, and was namedthe Top Commercial PropertyManagement Company by ArizonaBusiness Magazine’s RankingArizona in 2010.

Customized clientplatforms“We’re unique among our

competitors because we customizedelivery to our clients’ needs,” Kevin

Kevin Rude runs half-marathons the way he runs Grubb & Ellis Management Services’ Arizonaoperations — with purpose, determination and high expectations.

A looming milestone birthday (he’ll be 50 in December) motivated him to start long-distancerunning. As senior vice president and director of Management Services at Grubb & Ellis, a desireto be the best in his field inspires him to serve as an innovator and problem-solver for hisclients. His responsibilities include building maintenance and repair, lease administration andpreparation of financial documents.“My clients run the gamut from large insurance companies to institutional investors to

retailers,” Kevin says, “so I have to be able to meet a variety of needs. A one-size-fits-allapproach simply won’t work with my clientele.”

By Debra Gelbart

KEVIN RUDE:Fueled by Success

says. “Although we’re a largenational company withnationwide resources, we almosthave a boutique-type mentalitythat allows us to create our ownplatform for each individualclient. We can create specializedfinancial documents toaccommodate accounting andfinancial reporting requirements,for example.”Providing customized service is

only part of what Kevin mostenjoys about his job. “No two daysare the same,” he says, “and notwo assets are the same. I go intowork every day not knowing whatto expect, and I like that. It’srewarding to see a challenge or anopportunity and know that wehave a lot of latitude to come upwith a solution for the client. Ourclients depend on our expertise tohelp them build and maintain a rev-enue stream.”

The perfect careerProperty management as a

career was not in Kevin’s sightswhen he was in college at FortHays State University in Kansas.He graduated with a bachelor ofscience degree in business man-agement and moved back to hisnative Denver to become the man-ager of a retail sports store there.“I thought about opening someretail sports stores of my ownwith some friends,” he says, “butdecided that’s not what I wantedto do because I was looking for adifferent kind of career.” He explored a graduate com-

puter science degree and atwo-year MBA program at DenverUniversity, but neither of thosewas exactly what he wanted,either. He was recently married to

his wife Kelly and couldn’t envisionbeing in school for another twoyears. Then, a neighbor who had com-

pleted the Denver University MBAprogram changed Kevin’s life. “Mikeintroduced me to four different pro-fessionals in four differentdisciplines,” Kevin says, “so I couldask all of them about their jobs.”The four were a leasing broker, aninvestment sales broker, anappraiser and a commercial prop-erty manager.This was in the mid-80s, Kevin

points out. The real estate marketwas in a down cycle, and the twobrokers told him they hadn’t gottenpaid in months. The appraiser’s jobdidn’t appeal to Kevin, either, but heliked what he heard from the prop-erty manager. “She explained that she never

knew what she would do on a givenday, except that she knew her ‘to-do’list probably wouldn’t get done. Atfirst I wondered if that indicated she

was just inept, but then I understoodthat she meant that you get a chanceto solve real, unexpected problemsevery day. That intrigued me.” Healso liked the fact that the propertymanager got a regular paycheckevery two weeks. After that meeting, Kevin worked

for several major real estate compa-nies, including Tishman West inDenver and Cushman & Wakefield,CommonWealth Partners andParkway Realty in Phoenix. Then, in2003, he went to work for TrammellCrow in Phoenix as a senior portfo-lio manager, where he wasresponsible for a three millionsquare-foot portfolio of office andindustrial properties owned by vari-ous institutional and local clients. Kevin holds two professional des-

ignations — an RPA (Real PropertyAdministrator) and a CCIM(Certified Commercial InvestmentMember). An RPA is offered by theBuilding Owners and ManagersInstitute International, which prom-ises “the insight and knowledgenecessary to analyze a building in itsentirety.” The CCIM designation,offered through the CCIM Institute,indicates a recognized expert in thedisciplines of commercial andinvestment real estate. Earning thisdesignation requires a portfolio ofqualifying experience and passing acomprehensive exam. Kevin joined Grubb & Ellis in

early 2007 as vice president ofManagement Services. Less thanthree years later, he was promoted tosenior vice president, after addingeight million square feet of office,industrial and retail properties tothe local portfolio — in the midst ofa recession. He credits that accom-plishment to familiarity with boomand bust cycles.

28

Company Profile

When I got into real estateinitially, the economy wasin shambles. I learned howto do more with less. Some

people working in thisindustry haven’t seen a

bad cycle like this before.They’ve only ridden the

roller coaster up and theydon’t know how to ride it

on a downward phase.

Kevin Rude

”

“


29

Kevin Rude

“When I got into real estate ini-tially, the economy was in shambles,”he says. “I learned how to do morewith less. Some people working inthis industry haven’t seen a badcycle like this before. They’ve onlyridden the roller coaster up and theydon’t know how to ride it on a down-ward phase.”

More achievementto comeHis confidence and spirit of

adventure is evident not only in hismarathon running but in his motor-cycle riding, too. He rode his HarleyRoad King 3,200 miles round-tripfor the annual Sturgis Bike Rallylast August in Sturgis, S.D. “Thatwas a lot of fun,” he says.Although Kevin already has

accomplished a lot in his life, he hasimpressive goals. “I don’t necessar-ily want to be the largest, just thebest provider for our clients,” hesays. “My goal is to have ourPhoenix management portfolio inexcess of 17 million square feet inthe next two years. Once we achievethat goal, I will be ready to buy mysailboat and start my circumnaviga-tion sail around the world.” �

30

Executive Q&A

What is a short sale?Kevin: A short sale is when an assetor collateral for a loan is going to besold and the financial institutionholding the debt will accept lessthan what the debt is on the prop-erty. So by way of example, if I havea $1 million loan on an office build-ing, a short sale means the bank iswilling to accept less than $1 millionas part of the settlement of obliga-tion. As a bank our goal is to get allthat’s owed. It’s what we strive forevery day. In reality it doesn’thappen that frequently.

How does the bank deter-mine if a short sale makessense?Kevin: That’s the million dollarquestion. Comm real estate incorpo-rates a number or real estate classes,so the first things we take into con-

sideration for a short sale is the con-dition of the asset being sold and themarket for that asset.

Why a short sale over fore-closure? Kevin: A foreclosure or REO prop-erty tends to be devalued due tophysical deterioration. If there’s a lotof physical damage the bank has tofix it or sell at a lower price.Someone internally and externallyalso has to manage the asset, so it’sboth costly and time consuming.With a short sale the asset is usuallyoccupied by the owner and theykeep it up and pay the utilities.Overall it has the appearance of atraditional market transaction.

Are short sales common incommercial real estate? Kevin: No, short sales are not

common. In fact, before the deterio-ration of the market there was noneed for short sales. Foreclosureswere more common. Prior to 2007real estate values were substantiallyhigher and increasing, so when abank was looking at a problem loanchances were high the owner of thecommercial real estate could sell itand pay back the loan. If the bankforeclosed it would most likely getthe loan paid in full due to thestrength in values of commercialreal estate at the time.

What happens to a person’scredit following a short sale?Kevin: When a commercial ownerdoes a short sale and they can’t paythe bank back for the full amount ofthe loan it damages the borrower’scredit rating.

Based on the success of short sales in theresidential market, commercial lenders arestarting to entertain short sales in the

commercial arena. Kevin Kosan, an expert ondistressed property situations and real estate group manager for Arizona

Business Bank, says short sales are a good alternative to foreclosure and they produce betterresults. Kosan has worked in the banking industry for 30 years. He holds a bachelor’s degree in finance fromTexas A&M University. He joined Arizona Business Bank in 2003.The bank has seven locations throughout thePhoenix area and is part of CoBiz Financial, a $2.5 billion financial holding company headquartered in Denver.

SHORT SALE


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32

Executive Q&A

Who can assist acommercial owner with ashort sale transaction? Kevin: A commercial real estatebroker is integral in this type oftransaction because they bring thebuyer into the equation. A brokerprovides to the purchaser the sameinformation whether it’s a short saleor traditional sale. A short sale inthe residential arena involves con-sumer compliance, regulations andlaws, but in the commercial arenayou don’t have these same applica-ble state statutes or federalregulations so the broker can handleeverything.

Are short sales allowed forany reason? Kevin: No, short sales are onlyallowed for specific reasons such asthe owner of a building demonstrat-ing hardship or not being able tomake payments.

Why would a lender agree toa short sale when it means aloss for them? Kevin: Typically because the esti-mates of potential loss are greaterthan taking a short sale. If a bankowns a building and tries to sell it,the marketplace buyers know this isa very opportunistic situationbecause they know banks are not inthe business of owning and operat-ing buildings.

Do short sales require extratime to complete? Kevin: Short sales do not take anyextra time. A person owns the realestate 100 percent and services it thesame way. In the residential marketmortgages are sliced and diced andpackaged through conduits whichcontribute to delays.

How are short sales affectingthe commercial market? Kevin: As short sales continue tochange hands for less than theamount of the debt, it puts down-

ward pressure on the value of realestate.

What is a loan modificationand is this an option for thecommercial real estateowners?Kevin: A loan modification is whena lender agrees to modify any orsome of the terms of the loan. Alender will always try to modify theloan based on circumstances sur-rounding the loan. If a modificationcannot be mutually agreed uponthen it goes to foreclosure or shortsale.

What are some of the mostcommon loan medicationstrategies?Kevin: The most typical loan modi-fication strategies are reducing ormodifying the interest rate andextending the term of the loan. Ineither case may ask for additionalcollateral. If for example the ownerof building A owns building B and ithas no mortgage, then we may askfor building B as additional collat-eral. If the owner of building A has asignificant stock portfolio, we mayask the owner to liquidate somestock and pay down the loan orpledge some of the securities asadditional collateral for the buildingloan.

When a commercial realestate owner has a debt on aproperty and is experiencingproblems, do they keep quietor approach the financialinstitution?Kevin: It is best to approach thefinancial institution that holds theloan right away and explain wherethe problems are and what you’redoing to try to overcome them.Willingness is very important andit will return to the owner a likewillingness by the financialinstitution. �

SHORT SALEcontinued from page 30

33

Do you have clients that youthink, or they may even feel, thatthey should’ve taken that opportu-nity or wish they would have whenthey could have?Nathan: All of mine.Haenel: I think if you look back six

to nine months landlords would saythat they wish they would’ve madethat lease deal.Cowen: I think most landlords are

saying that, tenants just think there’sanother deal with potentially betterterms they could do around thecorner.Gabel: It’s not just on the tenant

and buyer side, it’s on the seller andlandlord side as well.Nathan: In our business you recy-

cle deals two or three times,especially in a downturn it can be upto five times. We are all saying I ambuying it now, but I should havebought it then.

Gabel: Do you feel that when youare talking to clients now you’resaying with conviction do it now?Haenel: Last year I made the point

that it was a great time to leaseindustrial space. Brad did not feel

that way in terms of office leasingand now it seems like you do. That’sa big move and shows signs of abottom. Anderson: I think it’s because the

numbers are there to back it up. Lastyear nobody was doing anything,everyone was deal searching. In theoffice are, there were 47 transactionsover 25,000 square-feet completedlast year, probably 35 to 36 of thosewere completed in the last two quar-ters. What happened last year was“nothing” happened for the first sixto nine months then everythingworked its way out.

Gabel: How many office transac-tions over 25,000 square feet havethere been this year, Brad?Anderson: I don’t have the num-

bers, but I’d say we are back to 15 to16 deals over 25,000 feet YTD.A lot of the activity is for renewal

transactions. I’d say about 20 ofthose 47 deals last year were earlyrenewals so they were not all reloca-tions. It gets back to the grossactivity and I am pretty optimisticthat we will be back to historicalactivity for the remainder of 2010.

Holzer: In 2010, we are probablydoing almost double the constructionvolume than we were in 2005. Weswung from being 80% developer and20% third-party contractor to 90%and 10% the other way. This is thebest time in the last ten years to buycommercial land and buy construc-tion and companies buying servicesare getting in cheap. Those that havemoney are taking advantage oftoday’s market conditions. There arecompanies out there that like to own,have money and are building, andthat is a good thing. We see that it isgoing to continue. Gabel: Are you also doing third

party tenant improvements?Holzer: Yes we are. Like Nate said,

you go reinvent yourself and talk toyour clients. We are doing things thatwe had not envisioned a few yearsago such as third party tenantimprovements, site work for alterna-tive energy, building biodiesel plants,government projects and seniorhousing.

Haenel: When is the next specula-tive development deal?Holzer: I’d have to tell you that

Do you feel that now that we are coming out of this recession, we will cometo grips locally with our one-horse economy of construction and growth?


continued from page 25

34


office will come later than indus-trial. I think office is like 2015 andyou’ll see some industrial in 2013.It’s going to be a long time for retail.

Braun: Where do you see buildingcosts today versus 12 months ago?Holzer: I’d say we are back to

2001 for shell and 1999 for tenantimprovements.

What have you learned from thelast downturn?Haenel: Do you feel that now

that we are coming out of thisrecession, we will come to gripslocally with our one-horse economy

of construction and growth? Ibelieve we have to learn from thisand be proactive with alternativeenergy companies, high tech,manufacturing, and generalindustrial companies. We willcontinue to benefit from the growthof construction, residential; and itwill happen again. I think we needto be more diverse and learn fromthis last downturn. Clearly, othercities are not going through whatwe are going through right now, butdidn’t have the unbelievable run-upthat we had. I do think it is up to usto market our local economy todifferent types of businesses.

Braun: Do you really feel it is aone horse economy? I think Phoenixand Arizona are much more diversethan people give us credit for. Haenel: I was in a meeting two

years ago and heard the commentthat Phoenix is more dependent onconstruction than Detroit is on theautomotive industry. That’s prettyscary.Nathan: I think we are pretty

diverse when you talk to peopleabout our market. Look at theaeronautical industry and what it’sdoing, or the science industry andeducation.Anderson: Not much—other than

trust your instincts. Major employ-ers typically don’t focus on realestate costs when they evaluatebringing operations to Phoenix.They consider it, and it’s a factor intheir matrix evaluation top ten list,but they look at all of those thingsthat Nate mentioned earlier like costof employment, workers compensa-tion, quality of life and perhapsmost importantly — will the labormarket be there today and in thefuture for their current and futureneeds? The cost of employment typi-cally ranks much higher inimportance than the cost of realestate. I’m in a vacuum in my worldbecause I tend to focus primarily onprice and how competitive we needto be to lease the space. However, Ithink at times if you can determineas a landlord or agent what is reallydriving the decision for these largeremployers you will win. For exam-ple, if you know a user prefers thelabor market along the Interstate 17corridor versus the Southeast Valleythis will be a competitive edge in theevaluation and strategy.Gabel: We’ve talked about a lot of

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stats, but to me the most powerfulone is what Nate said aboutaffordability. A few years ago, 33% ofArizonans could afford a home andtoday it’s 81.5%. That’s a hugetransformation that really shouldn’tbe just thrown under the carpet.That’s going to be a major driver toattract people to move to Arizonaand be able to say we can start new,build a family and establish ourroots here. Nathan: Once you are over 50% is

when the new jobs really focus onyou and employers want to movehere. The fact that we are a right towork state helps.Gabel: We have the infrastructure

for residential growth and for peopleto move here and we now have theaffordable housing that we didn’thave a year ago.

How will the affordability of asingle-family home affectmultifamily?Braun: The net effect is positive.

Affordable housing helps attractemployment growth andemployment growth strengthensmultifamily operations. Thepotential negative repercussionsoccur when housing prices declinedue to over building andemployment growth evaporates.Sound familiar?

Gabel: What about retail?Cowen: It’s bad. I think that we

have hit the bottom and we arecertainly not ramping up as quick aswe would like to. We are just kind oflanguishing there. I didn’t see a lot ofactivity last year, but first quarter ofthis year activity levels havedefinitely increased Not so much onthe sales side but on the leasing side,

which is what we’re doing a lot of.It’s going to be awhile for us to comeout of retail I think.

Cowen:Not really. As far as big boxgoes we are seeing non-traditionaluses such as churches, dinner theatres,paintball, etc. along with discount ordollar stores. It is whatever you cando to fill the vacancy and bringpeople to your centers. There’s a newgrocery chain coming to town(WinCo), but other than that we arenot seeing much new activity at all.Braun: Has retail troughed or do

you see continual erosion evaluationsand operations. Cowen: There were some shops

that were being done in the $40 perfoot range in 2005 & 2006 and nowwe are they would be happy doing$18-$24psf deals. We are doing leas-ing for a couple of centers that haveheld their value, maybe only drop-ping 10%-20%, but everything elsehas at least dropped by 40%-50%... Itreminds me of the rental rates weused to see in the early nineties…Anderson: That seems outra-

geously high for all of the vacancythat is out there. In many cases, wesee Class A office buildings offeringdeals at $8-10 net. I’m shocked by thenumbers.

Haenel: Consumer spendingappears to be up and restaurants arebusy. Are restaurants and retailstores making money?Cowen: I would say that consumer

confidence has improved a little bitso people are starting to spend a littlemore than they did last year.Restaurants are improving slightlybut not nearly to where they wouldlike to be, that’s for sure.

Are you seeing deals done that

you never thought you’d see in yourcareer?Anderson: I think that how quickly

the market turned is unprecedented.To see a developer spend $200 perfoot on a property and then see it sellin six to nine months for one-third orless is unprecedented. That’s a shock,but it just tells you how overheatedthe market can get. You are taughtcertain fundamentals in school andfrom experts as you go through yourcareer. We saw all of the fundamentalchallenges in front of us three to fouryears ago, and ignored many of thesigns as a whole. You knew thingswere heated when you saw spikes inland and office and retail rents riseup by 40% overnight. Those thingsare not good. This crash has beeninteresting, yet I’m not surprised bywhere the deal making is occurringtoday — there is just too muchsupply and not enough demand tocorrect the vacancy for a while. Inthe real estate market, it is certainly agoofy time in our lives right now. Holzer: Everybody has been in a

survival mode, but I see a lot morepartnering going on now. We’re doingventures we never thought we’d seeor would have done four years ago.You have to get creative and do a lotof collaboration. Gabel: I think all of us have rede-

fined ourselves. Haenel: And have gotten back to

basics. �

www.cbrephoenix.comwww.cushwake.comwww.brephoenix.comwww.nathanandassociatesinc.comwww.ryancompanies.com


© Copyright 2010 by MP Magazines LLC 35

Manages and Leases Over 4,000,000 SF of Retail Centers.

Provides 3rd Party Management and Leasing Services.Supermarket Anchored Centers ~ Specialty Centers ~ Unanchored StripsHispanic Themed Centers ~ Community Centers ~ Neighborhood Centers

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36

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37

News You Can Use

There are a number ofissues inherent to shoppingcenters which retail propertymanagers must navigatethrough to help achieve thesuccess of a property. Amongthese issues are co-tenancyobligations, “go dark”clauses, percentage rent,tenants with terminationrights in the event their salesdo not exceed lease definedlevels, exclusive use andrestrictions, and tenant mix.

An example of a co-tenancy clausewould be when a tenant’s leaseprovides the tenant the right to paypercentage rent in lieu of minimumrent and NNN charges should a keytenant in the shopping center ceaseto operate, and until the key tenantis replaced by a business of thesimilar type and quality. Often, it isbetter for the property owner toprovide financial incentives to thekey tenant to have them continue tooperate or to extend the term of theirlease, as the resultant financial loss

due to significance of the reductionin rental revenue from the tenantwith the co-tenancy clause.

The concept of percentage rentwas originated when shopping centerdevelopers leased spaces to tenantsfor long terms (20-25 years) at flatrental rates. Percentage rent clauseswere incorporated into leases asinflation guards against theshrinking value of a dollar and thenpercentage rent evolved into areward for landlords that were ableto put together a great center, as the

tenant would paypercentage rent basedupon sales which weregreater than a typical storemight generate. Toproperly administer leaseswith percentage rentclauses, the propertymanager must obtain thetenant’s sales reports in atimely manner, verify thatthe tenant is open forbusiness for the requireddays and hours, monitor if

the tenant has opened a competingstore within a restricted radius of thecenter, and possibly recommend thata tenant’s sales be audited if thetenant might be under-reportingsales and thus avoiding the paymentof percentage rent.

To avoid making a long term realestate mistake, many retailers havenegotiated “kick-out” clauses in theirleases which provide the retailerwith the right to terminate the leaseafter a given number of years, if thetenant’s sales have not reached a

Retail PropertyManagers In The

SpotlightWith so much attention focused on the retailreal estate market by the media, financialinstitutions and the general public, the

performance of retail property managers isnow more crucial than ever.

CO-TENANCY OBLIGATIONS

“Go Dark” ClausesPercentage Rent

TERMINATION RIGHTS

Exclusive UseTenant Mix

By Alan Zell

38

News You Can Use

certain level, such as $300/SF by theend of the third lease year. Thistrend reflects a tenant’s negotiatingleverage compared to times whenlandlords held the upper hand andwere able to negotiate “knock-out”clauses to allow the landlord toterminate leases with those tenantswhich did not achieve certain saleslevels. The retail property managermust try to guide the shoppingcenter owner to help establish anachievable minimum sales level and,

if possible, a penalty which to beimposed upon the tenant if thetenant elects to terminate the lease.Potential penalties could include therepayment of the unamortizedportion of leasehold improvementand leasing commission expensesincurred by the landlord in makingthe lease. The retail propertymanager must again monitor all ofthe same issues which areadministered when a tenant is topay percentage rent.

Many tenants do not want directcompetition in the same center andtheir leases contain lists of usesreserved only for their use, as wellas restricting certain other usesfrom the center, such as schools,flea markets and adult orientedbusinesses. In order to minimize therisk of entering into a lease whichwould place the property owner inviolation of an existing agreement,the shopping center manager mustmaintain a detailed abstract of eachlease and the CC&Rs for a center,which list should include eachtenant’s and parcel owner’s use,exclusives and restrictions, and tobe certain that the leasing agent andthe property owner are aware of thecontents on the list. The potential for success of retail

centers is increased when customersof the center’s tenants are customersof other businesses within the samecenter, thus creating a strong tenantmix. It is important for the managerto know the demographics of acenter’s customers and its daytimeand nighttime trade area to helpdetermine what prospective brandsor types of businesses would be thebest fit for the property. An exampleof a shopping center with goodtenant mix is Biltmore Plaza, theSafeway anchored center on theNWC of 32nd St. & Camelback Rd.,as most of the center’s retail,restaurant and service tenants drawfrom a very similar trade area anddemographic as evidenced by thefact that there are a manycustomers which frequent morethan one business on each trip tothe center, thus making a success ofthe center as a whole. Experienced, qualified retail

property managers play a significantrole in the operation of shoppingcenters and they will remain valuedassets until our economy gets backon its feet. �

Alan Zell is the President of ZellCommercial Real Estate Services,you can reach him [email protected] EAST CAMELBACK ROAD | PHOENIX, AZ 85016 | 602.735.5555 | WWW.CBRE.COM/PHOENIX


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