[Source: Jan Buchholz, Phoenix Business Journal] — Freeport-McMoRan Copper & Gold Inc.’s decision to vacate one of downtown Phoenix’s high-rises in the middle of an economic recession will leave a prominent building with a significant hole to fill. As city and downtown officials herald the deal to combine the mining giant’s corporate headquarters with a Westin hotel in the new One Central Park East building, the potential loser is Mitsubishi Estate New York Inc., which purchased One North Central in March 2008 for $127 million.
With Freeport-McMoRan vacating 185,000 square feet and another major tenant, Ryan Cos., vacating about 20,000 square feet, Mitsubishi will be faced with 50 percent vacancy — and the challenge of filling the space in a very difficult real estate market. Ryan, which developed One North Central in part as a build-to-suit for Phelps Dodge Corp. in 2000, is moving into a new building it will finish soon at 3900 E. Camelback Road. Phelps Dodge merged with Freeport in 2007, creating a much larger mining company.
Colliers International in Phoenix is the leasing agent and representative for the 410,000-square-foot One North Central, but could not get permission from Mitsubishi to discuss that company’s plans to fill the space. According to research firm CoStar, the building currently is 97 percent leased — but that will drop to 50 percent within six to seven months, when Freeport and Ryan vacate. “I don’t think the folks who bought One North Central knew what they were getting into. No question, One North Central will face difficulties,” said Tyler Wilson, senior associate with Grubb & Ellis/BRE Commercial LLC in Phoenix.
Andrew Cheney, a Phoenix broker with Lee & Associates, is more optimistic. “Mitsubishi will feel pain in the short term, but has the staying power to re-lease it at recessionary lease rates,” he said. [Note: To read the full article, visit Looming vacancies will leave downtown Phoenix high-rise half-empty.]
[Source: Lynn Ducey and Jan Buchholz, Phoenix Business Journal] — Two new hotel brands now call Downtown Phoenix home, after Phoenix City Council approved separate development deals paving the way for the properties. Council members OK’d one deal One Central Park East that includes plans for a 280-room Westin hotel and corporate headquarters for Freeport-McMoRan Copper and Gold Inc., and another that rebrands the existing 520-room Wyndham hotel as a Marriott Renaissance. “We are very happy. Christmas has come early,” said Steve Moore, president and CEO of the Greater Phoenix Convention and Visitors Bureau. “We now will have the power of the Marriott brand in downtown Phoenix and the Westin gives our downtown Sheraton guests an opportunity to upgrade.”
Council members unanimously approved a development agreement known as a Government Property Lease Excise Tax, or GPLET, incentive program for the One Central Park East project. The Westin hotel would be a tenant inside the newly constructed building, which also would house Freeport’s headquarters. They also voted 6-2 in favor of a development deal with Phoenix Hotel Ventures LLC, which would result in the rebranding of the Wyndham into a Marriott Renaissance. Vice Mayor Tom Simplot and Councilman Michael Nowakowski voted against the proposal.
Simplot said the difference for him was that the Westin project was a modification of an existing GPLET that led to the construction of One Central Park East, which is built out, yet unoccupied. In contrast, the Wyndham is an existing property. “Councilman Nowakowski and I agree philosophically. Personally, I believe GPLETS should be used sparingly for projects that simply aren’t viable without them,” Simplot said after the meeting Wednesday.
Council members voted unanimously in favor of the One Central Park East Project. Proponents said the projects would create and retain additional jobs, create a future revenue stream for bed and sales taxes across the city, county and state levels and keep Phoenix on a competitive par for group meeting and bookings at the Phoenix Convention Center with similar-sized cities, such as Denver and San Diego.
In addition, the Wyndham project will result in $10 million in property upgrades and access to Marriott’s branding power while the Westin is an upscale business class hotel. The Wyndham rebranding is expected to take place within the first part of next year. Construction of the Westin build-out is expected to begin shortly, with the first guests expected to begin checking into the property in 2011. [Note: To read the full article, visit Two major downtown Phoenix developments get go-ahead from city council.]
[Source: J. Craig Anderson, Arizona Republic] — At no time in the Phoenix area’s history has so much office space sat empty. Nearly 1 out of every 4 square feet of Valley office space was vacant in the third quarter ending Sept. 30, commercial-real-estate experts said. That’s about 28 million square feet of empty space, according to Phoenix commercial-realty brokerage Colliers International, one of several Valley firms tracking the progress of sales and the leasing of office, industrial and retail buildings.
By almost anyone’s measure, the local market for commercial real estate is as bad as it ever has been. But even the most pessimistic analysts and brokers agree that the real-estate crash positions Phoenix as an attractive relocation area for companies in more expensive states, such as California. “Actually, the leasing agents are optimistic,” said Broker Mindy Korth of Phoenix-based CB Richard Ellis. Still, Korth said only one thing can rescue the Valley’s real-estate market and economy: jobs.
Although their numbers vary slightly, all the local brokerages pegged the Valley’s overall office-vacancy rate at 20 to 25 percent. Jim Achen of the Phoenix commercial-real-estate brokerage TransWestern said it’s likely the problem will get worse before it gets better. “Unfortunately, I think our vacancy is going to inch up a little further,” Achen said.
Within the next few months, about 2 million more square feet of office space will open, and less than 20 percent of it has been reported as spoken for by a future tenant. One of the soon-to-open buildings, the 400,000-square-foot One Central Park East office tower in downtown Phoenix, has yet to announce a lease agreement despite plans to open by the end of the year. Korth said One Central Park is a desirable location that ultimately will find its audience. But she agreed with other experts that the high prices paid by companies such as One Central Park developer Mesirow Financial Real Estate Inc. could make it difficult to pay the bills, based on today’s lower lease rates. [Note: Read the full article at Office vacancy rates in metro Phoenix hit record.]
[Source: Jahna Berry, Arizona Republic] — Amid today’s cutthroat real-estate market, Jim Fijan drifts off to sleep thinking of ways to rent more office space in a 27-story tower in downtown Phoenix’s CityScape complex. Brad Anderson starts checking his e-mail at dawn. The early start helps him find tenants for One Central Park East, a 26-story office building a few blocks away from CityScape. Anderson and Fijan work for the same company, CB Richard Ellis. Although the good-natured co-workers say that they don’t see each other as rivals, each leads a highly competitive team of brokers who are essentially chasing the same pool of possible tenants.
It’s not uncommon for a large firm to represent clients in the same neighborhood, but the matchup between CityScape and One Central Park East underscores how the strong renter’s market has affected commercial real estate in Phoenix.
The two projects will inject more than 1 million square feet of office space into a downtown market where layoffs have created a glut of empty cubicles. The $175 million One Central Park East glass tower stands at Central Avenue and Van Buren Street. CityScape’s shiny tower near First and Washington streets will be nestled in a $900 million, three-block complex that will have shops, restaurants and a hotel.
They have more in common than proximity. They have sweeping views of the Valley, are of similar size and are close to light-rail stops. Tenants would be a few minutes’ walk from downtown shops, restaurants, and the Phoenix Convention Center. And both projects were planned during rosier times, when high-end office space, classified as Class A in the real- estate world, was in high demand downtown. Now, that’s not the case. [Note: To read the full article and online comments, click here.]
[Source: Life in Downtown Phoenix blog] — On a perfect April night last week, you could see things all starting to come together for downtown Phoenix. On the surface, it was merely a couple hundred people taking in a free movie in a park. But when put in perspective, the screening of The Dark Knight put on by ASU students for a class project was a huge moment that illustrated how far downtown Phoenix has come.
The movie screen was in the center of a juxtaposition of downtown Phoenix’s old and new. The screen sat in front of the newly-restored 1926 A.E. England Building, flanked on its left by the “Her Secret is Patience” sculpture (also referred to by many more colloquially as the “Jellyfish”) and on the right by the very bright lights of the new Central Park East high rise. Moviegoers were pleasantly distracted by the light rail trains that both in front and behind them as well as the news zipper scrolling along on the ASU journalism building. And of course, beneath the movie patrons was the brand-new Downtown Phoenix Civic Space, a 2.77-acre gem of a park that just opened.
An even more positive sign was the crowd that came to watch the movie. Not only did the turnout exceed expectations (with minimal publicity, organizers expected 60-75 attendees and then at least 250 showed up), but it was a crazy blend of people: old and young, all races, ASU students, high-rise condo dwellers, and homeless people. And as far as I could tell, everyone enjoyed themselves.
I’ve been critical of ASU in the past. Its administrators descended on downtown and acted like they owned the place — let’s not forget they wanted to tear down the A.E. England Building they’re now patting themselves on the back for saving — and at first its students publicly bashed their new environment instead of trying to go out and change it for the better. However, on this night ASU’s students had a very positive effect on downtown with their ingenious, well-run program to activate the new park. This event showed the promise the university’s presence can have for downtown.
As the event ended, people were overheard saying what a great event it was, how they couldn’t believe it took place downtown, and how they’d be back (WALL-E will run this Saturday at 7:30 p.m.). Hopefully this is the start of a new tradition that can take its place alongside First Fridays and Suns games as a constant in downtown life. But even if it doesn’t, it was enough to illustrate to everyone there that there is at last a burgeoning urban center in the giant megalopolis.
Apparently, while no one was looking, downtown Phoenix came to life.
[Source: Phoenix Business Journal] — Nearly 2.8 million square feet of new office space is under construction in the Phoenix metro area even though absorption rates ran into the negative category during the first quarter of 2009, according to a report released Monday by Colliers International. Absorption, the net new amount of leased space compared to the previous period, was a negative 497,720 square feet, Colliers reported. That means given all of the office space available in the Phoenix area, nearly 500,000 square feet of vacant space came back into the inventory during the first three months of the year. That negative absorption likely will continue as major office projects come on the market in the next 12 to 18 months, the firm said.
Two of the largest projects under construction are in downtown, which will see more than 1 million square feet of new office space: Central Park East and the Wachovia Tower (part of the CityScape project).
Phoenix-area office vacancies are lowest in downtown’s central business district at 14.6 percent. Rates are the highest in the northeast Valley at 23.1 percent. Overall vacancy rates rose to 19.9 percent, compared to 19.1 percent at year end. Rents are dropping in response to increased supply with the average at $24.72 per square foot annually compared to $25.54 in the fourth quarter. [Note: To read the full article, click here.]
[Source: Andrew Conlin, Special for The Republic] — For nearly two decades, we’ve heard confident predictions that downtown Phoenix was on the brink of a crucial “tipping point,” when public investment would no longer be needed to generate new development that was both vigorous and self-sustaining. A term like “tipping point” is a kind of mental shorthand, useful in summarizing complex ideas but sometimes misleading when it comes to making decisions or drawing conclusions.
In reality, we won’t see the beginning of a significant shift from public to private investment until downtown achieves the requisite critical mass. This will be the moment when the collective energy generated by the diverse collection of downtown businesses, retailers, residences, entertainment venues, and academic and cultural institutions fuses into the nucleus of an energetic and growing community. Private investors will be drawn to this energy, creating new businesses and helping to further enrich the downtown scene. This will inspire more people to live and work here, generating new opportunities that will draw new investors. This development “chain reaction” will, we hope, be self-sustaining and transformational. [Note: To read the full opinion piece and comments, click here.]
[Source: Jahna Berry, Arizona Republic] — The concrete-and-steel frame of the One Central Park East office high-rise has been rapidly rising near Van Buren and First streets. Snagging tenants for the 26-story downtown Phoenix building, however, has been slow going, the developer says. Early lease talks are under way with several prospective tenants for the 485,000-square-foot building, said Andrew Conlin, managing director of Chicago-based Mesirow Financial Real Estate. Those talks represent proposals to rent 800,000 sq. ft., Conlin added.
While some of those discussions have led to negotiations for letters on intent — a step before an actual lease — no leases have been signed yet, he said. The building is expected to open in September 2009. “The challenge that has arisen is that the lease market has been impacted by the economy a little bit,” Conlin said. [Note: to read the full article, click here.]