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Downtown Phoenix 2.0?

[Source: Jon Talton, Rogue Columnist] — It’s surprising that some appear so sanguine about the likely foreclosure of most units at the 44 Monroe condo tower.  This, along with a similar fate for the Summit at Copper Square and 44’s developer Grace Communities failing to rehab the historic Valley National Bank building because of the Mortgages Ltd. fiasco, represents a devastating setback for luring private investment into downtown Phoenix.  Maybe people are too shell shocked to take it all in.  Maybe they’re willing to settle for things being better than they were 20 years ago, which is undeniably true.  Neither option is wise for those who wish the central city well.

Make no mistake: the Phoenix depression is metro-wide.  I saw rotting framing and miles of distressed subdivisions out in the exurbs.  Tempe foolishly threw away its opportunity to build a mid-rise boutique downtown of national quality — now it has an empty condo high-rise and Mill Avenue is swooning again.  But my conviction remains that there is no healthy major city without a strong urban downtown, and center city problems left unchecked have a habit of spreading.  (And don’t be taken in by the propaganda: Phoenix did have a vibrant downtown — it was killed by civic malpractice).

In Phoenix, the past few years have seen some notable triumphs: the beginnings of a downtown ASU campus, light rail, a convention center worthy of such a tourist-dependent city, a new convention hotel, and a blossoming of independently owned restaurants.  The biosciences campus has been planted (although it has been allowed to stall and, I fear, its future is uncertain).  Yet major private investment has not followed; 44 Monroe and the Summit represented the strongest chance for that within the existing local business model of “real estate first.”  The many towers proposed for the entire Central Corridor are now blighted empty lots.  CityScape?  I’ll believe it when I see it.  What I see is a homely suburban design, not the soaring “game changer” sold to the public on the front page of the newspaper.

The great recession, the great reset: Where will they leave downtown Phoenix and the Central Corridor?  It’s tough all over, now that a commercial real-estate crisis will follow the explosion of the residential and mortgage bubble.  Nationally, suburbs and exurbs are being hit harder than downtowns.  Suburban poverty is spreading.  The massive destruction of wealth and overhang of leverage make restarting the sprawl machine of old impossible.  Smart places, such as Denver, are trying to retrofit the suburbs for a higher energy future. Some suburbs themselves are working to provide walkable, mixed-use and even urbanish neighborhoods.

The headwinds in Phoenix are different.  Most people have blinkered suburban values — they can’t imagine a different life.  City Hall’s decisions to clear-cut hundreds of buildings and drive out businesses that catered to the working poor have left Phoenix without the bones that other cities have used to revive their cores.  The old headquarters companies were bought or dismembered and their successors often keep only token presences in downtown (imagine, for example, if Wells Fargo had built its operations center downtown instead of in Chandler).  And the limited economy leaves few non-real estate businesses anyway.  I could go on, but what can be done now, in the reset?  [Note: To read Jon’s recommendations, click on Downtown Phoenix 2.0?]

The Economic Minute: Phoenix and the Recovery, or Beyond Ground Zero

[Source: Knowledge@W.P. Carey] — In this edition of The Economic Minute, economist Dennis Hoffman says that Arizona could be called “ground zero of the worst recession since World War II.”  The hard economic fact is that Arizona depends on in migration to keeps its economy vibrant, and the state is not exactly a people magnet right now.  But, Hoffman said, this is not the first time the shine has disappeared from Arizona sunshine.  The early ’90s were similar, but the decade that followed was a boom.  Hoffman advised that smart businesses should be preparing for the uptick.  Dennis Hoffman is director of the L. William Seidman Research Institute at the W. P. Carey School of Business.  The Economic Minute is presented at the monthly Economic Club of Phoenix luncheon.  Click here to listen.

Planners contemplate Phoenix’s post-boom future

770px-phoenixdowntown[Source: Ted Robbins, NPR] — The vast majority of the Phoenix metropolitan area — 90 percent — was built after 1950.  It’s been a pell-mell push for growth.  But like many places, that growth came to a screeching halt during the recession.  In the suburb of Maricopa, AZ, the population grew from 1,000 to 45,000 residents over the past decade.  In 2007, the city was processing 700 building permits a month.  But then the economy soured.  “We reduced that to 300 and then … we set our budget last year at 100,” says Maricopa Mayor Anthony Smith.  “Well, 100 was too many.  So now we’ve set our budget for 30 new building permits each month.”

Housing Surplus

There’s a large inventory of homes on the market in the Phoenix metropolitan area.  The Salter family — Thad, Laura and their sons, Isaiah and Isaac — moved to Maricopa three years ago, from San Jose, Calif.  They paid more than $300,000 for their home.  It’s now worth about half that.  Thad Salter says more than half of the 22 homes on his block have been foreclosed on: “My block got devastated.  My next door neighbor’s no longer my next door neighbor.  And I’ve seen houses across the street from me going down the block on my side of the street just turn over.”

The good news is the homes did turn over.  All but two resold — albeit at much lower prices. The Salters have been trying to refinance their mortgage at a lower interest rate for two years and are just now getting their lender, Chase Bank, to come to terms.  Still, they are glad they moved.  “You know, my kids love it here. I have family here. I have some good friends here,” Salter says.

Lost Construction Jobs

But the pause button has been pushed in Phoenix when it comes to new construction.  Grady Gammage Jr., an attorney and a real estate developer, spends a lot of time thinking about his native Phoenix’s future.  He says the pause should make the Phoenix area take stock.  “We’re now big enough that maybe continuing to operate on a boom and bust cycle as a sort of Wild West frontier town is no longer the right formula, and we ought to try to diversify our economy a little more,” he says.

One-third of the jobs lost statewide — 100,000 out of 300,000 — have been in construction.  Gammage says it’s time for Phoenix to create employment that can sustain itself through good times and bad.  A solar energy industry is one idea for alternative employment given the abundance of sunshine.

Create Urban Density, Not Sprawl

Instead of the sprawl Phoenix is known for, many local architects and urban planners want more density.  Urban nodes, they call them — where working and living can be done close to each other. Phoenix has expanded its downtown business core in recent years — but as in other Western cities, it largely rolls up at night when people drive home to the suburbs.

The car is king here.  For years it has been the only way to get around.  But in December, Phoenix opened its first light-rail system.  Two lines connect downtown with outlying areas.  Ridership was up to 1 million people a month at one point.

The recently minted town of Maricopa just started running a bus line to transport workers and others the 35 miles to downtown Phoenix.  These are welcome drops in the bucket for most planners and are signs that Phoenix is beginning to grow up.  [Note: Read the full article at Planners contemplate Phoenix’s post-boom future.]

Phoenix office vacancies tie 17-year high

[Source: Cathy Luebke, Phoenix Business Journal] — The office vacancy rate has increased for the ninth consecutive quarter in Phoenix to 24.2 percent.   That also marks the highest point since 1992 when total office space stood at 43 million square feet compared with today’s 74 million tally, according to CB Richard Ellis third-quarter MarketView report.  A year ago office vacancies accounted for 17.1 percent of the market.

West Phoenix has the highest rate of vacant space, 39.2 percent; the central business district has the lowest, 15.7 percent, according to CBRE.

“Uncertainty in the economy has significantly impacted tenant activity in the metropolitan Phoenix office,” the report said.  “However, for those companies that are in the market for space, they will have multiple opportunities from which to choose at extremely competitive pricing.”

The average asking price per square foot on a full-service lease for existing buildings was $23.44 as if Sept. 30, according to CBRE.  That compares with $24.96 in the first quarter and $25.96 at the end of 2007.  Nevertheless, construction continues. CBRE reports 1.9 million square feet of space expected to come online by first-quarter 2010.  More than half in downtown Phoenix. That compares with 4.6 million at the end of 2007.  [Note: Read the full article at Phoenix office vacancies tie 17-year high.]

Recession rising like Phoenix with area delinquencies surging

[Source: Brian Louis, Bloomberg] — Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard.  The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses.  Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade.

Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg.  The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent.  In Phoenix, the economic recovery looks a lot like a recession.  “A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia.  “These are more volatile markets and getting back to normal could take years.”

Phoenix and other southern and western cities such as Atlanta, Houston, and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed.  The Phoenix area’s population is forecast to increase 1.6 percent in 2009 from 2008 and 1.8 percent in 2010, according to a forecast by Scottsdale, Arizona-based real estate and economic consulting firm Elliott D. Pollack & Co.  That’s the slowest growth since at least 1990.  Employment may fall 6 percent in 2009 and another 1 percent in 2010, according to the firm.

The real estate crisis has brought economic growth to an end.  Arizona had the highest unemployment rate since 1983 in July at 9.2 percent, according to the U.S. Bureau of Labor Statistics.  The rate fell to 9.1 percent in August.  Single- family building permits in metropolitan Phoenix may fall to 5,973 this year, down 81 percent from 2007, according to a consensus forecast of real estate and consulting firms and universities compiled by Arizona State University’s W.P. Carey School of Business.  “The economy in Phoenix is in tatters right now,” said Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California.  “It’s now really hit the skids.”  [Note: Read the full article at Recession rising like Phoenix with area delinquencies surging.]

This ain’t pretty for anyone

Geography of Jobs

[Source: TIP Strategies, Austin, TX] — This animated map provides a striking visual of employment trends over the last business cycle using net change in jobs from the U.S. Bureau of Labor Statistics on a rolling 12-month basis.  TIP Strategies used this approach to provide the smoothest possible visual depiction of ongoing employment dynamics at the MSA level.  By animating the data, the map highlights a number of concurrent trends leading up to the nation’s present economic crisis.  The graphic highlights the 100 largest metropolitan areas so that regional trends can be more easily identified.  For more information and to view the map animation, click here.

Recession hits Arizona arts groups

[Source: Salvatore Caputo, Jewish News of Greater Phoenix] — Arizona Jewish Theatre Company’s decision in April to cancel the last show of its 2008-2009 season was one of the most visible signs of the effects of the current American recession on Arizona arts organizations, but it was not the only one.  “I’m very concerned,” said Rabbi Albert Plotkin, when discussing how the economy has affected the Sylvia Plotkin Judaica Museum in Scottsdale.  He is the director of the museum named after his late wife and housed at Congregation Beth Israel, where he is rabbi emeritus.  “(The museum) has been deeply affected.  We couldn’t even go out to ask for more donations because it would have been a futile venture.”

Donors are a substantial part of the mix for many arts and cultural organizations, and when the crisis in the financial markets erupted in fall 2008, many donors’ investment portfolios were severely affected.  Arts organizations contacted by Jewish News all said that donations were down in the current recession.  In addition, most of them had seen drops in public funding, subscriptions and attendance.  “The biggest thing that has happened to us (as a result of the recession) is the just-about 50 percent cut from the city and state,” said Janet Arnold, AJTC’s producing director.  “Those were our largest contributors, and we don’t know how we’re going to replace that…”

A series of surveys by the Arizona Commission on the Arts has shown that the recession has forced layoffs, programming cuts and reductions in operating budgets across a broad spectrum of arts organizations in the state.  The commission has been conducting the survey “to keep track of how (the organizations are) being affected by the recession” on roughly a quarterly basis this year, said Casey Blake, the commission’s communications and research director.  The most recent was in May, with another due to be taken next month, she said.

The May survey was sent to more than 300 organizations.  Among the 160 that responded, 60 percent said they have reduced their operating budget for the current year by as much as 80 percent.  Of organizations with annual operations of $250,000 or more, 40 percent had laid off staff in the preceding six months, while 50 percent froze hiring and 25 percent put staff furloughs in place. [Note: Read the full article at Recession hits Arizona arts groups.]

Nordstrom opts out of northeast Phoenix CityNorth project

[Source: Michael Clancy, Arizona Republic] — Nordstrom has pulled out of the CityNorth project, leaving the next phase of development at the new northeast Phoenix center up in the air.  The Seattle-based luxury retailer was the first business announced for the mixed-use project.  Now, it has become the first to walk away.  Nordstrom spokeswoman Julee Kraus said the development failed to meet milestone dates, but she declined to elaborate.

Najla Kayyem, vice president of marketing for Related Urban Development, one of CityNorth’s two developers, said the decision was based on deadlines to begin work on the project’s second phase.  “We are disappointed that this has not moved forward,” she said, “but we don’t control the capital and financial markets.”

CityNorth has been plagued by bad timing.  Phase 1 opened on schedule in November 2008 in the midst of the recession.  Phase 2, originally scheduled for a November 2009 debut, was pushed back a year when the economy turned south.  Since then, it has been put on hold as the developers have continued to seek financing.

When the Nordstrom deal was announced in August 2006, developer John Klutznick of the Klutznick Co. said Nordstrom likely would attract other high-end retailers.   On Thursday, he said retailers are cutting back everywhere.  “We are operating in a global economic downturn,” Klutznick said.  “Developers cannot move forward on projects until the credit markets recover and financing is available.”  He added that Nordstrom, which has cut back expansion plans elsewhere, as well, will reconsider CityNorth when the economy rebounds.

David Krietor, a deputy city manager who oversees economic development in Phoenix, said the city was notified two weeks ago.  “They said they had run out of time to complete the transaction with Nordstrom,” he said.  “We were hopeful we could aggregate several high-end, big-box stores at CityNorth.  We are disappointed.”

Krietor suggested that an ongoing lawsuit over a development agreement between CityNorth and Phoenix may have played a role in delaying further progress…  [Note: To read the full article, click here.]

Metro Phoenix homeless count up 20% from 2008

[Source: Yvonne Wingett, Arizona Republic] — More single adults, families, and youths are living on the streets in metro Phoenix.  A Maricopa Association of Governments survey counted 2,918 homeless people throughout the county this year, a 20 percent increase from the 2,426 counted in 2008.  The Homeless Street Count found 230 families living on the streets, up 370 percent from last year’s count of 49 families.  The number of youths living on their own rose to 139, more than triple last year’s count. 

Each January, hundreds of agency workers, police officers, city employees and volunteers hit the streets to count the homeless.  Their findings are used to request federal funding for homeless services and to improve and expand services for non-profits.  This year’s increase in the homeless population comes after a 15 percent decline a year ago, said Brande Mead, a human-services planner with the Maricopa Association of Governments.

The count does not include the number of people living in shelters, which numbered nearly 5,000 last year, she said.  The state Department of Economic Security is conducting this year’s shelter survey; the results could be available early next week, Mead said.

The bad economy is to blame for the increase in the homeless population, experts said.  “We’re seeing more elderly, more disabled (homeless),” said Mark Holleran, CEO of Central Arizona Shelter Services, or CASS, in downtown Phoenix.  “It just appears to be the overall result of what’s happening… with the loss of jobs and the shaky economy” and with government agencies cutting back.  There is also an uptick in the number of homeless veterans, Holleran said, which he thinks could further increase as a result of the war in Iraq.  [Note: To read the full article, click here.]

Arizona State Archives building: dedicated in January, closed in March

[Source: Bill Coates, Arizona Capitol Times] — As principal investigator for Arizona Historical Research, Vince Murray’s livelihood depends on access to Arizona state archives.  That access was severely curtailed March 4, when the new Polly Rosenbaum Arizona Archives and History Building was closed to the public, except by appointment.  And then for only two half-days a week.

Blame budget cuts.  For Murray, it means a project that used to take two weeks now could take more than two months.  “On any typical project, there’s going to be 40 to 80 hours of research,” Murray said.  “Well, here, you’ve got — what? — eight hours that you’re allowed to do it in a week.”  Clients for his historical consulting firm include state agencies, he said.

The archives closure was perhaps the most notable cost-cutting move by the Arizona State Library, Archives and Public Records department.  Other divisions are operating on reduced hours, said GladysAnn Wells, the agency’s director.  Until the cuts, the library department had $2 million in operating funds, expected to carry it until June 30, the fiscal year’s end.  In January, however, the Legislature reduced that by nearly $1.5 million, she said.  There was one place to cut, Wells said.  “All we had left, really, was salaries,” she said.  [Note: To read the full article, click here.]