Blog Archives

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.]

Metro Phoenix condo agents bank on the draw of city life

[Source: Arizona Republic] — They arrived late to the real-estate-boom party a few years ago.  Now mid-rise urban condominiums are like the odd guest that everyone is afraid to approach.  Hundreds of pricey condos were built in the past five years, creating an inventory of units primarily in downtown Phoenix, Scottsdale and Tempe, and the Biltmore and Kierland areas.  Some developers and investors took a bath as condo prices collapsed and financial troubles cast a shadow on some complexes.

Buyers are carefully weighing a condo investment as they look at what each area has to offer and what they can afford.  Realtors and developers say they are seeing an uptick in interest as prices have fallen.  In Phoenix, condo towers are part of an emerging mid-city renaissance that includes light rail, students, restaurants, galleries, and restored housing.  “We might be crawling, but we’re crawling in the right direction,” said Realtor Michael Fitzpatrick of Phoenix Urban Living.  [Note: Read the full article at Metro Phoenix condo agents bank on the draw of city life.]

Metro Phoenix commercial foreclosures rocket

[Source: J. Craig Anderson, Arizona Republic] — More than 2,000 commercial properties in Maricopa County have received 90-day foreclosure notices since Jan. 1, representing $6.3 billion in real-estate loans on which the borrowers have failed to make payments.  That number is staggering when placed in contrast with the average commercial foreclosure rate over the past decade, which has been practically zero.

The problem, sparked by property-value declines and a paucity of refinancing options, has produced a steady flow of distressed commercial properties onto the market, with a heavy emphasis on small and midsize office and retail centers.  Industrial and warehouse properties also have suffered tremendously, due in large part to disappearing jobs.  More than 1 million square feet of previously occupied industrial and warehouse space was vacated in the second quarter.

Commercial-real-estate broker Bret Isbel has been tracking actual foreclosure sales in Maricopa County, which can take several months to occur following the issuance of a foreclosure or trustee’s sale notice.  The number of notices issued has been holding steady at between 300 and 400 a month since January, but actual foreclosures vary more widely, because it can take months — potentially even years — for a property in default to be repossessed by the lender or sold to a third party.  In Arizona, a lender can foreclose in either of two ways: It can take the borrower to court via foreclosure, or it can bypass the court system and call for a trustee’s sale, which is quicker and less expensive but requires the lender to waive certain legal rights.

Isbel said there’s no indication that the pace of commercial foreclosures is about to taper off.  If anything, it’s still building momentum.  “We’re at the tip of the iceberg, there’s no doubt,” said Isbel, of Scottsdale-based GPE Commercial Advisors. “It’s just a question of how big it is underneath.”

The inescapable problem for many commercial developers is that they’ve had to maintain the same construction loan payments while lowering rents because of dwindling demand for leased commercial space.  While the federal government has created programs to help homeowners in danger of foreclosure negotiate lower mortgage payments, no such program exists for commercial-property owners, and none is expected.

By and large, commercial-mortgage lenders are not modifying commercial-real-estate loans, even as commercial-lease rates have plummeted as much as 75 percent in some areas.  Isbel said county records show more than 50 commercial foreclosure sales in June, the most recent full month available, with a total mortgage value of about $54 million.  Geographically, they’re all over the map, including the East Valley, West Valley, Scottsdale, and downtown Phoenix.  [Note: Read the full article at Metro Phoenix commercial foreclosures rocket.]

A growing appetite for downtown Phoenix dining

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Sens, Downtown Phoenix (photo source: Cam Riley)

[Source: Howard Seftel and Megan Finnerty, Arizona Republic] — Looking past the current economic downturn, optimistic restaurateurs believe downtown Phoenix is poised to compete in the next few years with Scottsdale as a dining destination.  The momentum has been jump-started by a group of independent chefs and entrepreneurs who believe in the area’s potential.  They, in turn, have inspired a fresh wave of high-profile names with big plans to rush in and stake a downtown claim.

New arrivals say downtown Phoenix has reached a tipping point, energized in part by light rail and the Arizona State University campus.  But some warn that the Valley has seen this sort of hopeful restaurant hype fail to live up to its promise before, pointing to troubles on Mill Avenue in Tempe and developments such as downtown Phoenix’s Arizona Center and the Mercado that never flourished.  Others think downtown’s residential core is still not strong enough to support a restaurant community.

Meanwhile, CityScape is accelerating the downtown dining buzz.  Fifteen restaurants are planned for the sprawling residential, commercial and retail complex set to open in 2010.  Developers are targeting local chefs in hopes of complementing the fledgling dining scene, not squashing it.  Although downtown had seen scattered individual successes in the past, like the wood-fired pizza at Pizzeria Bianco and classy comfort food of Matt’s Big Breakfast, their popularity didn’t create a movement.  Winning national acclaim meant they became just as much tourist destinations as local joints.  Now, however, chefs and restaurant owners are relocating from other parts of the Valley or opening additional locations.

Metro light rail, ASU’s downtown campus, the Downtown Phoenix Public Market and new residents are creating buzz for the area, they say.  “It’s the spot to be,” said Linda Nguyen, whose bustling, 4-month-old Moira Sushi Bar & Kitchen offers Japanese fare.  She considered Tempe and Scottsdale before opening in a space on East McKinley Street.  [Note: Read the full article at A growing appetite for downtown Phoenix dining]

Recession hits Valley restaurant scene

Cafe LaBella in midtown Phoenix closed in March.

[Source: Barbara Yost, Arizona Republic] — The recession has hit the Valley restaurant scene like a smack in the head with a frying pan.  The casualty list includes some of the liveliest, most established independent venues whose demise is shocking dining experts.  Since the end of the year, at least 50 Valley restaurants — and counting — have closed.

The most recent announcement came May 29, when James Beard Award-winning chef Nobuo Fukuda said he would shutter Sea Saw in Scottsdale on June 7.  While Sea Saw, under partnership with Peter Kasperski (Cowboy Ciao,Kazimierz World Wine Bar, Digestif ), was doing fine, Fukuda says, he’s found opportunity to set up his own shop, possibly in midtown Phoenix.  “I’m just waiting for approval on the name I want, and, well, the money to do it,” he says.

As summer approaches, restaurants want to cut their losses, says David Rothschild, former culinary instructor and co-owner with wife Barbara of EATiQuette, a training service for wait staff.

Palatte, a bucolic patio with a garden setting in downtown Phoenix, closed in March.  Café Labella, run for several years by Mark and Debra LaBella in midtown Phoenix, also turned out the lights in March…

In downtown Phoenix, rumors had Stoudemire’s closing, but owner Bill Smith of the Smith Hospitality Group says the restaurant will simply close for dinner this summer, as is customary for many Valley restaurants. Smith, who owns several other cafes in the area, says the prognosis might not be so good for his Maria’s Mexican Grill at the nearby Collier Center.  “We’ve never been able to get the dinner business going,” Smith says.  In part he blames the Collier Center’s reluctance to allow him proper signage that would attract, for instance, riders on Metro Light Rail.  Now Maria’s is in limbo as Phoenix Mayor Phil Gordon is working with the company to try and save it.  “The mayor is very proactive downtown,” Smith says. [Note: To read the full article, click here.]

Scottsdale Council will weigh continued involvement with Discovery Triangle

[Source: Lynh Bui, Arizona Republic] — At Mayor Jim Lane’s request, the Scottsdale City Council is expected to consider Tuesday if the city should remain involved with the Discovery Triangle.   The Discovery Triangle Development Corporation is a partnership of developers, cities, and businesses aiming to create a regional urban center connecting downtown Phoenix, downtown Tempe, and Scottsdale.  “The mayor has heard from members of the council that it is now time to clarify the city of Scottsdale’s relationship with the Discovery Triangle Development Corporation, and to decide whether the city of Scottsdale will be a member at this time,” according to a memo from Lane’s chief of staff sent to the City Council.  “The mayor agrees that it is advisable now to remove ambiguity regarding the relationship.”

Plans have called for encouraging technology-, medical-, and science-related businesses within the triangle’s points, anchored at the Arizona State University campuses in Tempe and Phoenix and ASU SkySong in Scottsdale. [Note: To read the full article, click here.]

Viewpoint: Beyond chains and cheese (restaurant madness and what it means for downtown Phoenix)

Popularity of Matt's Big Breakfast fostered other local restaurant startups.

[Source: Life in Downtown Phoenix blog] — While the arts community was the first generation of pioneers to successfully lift downtown Phoenix out of its doldrums, the second wave of downtown resurgence came from the independent restaurants that gambled on the area.  By 2005, places like Matt’s Big Breakfast, Cibo, and Fate proved that independent restaurants with quality food could really have success downtown.

Imitation is the sincerest form of flattery, and 2009 is really proving that as the number of restaurants opening their doors all around the aforementioned downtown pioneers is staggering.  Already this year the Turf (formerly Turf Accountant), Pasta Bar, El Portal, and Sapna’s Cafe have opened.  By the end of the month Moira will bring sushi back to downtown for the first time in years, and sometime soon Luke’s of Chicago will start a branch on Seventh Street in a renovated historic building while a Mediterranean restaurant is set to appear on Roosevelt Street just east of Third Avenue.  Almost every one of those restaurants is within a half-mile radius of the original Matt’s/Fate duo that got things rolling.  Amidst all this Palette apparently closed — which is shocking for anyone like me who was part of the sometimes-90 minute wait on the weekends for brunch — but the rumor is that someone else wanted the location and that Pallette will resurface somewhere else in the area.

Assuming these businesses can survive the current economic conditions, they’ll be poised to really help downtown surge when the housing market finally turns around.  Downtown Phoenix probably already stood alone with Tempe’s Mill Avenue and Old Town Scottsdale as options for those who live in the Phoenix area and prefer walkable urban environments.  But aided in no small part by this restaurant boom, downtown has separated itself from the chains of Mill and the cheese of Scottsdale as probably the premiere locale for urbanists.  While downtown Phoenix is of course only beginning to catch up with even its western competitors in places like Denver and Portland, it has clearly established some positive momentum.  [Note: To read more of downtown_resident’s views, click here.]

Phoenix office leasing turns negative

Rendering of One Central Park East, downtown Phoenix

Rendering of One Central Park East, downtown Phoenix

[Source: Jan Buchholz, Phoenix Business Journal] — There is more office space than takers, according to CB Richard Ellis.  The company’s Phoenix office released its fourth-quarter statistics on office space with a footnote saying that for the first time in 28 years of tabulating such data, the metro area experienced “negative absorption.”  In other words, during the last three months of 2008 more office space came on the market than was leased out.  Currently there is about 600,000 square feet of additional vacant office space as compared to the end of 2007.  The lion’s share of the growing inventory is in Scottsdale and east Phoenix, according to CBRE.

The overall office vacancy rate across the Phoenix area is nearly 20%.  A vacancy rate of between 5 and 10% generally is considered a healthy state of equilibrium.  The 2008 vacancy numbers are up from 13.9 percent at the end of 2007.  Part of the negative absorption can be attributed to new office space delivered in 2008, about 7.3 million square feet.  Another 3.1 million was under construction at the end of the year, including CityScape and One Central Park East in downtown Phoenix.

Another sign of the times?  No projects broke ground during the past three months.  CBRE bases its office calculations on single and multi-tenant buildings larger than 10,000 square feet.  [Note: To read the full article, click here.]

Viewpoint: Will the Phoenix Coyotes become extinct?

[Source: Total Pro Sports, December 8, 2008] — With the economy headed for the second great depression, it seems only fitting that teams in the big four sports leagues (NBA, NHL, NFL, MLB) start filing for bankruptcy and suspend operations.  The NBA is already feeling this with arenas that are empty and ticket sales declining on a game to game basis.  Just take a look at the Memphis Grizzlies, Atlanta Hawks, and Sacramento Kings attendance decline.  The Phoenix Coyotes of the NHL are one of the teams headed for extinction, this year they are expected to lose anywhere from $25 to $35 million.  After seeing a slight increase in ticket sales in the beginning of the season the Coyotes have cooled down and ticket sales have dropped severely.

Two sources said [owner Jerry] Moyes is so eager to unload the Coyotes that he approached his former partner, Steve Ellman, about buying the team back wrote the Globe And Mail.  The Coyotes management has a different outlook on the economy and the future of the team.  “I am confident not only that hockey will be here in five years, but that we will be doing well in five years,” Coyotes governor and chief executive officer Jeff Shumway said, pointing to improved ticket and suite sales and fewer giveaways.  “We run a great franchise in a great sport, a sport we love.  And we’re in one of the fastest-growing markets in the U.S.”

Since 2001 the Phoenix Coyotes have lost more the $200 milliion, that’s $80 million more then the team was orginally purchased for.  What we still don’t understand is that day when the NHL commissioner decided to move the Winnipeg Jets to the Phoenix, Arizona area.  A city of Winnipeg that loves snow and ice to a city that averages 100+ degree weather.  Make sense?  Yes, the Jets were struggling in Winnipeg but we highly doubt they would be in such a financial crisis that the Coyotes are right now.

The problem with the Coyotes is that they play almost 25 minutes out of downtown Phoenix in Glendale, Arizona.  When you’re bringing a team into a new market, it’s best to situate the team in the downtown core.  Where big business can buy suites and season tickets for the business.  This would not end the financial crisis of the Coyotes, but it would eliminate some of the financial stress they are enduring right now.  The big-money guys, the corporate guys, don’t live in Glendale,” Paul Kelly (NHLPA Executive Director) said.  “If you live in Scottsdale, Glendale is not an easy place to get to.  That hurts them in the area like club seats and boxes.  You could see evidence of that the other night [at a Coyotes game].”

Reports now out of Phoenix is that they are seeking a loan from Citibank, but with all the banks problems in the United States it’s highly unlikely they will get approved.  So if anyone is interested Total Pro Sports is looking at putting together a group of investors to buy the Phoenix Coyotes.  We can probably buy them undervalued at about $85 million.  If anyone is interested please contact us…just kidding.  [Note: Updates: ESPN (12/23/08) and Globe and Mail (12/23/08).]

WABAC Machine: Ladies fashions in ’50s Valley of the Sun

Click on the photo to watch a 1950s “infomercial” on women’s fashion wear in the Valley of the Sun.