Building & Development: Reinvigorating Our Cities

by Kristian Seemeyer

CoverStory_0514During the boom, cities went wild and planned as if the growth stage would never end. One result was an overbuilding of retail on virtually every corner. This was fine when homes were occupied, but when the Valley went bust, retail space became a different story. This was a huge mistake, according to Barry Broome, president and CEO of the Greater Phoenix Economic Council, because during the recession, the cities were left with huge deficits. During the boom, he says, cities should have been focusing on infrastructure and a plan for after the boom. What goes up, must come down. Cities planned like the boom would never end. But cities are looking toward a brighter future by focusing their efforts on attracting new business.

Focal Hubs of Development East Valley

Each city has its own take on how to attract the most commerce. The so-called “tech zones,” where technology-related businesses are clustered, are attracting the most robust interest by far and each city has its own hot spot and reasons why that particular city should win the business. 

The City of Chandler relies heavily on the Price Road Corridor as a major business attractor. The Price Road Corridor is bordered by Ray Road to the north, Ocotillo to the south, Dobson to the east and McClintock to the west. It’s surrounded by high-end retail, and single- and multifamily housing. The origin of Price Road was high-tech — Microchip and Intel were among the first tenants. The original tenant roster was all high-tech. And this was before the 101 freeway and the Chandler mall — 15 to 20 years ago. The area remains a major tech hub, continuing to attract significant technology businesses — and it is only 50 percent built out.

Christine Mackay, economic development director for Chandler, speaks to the legacy of the Price Road Corridor and established demand. “Companies are coming to us looking for space and the demand is there. The vacancy rate at Price Road Corridor is below 5 percent. The infrastructure is there and we are ready to meet the demands. We are literally ready to go. We have companies that are shovel-ready,” she says.

Phoenix-Mesa Gateway Airport will play a huge role in attracting employers to Mesa. It totals 3,000 acres and is adjacent to three other cities: Queen Creek, Apache Junction and Gilbert. It currently houses 45 employers, including airlines, and there are 1,000 acres undeveloped. Future employers will include those in the aviation field, cargo, manufacturing and hotel industries. The economic impact of Phoenix-Mesa Gateway was $1.3 billion for 2013 and the area supports 10,470 jobs at the present time.

“We have 10 gates currently and we plan to add 40 to 60 with the addition of a new terminal,” says Jane Morris, executive director of the Phoenix-Mesa Gateway Airport Authority, though the timeline for this is unclear. But Morris does hope to double the number of businesses at the airport within the next ten years — a seemingly attainable goal considering in 2012 Phoenix-Mesa Gateway was the fastest-growing small hub airport in the country. It grew by 42 percent that year. Morris believes Phoenix-Mesa Gateway will eventually reach that next level of a medium-sized airport, though she believes it to be beyond the 10-year window. The airport is currently served by Allegiant Airlines and its 35 destinations.

All this growth takes thoughtful planning and a team of marketers. Morris says the airport holds a unique set of assets because the aviation field is a niche market — but, in spite of this, it still takes some effort to attract business. For this, the airport authority employs a team of consultants, brokers and other air service-related specialists to actively seek out business and promote Arizona as a tourist destination. The team works on three prongs of development within the airport: seeking out businesses for developing the 1,000 acres of real estate, hotels, office, restaurants and retail, for example; finding uses of the airfield for general aviation purposes such as maintenance and fueling; and commercial scheduled service, which ties into the tourism trade and which is seen as eventually bringing more airlines to the airport. Plans to build a Courtyard by Marriot just outside the airport’s entrance were recently announced. 

Public transportation will also play a large role in the airport’s future. “We are very sensitive to that,” says Morris, noting, “We are planning to allow for space for light rail for Tucson to Phoenix.” She adds, “We have huge potential. Right now, we fly to Vegas and Oakland, and those two destinations can connect you to the world.”

With much of its plans slated to come to fruition over the next decade and more, the airport is already impacting growth in its environs. DMB Associates, one of the region’s premier housing developers, has a major project in the adjacent Eastmark development, which in turn has attracted Grand Canyon University to invest a few hundred million dollars to develop a campus there. Says Karrin Taylor, executive vice president of DMB, “They saw it as a sub-city where people can bike and walk to school and work, and that was a huge appeal.”

While much of Phoenix-Mesa Gateway’s impact is in plans for the future, the City of Mesa has already seen some reinvigorated areas. Since Mesa Arts Center opened, and in anticipation of light rail, the Main Street area has become a bustling district filled with restaurants, cafes, shops and art galleries.

Tempe office and mixed-use started showing up a couple of years after Tempe Town Lake opened in 2001. There was a huge spike last year with the Marina Heights Project for the State Farm headquarters. “Without Town Lake, none of the buildings would have been erected,” says Chris Messer, of the City of Tempe Planning Department. “Businesses surrounding Tempe Town Lake have earned more than $800 million since the lake opened. Approximately 5,000 people have jobs in Tempe because corporate and local businesses want to have a Town Lake location. Many Tempe assets play into business attraction; without the sense of place it would be difficult. Tempe enjoys approximately 2.6 million visitors each year. This is extremely attractive for businesses wanting to locate here.” Roughly 61 acres of developable vacant land remain around Town Lake.

Tempe is and has been focused on the tech industry. Fostering the high-tech research and manufacturing industries, Tempe is invested in a number of projects, including, but not limited to, ASU Research Park (50 acres of developable land), Discovery Business Campus (1.6 million acres of new development/136-acre site) and Apache Loop 101 Park & Ride (14 acres of redevelopment opportunity).

Focal Hubs of Development West Valley

Michelle Rider, president and chief operating officer of WESTMARC, foresees a bright future for commerce in the West Valley. WESTMARC (the Western Maricopa Coalition, comprised of 13 separate west-side communities) is a public-private partnership dedicated to promoting commerce and quality of life in the West Valley. It is estimated that 68 percent of all Valley growth in the next 10 years will take place on the west side. She sees the west side as a hub for industrial and commercial, and, eventually retail. “We’re doing things to attract those companies with the higher-wage jobs,” says Rider. “After that, the rooftops come, and then more retail.”

A portion of the West Valley belongs to the Great Maricopa Foreign Trade Zone. Created in 2011, its intent is to reduce taxes, thereby creating incentives for business to locate in the zone. “It’s a tool to attract commerce, to attract those high-tech, high-wage jobs,” Rider says. “And we are so regional on the west side,” she adds, emphasizing the scope of the organization’s efforts. “We work in partnership with the whole Valley, but we are so regional and, as a trade zone, we have the transportation with the rail, I-10, I-17, the 101 and now the 303.”

And, indeed, the 303 already has a good mix of industrial and retail, with Sub-Zero one of the largest job holders, along with Dick’s Sporting Goods, and auto manufacturing to the north. A major housing development, Vistancia, is also north on the 303.

“The 303 is scheduled for completion on or before schedule and it’s a great opportunity for business. It’s also a great help for workforce travel,” Rider says. Noting there is a myth that there is no work force in the West Valley, she observes, “The truth is, we’re exporting a lot of our work force to Central Phoenix. If you’ve ever been on I-17 in the morning, you know those cars are going somewhere. We need the job centers, we need the housing, and more retail will follow.”

The West Valley does have some old infrastructure that needs addressing, according to Rider. “But I think that’s been an issue for the whole state,” she says. “We need a tool to be proactive without extra taxation.”

Jeanine Jerkovic, economic development administrator of business attraction with the City of Glendale, says the city resisted building homes in the 101 corridor. “We knew we did not want that to be a bedroom community; retail was always a goal for the stadium district. Malls were big 10 years ago, but not so with the economic downturn.”

While some retail areas were able to hold steady during the recession, others under construction reached a standstill. Arrowhead Mall on the west side has been a consistent performer in the market, but the building of two other malls, Prasada and Estrella, have been put on hold. What has helped change the face of Glendale’s Sports and Entertainment District, however, was the addition of Tanger Outlets, on the west side of Westgate, and Cabela’s.

This success is due to a change in diet, says Brian Friedman, Glendale’s executive director of community and economic development. “The end users are seeing the value. People don’t want to commute; we are closer to the work force.” And, adds Jerkovic, Tanger purposely does not house a lot of eateries. Instead, walkways have been added connecting Tanger with Westgate, as has vehicular transport to link the two destinations, making it easier for consumers to have an all-in-one experience. Westgate has recently added five new eateries.

The west side has a variety of communities, all connected by main freeways to support housing. Avondale, Goodyear, Buckeye and Surprise all have room for growth, so as industry comes, housing won’t be as much of an issue as on the east side of the Valley.

A Town Reinvented

One Valley municipality is not only planning for growth but is changing its very profile to accomplish it. Gary Neiss, town administrator for the Town of Carefree, says there has been a dramatic shift in the past 20 to 30 years. “We used to be a village in a sea of desert,” Neiss says. “We were once a very eclectic tourist town and we relied heavily on that tourism.”

But as urban sprawl set in and the desert became eroded by homes, Neiss says, tourist traffic dwindled. Now the town must look to its own residents for its bread and butter. There are 50,000 people within 15 minutes of downtown Carefree and the town must now rely on those residents for sustainability. And Carefree does still have land platted for residential use, according to Neiss. Fifty-two homes and 24 townhomes are currently under construction.

Carefree has also hired a third party to market the town in order to attract retailers and people in the primary market as patrons. They are finding ways to make existing retail spaces more marketable. “We want to assist property owners to attract better tenants,” says Neiss.

The town has also invested heavily in its center, comprised of an amphitheatre, which plays host to at least nine festivals per year, and surrounding galleries and restaurants. The arts have always played a big role in Carefree’s history, and the town is now in talks with the Phoenix Art Museum and Butte Development for a $90-million mixed-use project near Cave Creek and Tom Darlington roads. The project includes 80 ultra-luxurious, amenity-stocked condos and approximately 50,000 square feet of retail and commercial space.

Butte is working closely with the Phoenix Art Museum and the Town of Carefree to consider a 10,000-square-foot satellite museum at the project. Current discussions include an exhibit schedule that rotates seven times per year and a 1,500-square-foot multipurpose community center. It’s a move Neiss thinks would go a long way toward revitalizing Carefree’s economy and tourism market.

Return of Retail, Growth of Housing

Despite the recession, nearly every city has seen a revival in its Main Street areas. In some areas, light rail contributed to this, though much of the light rail construction happened during the recession. Independent shop owners played a big role. But consumers seemed to have a diet for meandering the streets, listening to music, seeing artwork and dining out — while staying in one area. Many Main Streets featured monthly art walks, like the Downtown Phoenix First Friday, where vendors and artists and food trucks gather and shops and restaurants have extended hours. Chandler, Mesa and Gilbert have their own versions. These art walks have been so successful creating exposure for independent business, cities are finding ways to create more of this festival-like atmosphere on more than a monthly basis. The continuation of these city celebrations can play an important role in supporting the economic vitality of Main Streets, the arts and surrounding restaurants and shops.

Valley-wide, retail is an important element in an invigorated economy. Closely allied with retail is housing — in fact, the state of the housing market is often used as an indicator of the overall economy.

The housing boom of the early part of this century spawned a mentality for a need for a retail center on every corner. Now, retail vacancies are high and cities are struggling to find other uses for these centers. They are being more flexible with zoning and use. E-commerce is contributing to retail vacancy, but not as much as overbuilding. Where there may have been a K-Mart, there may now be a church or a school. There is even a trend to put multifamily housing on some of these retail corners.

John Wesley, in the City of Mesa Planning Division, says the city is currently experiencing a high retail vacancy rate because of overbuilding during the housing boom. In order to correct that, he says, Mesa is trying to allow for more flexibility in some of those overbuilt areas. “We need to bring things back into balance,” he says. “In some of those areas we want to allow for multifamily housing and office space.”

Jeff Kurtz, planning administrator for the City of Chandler, says his city experienced much of the same. “We saw too much overzoning for commercial retail, as well as overbuilding,” he says. “And part of that high vacancy rate in the retail sector is due to e-commerce. But we have some corners that just aren’t going to support retail and so we need to have a mentality shift. There is a multifamily trend coming out of the recession — to put apartments or condos on some of those larger retail corners.”

According to Messer, Tempe was a little better than the average for the Valley with regard to overall retail vacancy rates through the peak of the recession. In 2013, Tempe’s retail vacancy rate was around 7.5 percent while the Valley, on average, was at about 10.7 percent. “Our absorption rate is very strong,” says Messer. “Our Economic Development team is focused on filling vacant space. With regard to housing, we are very fortunate to have ASU in our city. They do a lot to keep our housing stock strong.”

Phoenix’s downtown area did not see the problem to a great degree. To the contrary, infill projects were taking place even during the recession, according to Jeremy Legg with the City of Phoenix Planning Department.

Downtown Phoenix is known for its funky neighborhoods where one might find an art gallery next to a beer garden with a coffee shop on the other side and a Jamaican restaurant around the corner. Legg first gives credit to all the hard-working entrepreneurs who put in 80-hour weeks to run their businesses. He also believes these businesses have a creative base of 10,000 ASU students to draw business from. As for the city, he says the government tries to stay out of the way and make it easier for those eclectic neighborhoods to happen. This also makes it easier to address infill. By making the regulatory burden smaller and implementing new zoning for mixed use, it fosters infill and allows and encourages these projects. 

The import of jobs in Mesa will spawn a major dilemma for its housing market, an area where multifamily on vacant retail corners makes sense. But Mesa will need single-family housing as well and does have some land slated for that usage. And Mesa will need more housing. It has recently attracted some major employers, such as Apple, and Phoenix-Mesa Gateway Airport is becoming a major employment center. recently named Mesa the ninth-best city in America for job seekers. “We expect a population growth of 170,000 over the next 30 years,” says Wesley. “And we are trying to attract those big employers, so we are going to have to be planning for housing — multifamily and single family.”

Eastmark developer DMB is one company aiming to answer this convergence of need, having come out of the recession with a new focus on becoming part of a sustainable economy and diversifying, according to Taylor. DMB began to work more closely with local chambers of commerce, GPEC and the legislature on policy issues on how to attract business — because industry, of course, means workers, and workers need housing. Working with site consultants, the company has begun developing a regional sales pitch — not just for its communities, but for Phoenix and Arizona on the whole.

A Lesson Learned

Broome says some original city plans will never happen and the biggest lesson tied to that is the fact that the type of ongoing growth and prosperity experienced during the boom is just not possible. “We’ve got cities where the housing is all out of balance; areas of blended commercial, industrial, office — it’s hard to reuse that space,” Broome says. “A 2.4-percent GDP is better to plan from than a 4-percent model. You just don’t start modeling your plans after that type of growth. In an upmarket, you build infrastructure, making the future more affordable for taxpayers.”

When the market boomed, many cities didn’t plan for the fall. And when the bottom fell out, large deficits, a glut of retail space and an imbalance in housing remained. The bust was a hard lesson to learn from, but the activity now indicates most cities have learned a lesson when planning for the future. 

By attracting business, growth will happen in the Valley — it has, in fact, already begun. As the employment sector recovers, so will the housing market, and retail will follow. If cities continue in their efforts toward a business-friendly climate and measured residential and retail growth, the Valley’s reinvigorated cities may be better prepared in the event of another fall.

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