By Roland Murphy for AZBEX
If you are an AZBEX Digital magazine subscriber (and if you’re not, you should be), you’ll see “Volume 13, Issue 51” in the top right corner of this issue.
That means this is the first issue of the second half of our 13th publication year. While it’s undeniably an exercise in vanity to look back at our own work over the last six months/50 issues, we think it’s also as useful period as any to stop and take a temperature reading of the Arizona A/E/C market.
If you’re anything like me, you suffered through the brain-numbing math portions of your chemistry and physics classes because that was the price you had to pay for being able to do the lab work. Like a lot of students, the part that made science classes interesting was when things changed. The tedium of plotting out and balancing the equations that tell what happened when you tossed that little ball of sodium into that bowl of water was made worth it by the eruption of the exothermic sparks flying all over the lab table.
Going through the roughly 100 original articles we’ve produced so far this publication year (while blessedly overlooking the 500+ outside articles we’ve aggregated) is, we think, a good way to take stock of where Arizona A/E/C stands and, just maybe, get a feel for where it’s going.
Number 5: Labor, Materials and Cost Inflation. Oh My!
I’d be willing to bet there hasn’t been a single issue in the last six months that hasn’t had multiple references to these issues. They have eaten up billions of dollars in cost increases for projects in every market category and untold thousands of staff hours for estimators, engineers, city planners, fulfillment staff and work crews. While lumber may be taking a swing toward price moderation and oil has been inching downward, materials from concrete to steel to stucco to paint are in what’s becoming an apparently never-ending whack-a-mole game of, “Can we get it?” “Did we get it? and “How much does it cost today?”
Not coincidentally, these issues almost provide a bookend for the six months we’re looking at in this column. Back on Feb. 15 – our first issue of the current publishing year – I did a story on how labor and materials issues were impacting municipal revenue projections, particularly in the area of flat construction tax revenues. (AZBEX; Feb. 15)
Our June BEX Leading Market Series event had both bird’s eye and ground-level views of the current state of affairs, with both horror stories about lead times and upwardly advancing cost increases and expressions of guarded optimism from four industry leaders. (AZBEX, June 10)
Then, just a few weeks ago, we brought you a review and analysis of how inflation resulting from the general state of the national economy and exacerbated by the labor and supply chain issues suffered in A/E/C is spiking Capital Improvement Project costs. (AZBEX, July 19)
A reader might think we’re as tired of reporting on this disheartening trend as they are of experiencing in their daily work lives. That reader would be at least partially right. Unless and until things start to break better, though, you can expect to see a lot more coverage of these inter-related issues. As we all heard all too often in the early days of the pandemic, “We’re all in this together.”
Number 4: A Break for Peoria
Like Pinal County before Lucid Motors and the Fiesta District in Mesa seemingly in perpetuity, the “historic” sections of Peoria seemed cursed as areas where grand plans go to die.
The City fought for years to have a vacant and dilapidated former Smitty’s grocery store center near Grand and 85th avenues torn down. After it finally succeeded, a mixed-use proposal called Grand Commons was introduced. When developer SJ Acquisitions’ market research showed little chance of success for a mixed-use project, it amended its rezoning and general plan amendment requests to multifamily only, which the Peoria City Council ultimately rejected last November, hoping against hope for some commercial component to generate tax revenue. The area has continued to languish.
Peoria also had an agreement with developer Vintage Partners to revitalize and rejuvenate portions of the Old Town area near 84th Avenue and Washington Street into a walkable, trendy and attractive zone that would promote redevelopment. Vintage Partners walked away, and the City’s new RFP for a development partner will remain open until this November.
Hopefully breaking the failure cycle, a new plan came to light in April that will inject new life into Peoria Place if it comes to pass. A previous plan from 2017 that instituted entitlements for a “Medically Centered Development” failed to launch. That seven-segment plan called for a new town center and mixed-use commercial area, high-density residential, a business center, a medical center and other complementary developments. The only thing to actually come out of it was a 127.5KSF Valleywise Comprehensive Health Center.
In April, however, AZBEX was the first to report on a potentially game changing new opportunity. Greystar – ranked by the National Multifamily Housing Council as the nation’s largest multifamily developer – filed preliminary plans and had a pre-application meeting with Peoria in which it stated its intent to invest $500M in Peoria Place to develop the area in seven segments, including high-density traditional apartments, Build-to-Rent and light industrial components. (AZBEX, April 15)
The plan as of April was to begin construction of the first portion in September. As of Aug. 11, Greystar has filed various PAD amendments and other documentation. No revised construction timeline information has been provided.
Number Three: Centerline Affordable Housing
While this story was a big deal all on its own, it was an even bigger deal in terms of what it represented – the crisis state of affordable and workforce affordable housing in Arizona. Like materials costs and availability, inflation and the construction labor shortage, it’s a rare edition that doesn’t have at least one mention of affordable/attainable/workforce housing.
Back in April, we reported on a proposal by Gorman & Company, Inc. to build 368 units of affordable housing in Glendale in a development known as Centerline on Glendale. We also took the opportunity to produce a snapshot of the numbers for affordable development proposals around the state. (AZBEX, April 5)
While it may be considered gauche to quote oneself, I really can’t state the issue any better today than we did four months ago: “A look at the DATABEX project database shows a total of 44 projects referencing affordable housing. These are not distinguished between projects that are designated/dedicated as income-restricted and those where affordability, particularly workforce affordability, is merely a stated goal of the developer.
“The 44 multifamily projects found under a keyword search of “affordable” comprise a total of 6,179 units. Of those, a deeper, per-project description examination shows 3,991 units specifically targeting an affordable unit goal.
While the list is not exhaustive or complete for the state by any means (Many projects are too small to make the $5M DATABEX cutoff; some have not yet gone far enough into the planning process to have unit counts available, etc.) it is, nonetheless, sobering to see that the total volume of units in which the word “affordable” is included in the project description since 2016 totals fewer than 56% of the unit volume delivered last year.”
Number Two: Greenbelt 88 Finally Wins Approval
This one was technically in the last issue of the Volume 12 publication year, but it was so iconic we had to fudge the parameters just a little.
In a sane world, the Greenbelt 88/Lucky Plaza revitalization would have been a two article – proposal followed by approval – and done development. Instead, it turned into an iconic catchall for all the worst aspects of the NIMBY (Not In My Backyard)/BANANA (Build Absolutely Nothing Anywhere Near Anyone)/CAVE (Citizens Against Virtually Everything) syndrome plaguing all forms of development around Arizona, and particularly in Scottsdale.
Greenbelt 88 could and should have been a simple approval. It’s a dying retail strip on a declining corner with infrastructure that’s overbuilt for neighborhood volumes. Its major tenants are two big box stores that will almost certainly close before their leases expire and an Italian restaurant started by Gambino family hitman and underboss Sammy “The Bull” Gravano.
The site’s longtime owner saw a way to increase his revenues and revitalize a declining corner in a declining area of Scottsdale, where industrial and low-value commercial has been steadily marching northward ever since Tempe started going upscale immediately south of the 202. He proposed a simple, straightforward 388-unit multifamily development.
Nearby residents came out against the plan in the initial neighborhood meetings, saying it was too large and too disruptive, and they may have been right, given the largely single-family character of the neighborhood. The developer and design team took that input and revised the plan to include fewer units and to add back in a boutique commercial and retail component that was more balanced and that could have breezed through approvals not long ago.
Unfortunately, while all this was going on, the NIMBY beast had been awakened. Following the uproar over a major redevelopment project in Old Town, the previous pro-development mayor and City Council were replaced by far less development-friendly members. Impassioned resident groups dedicated to “safeguarding” Scottsdale were formed and brought virulent opposition to any multifamily proposal of significant density.
More as a function of timing than similarity, Greenbelt 88 got lumped in with two other, more problematic developments as a targeted focal point for this opposition – which featured willful dis- and mis-information about crime, infrastructure impacts and “developer greed.” Combined with that was a nostalgia-fueled series of sentimental appeals to preserve Scottsdale’s “special character,” a quaint, single-family suburban self-image held by some segments of the population that has not been grounded in reality for decades.
Over the course of a contentious battle lasting more than two years, the owner and designers made numerous revisions, finally whittling the unit count to 238 with a 29KSF commercial component. Even that proved too dense for opponents on the Council, and another last-minute revision – made from the dais by Councilmember Betty Janik – cut the count to 228 along with other minor changes before the request was finally approved on a split vote. (AZBEX, Feb. 11)
Unfortunately for the Arizona A/E/C community, housing supply, new and long-term residents and the state economy, the saga and ordeal of Greenbelt 88 is becoming more and more normalized, and it is in no way limited to Scottsdale. Development opposition and the resulting lengthening of entitlement timelines are adding challenges to all types of development all over the state.
These impacts are butting up directly against the astounding success the state’s various economic development bodies have achieved. Arizona is a leader in in-migration from other states, in new job development, in new advanced manufacturing and other highly desirable categories.
Unfortunately for residents, the state has also become a leader in affordability erosion, rent growth and unit occupancy, with all submarkets seeing occupancy greater than 96% and some hitting as high as 98%, numbers that were considered to literally be physically impossible as recently as three years ago.
As a quick perspective check, Independent Newsmedia recently ran an article questioning one multifamily development in Goodyear that’s being billed as “attainable.” Projected rents will run from $1,374/month for a 468SF studio up to $1,804 for an 828SF two-bedroom. “Attainable for whom?” has become a legitimate question in this market.
Number One: On and Off at LGES
The LG Energy Solution cylindrical battery manufacturing plant was the biggest announcement of the year so far, and it’s a perfect encapsulation of a host of circumstances currently on the minds of nearly everyone in Arizona A/E/C: Booming industrial, the rise of Arizona as an advanced manufacturing powerhouse, technology evolution, municipal evolution, infrastructure, economic development and more.
It’s also a particular point of pride for us at BEX Companies. Our success as an organization depends on the value we deliver to our subscribers – which is determined by timeliness and accuracy of the data we produce here in the AZBEX Digital Magazine and in the DATABEX Project Database.
We’re a small company with three distinct service lines. As such, it’s essential that our three divisions interoperate as close to seamlessly as possible.
AZBEX was the first news outlet in the world to report LGES planned to come to Queen Creek. That didn’t happen because of a lucky break. As part of its ongoing and relentless scouring of municipal agendas and project status sites, DATABEX Research staff saw the development agreement between LGES, Pinal County and the Town of Queen Creek on the Town Council agenda and sent me a message to the effect of, “You might want to take a look at this!”
As a result, we scrapped the front page we had planned and spent two days reviewing the plan, writing the story and trying to get some kind of comment from LG, Queen Creek or Pinal County. Let it be noted here none of those three could have been particularly happy with a nosy reporter getting ahead of their carefully planned timelines for approvals and announcements, but those we did end up speaking with were, at the very least, gracious in their understandably constrained responses. (AZBEX, March 18)
As a reporter, one of the most gratifying results of getting a hard-won scoop is having your story picked up by other outlets, and it didn’t take long for our LG story to go global. When you’re a small publication covering a specific industry in one market, that’s the equivalent of a broadcast network breaking into prime time and saying, “We interrupt this program for a breaking news special report.”
Unfortunately, that same inter-cooperation between Research and Editorial also led us to a story we absolutely did not want to break. The week of June 20, as part of their due diligence project follow-up, Research was told by two different contractors on the LGES development that the project had been put on hold. They told me and we dutifully reported the story, once again to the probable chagrin of local and county officials who were extremely cautious in their solicited comments. (AZBEX, June 24)
What followed was every reporter’s second-greatest dread: Absolutely no one picked up the story. Usually when something that big breaks, other outlets will at least cautiously say, “Unconfirmed reports say…”
Nope. There was radio silence across the board from local, national and global outlets for far longer than was comfortable. The reason was perfectly understandable: We had exclusive sources in the contractor community other outlets couldn’t reach, and there was no other documentation, paper trail or official statement anywhere else for another outlet to latch onto. Still, while we were 100% confident in the validity of our information and reporting, it was a lonely and disquieting several days. When you know you’re right but there’s nothing but the sound of crickets in the rest of the community, you start to worry a little bit about the Curse of Kassandra.
Finally, on June 29 Korea Bizwire reported LGES was “thoroughly reassessing the timing, scale and details of the investment, due to a sharp increase in investment costs stemming from the deteriorating business environment,” specifically problems with the South Korean currency on the international market, rising inflation and increasing development costs.
A follow-up article in the Queen Creek Tribune cited our original coverage and provided additional detail to the Bizwire report. We were finally able to put together a complete follow-up in the July 8 issue, much to our relief. Even when you know your information is rock solid, it’s a comfort to see major developments picked up elsewhere. (AZBEX, July 8)
Closing Thoughts and Shameless Promotion
Obviously, there are at least a dozen other stories that would also have been appropriate for this list. We could have talked much more about federal programs and policy – both visionary and foolish. We could have compiled who knows how many local and national pieces on multifamily/Build-to-Rent/rent increases/“Is it a bubble or not?” We could have compared industrial projects in the East Valley/Pinal versus the West Valley.
We could have done all that, and if you’re a regular reader, you know we already have, at least in the aggregate.
The goal, however, wasn’t to bullet list all the topics we’ve covered. In going down this long and winding retrospective, we wanted to give you a bit of the forest, since the entire industry is dealing with so many individual trees on any given day.
We also wanted to give you a little peek behind the AZBEX curtain. We produce 100 issues and plus-or-minus 150 original articles, features and columns every year, in addition to assembling more than 1,000 summaries of articles from dozens of other news outlets around the state, country and world.
Some back of the napkin math puts the estimate at a little more than 40 staff hours required to put together each issue, 100 times a year. Luckily, we all like each other and love what we do.
We also love keeping the lights on and the pantry stocked, and it’s our subscribers who make that possible. So, from the bottom of our collective heart, thank you.
While the general public sees about half of the editorial content we make freely available on the azbex.com website, it’s our subscribers who are our focus and who get the most benefit from all our efforts. In addition to sections and information that don’t run online, there are sometimes original pieces that, for whatever reason, remain exclusive to the magazine.
Just two quick examples are a somewhat hot-tempered editorial I wrote early on in the final phases of the Greenbelt 88 saga detailing the differences between a good proposal and a bad one that only ran in the magazine. Another involves a disclosure from a senior official involved with the biggest project in the state about future plans for their site. A full 20 hours of research and reporting went into that feature, but in the interests of maintaining congenial relations with the company, we pulled the story from the website the same day it first ran. Subscribers who still have their copies of the May 17 issue know what I’m talking about. Online readers will have to keep guessing.