RealShare EXCLUSIVE: Supply-Demand Balance Holds Key to Continued Boom

PHOENIX-Brokers, lenders, developers and other real estate professionals turned out to discuss and weigh in on the area’s booming commercial real estate market at RealShare Phoenix 2006. Driven by a rising population and soaring job market, the commercial real estate sector is riding an all-time high, but maintaining a delicate balance of supply and demand is crucial for continued prosperity.While balance was the overall theme of the first-ever RealShare Phoenix conference, held yesterday at the Camelback Inn, residential development, construction costs, oil prices and a softening condo market were among the topics covered for the audience of more than 300 real estate professionals. The conference and networking event is part of the RealShare conference series, which is part of New York-based Real Estate Media, publisher of Real Estate Forum and GlobeSt.com.The meeting kicked off with comments from keynote speaker Jim Pederson, owner of retail development company the Pederson Group Inc. and Democratic candidate for the US Senate. Pederson pointed out that the retail sector has seen an incredible amount of activity due largely to the Valley’s residential boom.He noted, however, as did several other panelists, that discount retailer Wal-Mart plays a large role when deciding upon the location of his sites. “If you have a Wal-Mart within two miles of your shopping center, you need to learn to adapt,” he said.Other highlights from the conference included a rapid-fire debate entitled “PTI: Economist Showdown,” between Dr. Jay Butler, director of Arizona State University’s real estate center and economist Elliot D. Pollack, president of Elliot D. Pollack and Co. Both professionals agreed that Phoenix’s condo market does not appear deep enough to sustain the amount of current development activity. Butler pointed out that in today’s market the first 50 or 60 units sell quickly, while the remaining units are typically left empty.A town hall meeting-style panel entitled “Hotter than Hot—Present & Future Opportunities in the Booming Phoenix Area Market” discussed escalating land prices—which at more than double the rate than a few years ago—has been the biggest change the Valley has seen. Jeffery Teetsel, VP of Fremont Investment and Loan said that rising construction costs combined with the price of gas hitting $3 a gallon “makes it harder to get deals done.”That said, the panelists concluded that rents will continue to escalate, development will continue, and despite a condo market that is showing signs of sluggishness, all sectors are expected to keep up at their current pace for the year ahead. Clearly underwritten deals combined with prudent lending and development will help to alleviate any softening the market may see in the future, opined Teetsel.The town hall meeting was followed by a one-on-one interview with Ron Barness, chairman of Barness Papas Investments LLC. Hosted by Michael G. Desiato, group managing director and editor-in-chief of Real Estate Media, the presentation, “Inside the Real Estate Mind,” took an in-depth look at Barness’ success in commercial real estate. A part owner of the Arizona Diamondbacks, Barness’ first love was baseball. He discovered commercial real estate while giving private baseball lessons and moved to Arizona to start his own retail-based commercial real estate business with partner Alex Papas.Barness told the audience that he enjoys the creativity that goes into the job, saying, “We have the opportunity to shape and modify places the way we think they ought to be.” He said that he would like to see Downtown Phoenix become the “crown jewel” of the city.A breakout session entitled ‘Industrial Strength: The Dynamic Forces Driving the Phoenix-area Industrial Market,’ focused on out of state users and small business owners seeking the office condo, which are the biggest market drivers. Patrick Gallagher, SVP of the Alter Group, said that the biggest challenge in Phoenix’s industrial market is ensuring that rents cover rising construction costs. “There is a leap of faith component to development,” Gallagher noted.Another breakout session covered the retail explosion, also driven by extensive residential activity. While retailers are keen to set up shop in the Phoenix metro area, many are wary to venture to undeveloped sites for future development.More important than sprawling out in search of space is concentrating on urban infill, noted Michael Pollack, CEO of Michael A. Pollack Real Estate Investments. Such projects are often forgotten in areas such as Phoenix where available land is not an issue. “We are going to see more mixed-use developments in the future,” said Pollack. “Gas prices and long commutes mean people will be looking to be closer to work.”