DE RITO'S VISION AND WORK ETHIC HAVE DRIVEN THE COMPANY TO IT'S TOP RANKING AND BEYOND
February 05, 2008
COMMERCIAL EXECUTIVE MAGAZINE
February 2008
De Rito Partners, Inc. has become a leader in retail real estate brokerage and development during its 15 years in Greater Metro Phoenix, yet the company retains an energy that gives the impression of a vigorous, youthful start up. Founded by Marty De Rito, an industry veteran with 20 years experience, the company's office in Phoenix currently employs more than 30 brokers and 50 employees. With services in land aquisition, tenant representation, project leasing and investment sales, De Rito Partner's closed 430 transactions in 2006 and over 600 in 2007.
It's the multimillion dollar question facing the Valley's commercial real-estate industry:
How badly will the housing market's crash and subsequent subprime-mortgage crisis hurt commercial development in 2008?
The answer, according to two Valley organizations that addressed the issue this past week, depends on which sector and geographic submarket you're talking about.
By Don Sheckell
President / Managing Principal
De Rito Partners, Inc.
For more than 30 years, Arizona has successfully sold a product whose return-on-investment is now paying untold dividends. And it isn't copper, citrus, cotton or cattle.
The product has been -- and remains -- a message of growth and of limitless opportunity: a true story that tens of thousands of people have been buying each year.
Whether the cycle started with the chicken or the egg makes little difference. Many believe the foremost catalyst that jump-started the area's growth was the rapid influx of retirees drawn here by the warm, shovel-free climate during the 1960's and early 1970's. Their needs for housing, retail goods and the full array of services spurred an upward spiral in job growth which, in turn, translated into a demand for even more housing, more goods and more services.
Business executives' exposure to the Phoenix area through vacations, conventions and conferences yielded even further in-migration, jobs, housing, etc.
Thirty-plus years later, Arizona ranks as the fastest growing state in the country, with the Phoenix area absorbing the vast majority of that growth. Employment grew by 5.5% in 2006, and although this rate is projected to drop to about 4.4% this year, the figures compare with national employment increases of only 1.4 and 1.1% for 2006 and 2007.
Obviously, the slowdown in the local housing industry is contributing to the projected reduction in job growth. Yet housing starts, like state versus national employment growth figures, are relative. Indeed, new housing permits in metropolitan Phoenix dropped from 63,570 in 2005 to 42,460 in 2006 (33%), and were down an additional 22% through May of this year. Year-to-date, however, the Phoenix area ranked third among all metropolitan areas of the country in new housing permits despite having one of the most dramatic increases in housing costs in the nation.
While headlines seem to focus on the empty portion of every demographic glass, virtually all statistics point to overall strength in the retail sector. Population and job growth remains strong, with or without any national comparisons. Although new housing starts have not continued at the record levels of 2004 and 2005, apartment and other rental property occupancy levels remain high. Retail sales are up in recent months. And foremost, retail development is virtually exploding in almost every sector of the Phoenix area.
Nearly 10 million SF of new retail space was under construction in the Valley at the beginning of this year. This was in addition to 128.8 million sq. ft. of existing space in 948 retail centers as of December 2006.
Projections call for as many as 35 million additional SF of retail space to be developed within the next 5 to 10 years. Admittedly, some of this projected development will be contingent on continued policies of cities throughout the Valley to extend tax and/or fees' concessions. The most recent precedent is the City of Phoenix providing $100 million in sales tax rebates for the Thomas J. Klutznick Company's CityNorth development.
North Scottsdale alone will soon have 4+ million SF of additional retail space with the completion of CityNorth, Palisene, One Scottsdale and Scottsdale Crossing. In the southeast Valley, SanTan Village and Gilbert Esplanade join with Crossroads Town Center in the booming Loop 202 South corridor. Further south, retail space throughout northern Pinal County is being developed at a record pace.
At opposite corners of the Valley, Lake Pleasant Towne Center and Lake Pleasant Pavilions will combine to add another 1.032 million SF, while the At Home District (450,000 SF of retail, boutiques and restaurants) will launch what City of Goodyear officials project as fully 5 million sq. ft. of coming retail development in their city alone. Other projects include Estrella Falls, Canyon Trails Towne Center, Parkway Village and Wigwam Commons.
Gateway City Center (510,000 SF in phase one alone) promises to be a cornerstone of major retail and mixed-use development in the west Valley along with sundry projects envisioned along the Loop 303 corridor in years to come.
Population growth and the resultant demand for retail space are not limited to newer rooftop areas of the Valley. Mesa Riverview and Tempe Marketplace located along the Red Mountain 202 corridor combine for more than 2.5 million SF of retail in an area now considered to be in a relatively central Valley location.
In addition to these headline-grabbing cores of development, however, several small retail centers in in-fill locations is slowly adding a significant amount of square footage. Many of these are along the light rail system corridor as either free-standing centers or part of mixed-use developments.
Ethnicity is also a factor behind much of the current development, especially in in-fill locations, as retailers respond to the buying power of Hispanic consumers who now represent over 30% of the population in metropolitan Phoenix. Fry's Food & Drugs, for example, opened its first "Fry's Mercado" supermarket that primarily caters to Hispanic shoppers during the past year, while Ranch Markets is aggressively expanding its operations to attract the same audience. Expect to see even greater development of Hispanic-themed centers in the years ahead.
In addition to the array of new projects under construction and in the planning stages, retail re-development is also going strong. Owners of existing centers are repositioning themselves to compete with new projects. Prime examples include major re-development of Fiesta Mall and MetroCenter.
The message of growth that brought most of us here is even truer today than it was 30 or more years ago. Short of a severe national economic downturn, there is every reason to believe it will continue.
Don Sheckell is President / Managing Principal of De Rito Partners, Inc., the largest retail real estate brokerage firm in Arizona. He may be reached at (480) 834-8500 or via e-mail at don.sheckell@derito.com. Please visit De Rito's website: www.derito.com.
Donald Sheckell of De Rito Partners says growth, immigration, suburban expansion and retail consolidation benefit large and small retailers
Just as the answer to "How long is a minute?" depends on which side of the bathroom door you are on, the projected strength of the retail industry in 2007 may wholly rely on where you are located.
Throughout most of the country, the outlook is one of cautious optimism.
In the Phoenix area, virtually all economic components point to a strongly optimistic forecast.
We enter 2007 on the heels of five consecutive years of economic expansion: the third longest upturn on record. Interest rates have steadied, stock averages have registered historic gains, and the latest reported retail sales figures (November) showed an encouraging increase. Each factor suggests continuation of one of the most remarkable periods of economic stability in our nation's history, thanks to the monetary policies of Federal Reserve.
The lone potentially major uncertainty appears to be the duration and overall impact of the recent softening in the housing industry.
While the Phoenix area is not immune to national economic trends, there is every indication 2007 will be a robust year to local retailers. Arizona now ranks first or second in most measurements of population and job growth -- the key factors that drive the retail industry. Unemployment remains low despite increasing levels of immigration. And although housing sales in metropolitan Phoenix have slowed, we expect current vacancy rates to further decline as the market continues to tighten.
Specific to the retail industry, tenant activity remains strong, especially in areas of new residential development and where the expanding freeway system continues to change shopping patterns.
New retail 'hot spots' - including Queen Creek, Johnson Ranch, Maricopa, Surprise and cities throughout northern Pinal County - are broadening the Valley's traditional retail boundaries. Despite this growth, vacancy in the metropolitan areas' approximate 940 existing centers (totaling more than 125 million square feet) remains at less than 5%.
A key factor in fueling this strength is an increasing recognition of the buying power of Hispanic consumers, who now represent nearly 30% of the population in metropolitan Phoenix. Fry's Food & Drugs, for example, recently opened its first "Fry's Mercado" supermarket that primarily caters to Hispanic shoppers. Expect to see more Hispanic-themed centers in 2007 and beyond.
At the same time, national and regional retailing giants either have or soon will enter the marketplace. Cabela's opened its first store in Arizona (17th in the country) last fall, while Bass Pro Shops is set to open in May 2007 at the new, 1.4 million square foot Mesa Riverview center at Loop 202 & Dobson in Mesa. In addition, Nordstrom recently announced plans to locate at CityNorth: the 144-acre mixed-use project being developed by the Thomas J. Klutnick Company.
Absorption of large existing space, as evidenced by Macy's replacing Robinsons-May in four Valley malls, further underscores our optimism for the year ahead.
TOP FIVE FACTORS DRIVING
RETAIL REAL ESTATE:
1. Arizona is first or second in most measurements of population and job growth, indicating continued strength in retail growth.
2. Trend toward marketing to Hispanics, who now represent 30% of the population in metro Phoenix, opens new markets and creates additional opportunity.
3. Vacancy in metro area retail outlets is low - just 5%. Demand continues to match or exceed supply.
4. National retail giants continue to enter Phoenix market, creating draws that smaller retailers can benefit from.
5. Expansion into the suburbs creates new areas, which need retailers driving retail growth.
BACKGROUND
De Rito Partners, Inc. is Arizona's premier retail real estate brokerage firm specializing in project leasing, tenant representation, investment sales and land acquisition throughout Arizona. Donald L. Sheckell joined De Rito as President in September of 2006 after serving as Senior Vice President and Designated Broker of Scottsdale-based Retail Brokers, Inc. (RBI). He began his commercial real estate career as an agent with Insignia/ESG, Inc. in Washington, DC and later held the position of senior associate with Trammel Crow Company in McLean, VA and Phoenix, AZ. Sheckell earned his bachelor's degree from UC- Davis and his master's degree from Georgetown University.
SURPRISE, AZ-The developer of Surprise Pointe has taken a major step toward the launch of vertical construction with the sales of two parcels for $18.64 million at the northern boundary of the city's primary commercial district. The 290-acre master-planned development eventually will have 3.5 million SF of office, industrial and retail space.
Los Angeles-based Keshvar LLC has sold 60 acres to Crescent Crown Distributing LLC of New Orleans for $11.2 million and 20.7 acres to Scottsdale-based Glimcher Ventures Southwest for $7.44 million. Glimcher plans to start construction in August on an estimated 400,000-SF retail center, the Shoppes at Surprise Pointe, anchored by a 14- screen, 2,800-seat theater by UltraStar Cinemas of San Diego. Crescent Crown initially will build a 150,000-SF distribution building on the land. Surprise Pointe is situated between Litchfield and Dysart roads.
"With these deals, we really have our two anchors for the project," Eric Bell, an associate vice president for Colliers International Inc., tells GlobeSt.com. "We have other deals in the works, but we're still working on the infrastructure. That should be completed by the end of the year."
Bell is part of a team of brokers from the Phoenix office of Colliers marketing the development for Keshvar. Other members include senior vice presidents Gary Tenney and Bob Lundstedt and associate vice presidents Michael Ciosek and Darren Tappen.
There are multiple projects going up or planned for the general area, but Bell says the location of Surprise Pointe and adjacency to the BNSF Railway give it an advantage over its competitors. "This is a superior master-planned development and rail land is nearly impossible to find. And the prices are still relatively affordable compared to other parts of the Phoenix market," he says.
Brian Gast, a principal at De Rito Partners, Inc. in Phoenix, which is leasing the Glimcher project, reports demand for space in the center is solid, with annual shop space asking rents at $35 per SF. He says the leasing team is working on deals with a couple sit-down restaurants, bank, bowling alley and fitness center. The projected opening is third quarter 2008.
"The partnership of UltraStar and GVSW will bring the first movie theater to Surprise, giving Surprise Pointe the retail anchor it needed," Ciosek says. "With Forbes naming Surprise as the third-fastest growing suburb in America and Money naming the city as Number One in the nation for job growth, Surprise Pointe will continue to flourish as one of the major hubs of employment for the City of Surprise."
