July 25, 2011
Host: Ted Simons
Commercial Real Estate
- An Arizona State University professor says he has a solution to help fix the Valley’s ailing commercial real estate market. W.P. Carey School of Business Real Estate Professor Mark Stapp will explain his idea.
- Mark Stapp - ASU Real Estate Professor
| Keywords: ASU
, housing market
Ted Simons: Good evening, and welcome to "Horizon." I'm Ted Simons. An ASU real estate professor says he has an idea to help heal Arizona's commercial real estate market. The key -- local lending sources focused on local businesses. Here to tell us more is ASU professor Mark Stapp. Good to have you here, thanks for joining us.
Mark Stapp: Thanks for having me.
Ted Simons: The core for this is that it's difficult right now to find funding for projects, period. Correct?
Mark Stapp: That is correct. The lending market is -- I wouldn't say it's completely shut down, but it's pretty much impossible to find funding for most projects.
Ted Simons: And why is this?
Mark Stapp: Well, it's a reaction to what happened in the financial crisis. Number one, I think there's been a movement to tighten up a lending underwriting requirements. And a lot of the demand that drives real estate projects has waned. And because real estate is symptomatic, it's something that is driven off of jobs, and it's driven off of other kinds of wants and needs. A lot of those projects aren't there either yet, so the things that are doable are much smaller scale than what we're used to seeing.
Ted Simons: I want to emphasize that smaller scale aspect in a second, but you've written that the trouble with commercial real estate, the market started when the basics were overlooked. What does that mean?
Mark Stapp: Well, one of the things that happened is as the investment banking firms realized they could bundle mortgages together, and then sell those bundled mortgages to investors, they began to realize that in order to do that they had to have a lot of product. And in order to get that product they had to underwrite it relatively quickly. So they started looking for things they could understand easily, like kinds of assets that they saw, they could wrap their hands around, they could underwrite, and bundle it. And so banks then had to go, start making loans on those kinds of projects. And so we started to commoditize real estate to shifted those investment funds out of the area to investors from around the country and around the world. So we created this disconnect between the dollars that are necessary to grow a community, and the investors that are providing those dollars.
Ted Simons: Because those investors are looking for the big ticket items, the Big Kahuna, if you will.
Mark Stapp: You're also looking at an industry that's trying to achieve efficiency. It takes just as much time to underwrite smaller things than larger ones, and you bundle these big pools, and there's big fees, and there's more efficiency associated with it.
Ted Simons: The nuances of smaller loans to smaller businesses in smaller communities, or any community, but the smaller loans, those nuances get lost in the mix, don't they?
Mark Stapp: They do. Because they're unique, they're small, they're unlike other things that you may see other places and as a consequence, the underwriters have a hard time wrapping their hands around them. They don't recognize the users, they may not recognize the locational attributes, and it’s not something they're really familiar with. It's harder for them to underwrite and price.
Ted Simons: Is that one of the reasons why it's been such a slow rebound from the recession?
Mark Stapp: Well, I think the rebound has got another -- a number of factors that are stopping it from rebounding quickly. One of which is that you need a healthy banking system. Banking system where people trust it, and I think you can look at the various surveys that are out there, American people don't have a lot of trust in the banking system right now. Or the banks. So I think it's got to be trustworthy, transparent, and it's got to be a community participant. It's got to understand local community needs and be able to apply its capital to those unique needs in a community.
Ted Simons: How do you get the banks to get that attention? How do you get them to focus on community needs on maybe some of these smaller, more individualistic loans?
Mark Stapp: Very hard to do. Because the controller of the currency, you know, and the federal government helps create underwriting guidelines. And again, those underwriting guidelines are guidelines that the banks have to follow if they're going to get loans approved. And we begin to become categorical in our statements. Rather than being unique about a unique development within a unique user, that's harder to do.
Ted Simons: And yet would you think the local merchant would be more committed to the local development, would certainly seem to have -- if you can focus on the local merchant or the local business idea, that focus would seem to be relatively narrow and you would have a better way of keeping up to date with it, wouldn't you?
Mark Stapp: You would. If your capital was focused in that direction. The banks are money making ventures. And the role of management in any business is to provide additional value for their shareholders. And so the management is being very skeptical about what they'll lend on, and sometimes they're not willing to take that risk on that very unique development in that local merchant. Because they may not carry the credit that they would be looking for from a national credit tenant.
Ted Simons: Sure. So what is your idea to change this particular dynamic? What do we do here? How do we get these banks more involved in the community? How do you get the disconnect to get back together?
Mark Stapp: Not easy to do. We've got community banks, but they are for-profit entities, and they're not always taking capital from the local market and applying it to just the local market. You've got credit unions, which are locally owned, not for profit, but they've got limitations on what they can lend on. And all of these have to be able to take loans and push them off their books in order to keep capital circulating. So they've got to play within certain rules as well. We've a community reinvestment act created in 1977 by Congress, was redone again in 1987 because of the S and L crisis and it's been redone six to eight times since then, it's been relocked at now. The purpose of which was to stop red lining, to loan for underprivileged people and underserved areas. Part of the solution is changing what community reinvestment act dollars can be spent on. So it's not just underprivileged, but it's community focused kinds of projects. I think that's one thing that would be helpful.
Ted Simons: Similar to this transit oriented Development that's going on along the light rail here in Phoenix, and Tempe, Mesa, the whole nine yards, we've had programs on that, and it sounds similar to what you're talking about.
Mark Stapp: We do have programs, there was a fund announced, I believe a $20 million fund with La Raza Development, and it is focused on providing some level of lending to fill the gap between what may be a conventional bank would loan on and what the project really needs. That's helpful. $20 million is a drop in the bucket. But it's a necessary start. We've got a billion dollar -- a couple billion dollars worth of public dollars spent to revitalize downtown, to put in a light rail system, to bring a University down there, and an objective to create what we would call a sustainable community. And that is predominantly looking at local kinds of things that make it unique, to provide the character, to make it a special place. And those are those little projects with local merchants and that's completely contrary to what lenders are looking for right now.
Ted Simons: How do you get -- last question here, and I've asked how we get those lenders to start looking at this, beyond that, is it financially -- obviously they've got their shareholders, the answer to the next question has to be yes -- is it financial feasible to take that approach?
Mark Stapp: I think it is. And I'm going to talk about something called shared value. Which is looking at a company's business objectives, not in terms of just increasing shareholder value, but in view of creating greater community value, which then also elevates their core business value. Because businesses are inherently tied to their local community. And if you separate out their business decision making from what's good with the community, then what you've done is you've got a disconnect between what's good for business and what's good for the community, and the fact of the matter is, they have to have things that are good for each other. So this idea of shared value, which was actually put forward by Michael porter, a professor from Harvard, who's probably the preeminent business strategy and marketing professor there is, is someplace to start looking for banks to rethink what their policies are and how they're going to implement those policies in order to embed themselves in communities.
Ted Simons: Interesting stuff. Mark, thank you so much for joining us. We appreciate it.
Mark Stapp: Thanks for having me.
Downtown Smart App
- Students from Arizona State University’s Cronkite New Media Innovation Lab have developed a smart app to help people navigate attractions and businesses in downtown Phoenix. Lab director Retha Hill will talk about the new smart app.
- Retha Hill - Director, ASU New Media Innovation Lab
| Keywords: downtown
Ted Simons: Students from ASU’s Cronkite New Media Innovation Lab have developed a smart app to help people navigate attractions and business in downtown Phoenix. I recently talked to lab director Retha Hill about this new application's applications. Thank you so much for joining us tonight on "Horizon."
Retha Hill: Thank you for having me.
Ted Simons: The smart Phoenix app. What are we talking about here?
Retha Hill: We're talking about a city guide just for downtown Phoenix. So we're talking about the area between 7th Avenue to the west, 7th Street to the east, from Roosevelt to the north, all the way down to the stadiums.
Ted Simons: And how does it work? You press on the app and it takes you to where? I think we have graphics here to show the home page, and where we go from there.
Retha Hill: Right. It's a mobile web application, so basically you press on the app, you pull up the application, and you can search for dining, for events, for arts and culture, for sports events. For shopping, whatever it is you might be looking for, but just in downtown Phoenix.
Ted Simons: We're looking at the dining section right here, and I believe arts and culture is another one that's on there. You basically have all these options, then, to find out what's happening in downtown Phoenix. Including what's happening at Cityscape and maybe some deals that are going on as well.
Retha Hill: Exactly. What we wanted with to show people is that there is a lot going on in downtown Phoenix, but I think a lot of people don't know. Because they still think of downtown Phoenix from perhaps 10 years ago, when it was a sleepy little area. And that much -- not much was happening. Now from the Suns playing, to great dining, to events happening at Cityscape, there's a lot going on.
Ted Simons: Kind of like a concierge thing for lack after better term?
Retha Hill: Exactly. When we were building this app we thought of it as a concierge app. The same way you would go to a concierge at a hotel and ask, what's there to do in Downtown? Where should I eat? What's a nice place for a romantic dinner? We tried to think of all of those things and incorporate that into the app.
Ted Simons: Who helped you think of these things, or who asked you to think of these things? It sounds like the folks at Cityscape were involved.
Retha Hill: Cityscape wanted us create a way to help people to connect to downtown Phoenix. There's a lot of students, and other people down here, but they were like, how do we get people to not just come to Cityscape, but to explore everything there is to do in Downtown, and after talking to a ton of people, we felt a mobile application would be the best way to go.
Ted Simons: Is it designed for people who don't necessarily come Downtown as much as they should, or is it for people who live Downtown and want to know what's going on?
Retha Hill: It's for both. It's for people, the 83,000 office workers who work Downtown Phoenix, the people who live in the surrounding neighborhoods, as well as people who might come down here for a ball game, or Herberger then get in their cars and go back out to the suburbs. We wanted to tell them there's a lot to do Downtown, and you can make a day out of it.
Ted Simons: If I own Ted's Hot Dogs downtown, or Hamburger hHamlet, whatever it is, and I want to get on this app, I do have to pay? Am I there because somebody found me?
Retha Hill: We have a write-up of every venue in downtown Phoenix, and we will put your information out there, even if you have deals or something you want to promote, a special, maybe have you a happy hour, or maybe have you a two for one special lunch special. We can put that on the site as well. It's all free. It doesn't cost the users anything to download it, and it doesn't cost the venues anything to be on it.
Ted Simons: Talk about the students involved here, and what kind of research they did, how much they were involved, and it sounds like again, it's a public private sort of student and outside company -- outside client sort of operation here.
Retha Hill: Right. The new media innovation lab is a research and development lab where we do products for clients. Mostly media clients or marketing clients. Our students are journalism majors, undergrad and graduate students who did all the research, but we also hired in computer science majors from the Tempe campus who did some of the programming along with our full-time web developer. So it was a student effort where we were doing this for a private client. And we've done this many times before with other clients.
Ted Simons: And it sounds like not just the client, but other aspects, the mayor's office, other folks got involved as well?
Retha Hill: Exactly. The main thing that was driving this is we knew we had a number of large conventions coming to town this summer as well as the All-star Game. So they wanted an app that could showcase everything that was happening in downtown, so of course the (Phoenix) Convention Center was very interested in it. They have the app broadcast and on of their monitors at the Convention Center, the mayor's office was very interested. The downtown Phoenix partnership, and the Arizona State University downtown campus as well as cityscape. Those are the people who are really interested in promoting downtown.
Ted Simons: You guys have done other work as well. You've worked with the Arizona guardian and newspapers and such?
Retha Hill: Exactly. We're approached by different media clients to help them think through new media development. A lot of times when you're at a news company these days, you're so busy trying to put out the news that you don't have time to think about the future. Our students can sit back and say, have you thought about this? And then we can go ahead and build it for them.
Ted Simons: Interesting. And it sounds to me as if this is bringing money into the University.
Retha Hill: It is. It's a revenue center where we charge our clients a certain amount of money that helps to offset the cost of hiring these students in, it offsets my time and it offsets the research time, and the development cost.
Ted Simons: So how long has it been around, and what kind of response are you getting so far?
Retha Hill: For the smart Phoenix application?
Ted Simons: Yes.
Retha Hill: It was actually -- it launched on July 4th, and we've been getting great, thousands of downloads. And the great thing is that people are staying on the app anywhere from five to six minutes. So they're searching for dining, events, and they're searching for deals. So that's been really gratifying to us that we are getting out a product that people are using.
Ted Simons: All right. Very good. We're looking at the home page there, it looks as though as we go to the pages again, it looks as though there's a lot of stuff offered there, and fits bringing money into the University and it's getting kids interested in getting this kind of stuff out there and selling their products, can't be all bad.
Retha Hill: Not at all. Our students are learning, and our students are graduating from our program and going off to work for web development, firms all over the country, and all over the world. We have graduates who are in Holland working in augmented reality, we have students at PBS in Washington, we have students who are at NPR. They learn their skills in our lab and they're being hired once they graduate.
Ted Simons: All right. Very good. Thank you so much for joining us. We appreciate it.
Retha Hill: Thank you for having me.
Ted Simons: That is it for now. You have a great evening.
Tempe Town Lake Update
- It’s been a year since Tempe Town Lake’s dam burst. Now, the dams have been replaced and a new pedestrian bridge is being installed. Get an update from Tempe City Manager Charlie Meyer.
- Charlie Meyer - Tempe City Manager
| Keywords: lake
Ted Simons: It's been a little over a year since Tempe Town Lake made headlines for all the wrong reasons. One of four rubber bladders that made up the lake's west end dam burst, as seen in this grainy security video. The result -- a billion gallons of water rushed down the Salt River, and Tempe began the process of replacing the dam. Here now with an update on that replacement process is Tempe City Manager Charlie Meyer. Good to have you here. Thanks for joining us.
Charlie Meyer: It's a pleasure to be here. A pleasure to have the dam in place when we're talking.
Ted Simons: Indeed. And this is a temporary dam that's up and operational now. How long is that thing supposed -- contractually, realistically, how long does it stay there?
Charlie Meyer: Well, it's a contractual temporary dam. Our contract with Bridgestone, where they agree to replace the old dam, was that we would limit it to five years. We've agreed to take it out by the end of 2015. And that's our obligation in this agreement for Bridgestone to replace the old dam at no cost to the city.
Ted Simons: So that wasn't a safety concern, where at five years they say, you're getting chancy again, this thing would probably be OK for another 10, 15 --
Charlie Meyer: Yeah. The five years has nothing to do with how long the dam would last. It has to do with how long the agreement went with Bridgestone, and they wanted the new dam removed within five years.
Ted Simons: The permanent replacement dam, what kind of money are we talking about here? How much is this going to cost the city?
Charlie Meyer: Well, we're in some very preliminary design stages, so we're still trying to figure that out. We've set aside a little more than $40 billion in our capital budget for this purpose. And we're hoping that we wouldn't need to spend all of that, and it depends on the design alternatives that we select ultimately.
Ted Simons: That is dedicated funding.
Charlie Meyer: We have an item in our capital program for this, yes.
Ted Simons: You mentioned technology and different options to look at. One of those options is another rubber dam. Correct?
Charlie Meyer: We would absolutely look at another rubber dam as an alternative. Actually, with these dams that are in place now, we have been able to add shading and a water system to keep the dam bladders cooled, and we think that would help us know a little better how these kind of rubber dams would work if they were not exposed to the sun as the original ones were.
Ted Simons: Would a new version of a rubber dam be different or improved and what was in place before, or do rubber dams pretty much stay the way they are?
Charlie Meyer: Well, they more stay the way they are. I don't know of any significantly changed technology that would suggest that it would be a whole lot different. But being able to keep this one cooled should give us some indications of whether or not that is a more viable option for us for the long term.
Ted Simons: Keeping this one cooled by way of this pedestrian bridge, I think we have video of the bridge, this thing now will provide the shade and the sprinklers, would the sprinklers come from the bridge from below the bridge?
Charlie Meyer: Yeah. And as you point out, it's a pedestrian bridge. That's why we're building it. Not as a very expensive shade for the dam. But, yeah, it will shade it, and then the sprinkler system is actually attached underneath the bridge. And I think that was one of the reasons why the sprinkler system wasn't put in for the old dams, because they couldn't figure out any way to make it work. With the dam there we've got a great stable platform to do those things.
Ted Simons: Give us an update on the pedestrian -- it looks like it's almost done. What kind of time frame?
Charlie Meyer: The time frame on the bridge is very close. It will be done in September, and all of the sections are now in place, the concrete pad has been poured, and it's really what I would call it fit and finish work now to get the dam replaced, or I'm sorry, to get the bridge open by September.
Ted Simons: We've got -- we talked about the rubber dam, and I don't know what upfront costs would be or maintenance costs would be for that, but if the life span again were 10-15 years, if the city felt like in 15 years we're going to have to replace this, is that an option in the same way that you replace other city infrastructure, you just know in 15 years we got to do this again.
Charlie Meyer: I think that you're making a good point in terms of it being an option. The first priority is it has to be safe. And we learned the hard way that the old dams were safe, that they were able to withstand the calamity of the loss of the dam and still nothing was damaged from it. I think beyond that, it has to be a cost effective and a maintainable dam that goes into place, and that's where we're spending our time. So a rubber dam that we know can be replaced over time, you might put it on a different cycle and just a planned replacement, which we hadn't done at least on quite as tight a time frame. So we're look at it being cost effective over time. There are other options that are more expensive up front, and what we really want to do is analyze whether they will be more cost effective over the long term.
Ted Simons: And those would be what, the hinged metal dam and the adjustable gate dams, these things where when the water needs to get through you just do something hydraulically and there it goes?
Charlie Meyer: Yeah. There's a hydraulic system, and essentially what it does, it lays a gate down and lets the water pass through, and when they fear -- the fear of flooding is passed, it raises back up and goes into place. Those are more expensive initially, whether or not they're less expensive over the life of silt what we need to evaluate.
Ted Simons: Including things like maintenance and testing.
Charlie Meyer: Exactly.
Ted Simons: OK. Give me a time frame, another timetable here, when will the decision be made as to what kind of technology, what kind of dam will be built?
Charlie Meyer: Well, the preliminary design concepts will be out now, so I would say we will make that decision within the next year. We're allowing ourselves going back to the other end of the time frame, we've got until December of 2015, so we're allowing ourselves about 2½ years for construction, and about a year for final design. So within the next six months we really want to be in a position to make a decision about the design.
Ted Simons: So it sounds like construction may not begin until 2013, somewhere along those lines?
Charlie Meyer: That's right. We wouldn't plan on starting construction until around 2013.
Ted Simons: But contractual agreement, it's got to be done by the end of 2015?
Charlie Meyer: By the end of 2015, the old dams have to be taken out of commission.
Ted Simons: Every time we talk about this dam we get people, it shouldn't have been built, it's a boondoggle, it's wrong to have this here, it should a riparian area, it should be some sort of a parkland setting, something along these lines. Is the city doing the right thing with this lake? Did they do the right thing in building the lake, are we doing the right thing in maintaining it?
Charlie Meyer: Well, I have the benefit of being able to speak without having been part of the initial decision, so in second guessing, I think absolutely they did the right thing. We have some fantastic riparian areas, both upstream and downstream of Tempe Town Lake, we've got the open water body, it's relatively efficient in terms of its use of water. The water passes down the river system anyway. And it's a great, great urban amenity. Tempe and its proximity to downtown Phoenix, it's an urban environment, and there's lots of very wonderful natural places around it. The opportunity for development in an urban setting is in large part possible because of the presence of that lake. So I think environmentally it's sound, certainly those who like to fish have enjoyed it. I myself have the benefit of, I row now in the mornings, and whoever thought I could come to Arizona and be rowing on a lake?
Ted Simons: Good stuff. Thanks for joining us. We appreciate it.
Charlie Meyer: My pleasure. Thank you very much.