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January 23, 2013

Host: Ted Simons

Commercial Real Estate Market

  |   Video
  • CBRE has released a year-end report that shows positive news for the Valley’s office, industrial and retail real estate markets. Craig Henig, CBRE’s Senior Managing Director and Arizona Market Leader, talks about the report.
  • Craig Henig - CBRE Senior Managing Director, Arizona Market Leader
Category: Business/Economy   |   Keywords: housing, economy, research, commercial, market,

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Ted Simons: There are signs of improvement in the office, industrial and retail real estate markets, with vacancy rates dropping in all three sectors. That's according to a recent report released by CBRE brokerage services. Here to tell us more about The report is Craig Henig, senior managing director and Arizona market leader for CBRE. Good to have you here. Thank you for joining us.
Craig Henig: Thank you for having me again.
Ted Simons: I want to get to the office, retail, industrial individually in a second here. For an overall view, what are you seeing out there?
Craig Henig: Overall, we have seen a year-over-year improvement versus 2011 due to the pickup in the economy. Also the -- the recession that has helped unfortunately some of the people with vacancies be able to make more economic deals for companies that are searching for a long-term opportunity, because in most companies, their labor and their occupancy costs are their largest costs. So, they're looking and they're locking in today.
Ted Simons: Interesting. Let's start with the office market here. Vacancy rates down there. How much and why?
Craig Henig: The vacancy rates have declined over 150 bases points year-over-year. And that is due to a lot of locations that weren't available originally for some of the office users, and, again, it back to companies being able to afford to take down some of that space. Where in some cases, space might have been $40 per square foot, today you can lease that space probably around $32 per square foot.
Ted Simons: Did the idea of the asking lease rates being down, is that necessarily an unhealthy thing, or, again, it could be healthy if it means getting some of the places filled?
Craig Henig: It is healthy for the user. Landlords filling some of the spaces and taking lower returns. Another trend, less of the real estate being foreclosed. A lot of lenders have already blended and extended their loans with the owners or their new owners and their bases have been reset and they're able to make more economic deals.
Ted Simons: These lease rates, asking lease rates down for 11 straight quarters.
Craig Henig: They are. We are starting to see a little improvement in certain sub-markets and certain properties.
Ted Simons: And as far as the available space on the market, is that impacting what you are talking about here?
Craig Henig: Yes, available space definitely impacts -- we segregated by class A, B, C. Class A best leasing net absorption and lowest vacancy out of the rate.
Ted Simons: And class A would be something along the lines of Tempe town lake --
Craig Henig: Hayden Ferry projects, north Scottsdale market, downtown Phoenix, and some properties in the southeast valley as well.
Ted Simons: Does that say perhaps that people are -- if you are in the market, you are in the market and you are serious and you want the best, or what -- what --
Craig Henig: It is showing us that -- I will tell you deals were taking a lot longer to get done. However, companies again are doing their business planning and looking at their -- at their budgets and they're looking at the opportunities now to lock in. Because these rates are -- they're not in our historical lows, but they're pretty low and we hopefully won't see these rates for a long time to come.
Ted Simons: As far as retail is concerned, the report shows positive absorption. First of all, explain absorption?
Craig Henig: You have gross absorption, which is activity, people moving from space to space. So, if I move my company to another building and left a vacancy, that is not helping the net absorption. So, if I'm taking my business and expanding it to another location, but not closing my current location, I'm absorbing -- net absorption, I'm absorbing a vacancy in the market. We have net new, net absorption and also expansion.
Ted Simons: As far as positive absorption, it sounds like the first positive year after being down for a while in terms of retail space.
Year over year we have improved our net absorption to a positive two million square foot swing. Where in 2011, vacancy rate for retail was a negative 152,000 square feet. This year it was a million seven positive.
Ted Simons: What is happening out there? Is that a simple sign of an uptick in the economy?
Craig Henig: I think, again, it is an opportunity for a lot of discounted retailers coming into the market, a lot of landlords are looking at their options and leasing the space just to -- some of them to buy time until the market comes back. I think the locations at other retailers couldn't -- couldn't lease in that one time for those rates are finding the opportunity to get into those markets.
Ted Simons: Does that mean that the strip mall that everyone sees on many every corner half full, used to be vibrant and now is a quarter full, does that mean we're seeing a turn-around there?
Craig Henig: You are. You are seeing a turn-around, because the space is more affordable for some of the smaller businesses. We refer to them as mom and pops. And another dynamic is people are starting to pay up for properties. Because they cannot get better returns from the banks or the stock market or even the bond market.
Ted Simons: Big-box spaces, how is that doing?
Craig Henig: Big-box spaces, we have seen some adaptive reuse. A lot of discounted retailers are coming in. Goodwills, the dollar stores. We're also seeing a new dynamic where we have fitness clubs taking a lot of the space.
Ted Simons: Interesting.
Craig Henig: You are seeing go-cart tracks come in. You are seeing churches. Different uses come into centers that would usually have different retail uses.
Ted Simons: Are we seeing more of that than in the past, that kind of variation?
Craig Henig: We are seeing a lot more. Bigger variation --
Ted Simons: Big box, before we leave that, is there a trend or tendency to cut these things down to size?
Craig Henig: That's a great question. Some of -- some you can demise them. Some of them are. Someone would take 80,000 square feet -- now the owner is demising those buildings to two, 40,000-foot spaces and putting two users in there.
Ted Simons: And getting things done.
Craig Henig: Getting things done.
Ted Simons: Industrial market, distribution centers it seems like the demand is up.
Craig Henig: Demand is there. Ironically net absorption again year-over-year was about the same. 2011, 7 million square feet that we absorbed primarily about 4.5 million of that to maybe 5 million was Amazon. This year, this past year, we did the same amount of absorption or leasing, and there were smaller companies, probably in the 200,000 square foot range. Diverse companies coming from third-party logistics, pharmaceutical, food companies, and E-commerce.
Ted Simons: That has to be healthier for the economy. Nice to have an Amazon there, distribution center that takes up so much square footage, but if something should happen to Amazon, we're sunk.
Craig Henig: Fortunately, the buildings that they have leased, they put a lot of money into those. I think they can be reused or released by another company that would love to have all of that.
Ted Simons: Nice to see diversification.
Craig Henig:Absolutely.
Ted Simons: Relatively positive for 2012, what are you seeing for 2013?
Craig Henig: I think now we're past the election. I think we have some sense of what is going to happen with the taxes, fiscal cliff, still waiting for the deficit and debt ceiling issues. I think corporate America is feeling better about spending, and diversifying and expanding. So we're thinking 2013 will be a positive year for leasing, as well as investment sales.
Ted Simons: Arizona more positive than other regions?
Craig Henig:Arizona, we expect to be in the top 10 of job growth and also population.
Ted Simons: That means these spaces will be filled.
Craig Henig: Especially in the office sector. It is really about jobs. Okay. When you have jobs, you have people that are shopping in retail and more retail you need warehouses to store the goods.
Ted Simons: Amazing how that all works together. Supply chain.
Craig Henig: That is good news. Thank you for joining us.

Inquiry Based Science Instruction

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  • The editors of Science magazine selected Kip Hodges, founding director of Arizona State University’s School of Earth and Space Exploration (SESE), as one of 15 recipients of the Science Prize for Inquiry Based Instruction. Hodges talks about his inquiry-based approach to science education.
  • Kip Hodges - Founding Director, Arizona State University School of Earth and Space Exploration
Category: Science   |   Keywords: science, education, space, ,

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Ted Simons: Thank you for having me. We want to hear from you. Submit your questions, comments, and concerns via email at "Arizona Horizon".
Ted Simons: An ASU professor has been honored for his work in developing a new method to Teach science. Kip Hodges, founding director Of ASU's school of earth and space exploration, was one of 15 recipients of the science prize for inquiry-based instruction, awarded by the editors of "science magazine." here now to talk about his innovative and award-winning teaching method is Kip Hodges. Good to see you again.
Kip Hodges: Thank you for having me.
Ted Simons: Inquiry-based instruction, what does it mean
Kip Hodges: It is important to start out a conversation about that thinking about what universities really are in our society. At universities we educate and we create. A lot of times it's easy for many members of society to forget the creativity that is a fundamental part of the university experience. We create great art, scientific investigation, solutions of problems through engineering, and that sort of thing. Sometimes there is a tendency to separate those two things in a university environment. The creativity and the education component of it. And really inquiry-based education or instruction is a way to try to get the two melded together in such a way that we can really begin to nurture creativity in students all of the way through the undergraduate career. I don't like the term inquiry-based instruction, I feel like I don't instruct. I let the students learn.
Ted Simons: It sounds project-based, problem solving, creativity. How do you mix them all together?
Kip Hodges: When the class originally began, a class when I was at MIT before I came to ASU. It was an interesting history in the sense that we had a request -- I had a request, dean for undergraduate curriculum there to come up with 10 ideas that might revolutionize undergraduate education at MIT. I came up with the 10 ideas. University was fortunate enough to get funding for them. A class, solving complex problems, I resigned as dean to teach that class. It was a tremendous amount of fun. Popular with the students. And the idea was to pick a problem that could be stated in a very simple way, but was actually very complex. So, we would -- the first one of these that I taught was -- I gave them the task of designing a mission to Mars to look for signs of past or present life. And what many of them thought when they went into it, oh, this is a problem about building a rocket ship to go to Mars. In order to succeed at this, you have to figure out a way to define life so that you know it as you see it and you have to figure out a way to look at past and present life, not just present life. It became a complex, multidisciplinary problem they were tasked to solve.
Ted Simons: Did you ever throw a monkey wrench in there, uh-oh, the rocket exploded or it didn't take off?
Kip Hodges: Absolutely. I do that every time. It is part of examing them at the end of the semester. Other project-based classes, they don't build something, but imagine-eer a solution to the problem. And then I -- I make them go through a process where they demonstrate what it is that they try to do. I will throw wrenches into the process. I didn't do anything quite as drastic as blowing up the rocket. But that design of the course makes it quite easy to transfer to many different student groups. You could use it in high schools. You could do it for freshman as I did at MIT. I taught a sophomore level class in systems engineering and experimental design, sophomore-level class in the BS program, and currently I'm teaching using the same modality, the catstone class for our BA degree in earth and environmental studies, which is really -- you are can think of it as a science literacy degree for a liberal arts major. It has become a very popular major.
Ted Simons: I would think so. It sounds like teamwork plays a big role in this instruction.
Kip Hodges: It is a major part of it. The teams are of different sizes. Entire class you can think of as a team. Within the entire class, we parse the students into smaller groups between five and eight students. It depends on the size of the class. And those individual teams have a piece of the bigger problem. Not only do the students have to learn to work as part of the large team, but they also have to work as part of a small team. Teams have to work with other teams. It is a practical way of how things get done in the real world
Ted Simons: That is a lesson people in athletics learn -- you don't want to let the other team members down. There is pressure there to do your job.
Kip Hodges: That's right. It is amazing how valuable that pressure is in a class like this. Some students have a hard time understanding that the grade that they get is not a purely individual grade. There are three grades in the class, individual grade, a grade for each of your smaller teams, and there is a grade for the class as a whole. What they are often surprised to find out is that the grade for the individual is actually lower than for the grade for the class as a whole but it helps them understand that being part of solving these complex problems is a very cool thing.
Ted Simons: You, as the instructor, how much do you help? How much do you advise? How much do you teach?
Kip Hodges: That is the hardest part of this class. It is a very difficult class to teach, I think, because it is easy to -- if all you have to do is spout information, it is a very easy thing to teach a class, right? But I react to the students. And I react to them in different ways depending on any given day how they feel and how they're working, if they are making mistakes and I try to guide them into doing things in a better way. But it is a very reactionary way of education. And some faculty are terrified teaching that way, almost like working without a net. I get invigorated by it. One of my favorite things to do.
Ted Simons: You also have to watch the student who is just about ready to drop out, drop off, or just simply not get it and wander away. In real life, they do wander away and you move on. Is that what you do in the class?
Kip Hodges: We do have that, occasionally students that drop out. The drop-out rate in this class is very, very small compared to other classes that I have taught because the students get invigorated and enthusiastic about it. Peer pressure kicks in too. No big deal if you are in a regular class and the kid next to you want to drop the class. In this class, it is one of the people that you are in part dependent on to be successful dropping out. I have seen them many times talk students back in to taking the class and staying in the class.
Ted Simons: Congratulations on the award and continued success.
Kip Hodges:Good to be here.
Ted Simons: Thursday on "Arizona Horizon," the Arizona we want 2.0, update to a report that looks at what Arizonans thing of our state and what they say they want for the state's future, that is at 5:30 and 10:00 on the next "Arizona Horizon." That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great evening.

Legislative Update

  |   Video
  • A mid-week legislative update with a reporter from the Arizona Capitol Times.
Category: Legislature   |   Keywords: legislative, update, legislature, ,

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Ted Simons: Good evening, and welcome To "Arizona Horizon." I'm Ted Simons. Lawmakers are in their Second week of the new legislative session and Already we're hearing of a budget gap between the legislature and the governor. For more on that in our Weekly legislative update, We're joined by Luige de Puerto of the "Arizona capitol times." Thank you for joining us.
Luige del Puerto: Thank you.
Ted Simons: Let's start with the sentence today --
Luige de Puerto: He was sentenced today. He had been indicted and pled guilty to two felony charges and today was his sentencing, and he was facing potentially 30 to 37 months in prison. He will not go to jail. What he got instead was three years' probation, 18 months of house arrest, and I think he gets to pay about $540 or so in restitution.
Ted Simons: This is again solicit and accepting a bribe, mail fraud, misleading donors on a scholarship fund which I guess he apparently kept the money himself. Not while he was in the state legislature.
Luige del Puerto: Well, some happened when he was still a councilor in Tempe. Some of this spilled over when he was with the state legislature.
Ted Simons: Restitution, house arrest -- why not any prison time?
Luige del Puerto: Well -- defending him, getting the court to agree that a prison sentence would not be right for him. They had been pleading for leniency in the sentencing. Three arguments for it. One, the tickets that he accepted were supposedly inflated or the prices of the tickets that he accepted were inflated by government. The other one is that he has mental and physical problems, and supposably he was sliding into dementia. And in putting him in prison would not be good for his health. The third is that it is out of character for somebody who has served in the public sector for decades to be facing such scary-sounding charges, and, therefore, he should instead be given house arrest. And that's what the judge did.
Ted Simons: All right. Let's get to that budget gap. Projections between the governor and the legislature, just a wee bit off here.
Luige del Puerto: Right. One of the first things they have to do is reconcile the revenue figures. That is the starting point of any negotiation. As you recall, the main point of hold-up last time around, they couldn't agree exactly how much the state was getting in revenues in a few years. Governor's projected rose here -- number for fiscal year 2016, three years from now, the governor said we will probably get about $139 million in cash balance, legislature thinks we're going to face a $70 million deficit. So, yeah, quite a huge swing. They have to reconcile those numbers first.
Ted Simons: Is it basically the idea that the governor sees a better economic recovery than the legislature? Is that pretty much the bottom line?
Luige del Puerto: That has typically been the case and been the case with this governor also. In bad times, during a recession, the legislature has been correct to paint a more conservative number, but in better times, the governor's office has been mostly correct in painting a rosier revenue projection, that’s typically been the case and as far as I know since I have been covering the state legislature, that is always the case.
Ted Simons: Interesting. Is there room for compromise here? Is this going to be a knock down drag out as we go along?
Luige del Puerto: Revenue figures are a political question. Therefore, because it is a political question, always room for compromise. I think the last year, governor decided to just use the legislature more conservative revenue projections. There is room for compromise. At some point they will have to compromise. That is the starting point of any negotiation. That is how they can lay out a spending plan for the state by agreeing what the numbers would be.
Ted Simons: Before we leave the budget conversation, how much does either side put into the equation that court decision regarding education funding?
Luige del Puerto: That is a good question. I think Andy Biggs is expecting the state to appeal that court position. If the state appealed and still lost the case, we're probably looking at, depending on whose equation you're using, probably looking at another $500 million deficit I think is what Cavanaugh said by fiscal year 2016.
Ted Simons: You would have to add $80 million a year.
Luige del Puerto: For three years. Remember, adjusted according to inflation. So you are getting $80 million one year, more the next year and some more the year after.
Ted Simons: Let's talk about parking meters in Phoenix specifically, but I guess in all cities, representative Chad Campbell is tired of broken parking meters.
Luige del Puerto: Yes, he introduced a bill -- his experience -- there was a broken meter and he was -- if I'm not mistaken, ticketed for it, I could be wrong there. But in any case, it wasn't working. He said, well, this can't be right. The city can't snag me for -- if they have broken meters. His legislation would mandate a testing. I think 10% of all of the meters would be tested on a regular basis. And then just to make sure that they're working. First democratic bill in the house that passed out of committee yesterday. If I'm not mistaken, the vote was unanimous.
Ted Simons: It would take something like that I think would get a democratic bill out of a committee.
Luige del Puerto: Let's see if it gets beyond a committee hearing.
Ted Simons: I have heard the criticism that it is an expensive mandate on cities.
Luige de Puerto: From the city's viewpoint, their assumption is that their meters are working. So, if it -- you know, the other side obviously saying some of them might be broken. And the other side, unless you test them you never really know. For the cities, doing a quarterly check on all of those, assuming there is a lot of them, would be costly.
Ted Simons: We will see how far that one goes. So much else to talk about. We will have the Friday "Journalists' Roundtable." Good to have you here. Thank you for joining us.
Luige del Puerto: Thank you.