Horizon, Host: Ted Simons

April 9, 2012


Host: Ted Simons

Commercial Real Estate Recovery


  • A new 10-story high rise is coming to Tempe Town Lake. It’s good news for Tempe, but is it also a signal that the Valley’s commercial real estate market is finally recovering after taking a beating during the recession? Mark Winkleman, chief operating officer of ML Manager LLC, provides a market update.
Guests:
  • Mark Winkleman - Chief Operating Officer, ML Manager LLC
Category: Business/Economy   |   Keywords: commercial, real, estate, housing, economy, recovery, market,

View Transcript
Ted Simons: Last week on "Arizona Horizon," we took a look at signs that the valley's housing market is improving. Tonight we hear about the commercial real estate market. This in light after developer's plan to build a high-rise office building in Tempe. Does the project mean the commercial market is making a comeback? Here with some answers is Mark Winkleman, president of MGS Realty Partners and chief operating officer of M-L Manager, the successor to Mortgages Limited. Good to see you again. Thanks for joining us.

Mark Winkleman: Good to see you Ted. My pleasure.

Ted Simons: Let's talk about this big project now, because we heard nothing was going to happen for quite a while as far as big projects, commercial or residential. But this is a 10-story building on Tempe town lake, surprised?

Mark Winkleman: Well, yes and no. I wish I could say this is the signal everything is going to get better and we're going to get back to the way things were, we're all tired of being beat up for the last four years. But it does in a signal for the overall market but it's a unique situation in Tempe. They have a lot of things going for them, and it's a start. I think you're starting to see this in various aspects of commercial real estate. A few positive things happening and this is certainly one of them.

Ted Simons: What does Tempe have going for it in terms of this particular property it sounds like the high end class A if you will, office space is going big down there at the lake. Correct?

Mark Winkleman: It's a very attractive area. You've got terrific transportation, freeway, light rail, you're close to the airport, you've got ASU there, a lot of excitement, a lot of activities. The lake, so the amenity package and the attributes of the area are really somewhat unique for the valley. You've got -- and the ownership is also unique. You've got a large national reach, that has acquired the existing buildings there, you had Paul Allen, Microsoft's founder that bought the empty building just across the way, it's now 80% occupied. The two at the Hayden Ferry Lakeside are virtually 100%. Even the first solar building on the other side of the lake has come up. So now that little pocket doesn't have a lot of space left. Yet with the amenity, it's a very attractive area.

Ted Simons: So you've got that area doing very well. Let's talk about the status of the office leasing market in general. What's going on out there valleywide?

Mark Winkleman: It's pretty rough. The vacancy rate is still in the mid 20s, which historically is very, very high, huge amount of empty space. And what you’re seeing are tenants moving from class B, class C to better location, better space. Maybe an example of this is a law firm, they've been in mid town Phoenix for the last 15 years, they just leased space at 24th Street and Camelback. You look at the tenants, what my lease was several years ago when I signed it, where I can go now for the same rate, you can improve. So a lot of them are doing that. You're seeing things a little better in class A, class B and C are starting to suffer.

Ted Simons: When you see class A doing well and B and C suffering, what does is that say, is that healthy for the market overall? Someone is doing well, but at the expense of others.

Mark Winkleman: That's just the way the real estate world works. It happens in every cycle. The better locations will come out first. And what we really need is jobs. We need that to drive the economy. Especially for office space. If you don't have increasing jobs, it's hard to have significant positive absorption. So the job picture is getting a little better, but it's far from a dynamic and the numbers are not that big. When those numbers get bigger you'll see the office market improve dramatically.

Ted Simons: I imagine you'll see the retail market improving as well. What are you seeing retail market right now?

Mark Winkleman: It's pretty soft too. You need rooftops for retail, we've got a lot of vacant space, a lot of turmoil in the retail world. So there's certain areas that are doing OK, a little better, but overall retail is pretty flat.

Ted Simons: The idea of the four corner, it’s fascinating because in the past four corner retail, every corner of an intersection retail. Is that a thing of the past? It seems like almost every corner there's at least one or two sides not doing well.

Mark Winkleman: Right now there's as much apartment land as possible. That's one part of the market that's done well. You've got apartment developers that have had access to sites that they've not had in the past when they had to compete with retailers and office building, hotels. So that has been on fire. And the other area that's done pretty well are the big industrial sites. We've had a lot of large companies come in and chew up what seemed like a huge overhang of space, and now there's a shortage of these big industrial buildings. So those -- there's some bright spots overall things are still slow, but I think they're starting to improve. I don't think it's going to get worse.

Ted Simons: The idea, I want to get back to retail, the idea of online purchases and online stores kind of taking stuff away from bricks and mortar. How much of an impact are you seeing as far as the real estate market?

Mark Winkleman: There's a lot of opinions on that. I think look no farther to best buy, which just announced they're going to close a huge number of big stores and do these mobile stores. Some people have said best buy has just become a show room for amazon. That may be true. So you certainly can't ignore that. There's a certain segment of the population that's always going to want to go in and touch and feel and certain types of retail are more lend themselves to that than others. But it will definitely affect it. I don't think anybody knows for sure what the ultimate outcome is going to be.

Ted Simons: So apartments, up. Ware house and distributing up to a certain degree. Retail hurting, office leasing in general hurting, Tempe doing very well. Overview. Are things getting better, or are we treading water here?

Mark Winkleman: Things are getting slightly better. I think we've added jobs, we've been through a lot of the foreclosure mess. And so I don't think it's going to get worse absent some meltdown with our currency or the world economy, Europe, if we have something like that, all bets are off. But I think if we don't have that disaster, you'll see things get better. The best numbers I've seen, two to three years we'll get back to a more normal situation in terms of jobs and housing starts and things will be what we're used to as normal, and I think Arizona will do very well relative to the rest of the country when we get to that point.

Ted Simons: I can't let you get out of here without an update of the mortgages. What's left of mortgages limited. We've had you here so many times on that story. What's the latest?

Mark Winkleman: Well, one of the good things in Tempe is we sold the center point project, that's fully occupied, and that's helped the mill Avenue area. We're pretty well through. I've been busy selling properties over the last couple years, we should be virtually done selling the properties this calendar year. So I've got about 15 properties left that are in the market, and we're trying -- as a matter of fact this weekend we send out a lot of money to our investors, over $20 million, for the people that put this up. It's a big chunk of change, so we're happy to be able to send that money out and wrap this up. We got some favorable treatment from the IRS on some things that allowed them to get refunds, and we're hoping to collect money from the attorneys and the accountants. So we're working hard, we're making progress, but I will be out of the real estate business for mortgages limited later this year.

Ted Simons: Wow. Congratulations. It's a difficult process, I know you went through all sorts of stuff trying to handle that. Congratulations on getting out of that particular account. And thanks for the insight. We'll keep an eye on the corners and the retail market. Thank you for joining us.

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