May 2011: The Turning Point for Smart Growth (Or Commercial Real Estate's Emergence from an Existential Crisis)

Not that I have much faith that this blog post's title will prove true, but this month marks a crucial time for the commercial real estate community, particularly in the Western states where a couple of huge conferences are slated for this week and next. I sincerely hope that the more innovative ideas presented at each event are better heeded than in past years, as the last fiscal year also marks a more pronounced return to viability and growth for the sector, but we shall see.

As I type this, attendees of the Urban Land Institute's Real Estate Summit at the Spring Council Forum are boarding planes for Phoenix and preparing for three full days of discussions about smart urban planning. According to the event website, more than 2,700 attendees have already registered (about 90% from out of state), and there will probably be more than a few local gate crashers like myself. Judging from the list of events and keynote speakers, it appears that this conference will focus largely on public-private partnerships, changing demographics, and the current state of capital and real estate markets. This is a broad swath of subject matter, with only one specific mention of "the challenges facing cities as they witness the demise of the suburban ring" in one of Friday's sessions. I suspect that others will touch on the topic as well, but with greater emphasis on topicality and immediate returns for investors. Like all industry groups, ULI must answer its membership's question of "What can you do for me right now?"

When the ULI conference closes on Friday, many will head straight to Las Vegas for the International Council of Shopping Centers' annual mega retail convention, RECon, which officially begins on Saturday (although most people fly in Sunday night or Monday). In past years, this event has ranged from an insane bacchanalia with a flurry of deals to a more somber drunkfest of desperate moping and hoping for signs of life. To illustrate my point, consider that 2007's conference was marked by a ridiculous all out blitz by Dubai World and wildly expensive and exciting parties hosted by each of the major finance companies, whereas 2009 brought us more modest parties hosted by financiers and a lot of cozy cocktail hours hosted by various commercial brokers; 2010 was much the same as 2009.

Nearly every major national retailer and developer must show up at RECon, as well as anyone else wanting a piece of the pie. The frenzy of professionals flocking to Vegas culminates in an almost overwhelmingly large sea of hungry networkers toting stacks of business cards and brochures from one over-the-top booth to the next, as well as a number of back room deals and dinner business meetings. This year, there seems to be a renewed emphasis on educational events geared specifically toward the agent/broker or retailer communities, although there will also be several workshops and plenary sessions focusing on issues like sustainability and revitalization. The driving force for addressing these topics, however, is pragmatism and expediency in making deals rather than providing vision for the future.

The commercial real estate industry's lack of vision is disappointing, since the real estate sector as a whole faces an existential crisis at present (or perhaps it's emerging from one). But I worry about whether industry leaders have properly balanced the appropriate recovery mechanisms to fully emerge from this crisis. According to Norwegian philosopher Peter Wessel Zapffe's essay "The Last Messiah," there are four basic protections or remedies for a paradoxical dilemma such as this one:

•  Isolation -- "a fully arbitrary dismissal from consciousness of all disturbing and destructive thought and feeling" [I'd say the real estate industry's collective ego does well enough to avoid thinking of the negative, having even adopted a sort of positivity mantra.]
• Anchoring -- "characterised as a fixation of points within, or construction of walls around, the liquid fray of consciousness. Though typically unconscious, it may also be fully conscious (one 'adopts a goal')." [Again, I'd say we're mostly good here. See 'workaholic' and strong sense of ideology, the latter being more in keeping with the general provisions of anchoring.]
• Distraction -- "One limits attention to the critical bounds by constantly enthralling it with impressions." [Here we can thank the ego-pleasing nature of buildings, in keeping with Zapffe's proscription that distraction is "'high society's' tactic for living." This is especially true of landmarks and other highly creative developments.]
• Sublimation -- "a matter of transformation rather than repression. Through stylistic or artistic gifts can the very pain of living at times be converted into valuable experiences. Positive impulses engage the evil and put it to their own ends, fastening onto its pictorial, dramatic, heroic, lyric or even comic aspects." [This one, while periodically present in the field of commercial real estate, is all too often lacking. This shall be our focus going forward.]

As you can see from the above synopsis of Zapffe's remedies for an otherwise destructive "life-panic," they appear to take on a progressive or hierarchical nature. Sublimation, for instance, is both the rarest and most advanced means of protection afforded to humankind. In illustrating the meaning and importance of sublimation, Zapffe states:

"Unless the worst sting of suffering is blunted by other means, or denied control of the mind, such utilisation is unlikely, however. [my emphasis] (Image: The mountaineer does not enjoy his view of the abyss while choking with vertigo; only when this feeling is more or less overcome does he enjoy it- anchored.) To write a tragedy, one must to some extent free oneself from -- betray -- the very feeling of tragedy and regard it from an outer, e.g. aesthetic, point of view. Here is, by the way, an opportunity for the wildest round-dancing through ever higher ironic levels, into a most embarrassing circulus vitiosus. Here one can chase one's ego across numerous habitats, enjoying the capacity of the various layers of consciousness to dispel one another."

Precisely because most of the survivors in commercial real estate have had their "suffering blunted by other means," I worry that the industry cannot transcend to this stage of higher existence. The voice of stewardship -- both in our financial markets and land use -- will continue to ring loud and clear. Many great thought leaders have already become intellectual celebrities in the aftermath of one of the US's greatest ever real estate market crashes (some, like noted economist Brad DeLong, are even featured or mentioned at the conferences described above). But their influence remains strongest in the academic world and their views are most often seen as slightly thought provoking rather than providing prescient guidance for industry practitioners.

The ULI, for instance, in reaching out to local academia, selected Arizona State University president Michael Crow as a keynote speaker at its Spring conference. Michael Crow has been credited with everything from reviving downtown Phoenix to making the city's light rail system a success (some even say he conceived of or implemented the light rail itself). Sounds impressive! But really, all Michael Crow needed to do was to show up and stick with a plan that was already in the works. This took courageous leadership, but not exactly the kind with which he is too often credited. His greatest contribution was to merge the Tempe and Phoenix campuses, which helped promote light rail use as well as to encourage residential and mixed-use development in downtown Phoenix and the oft-ignored "Discovery Triangle" corridors. But to be fair, Crow nearly blew up the deal for Phoenix's biomedical campus due to a naming controversy with the University of Arizona (I wish I was joking about this) and unnecessarily risked burning other bridges upon his arrival in town. He worked out the naming issue with UA, but eventually decided to pull ASU's support (and naming rights) anyhow for financial reasons, which ultimately worked out for the best. But let's be fair: the city and federal governments took a greater role in filling the financial void left by Crow's ASU withdrawal in order for UA to make the project a success, just as others pitched in to help ASU with its downtown campus.

Who else do I think would have been more deserving of a footnote speaker's slot at the conference? A few options come to mind rather easily. ASU recently launched its Institute for Sustainability, while UA boasts its respected Drachman Institute and Professor Gary Pivo's Responsible Property Investing Center (in conjunction with Harvard). Each could have likely added more to the discussion than Michael Crow, and each has far more to gain from positive industry attention.

After all, the ULI's theme this year is "Adapting for the Future," and the local flavor offered by way of "special interest tours" and "mobile workshops" focuses mostly on Phoenix's historical ingenuity in place making (Taliesin West, prehistoric irrigation canals, and tribal economic development, to name a few topics). I wish the group delved deeper into the underlying principles that engendered such impressive feats of engineering and enterprise, and I wish they carried this theme forward more aggressively in discussions about infrastructure and urban revitalization. But I worry that we'll remain stuck in dealmaking mode and demanding that ULI make us more profitable right now. We already know that this will be the case for RECon this year, but I have higher expectations for the Urban Land Institute.

Arizona's Immigration Problem Is Other States' Gain

Arizona has decided to seek a Supreme Court hearing on it's flawed SB 1070 law, which saddens me as a resident of the state. Utah took a much better position on immigration, accounting for its potential regional advantage by countering the vitriol in Arizona with a friendlier voice. Texas, too, has mostly played this one well. But Arizona has decided to double down on a flawed strategy instead of seeking better solutions and paving a way to prosperity for itself.


People on both sides of the immigration debate remain too partisan in general, and in a crazy tribalist or provincial sense of the word. Remember, we still haven't done much in the way of addressing the root problems and assigning costs versus benefits of the status quo versus any prospective solutions -- but there's already a lot of good info out there that could help guide policy decisions.

In 2007, the Congressional Budget Office completed a report that explains quite clearly why we've been lagging in coming up with a comprehensive modern solution for immigration. In its report, the CBO corroborated other evidence that immigration, both documented and undocumented, tends to create positive growth for the U.S. economy. Furthermore, undocumented immigration has not cost the federal government nearly as much as it has created in revenues through economic growth. But the report did indeed state that immigration creates a strain on state and local governments' budgets.

So if we're wondering why the Feds have failed to address concerns of states like ours, it boils down to economics and national priorities. The fact that our federal government has been dragging its feet doesn't invalidate Arizona's claim that immigration is costing the state more than its fair share, but I also can't understand why our state has been so sensational in its approach to the problem. We want something done to help AZ, right? Then let's make a deal.

My proposal is one more like what New York achieved in the 19th century by implementing a massive immigration processing center called Ellis Island (we all know Ellis Island, but many didn't realize that it was borne out of a vicious immigration debate like today's). There were certainly calls to limit immigration or institute a strong quota system (which came later) -- one could argue that immigration was even more burdensome on New York's local economy at the time than it is on border states now -- but the federal government also knew that our country needed the economic growth from immigration at the time. So they reached a compromise that brought many federal jobs to New York and New Jersey as well as easing the burden previously shouldered by New York City and the state of New York. Not only that, but the Ellis Island move also took away some of this new immigration activity from other states that were serving as major ports of entry at the time. Big win for New York in the 1800s, and I think something similar would be a major win for Arizona in the 21st century.

Why must we continue to bicker and give credence to deep seeds of hatred, when we can instead ask what's in this for us? Further restricting immigration or sticking with the status quo does nothing to help Arizona. Creating a meaningful reform policy and embracing our geographical advantage as a major port for immigration could very well fix our current problems and provide much needed economic diversification and growth going forward. Where is this kind of solution in the mainstream debate?

Strike One for Lodging and Flash Sales

We've all seen the discussions about using flash sites. The best article I've found as a reference is this one, featuring hospitality journalist/blogger Adam Kirby. Still, I don't think the travel industry or any others should write off such flash sales entirely, as suggested by many. They should instead respect these deals for what they are and make good use of them as a marketing tool.

But to really understand how these flash sales work and how my industry can use such a promotional tool, I should try it out as a consumer, right? Of course! Thankfully, I received multiple opportunities in December 2010 and booked a couple that offered seriously deep discounts. They both offered plenty of time to book a reservation, so I was merely awaiting a change in weather and more free time to plan my trips, perhaps even as a combo since they were both in the same part of the state.

But all has not gone according to plan.... I received an email from groupon earlier today notifying me that my purchase from a dude ranch in southeastern AZ would be refunded due to a problem with the deal. From reading the discussion page on groupon's site, I gathered that they had overbooked the ranch and were immediately getting rid of the offer.... "sorry for any inconvenience."

As a hospitality industry professional and experienced traveler/yelper, I can't help but be critical of the ranch's handling of this situation. There's already been a great deal of controversy within the hospitality industry about utilizing flash sales like Groupon (and a weak consensus thinks it's always a bad idea). But these guys decided to do it anyway, offering an amazing discount and making too many groupons available, which resulted in the ranch being overwhelmed. Not good, but it's an understandable mistake and groupon deserves part of the blame for not foreseeing this eventuality. Now it's time to make things right.

If they want happy customers, the dude ranch should clearly explain what happened and offer customers a choice. I know that I was pleased enough with the deal that I'd opt for a rain check; others may want to cancel, in which case perhaps they should also receive a peace offering like a percent-off future stay coupon. In this case, we would all at least know what's happening and have some say in how we can each be made whole by the ranch's mistake -- we might even sympathize and become more loyal followers of the business.

Instead, I predict much resentment for this dude ranch as a result of the "sorry, but here's your money back," email. Many, like me, were probably trying a dude ranch for the first time and could indeed become repeat customers, especially given the proximity of this one. It is somewhat isolated, but near a single major feeder market (and not too far from a couple others), so I'd argue that the flash sale might have prompted a desirable outcome for the ranch. I somewhat doubt that this will now be the case. Bummer. Next!