...Yesterday, we discussed the financial model and size of investment required for large commercial developments Here's an interesting article stating that large, full-service hotels have a tough time getting off the ground: http://www.hotel-online.com/News/PR2007_2nd/Apr07_ FinancingHotels.html
That said, several upscale brands have proven successful with 200-400 rooms, hence the popularity of these brands in the marketplace and the availability of easy financing and capital investment. This option has been the immediate alternative suggestion from any developers to whom I've mentioned the Tucson plan for a 700-room convention center property.
Off the record, I think Tucson could win big by incentivizing one or two competing brands to build at the 200-400 room tier, along with encouraging the existing downtown hotel to renovate and pick up a decent flag, while still leaving some funds available for other related programs. Here's a list of available brands the city may want to pursue, along with a viable mix:
*Hilton, 307 Rooms (based on converting Hotel Arizona)
*New full-service hotel, 350-400 Rooms (Sheraton, W, Crowne Plaza, Intercontinental, Wyndham, Radisson, Doubletree, Hyatt, Four Seasons, Renaissance, Embassy Suites)
*New upscale select service, 120-250 rooms each (Courtyard, Hilton Garden, Cambria, aloft, Indigo, Hyatt Place, etc)
*New upscale extended stay, 100-200 rooms each (Homewood, Staybridge, Residence Inn, Element)
*New midscale products to compete with dilapidated supply along I-10 corridor
...I would not easily dismiss a nice, newly constructed midscale or upscale select-service product, as these will only encourage bigger developers with incremental gains in achievable rates - a big issue in the Tucson market, due to a typically slow summer season and high amount of government business year-round.
Judging by the most recent article in Saturday's Daily Star, other professionals agree that Tucson's hopes for the convention center hotel are unrealistic. But an easily winning strategy may be to go after something like this:
307-room Hilton (conversion)
400-room Hyatt or Renaissance (or something unrelated to Hilton)
200-room upscale select-service property
150-room upscale extended-stay
200 rooms of midscale brands (2 properties...)
------------------------
=1,350 rooms of class-A branded hotels added to the downtown, and better market segmentation
Right now, Tucson is not hitting the radar for most of the brands, even though it's one of my top markets. This should tell you something about the existing demand. It is wonderful for midscale and marginally tempting for upscale hotels; although upscale hotel developers would prefer to build somewhere closer to existing upscale areas, surrounded by other upscale retail and dining, etc. The only way to change that dynamic is to incentivize them, which the city already proposes, but do it better than in the existing plan.
Tucson could easily get more bang for its buck by setting its sites on easier targets. A relatively small incentive could make for a very lucrative deal when you're looking at a $10-50 Million investment that already has a place in the market. Let's consider someone building a $50-million hotel/mixed-use building, plus a $20 Million renovation of the existing hotel, plus a new $25 Million hotel, and a couple of $15 Million hotel projects. By offering a small chunk to each of these developers, you not only build up more than the proposed number of rooms downtown, but you also start the ball rolling for other me-too developers. Incentivizing a $130 Million hotel project that barely makes economic sense, if at all, is a far more expensive and unfeasible investment than dividing that investment into smaller chunks. Also, you can limit the funds to encourage competition from owner/operators and franchise companies, rather than handing over one big lump sum to a project that might not be sustainable.
I don't even stand to gain from this proposition, but I felt strongly enough about it to put this lengthy email together.... I also can't imagine the city throwing so much money into something that doesn't even make as much economic sense as many of the less expensive alternatives. FYI, if either plan moves forward, I stand to lose a great downtown site that will likely go up in value to the point that my clients won't want it. But when the dust settles, at least a package deal means incremental growth, which tends to be very contagious and better for everyone involved.
Sunday, October 31, 2010
Tucson Convention Center Hotel
As I digest the news that the Tucson City Council has definitively voted down the TCC deal for now, I realized that there was this fairly thoughtful email (if I do say so myself) that I wrote to a friend on the city council on the subject, dated April 2006. Almost everything I said back then would still apply today, except that they already did try to scale the project down slightly and obviously the credit markets are a tad different now.....
Thursday, August 26, 2010
On Self-Cannibalization in Real Estate
I'm sure this view will draw the ire of many professional contacts, and I would mostly understand.... We are driven by the market and too often lack the power to make huge changes in "the way things are done." But I also hope that you recognize the flaws in how things have been done in recent years -- and not just from an economic perspective, although perhaps reevaluating our typical investment strategies/perspectives could go a long way in making things better. I'm speaking of course about the community impact of real estate, since these two components of our world are inextricably linked.
What happens when the economic life of an investment has expired? What is one's responsibility to the community with regard to the grayish area of perceptions of blight, value, impact, etc.? And finally, how does an all too typical 3-5, or even 10-year investment timeline impact the likelihood that we leave blight in our wake while moving on to create "greatness" or other "enhancements" and "community amenities?" Is there a better investment strategy that also accomplishes more in the way of making our world better? Thankfully, there are many leaders in the real estate, planning, and economic development communities finally asking these questions and applying the scientific method to our varied theories of how things ought to be done. I plan to focus on these elements going forward, hopefully blogging more frequently than I have in the past with some thought provoking issues and their proposed solutions.
For now, I offer my follow-up comments on an article that appeared recently in the local newspaper, The Arizona Republic. This article was posted by local business leaders seeking to take back greater control of Phoenix and frustrated that the retail landscape here is mostly undesirable to small businesses for one reason or another -- mostly due to not offering the kind of main street connectedness that they seek within the market, and yet local businesses should be the key to an economic recovery. So without further ado:
As we throw around such massive amounts of money in the development industry, I feel that it's perhaps important to remember what it should mean to "invest." We're dealing with a rather illiquid investment instrument here, after all. So why not try to reap the greatest possible long-term rewards by directly serving the community and always gaining buy in from the local residents who will inevitably become customers, strategic partners, and even co-investors in a project? I know several successful developers already employing this kind of strategy to their projects, but think the industry as a whole has a long way yet to go.
What happens when the economic life of an investment has expired? What is one's responsibility to the community with regard to the grayish area of perceptions of blight, value, impact, etc.? And finally, how does an all too typical 3-5, or even 10-year investment timeline impact the likelihood that we leave blight in our wake while moving on to create "greatness" or other "enhancements" and "community amenities?" Is there a better investment strategy that also accomplishes more in the way of making our world better? Thankfully, there are many leaders in the real estate, planning, and economic development communities finally asking these questions and applying the scientific method to our varied theories of how things ought to be done. I plan to focus on these elements going forward, hopefully blogging more frequently than I have in the past with some thought provoking issues and their proposed solutions.
For now, I offer my follow-up comments on an article that appeared recently in the local newspaper, The Arizona Republic. This article was posted by local business leaders seeking to take back greater control of Phoenix and frustrated that the retail landscape here is mostly undesirable to small businesses for one reason or another -- mostly due to not offering the kind of main street connectedness that they seek within the market, and yet local businesses should be the key to an economic recovery. So without further ado:
If you've been in any area of Phoenix for a considerable amount of time, just reflect on how that area has evolved over its first two decades (or the last two if it's an older part of town). What too many in our real estate industry readily accept as a cyclical market is really just wasteful self-cannibalism in many cases.
Having grown up in South Tempe, I often think about all the office space and retail that was built on the edges of Awhatukee. Back in the 90s, this was one of the hot spots to be in the Phoenix area, but then the market "shifted." The reason for the shift? Ambitious new plans for Chandler Mall and the 101 corridor. The same thing has happened again and again throughout Phoenix, and we end up with dilapidated shells of buildings that serve little value unless, miraculously, the surrounding neighborhood gets "revitalized."
The failure of this formula is that our community often treats housing exactly the same way -- get into the neighborhood while it's new, sell high, and move on to the next booming area..... How's this working for us today? Is it maybe time for a change in how we treat our surrounding community and overall environment? I think so.This issue has been on my mind quite a bit lately. In fact, as I type this, I await the final word on a controversial zoning hearing for a downtown permit application to demolish an older Phoenix hotel. One of my acquaintances appeared in this news story about the case and he has blogged extensively about it. I too have engaged in many quite similar debates about prematurely laying older buildings to waste, or overbuilding a particular area in one way or another with little regard for the surrounding land uses, infrastructure, and/or community needs and wants.
As we throw around such massive amounts of money in the development industry, I feel that it's perhaps important to remember what it should mean to "invest." We're dealing with a rather illiquid investment instrument here, after all. So why not try to reap the greatest possible long-term rewards by directly serving the community and always gaining buy in from the local residents who will inevitably become customers, strategic partners, and even co-investors in a project? I know several successful developers already employing this kind of strategy to their projects, but think the industry as a whole has a long way yet to go.
Sunday, April 11, 2010
What Will Future Generations Contribute to Our Economic Development
The Kaiser Foundation recently published a not-so-surprising report about increased media consumption among 8-18 year old kids. The KFF survey, as you probably expected, demonstrated that overall media consumption has risen significantly in this age group. However, it's equally important to note that TV viewing remained fairly stable, as did book reading. So while others reprint the study's findings and emphasize deterioration in grades among heavy media users, I'd like to go ahead with the alternative hypothesis that "The kids are alright" -- a line more or less straight from "Talkin' bout my [dad's] generation."
How is this relevant to us? Well, for the same reason that other business-related media sources are discussing this topic: The kids are our future and they've got plenty of disposable income, family spending influence, and time on their hands (not to mention their potential future lifetime purchasing behavior, which is quite valuable to businesses catering to teens). Duh! Like, seriously, it's so lame I had to even point that out. But then it's also important to me because, as you can quite clearly see in my last sentence, I am now part of the adult ruling class -- inept at capturing an even remotely passable tone of today's teen language -- and frankly, somewhat frightened about our lack of connection with teens today. As I work with fellow community leaders an real estate professionals in my own neighborhood, it's become clear that we had better work with the kids who are often vandalizing private property and potentially threatening our local businesses, or else see our community deteriorate in the future. To better work with them, of course, we need to better understand them and relinquish some of our perceived control (which is mostly futile anyway, in my opinion) -- in other words, genuinely try to collaborate. This begins with learning to appreciate their worldview and how it may be different or similar to ours.
Furthermore, let's look at the ways they develop that worldview, via media consumption patterns and application to other aspects of their lives.
In our post-information age, we often like to think we've somehow progressed beyond the simple need to produce and present information as a means to advance our collective knowledge and innovation base -- yet this remains a critical focus in much of our lives. The mere availability of information in a disorganized and uncontrolled environment arguably remains one of our biggest hurdles to effectively utilize media to enhance knowledge on a widespread basis. (Yes, media companies do indeed organize information, but typically as a sole means to meet their demand feedback loop, which often contributes to bias and closed-mindedness).
If increased media consumption is indeed acting more as a distraction or mindless escape to our youth (and their parents), then maybe we ought to focus more on enriching it to promote intellectual curiosity. Why should a teen's grades begin to fail because he/she spends more time taking in media presentations? I can't fathom why, twenty years into the information revolution, we haven't found a way to make learning more stimulating -- unless we have and we just don't realize it (see, for instance, the current dialog about how we are already using the all-new iPad and its promise for mobile computing).
The three questions we need to ask are:
1. Are we evaluating the wrong measures of learning, by failing to account for positive aspects of increased media consumption;
2. What ever happened to our once strong cultural respect for the venerable fourth estate (great post about financial coverage here) and the ongoing value of creativity expressed through contemporary art or, better yet, direct observations about pop culture; and
3. Why are we highlighting the perils of media consumption, rather than focusing on opportunities present in this finding? We should be taking notes on the popularity of interactive and multi-platform media in the commercial space, typically developed to either enrich private sponsors' marketing opportunities (i.e. click-throughs, surveys, etc.) or to enhance the value of an entertainment franchise (i.e. Star Wars, Lost, Avatar, Nine Inch Nails, and others using ARGs or similar). What's wrong with using these examples to promote better parallel learning mechanisms? (And yes, I know that some are doing this, but why not en masse?)
Just as when I was a student in the 80s/90s being told to beware outdated maps in the library, or assertions about scientific findings that were since disproved, kids today should be encouraged to forge their own learning paths to some extent. From the top-down perspective, we could use closed captioning or voice-/ video-enhanced text at an early age to help with language acquisition. This could then be paired with a bottom-up approach that enables students to seek ways in which they can explore related media (for fun or learning) or perhaps contribute their own interpretations through wikis and discussion boards. Meanwhile, this could better train teens to seek contextual clues to the often dreaded classic literature, history, humanities, or boring science lessons -- which in turn better promotes the notion of democratized and engaged learning.
I'm a little disappointed that the study emphasizes the fact that parental media rationing is key to getting kids back on track. Instead, what if parents and teachers did a better job of engaging with their kids in more enriched media consumption? As a kid who grew up on the tail-end of gen X, I see the same perception wall that hindered communication about media consumption in the 80s, where it was too often viewed as a purely recreational activity in one's leisure time that crept into more productive activities. This attitude contributed to a popular uproar over Ronald Reagan's observation that video games should be used to develop the skills necessary to our military -- how long did that view take to institutionalize, 20 years? Or my parents' early lack of understanding about my music consumption habits, which helped create a passion that I leveraged into more critical interpretation of media -- I still benefit from this as an adult. And would you really complain that a future environmental biologist or investment banker is glued to Discovery Channel or CNBC as a teenager? What better time has there been to learn from available media, and at the same time teach kids to analyze and understand the source.
So this just looks to me like the saga continues between kids and their parents, who "just don't understand," as stated by one of my dad's favorite actors, Will Smith. Hey, wait a minute, I thought he was one of us....
How is this relevant to us? Well, for the same reason that other business-related media sources are discussing this topic: The kids are our future and they've got plenty of disposable income, family spending influence, and time on their hands (not to mention their potential future lifetime purchasing behavior, which is quite valuable to businesses catering to teens). Duh! Like, seriously, it's so lame I had to even point that out. But then it's also important to me because, as you can quite clearly see in my last sentence, I am now part of the adult ruling class -- inept at capturing an even remotely passable tone of today's teen language -- and frankly, somewhat frightened about our lack of connection with teens today. As I work with fellow community leaders an real estate professionals in my own neighborhood, it's become clear that we had better work with the kids who are often vandalizing private property and potentially threatening our local businesses, or else see our community deteriorate in the future. To better work with them, of course, we need to better understand them and relinquish some of our perceived control (which is mostly futile anyway, in my opinion) -- in other words, genuinely try to collaborate. This begins with learning to appreciate their worldview and how it may be different or similar to ours.
Furthermore, let's look at the ways they develop that worldview, via media consumption patterns and application to other aspects of their lives.
In our post-information age, we often like to think we've somehow progressed beyond the simple need to produce and present information as a means to advance our collective knowledge and innovation base -- yet this remains a critical focus in much of our lives. The mere availability of information in a disorganized and uncontrolled environment arguably remains one of our biggest hurdles to effectively utilize media to enhance knowledge on a widespread basis. (Yes, media companies do indeed organize information, but typically as a sole means to meet their demand feedback loop, which often contributes to bias and closed-mindedness).
If increased media consumption is indeed acting more as a distraction or mindless escape to our youth (and their parents), then maybe we ought to focus more on enriching it to promote intellectual curiosity. Why should a teen's grades begin to fail because he/she spends more time taking in media presentations? I can't fathom why, twenty years into the information revolution, we haven't found a way to make learning more stimulating -- unless we have and we just don't realize it (see, for instance, the current dialog about how we are already using the all-new iPad and its promise for mobile computing).
The three questions we need to ask are:
1. Are we evaluating the wrong measures of learning, by failing to account for positive aspects of increased media consumption;
2. What ever happened to our once strong cultural respect for the venerable fourth estate (great post about financial coverage here) and the ongoing value of creativity expressed through contemporary art or, better yet, direct observations about pop culture; and
3. Why are we highlighting the perils of media consumption, rather than focusing on opportunities present in this finding? We should be taking notes on the popularity of interactive and multi-platform media in the commercial space, typically developed to either enrich private sponsors' marketing opportunities (i.e. click-throughs, surveys, etc.) or to enhance the value of an entertainment franchise (i.e. Star Wars, Lost, Avatar, Nine Inch Nails, and others using ARGs or similar). What's wrong with using these examples to promote better parallel learning mechanisms? (And yes, I know that some are doing this, but why not en masse?)
Just as when I was a student in the 80s/90s being told to beware outdated maps in the library, or assertions about scientific findings that were since disproved, kids today should be encouraged to forge their own learning paths to some extent. From the top-down perspective, we could use closed captioning or voice-/ video-enhanced text at an early age to help with language acquisition. This could then be paired with a bottom-up approach that enables students to seek ways in which they can explore related media (for fun or learning) or perhaps contribute their own interpretations through wikis and discussion boards. Meanwhile, this could better train teens to seek contextual clues to the often dreaded classic literature, history, humanities, or boring science lessons -- which in turn better promotes the notion of democratized and engaged learning.
I'm a little disappointed that the study emphasizes the fact that parental media rationing is key to getting kids back on track. Instead, what if parents and teachers did a better job of engaging with their kids in more enriched media consumption? As a kid who grew up on the tail-end of gen X, I see the same perception wall that hindered communication about media consumption in the 80s, where it was too often viewed as a purely recreational activity in one's leisure time that crept into more productive activities. This attitude contributed to a popular uproar over Ronald Reagan's observation that video games should be used to develop the skills necessary to our military -- how long did that view take to institutionalize, 20 years? Or my parents' early lack of understanding about my music consumption habits, which helped create a passion that I leveraged into more critical interpretation of media -- I still benefit from this as an adult. And would you really complain that a future environmental biologist or investment banker is glued to Discovery Channel or CNBC as a teenager? What better time has there been to learn from available media, and at the same time teach kids to analyze and understand the source.
So this just looks to me like the saga continues between kids and their parents, who "just don't understand," as stated by one of my dad's favorite actors, Will Smith. Hey, wait a minute, I thought he was one of us....
Thursday, April 8, 2010
Latest Phoenix Home Sales Data -- March 2010
I can't help but be a nuisance when it comes to this kind of information: http://bit.ly/cU7dcm. But seriously, the story could have been better reported. And just in case the paper deletes my comment, here it is:
...Rather than seeing a detailed report that breaks out different price ranges, is it safe to assume the following:
Foreclosures are continuing to occur across the board with single-family homes and multifamily. This in turn disproportionately affects multifamily units, which almost always lag single-family homes in the greater Phoenix market. Add to this the fact that excess inventories are finally coming to market in the multifamily sector and it's a double whammy for condos/townhouses.
Meanwhile, stability in the employment market is bringing buyers back to the table, while at the same time having the unintended consequence of more short sales or strategic walk-away activity. Since the fringes of town already saw prices drop so significantly last year, they are now starting to stabilize. Thus, price volatility is going down in the burbs, but still not increasing like more established neighborhoods, as people simultaneously become more selective in terms of location. Thus, we can now all breathe a sigh of relief that the housing crisis is over, totally ignoring the fact that it's an asymmetrical "recovery."
And finally, how about the biggest elephant in the room, which is the federal tax incentive set to expire in April/June, combined with the end of the Fed's mortgage purchase program. It seems that there are plenty of reasons to lock in those purchases and mortgage rates now, rather than a few months from now, which means we'll probably see the same positive numbers for a couple of months. But what do 3Q and 4Q 2010 hold in store for us? I wouldn't be willing to bet on it.
Not at all factually based, but the article left us to guess what was going on...... How did I do? And if you really appreciate my perspective, then by all means, I invite you to check out my blog -- where I somewhat casually try to cover this kind of information: http://bit.ly/9YQJoe.
Wednesday, April 7, 2010
E&Y Says Distressed Acquisitions to Pick Up in 2011, Not 2010
I couldn't have said it better myself, although I will admit that in the last year and a half I thought that we would see an uptick in distressed buying by 3Q of 2010.
An important note on this activity is that, to date, many deals are still happening off-market and debt is slowly trickling back into play -- at least that's been my observation. What are you seeing for the market? Will transactions rise to any significant level in 2010, or are investors still waiting? My guess is that it depends on the market, where truly undervalued deals in locations with high barriers to entry are already transacting again. But 2011 fits my estimate of increased buying in speculatively developed suburban markets that are finally seeing their fundamentals stabilize.
Here's the Globe Street article:
An important note on this activity is that, to date, many deals are still happening off-market and debt is slowly trickling back into play -- at least that's been my observation. What are you seeing for the market? Will transactions rise to any significant level in 2010, or are investors still waiting? My guess is that it depends on the market, where truly undervalued deals in locations with high barriers to entry are already transacting again. But 2011 fits my estimate of increased buying in speculatively developed suburban markets that are finally seeing their fundamentals stabilize.
Here's the Globe Street article:
Tuesday, April 6, 2010
Home Ownership and Community Wealth
Felix Salmon wrote an excellent post on Reuters today, regarding the rationale for a sustained bear market in housing and common public misgivings about home ownership:
http://bit.ly/buWCHt -- That's what I'm talking about, except to say that an increased rate of home ownership is detrimental to the economy, per se. It all depends on how you prioritize different economic factors. If you value productivity above all else, then a more mobile workforce is certainly better in our economy -- but this doesn't seem to matter nearly as much to most communities as it does to the ones where business is centered.
I'd also like to add that for many people, the anchoring effect of ownership is comforting when, in fact, we are taking ownership of our property rather than merely paying endless debt. One question that I would add to the research is how many people realistically plan/want to stay where they are. Not only can ownership help provide financial security for the individual home owner, but it can create stability in the regional market. The latter effect is negated when people choose to move every 5-7 years, but perhaps that trend will also abate in the near future. Thoughts?
http://bit.ly/buWCHt -- That's what I'm talking about, except to say that an increased rate of home ownership is detrimental to the economy, per se. It all depends on how you prioritize different economic factors. If you value productivity above all else, then a more mobile workforce is certainly better in our economy -- but this doesn't seem to matter nearly as much to most communities as it does to the ones where business is centered.
I'd also like to add that for many people, the anchoring effect of ownership is comforting when, in fact, we are taking ownership of our property rather than merely paying endless debt. One question that I would add to the research is how many people realistically plan/want to stay where they are. Not only can ownership help provide financial security for the individual home owner, but it can create stability in the regional market. The latter effect is negated when people choose to move every 5-7 years, but perhaps that trend will also abate in the near future. Thoughts?
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