Going places? Post bust is inflection point for Phoenix

Criticism of the Phoenix metro area clusters around a few main themes: The city is not sustainable, it’s not walkable and it’s just a giant bedroom community with too much sprawl and too few well-paying jobs. So where does metro Phoenix go from here, on its way to 2035? Perhaps, two experts say, it’s time for the real estate sector to move from a purely transaction-focused economy to a transformative economy — and start making places.

Criticism of the Phoenix metro area clusters around a few main themes: The city is not sustainable, it’s not walkable, and it’s just a giant bedroom community with too much sprawl and too few well-paying jobs. How did the city end up this way? The critics offer similar analyses: A housing bust that dragged down an economy too reliant on construction, real estate developers and investors too focused on doing deals and moving on. And the bust was not a single incident, but rather the latest in a pattern of boom and bust.

So where does metro Phoenix go from here, on its way to 2035? Perhaps, two experts say, it’s time for the real estate sector to move from a purely transaction-focused economy to a transformative economy -- and start making places. “This time there is a more widespread loss of faith in development. Construction and development alone cannot be our economic base,” said Jack Tomasik, a Chandler-based consultant in economic and community development. “It was just too easy … like we were hooked on this stuff.”

Tomasik, who has worked in regional/urban economics and planning in metro Phoenix since 1983, was on campus recently to speak to students in the Master of Real Estate Development (MRED) program. KnowRE used the opportunity to listen in on Tomasik’s conversation with MRED Director Mark Stapp about the Valley’s prospects for 2035. They also touched on what it will take to set a positive direction for the city, and what the changes could mean for real estate developers battling back from the bust. Stapp thinks the Valley ought to learn from the downturn by aiming higher than mere survival, higher than simply trying to achieve success, and go all the way to economic transformation.

If residents can identify a unique brand for the Valley and the future they want, he says, communities can organize public policy and resources to drive real estate opportunities in the desired direction.

Place-making

Stapp believes that executing on a community’s vision for itself depends on developers. “Lawmakers don’t, elected officials don’t, administrative staffs don’t, neighborhoods don’t and community groups don’t build communities. Developers build communities,” he said. When developers’ projects succeed, he notes, it fuels success at the local level, which in turn helps the region succeed and the nation succeed. The two experts say that the time is right for looking forward.

Cities and towns in Arizona are updating their general plans, which are designed to guide their development and character over the next 10 to 20 years. That formal process provides a natural opportunity for communities to figure out their best roles in the region and nation – to decide what kind of place they want Phoenix to be -- and to formulate their plans accordingly, Stapp says. Developers then become place makers, he said, taking factors like education, culture and health into account to create desirable places that will become sustainable communities. “The advantage of being place-making focused rather than transaction focused is that you get to control the environment,” Stapp said. “You get to create the attractiveness.

The question is, what is ‘attractive’? What is our brand, our differentiator as a place competing with others places to operate a business and live? How will we adapt to and capture value from changing demographics, rapidly evolving technology and shifting values? Together these are disruptive to the norm.”

Visualizing heritage

In a micro version of what metro Phoenix could do, Stapp is challenging his MRED students to come up with plans for redevelopment in the Heritage District of the southeast Valley town of Gilbert. He says this is a good example of the urbanization of our suburbs.

Gilbert is looking inward for opportunity and defining a sustainable place. Stapp wants the teams to think beyond building a building and more about the role real estate plays in a place’s evolution. He wants them to look at demand -- at what people want and need in the space -- all as a prelude to offering the right building at the right time and right price, and then building toward a sustainable community. Tomasik thinks there are good reasons for metro Phoenix to focus on sustainable communities and sustainable economies. “The global economy is not dependable.

The national economy is not dependable,” he said. “Corporations are too big, and they’re global in scope -- they’re no longer tied to any particular nation. Economic growth, I think, has to become much more community-based.” Rising energy and water costs, along with the now-apparent flaws in the Valley’s suburban-tract growth model, make Tomasik think fundamental changes in communities are coming.

“There are a lot of good reasons to locate in the center of the metro core: its proximity to light rail -- its walkable, bike-able, transit-orientation to the variety of things you need and want in your daily life,” he told the MRED class. “Wean away from the car and begin to live more in the community.”

Outline for discussion

The trick, Tomasik and Stapp agree, is that sustainability has many different meanings and different models. But to go beyond “building buildings” and start “making places” – places that prove sustainable -- the two would have Valley residents, leaders and developers consider these things:

• Changing demographics.

Tomasik says he is fascinated by how generations differ, from the ways the recession affected them to the quality of jobs available to each group. Boomers who bought their homes in the 1970’s-80s are likely to still have equity and be able to sell, he observed. Gen Xers in their 30s and 40s with the right skills are likely to have good full-time jobs, but saddled with big homes bought during the housing bubble.

Millennials are having trouble finding good jobs, are postponing marriage and thus having fewer children. And, since the employer-employee contract has broken, both generations will continue to job-hop, making them more likely to rent and less likely to buy homes. “There are some massive sea changes going on right now,” he said. The generations also differ in their use of technology. Millennials expect to use their devices to connect anytime and anywhere, Tomasik notes -- a trend that translates into greater use of public transit and fewer solo trips by automobile.

• Transportation and transit.

Tomasik cited an ongoing study by the Maricopa Association of Governments, titled “Sustainable Land Use and Transportation Study,” which looked at the relationship between transit and employment patterns in the region. The Valley’s light rail system, the study found, already connects some of the region’s highest-density clusters of employment in sectors that are considered supportive of transit, namely government; knowledge-based industries including finance, information, professional services to management; and entertainment sectors, including arts, hotels and restaurants.

Other growing areas of the Valley with the potential to support ridership and connect employees with employers include the Scottsdale Airpark, Deer Valley and the ASU Research Park/Silicon Highway corridor along Price Road. The findings are important because they give the Valley’s real estate sector clues to the types of industries that would be most desirable and most successful along current and future transit routes, the two experts say.

• Economic development, integrated with building and land development.

“Developers have to get out of the box of saying, ‘I’ve built a building, now I’ll go find a tenant,’ and get more proactive in creating those tenants,” Tomasik said. Phoenix is waking up to that idea, as seen in the growth of business incubators like downtown Phoenix’s Seed Spot and in the Local First Arizona movement to encourage spending with small businesses, which historically create most U.S. jobs. Neither Tomasik nor Stapp thinks chasing corporate headquarters is the Valley’s best jobs-boosting strategy. They favor ways to boost home-grown companies and create corporations rooted in the community.

One opportunity Arizona has is to expand its role in the global supply chain, Tomasik says, as manufacturers look to Mexico as a solution to rising wages in China and trans-Pacific shipping costs. Another study recently conducted for regional planners raises the prospects of the Tucson-Phoenix corridor becoming a freight transportation and logistics hub for the southwestern United States.

Envision, for example, goods produced in Mexico arriving at import distribution centers around Tucson International Airport, or goods for the global market being manufactured around Phoenix-Mesa Gateway Airport. From those sites, goods could be transported to mixing centers at Interstates 10 and 8 near Casa Grande for distribution. Phoenix’s West Valley plays a role, too, as a forward distribution center for goods headed west and north.

• Politics.

Development does not exist in a vacuum, and plenty of projects over the years have stirred up controversy in city halls across the Valley. Neighborhood opposition to apartments, for example, is a force to be reckoned with. “It’s just an unfortunate mentality about how we view rental housing. It’s that, ‘We don’t like others that aren’t like us’ ... and it’s only in retrospect that you show people it’s an unfounded fear,” Stapp said. On the plus side, place-makers need political leaders to help create the public policies and infrastructure that support sustainable, desirable communities.

• Investments, both public and private.

Education, culture, health and physical and social infrastructures all take investments, so financial capital is a big consideration when creating significant social capital necessary to create sustainable places. Public investment in physical and social infrastructure is critical – it leads the way.

Also, locally focused private capital sources are equally critical. Global corporations have less incentive to invest locally than did the hometown banks of 30 or 40 years ago. At this point, however, it’s not clear who or what will step up to take their place and provide vital investment capital.

Post bust: A time for reflection

Post-bust may be a good time to reconsider the Valley’s future. The era of “drive-to-qualify” suburbs separated from commercial and industrial areas by miles of freeway might be over, passed by in favor of desirable communities that mix jobs, single- and multi-family housing, transit, retail and entertainment. But is it really different this time? Keeping an eye on the magnitude of the effect of rising energy costs and on the magnitude of the effect of globalization on U.S. jobs and wages could help reveal whether the changes we see now are permanent or merely temporary.

Regardless of the future the Valley chooses for itself, 2035 can’t and won’t be forever. Phoenix is very, very early in its process of maturing, and even mature cities like New York continue to change and evolve. “No city,” Tomasik says, “is ever a finished place.” Let the place-making begin.