Can you tell first hand looking at the site what's 'on-the-market' for this private wealth-creation company????
Nearly every one of the eight commercial properties bought before the end of 2017 look the same or stand vacant - and that's after 3 years!
Inserted below are approved minutes of last month's Economic Development Advisory Board meeting.
| File #: | 20-0307 |
| Type: | Minutes | Status: | Agenda Ready |
| In control: | City Council Study Session |
| On agenda: | 3/19/2020 |
| Title: | Economic Development Advisory Board meeting held on February 11, 2020. |
| Attachments: | 1. 2020-02-11 City of Mesa EDAB Approved Meeting Minutes |
4. Caliber’s Downtown Mesa Investment and Vision
Rodney A. Riley has been with Caliber Companies for about a year as the Director of Acquisitions and Development. About half of his career has been spent with large institutions out of New York including Tishman Speyer, Westinghouse and ITT, and the other half with entrepreneurial firms like Caliber. He also built his own firm and was the US partner for a German syndicator. Caliber has been around for more than 12 years and has a diversified portfolio with over $300 million in equity raised in six discretionary funds. One is an Opportunity Zone Fund, which is one of the reasons why Caliber
[Economic Development Advisory Board Meeting Minutes February 11, 2020 Page 2 of 9]
continues to buy here in Mesa. Caliber is a vertically integrated company and does everything in the real estate development realm from trees to keys.
Their vision is in line with what the city residents want and what the Mayor and Council wants.
> The newest and biggest building Caliber purchased is 305 West Main which is the former Wells Fargo building.
> Caliber also owns three apartment buildings, one with a heart-shaped tub at 206 West Main. The building at 114 West Main was an antique store with an apartment above, and 155 West Main was the old Coors distributorship, which would be nice to keep in that field with a local brewery.
> Some of the other buildings, such as 48 West Main or 18 West Main, could accommodate smaller restaurant users. There is a need for restaurants and a variety of different supportive services in and around downtown Mesa.
> Caliber is doing the best they can to get people there, although many say the rent is expensive. The current rent in downtown Mesa is $10-12 per square foot, whereas Caliber’s rents are $26 per square foot.
What is Caliber’s game plan?
Mr. Riley stated Caliber has already started some of that process.
The 155, 137, and 202 buildings that have been vacant have been gutted and are ready to be redeveloped. They are in the process of redoing the old bank building at 29 West Main. The most noticeable is 202 West Main because it has so many windows. As much as we want and need a restaurant, it is still a struggle to get people to make that commitment and to see the future vision of where the city is headed. The ASU groundbreaking has resulted in some interest. They are close to a significant user for the 114 building, although that will unfortunately displace one of the biggest antique stores. Fortunately, that entity also uses the 120 building.
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BOARD QUESTIONS/COMMENTS:
Chair Ovando-Karadsheh understood that the market drives business, but why are people having that hesitation?
Mesa is growing, it is the 35th largest city. What is it about our reputation that keeps brokers, developers and businesses from signing on the dotted line? What can we do better as a City? Is it branding or because it is slow to get things processed through the system?
Mr. Riley stated it was definitely not that. It is nothing governmental. The City of Mesa is fantastic to work with. He has offered to every potential restaurant to take on a significant part of their operating costs in terms of rent for nine months to a year to encourage them to come here. Caliber is also willing to do a $12 per square feet rent, although without any tenant improvements. One of the reasons he heard is that it’s not ready, it’s not time. It will take that first person being convinced that they can make it and hearing the story that Caliber is here to support them and put them in business.
If anyone in this group knows of a restaurateur looking to be here, he can put together a deal to put them in business. What Gilbert has created; Mesa Main Street already has. We need more bodies downtown so we can increase the demographic. ASU will help with that in the coming years. Dominic Perry asked if the dollars spent on tenant improvements would be framed as a short-term bridge loan so that businesses can start up operations and then be able to go to a bank with a proven
[Economic Development Advisory Board Meeting Minutes February 11, 2020 Page 3 of 9 ]
track record, or will they be charged extra rent on a long-term lease? Would Caliber be a partner in that business? Mr. Riley explained that the tenant would commit to Caliber on a long-term lease, and Caliber will spend those dollars to not only refurbish the building but put equipment in, which is an investment allowed in Opportunity Zones.
Caliber would not be a partner, but simply a landlord that is giving them the money to build out that space as needed for their business as well as extending a free rent period.
He would rather abate that rent to someone that is actually operating a business than have the empty space that we have today. Mr. Perry understood that the tenant improvement would be a mixture of cash for equipment and improvements as well as free rent. Mr. Riley advised that Caliber would do the base building improvements and give the tenant $60 per square foot for tenant improvements to spend how they want. In addition, Caliber would give the tenant free rent to make them comfortable that they can make it work.
Chair Ovando-Karadsheh asked if Caliber would take a percentage. Mr. Riley stated they would not take a percentage. Caliber understands on these first deals they are not going to make money, although they are not making money today on those buildings. He would rather have someone in there creating some activity. He asked artists in town to fill the windows of vacant buildings with art to create some activity and vibrancy. In the 202 building, when people are brought in for a potential lease, there is an artist there working. Rich Adams noted the comment that it’s not ready and it’s not time. That is very specific, yet very vague. He asked if Mr. Riley has heard concerns about parking? Mr. Riley stated the issue of parking does come up every once in a while. People generally understand that it’s an urban environment and that there are some challenges associated with parking. We talk about the Light Rail and all the public parking that is around the area, although there are some future solutions to be considered. If there is a change from the kind of development that exists today to something of more intensity, parking will be tough. So far, no one has said they could not be there simply because of parking, although that might become relevant in the future. At the end of the day, 400 to 500 public parking spaces hopefully won't come close to managing the kinds of people that might be in downtown. Councilmember Jen Duff has come across as some of the reasons the demographics and density. With the significant number of residents that live down here, it is hard to find anything to rent or buy. Vacant land is less dense, but other than that, it is the least dense square mile in Mesa. She can see the need for residents here. Even the restaurants we have now struggle with the ups and downs. Having those residents will really help get things going. Chair Ovando-Karadsheh felt the four-day work week was an issue from a restaurant’s position. Fridays are a big day for people to go out to eat. When you take all the city employees out on Friday, Saturday and Sunday, that represents a lot of the density and that disrupts what is a normal cycle of people dining. People don’t go to lunch typically on a Monday; they go on Friday or go to happy hour on Friday. If they work downtown, they will stay, but they won't necessarily come back. That changes the vibe of what you would find in a normal downtown district. Councilmember Duff noted getting residents here will help change the demographics. She asked what the going rate was in Chandler for rents. Mr. Perry believed it would be in the high $30s to low $40s. Mr. Riley stated very few people were doing the kinds of improvements that Caliber would do coupled with the free rent.
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need those TI dollars, but just needed a low rate, Caliber can do that and still offer the free rent. The free rent is their commitment to make sure that a tenant doesn’t go in and then say they need to wait on people to fill their doors. There is a small demographic downtown, although they are not necessarily people that are coming down to Main Street to eat on a regular basis. Mr. Riley stated Caliber has paid $15 million for the ten buildings in Mesa. The Opportunity Zone requirements are a one to one which means we have to put $15 million in. That is why it is important for Caliber to give those kinds of tenant improvements because it fits in line with the legislation. A video put together by Chris Loeffler, CEO of Caliber, was shown on the development potential of their buildings acquired in downtown Mesa in an Opportunity Zone.
Mr. Riley noted that the area used to be really vibrant. Now we have the Light Rail down the middle, ASU is coming as well as 1,500 multi-family units that are in the planning stages. That is all great news. Caliber’s vision is to use their buildings as the frontage on Main Street that would lead people back to some of the other mixed-use or multi-family development that could happen behind those buildings.
The church is way out in front in terms of bringing a new feel to downtown and that will set a tone. For the typical Mesa resident, there will be that shock in terms of Caliber’s $26 per square foot rent for an apartment downtown versus the existing $10 per square foot. It will be a unique market there and any bodies that come downtown will make a big difference.
Councilmember Freeman, as a life-long resident of Mesa, remembered the days when the Salt River Indian Community would hitch their horses and wagons and come to downtown Mesa to buy groceries. Today we have the Light Rail which is an underutilized asset within our community that we can leverage into our business opportunities. In downtown Mesa we have the infrastructure, we have the buildings, although we are way behind on living space for downtown. With students coming in, by their third or fourth year their parents will be buying or leasing apartments for their students to live in the downtown.
He sees the downtown becoming very vibrant in the next two years.
The Opportunity Zones are huge for reinvestment as well as the tax benefits. He is excited to work with the Mayor, Council and others to revitalize our downtown. The pulse is slow here. He is excited about the vision and appreciated Caliber moving forward with their investment properties. He asked about a timeframe. Mr. Riley is committed to making it happen.
They are not in the business of empty buildings. They are investors in real estate and the idea is to make money in that real estate for the investors that trust us with their money. They want those buildings full and vibrant and active.
Councilmember Duff asked if Caliber was in the process of acquiring the Courtyard Towers.
Mr. Riley stated Avista Senior Assisted Living came to Caliber with an interest in acquiring Courtyard Towers and converting it from their main line of business to market-rate apartments. That is currently under contract. The reason that property is available is because it is a failing business. Avista has the ability to transition the people living there today into other facilities.
> Caliber has a real desire to own multi-family units here in town, although there is a significant amount of deferred maintenance in the building.
> Caliber is trying to figure out how to accomplish that as today’s rents will not support the extensive amount of work that needs to be done in that building.
Bill Jabjiniak asked about Caliber’s marketing plan to fill all of these buildings with their unique financial structure.
Mr. Riley stated they work with CBRE, and in particular Jamie Swirtz who has focused on Mesa for the last five years. Back when he started, Mesa had not gone through a significant growth and was not a focus of the top brokers in the county. Mr. Riley served on the CBRE leadership group when Jamie came on board. When Caliber bought the buildings in Mesa, he wanted Jamie on the team. They have held broker open houses last year at the 202 building and brought a couple hundred people out here who had never been on Main Street during the day. They are building a portfolio of information and content to push out in a variety of ways to people that would be interested in Mesa in general and more
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specifically, their buildings. They talk about the benefits of being in Mesa and encourage people to be on Main Street because anyone coming in will be beneficial to the balance. Caliber will fill their buildings at some point, but they want all the buildings they bookend filled as well.
Mr. Jabjiniak confirmed that those properties were listed in CoStar and asked that links be sent to him so that his staff can be engaged of all the opportunities and the vision. He noted the GRID reached out and he gave them four leads for space. We have opportunities that want to be on top of the Light Rail.
Mr. Riley advised that the Mesa team had sent two opportunities to Mr. Swirtz regarding the 305 building.
Bill Jabjiniak noted that having the Wells Fargo building in play is great. Now we have some office space existing down. In today’s market, product win projects. Having it ready to go gives us the chance to compete. Mr. Riley advised that it would be easy to paint and carpet the open space on the second and fourth floors in the 305 building in order to make it available in a matter of days. They are redoing the main lobby, elevators and restrooms in the common and will build a spec suite to show the new look and feel. They are spending the money to make sure that someone can see the vision.
Brian Campbell was very impressed with the basic blocking and tackling of marketing an area. It is a necessary effort to achieve all this. He was struck between the juxtaposition of that blocking and tackling and the vision. There is a key role that the city can play along the lines of our success in the Asian District and Falcon Field where we were able to broaden the vision and articulate it beyond any of the challenges. Caliber has that broader vision. How can the city step in on a marketing piece to help build on the success of Caliber?
Mr. Riley mentioned some discussion on promoting neon as an aspect of the redevelopment. The Yoga building has a cool sign that he can't wait to light up with something different.
In recent conversations with Jeff McVay there was discussion on bringing back a group that now represents some pretty significant investments with the GRID at $75 million, what Opus will do on John Graham’s property at $150 million and Caliber’s $30 million. Those three entities alone will definitely be spending marketing dollars to shine a light on downtown. Caliber wants to make sure their vision is hand in hand with what Mayor and Council wants.
Mr. Jabjiniak stated we had success in Falcon Field by realizing what we have and don’t have and then selling some of the great points.
The Asian District took off quicker than expected.
Councilmember Duff has asked us to now focus into another corridor coming in the next fiscal year with the Broadway piece. This area could use the same type of fusion of marketing and branding. There was money set aside in his Economic Development budget to get some of that done and he is looking to carry that over to the next fiscal year. There needs to be laser focus on the vision and outlining the path to get there. Now we need to the tell story and have it all around one brand. Councilmember Duff stated one of her objectives coming onto Council is creating that vision and inviting people to that vision. DMA is going through strategic planning and their vision. The Downtown Transformation Office will be engaged and are waiting for the Census to be done. She has been working within those efforts to press forward to have a holistic vision as a city of who we are. If the city doesn’t do that, whoever will show up at our door and develop on our streets will define who we are. We need to create that vision. It is our responsibility as a city and a downtown community to put that to the forefront. Chair Ovando-Karadsheh stated the free market wants to move faster. Business wants to move at light speed, and cities often do not. That is one of the challenges. The city may get their vision done when the economy turns down and everyone will go away. As a Board, we want to get people together to sit down and within a few days nail down a vision. Another concern that this Board sees on many levels is the economic cycle. As things are taking longer, whether it is development agreements or getting through permitting or other issues, we see that clock ticking and that time is precious. We are not at
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the beginning of the cycle. It is now 2020 and we hope that we have a few more fantastic and amazing years. We need to move fast. Chair Ovando-Karadsheh thanked Mr. Riley and appreciated what Caliber is doing on behalf of the Board and Council. We are glad they have made the investment in downtown and look forward to great things in the future.
5. Business Prospect Report Q2 Kim Gram, Economic Development Specialist, reported that the number of prospects generated increased by 7% from 140 to 150 in the past quarter. New job potential increased 8% from 22,000 potential jobs in the previous quarter to over 24,000 in Q2. Annual payroll potential was up 12%, square footage potential increased 3%, although capital investment potential went down. We had 36 industrial prospects needing 100,000 SF or more in Q1 with a combined capital investment potential of over $4 billion, whereas in Q2 we had 43 prospects needing the same square footage but with less combined capital investment potential of under $3.3 billion. Under prospect status, we had less projects that were actually qualified into a project in Q2, most likely due to the holidays, although the prospect source remained about the same. Operation type and prospect industry mostly stayed the same with slight increases in manufacturing and technology. The real estate snapshot shows the industrial prospects looking for 100,000 SF or more went up from 36 last quarter to 43, and the number looking for under 100,000 SF reduced. There were 4 more office prospects looking in the 10,000 to 25,000 SF range and there continues to be an oversupply of available office space with small square footage. Dominic Perry asked what was in the pipeline for industrial projects that will deliver in 2020. Bill Jabjiniak reported that southeast Mesa has 600,000 SF to deliver in Q2 with another 524,000 SF being approved that will deliver next year. Those can be either single or multi-tenant. One is designed towards logistics and another is 118,000 SF with a lot of play on existing single tenant type uses. There is other product being developed on the Airport which will have different demands. There are three or four things proposed on the south side of the Airport. In the downtown and west Mesa side, we are seeing some interest. There is a lot of activity on the Metro East Valley Commerce Center property at Horne and the 60. The first phase did very well, the second phase has a lot of activity and they’re currently in the permitting process for another 5 buildings. Those can be either big buildings of 150,000 SF or combined 75,000 and 80,000 SF. There have been inquiries and movement in the west Mesa side for multi-family taking the place of commercial. A lot of the big square footages want to be in the western side, although there is no inventory over 100,000 SF. The Falcon Field market has developed some nice things and Majestic is delivering now. We still have some space on Higley south of McKellips. Majestic has proposed 2 buildings and has site plan approval waiting for a tenant at Virginia and Greenfield south of the 202. The opposite side of Greenfield has 6 buildings proposed for industrial space of 75,000 SF. There is activity on the 150,000 SF at Longbow under agreement. When that goes, they will start on the next phase which turns the corner on Longbow Parkway. The hotel finally broke ground there as well. Things are moving in terms of inventory, but the demand is still huge. Mr. Perry felt we have potential for 1 million SF of industrial in 2020. He wanted to get the word out that the inventory is coming. Mr. Jabjiniak noted 605,000 SF delivering at the Landing 202 in one project. There is inventory delivering this year and more planned for 2021. Years ago when we did the Falcon Field piece, we realized we didn’t have a big enough floorplate or tall enough ceilings. But we told the story of how close it is to the 101 and 202 and how easy it is to get there. Developers came, there was investment
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and we are starting to see things happen. Southeast Mesa is on fire. He only wished we could build more quickly. We should also see activity on Elliot Road this year in terms of construction. Chair Ovando-Karadsheh credited the Office of Economic Development and Mr. Jabjiniak as it was three years ago this Board talked about this very statistic. Nobody understood the importance of getting spec up so that we could sell it. We didn’t have the projects; we didn’t have the developers that were willing to invest. Looking at the GPEC report, there were 52 office prospects looking for existing space, one build-to-suit and one no preference, and for industrial there were 41 prospects looking for existing space, 18 build-to-suit, and 12 no preference. The Board talked every month about the lack of product. It is so important to see the success of that visioning and that we are now able to attract these businesses to our community because we actually have buildings for them to go in and most of them are ready to go. People don’t want to wait 24 months for something to be built. Mr. Perry felt the critical piece is that we continue as a Board to protect that growth from encroachment of things that will impede that growth, whether it is the airport or the technology corridor. Those are the pieces that will help this city grow and become more economically viable in its standing in the country, not just the state. That needs to be protected. Mr. Jabjiniak advised that the Landing Phase 1 with 6 buildings is completely sold out. That gives an idea of the demand in the market. Our investment in infrastructure years ago at the bottom of the recession really made a big difference. The office inventory is changing with the Union and another proposal in that region, although we still don’t have the inventory. On the GPEC report, there were no office prospects over 200,000 SF. The market has changed to smaller users. The big boys have already made decisions and moved because we didn’t have the product. We are still seeing activity; we will just have to tweak it a little bit with some of the new Union space. We continue to see interest in office in northwest Mesa and now we are starting to see some interest because of the demographics and what is being built in the Gateway area with the VIVO development and others popping up. The success of Rivulon in Gilbert is only a few miles from the Mesa border. If we can put office there, it will make a big difference. Chair Ovando-Karadsheh asked about the difference in demand for Class A versus Class B looking at the Wells Fargo building redevelopment that Mr. Riley spoke about. Is there any demand for Class B+ office space? Mr. Jabjiniak advised that we are seeing interest in office space, although we don’t yet have Class A office space. We do see a lot of interest in Class B. Right now, if you want a higher wage, people are moving towards a better product and better location. If we had that in the right spot, we could fill it. The demographics in southeast Mesa parallel what is going on at 24th Street and Camelback. That comment came from a broker/developer discussion. Brian Campbell was concerned that the GPEC large office users won't be there because we don’t have the product. He suggested we take this as a time to retool and refocus an office strategy similar to what we did on the industrial side that bore the fruit. If the large users are not coming into the pipeline now, we need to take this as an opportunity like when we invested in our infrastructure during the downturn of the market. We need to develop a long-term vision and strategic plan for the office growth into the next window so we don’t miss the large product. Mr. Jabjiniak felt that was a fair comment. There are larger office users in the market, but they may have been from a previous year, not in the last six months. Trends start to tell stories. The product is coming, we are just at the tail end. We are testing the market in southeast Mesa because the demographics are changing. He is trying to get the bigger users and higher wage jobs. Mr. Campbell noted the smaller space play historically has not born fruit. We need to keep our vision on the larger users but chase it more intentionally. Mr. Perry felt the most important thing in terms of the office and industrial is being able to protect the land that we have. A lot of other cities in the East Valley do not have land. With the office that is
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coming in west Mesa, people will be pushing out of Tempe because they do not have any more land to develop. Along the freeway where Rivulon is, they don’t have any more land. By the airport in Chandler where they do have land, they are bumping up against residential that is keeping them from going bigger. Even things that were approved before the market change will need to be completely revamped because of the residential market that they allowed to grow up around that area that is a potential for jobs. As a Council and as an advisory board, we need to protect that future growth and that space, because it doesn’t exist anywhere else in the East Valley. Kim Gram continued with the year over year report, January to December 2019 versus January to December 2018. The prospects generated increased 15% from 130 in 2018 to 150 in 2019. Job potential went down 31% and annual payroll potential went down 44%. The square footage potential increased by 108%. During the past quarter, there were a lot more prospective industrial users with 43 needing 100,000 SF or more versus 28 in 2018. We saw the same quantity of office prospects coming in 2018 as we did in 2019. Capital investment potential was down 47% from nearly $1.8 billion in 2018 compared to $198 million in 2019. There were 17 more prospects in open or active status compared to a year ago and almost half as many were qualified into a project over the past year compared to this year. About 16% less prospects came directly from companies. Under Operation Type, 47% of prospects were predominantly looking for manufacturing type facilities, which was up from 41% a year ago. The manufacturing industry saw the largest increase of 6% from last year, technology saw a 2% increase, and professional and business services dropped 2% from this time last year. Mr. Campbell asked about the reasons for the change in the year over year numbers for prospects generated, new job potential, and payroll potential. In terms of capital investment potential, Ms. Gram stated the types of businesses that were coming through just needed standard manufacturing buildings rather than more complicated structures. She also advised that there was a mega user in the 2018 calendar year, which caused some of the drop. She will make note of such unique circumstances in future reports. Mr. Jabjiniak stated in general, we are fighting for every job we can get, but technology takes over and replaces people fairly regularly. Companies are increasing their production with robots and not as many people or jobs, which makes a big difference.
6. Director’s Update William Jabjiniak introduced John Perez, a senior at ASU working as an intern in the Office of Economic Development. The State of the City focused on a number of the things we touched upon this morning as well as the Asian District. Jaye O’Donnell and David Packard led that effort. Economic development will continue to be a major focus in retelling the story of Mesa, whether it be Falcon Field, the Asian District, or other areas. Mr. Jabjiniak served on a panel for A-Z Biz Link’s 2020 Economic Update in January with a lot of focus on workforce and the impacts to growth in the future. Monday, February 24, 8 a.m. The GRID groundbreaking with a ceremony at 9 a.m. Tuesday, February 25, 8 a.m., 24/7 InTouch grand opening and ribbon cutting ceremony at Southern and Country Club. Friday, February 21, Mr. Jabjiniak will serve on the Valley Partnership panel for the Valley Economic Development Update—Trends, Tools and Our Future. March 11-12, Mr. Jabjiniak and Travis Cutright will speak at the National DataCenter & SmartCity Summit. March 6, Business to Baseball Industry Day. Let Mr. Jabjiniak know if you can attend.
