The Ground Floor

New Research Examines Impacts of Phoenix Population Shifts

Despite speculation to the contrary, the population of metropolitan Phoenix appears to have remained unchanged or has dropped only slightly since 2007, meaning the area could be better positioned for recovery than has been widely perceived, according to new research from the Urban Land Institute’s (ULI) Center for Balanced Development in the West.

The implications of population shifts in the area, in terms of future housing needs, job growth, and economic viability, were examined today during a forum, "Real Demographics: Positioning for a Recovery in Today’s Arizona," hosted by the ULI Center for the West and ULI Arizona.

The event centered around the release of Influx/Outflux: Metropolitan Phoenix, new research that evaluates the degree to which the population of Phoenix has fluctuated since the beginning of the recession in 2007. The report notes that while the state government’s 2007 population estimate of 4.2 million is probably high, the level it actually reached--it was measured at 3.9 million in 2005--has likely not changed much, despite the housing market collapse, high number of foreclosures and precipitous job losses over the past two years. (The actual population total will not be known until the 2010 U.S. Census statistics are released.) The report was prepared to help guide plans for the area’s economic recovery and future growth.

The report emphasizes the significance of pinpointing even small variations, either up or down: "Important decisions must be made during the coming year--in both the public and private sectors--that will depend on knowing how the population has changed. The difference between positive 1 percent and negative 1 percent population growth could translate into perhaps $1.5 billion in gained, or lost, income and sales tax revenues--and billions more in revenues for private enterprises," Influx/Outflux report says. "In terms of land use, it could mean the difference between new housing demand on the order of perhaps 15,000 units or, alternatively, a 1 percent rise in total housing vacancy. The region’s decision makers cannot wait for data from Census 2010 to be released if they are to lay plans in anticipation of an economic recovery."

The report is based on a review of three types of population data: population counts (an actual tally or survey); population estimates (statistical models including some types of U.S. Census Bureau information); and population indicators (including employment, births, deaths, undocumented immigrants, school enrollment, utility customers, and available housing and household size.)

Of these three main measurements, the population indicators offer perhaps the most up-to-date look at how the population is changing, the report explains. "They stand in contrast to population estimates that show steady and positive growth, as well as news reports that suggest significant population losses. Rather, these indicators show that the size of the region’s total population has probably remained unchanged from 2007 through the present."

Among the indicators suggesting that the population has leveled:

• Employment – The jobs/population ratio at end of 2008 was 0.44, the lowest in 15 years. However, two-income families who have lost only one income are more apt to stay in the area and get by on one income than relocate.
• Births – Live births declined by 4.8 percent annually since 2007, but the birthrate is down nationwide as people adjust their plans because of the recession.
• School enrollment – Growth in student enrollment dropped to almost zero during the last two years.
• Utility customers – Virtually no growth in customer accounts has occurred since mid-2009, but no significant account cancellations have been recorded.
• Available housing/household size – While housing vacancies have risen due to economic hardship, so has the number of households “doubling up” and expanding to accommodate family members who have lost their homes.

If the 2010 Census data supports the contention that the population of metro Phoenix has leveled off, the area must adapt to a new growth dynamic vastly different from the 3 to 5 percent annual growth rate it experienced during much of the past four decades, Influx/Outflux says. "It will take sustained growth in the region’s base economy to reignite population growth, since there are already many more workers in the region that must be absorbed before the employment base can support new residents," it states. "This means taking steps to create a regional economy where a greater share of business activity is dedicated to building wealth by producing goods and services that are globally competitive."

Second Home Buyers Still Looking

This post was written by Trisha Riggs, vice president of communications for ULI.

Despite the recession, high-end second-home buyers are still in the market, willing to purchase homes that meet their needs and desires but do not display conspicuous consumption, according to resort specialists speaking at ULI’s 2009 Fall Meeting in San Francisco.

According to a recent survey of second-home purchasers conducted by American Lives, the affluent are increasingly drawn to smaller units--provided they have the same amenities as larger, luxurious homes--because the downsizing is perceived to be more “politically correct” in the current economic environment of layoffs and budget cuts. 

American Lives President Brook Warrick said second-home buyers are still viewing the purchase as a personal reward, but that many of today’s buyers are purchasing the homes not as places to escape, but as gathering places to reconnect and re-establish bonds with family members and friends.

Life stages, said Warrick, are the best predictors of when purchasers will enter this niche market: 1)immediately upon retirement; 2) just prior to retirement; and 3) empty nesters still working, but who have different housing needs. What they aren’t compromising: any feature related to health and wellness--the one area that has not experienced any decline in consumer demand. These active, upper-income baby boomers are determined to stay fit and healthy, and are not content to age in just one place, but in several places, any of which could serve as a primary residence.

Also appealing: places that include educational components, and those that offer opportunities for altruism. "Being part of the greater community is very important to these buyers," said Toni Alexander, president and creative director of InterCommunications. Rather than presuming to know what the market wants based on pre-recession activity, it’s critical to examine how those buying preferences have changed, she said. "The world has changed, and once we understand that, we can do great things in design (of second-home and resort communities)."

Business Management Tips from Leading Author

This post was written by Trisha Riggs, vice president of communications for ULI.

In a rough economic environment, forget success--pursue excellence as the goal, and success will ultimately follow. So says Tom Peters, author of the highly acclaimed 1980s management skills book, In Search of Excellence, and a keynoter at ULI’s 2009 Fall Meeting in San Francisco.

According to Peters, being the best is far more important--albeit harder--during economic downturns. "It’s easy to be smart when the market is up. It counts for a lot more in tough times," he said. Peters reminded attendees that excellence itself is more than a goal; it’s a strategy that relies on skilled, thoughtful execution.

Among the no-nonsense, tried-and-true business management tips from Peters:

• Don’t be clever--stick to simple fundamentals in determining what course to follow. The financial collapse and recession can be traced to actions by "clever people," he noted.
• Visit all the company’s offices regularly; stay in touch with what’s going on throughout the organization. It’s a practice, Peters quipped, that could be called "managing by wandering around."
• Remember that "soft is hard and hard is soft," meaning that the soft side of the company--the human aspect of managing relationships with employees, clients and customers is more challenging than creating business plans.
• Listen. Effective listening is a skill that is of the highest strategic importance, that shows others that you respect them and honor their opinions.
• Get to know people at all levels within the organization.
• Don’t be afraid to apologize when mistakes are made; it’s a sign of integrity. "The real problem is not the problem itself. A poor response to a problem is the real problem."

The true measure of successes--or failures--is about the "humanity, care, decency and thoughtfulness" with which they are handled, Peters said. "There are no greater times than tough times to illustrate who you really are…It’s not your net worth that matters, but what you see when you look in the mirror."

Light at the End of the Tunnel

This post was written by Trisha Riggs, vice president of communications for ULI.

Has the financial meltdown ended? Yes. Is the recession over? Yes. Will the employment outlook improve anytime soon? No. So, while an economic recovery may be on the horizon, it will be a largely jobless recovery, meaning there is plenty of pain forthcoming for real estate. That was the consensus of a group of leading economists and industry practitioners speaking at ULI’s 2009 Fall Meeting in San Francisco.

Kenneth T. Rosen, chairman, Fisher Center for Real Estate and Urban Economics, Haas School of Business, University of California Berkeley, pointed to several factors that will hamper the real estate recovery: 1) the likelihood that interest rates--kept artificially low during the lending crisis--will start to rise now that the financial stress has been relieved; 2) slow economic growth (despite the recent boost from sales generated by the "cash for clunkers" program; 3) very slow job growth; 4) minimal consumer spending. Rosen’s odds for a "fragile" recovery: 65 percent. Rosen’s silver lining for real estate: for-sale housing, a sector already showing positive signs, and which will continue to be buoyed by the federal government’s extension of a home buyer tax credit.

Raymond Torto, global chief economist for CB Richard Ellis, weighed in on the commercial sector with some statistics showing that higher vacancies are expected for the office, industrial, multifamily and retail sectors in the months ahead. In general, most sectors are "well on their way to hitting bottom," but growth in all property types will be stymied by the fact that some of the jobs lost in the U.S. have been permanently lost to other countries, he said.

Any significant rise in U.S. employment will not occur until around 2013, Rosen predicted. For next three years, he said, industry professionals would do well to focus either on government projects or 'build-to-suit' projects.

Still, despite the lackluster economic outlook for the nation as a whole, it pays to find the bright spots, which are mainly on the nation’s coasts, panelists said. There are vast differences in local real estate markets and business strategies should be mapped out accordingly, noted George Marcus, chairman of Marcus and Millichap and Essex Property Trust. "Now is the time to look hard at where to buy and build," he said, pointing to the San Francisco metro area as one example of a very tight housing market with promising job growth.

Torto pointed out that cities in the U.S. with economies centered on emerging technologies such as alternative energy are the ones with the most promise. "There are opportunities…there are deals to be made," he said. However, the returns will be generated by income, not necessarily property appreciation, he added.

Surviving and Thriving

This post was written by Trisha Riggs, vice president of communications for ULI.

A big part of weathering real estate cycles is using the downturns wisely--to polish professional skills, develop post-recession strategies for growth, and keep employees motivated, according to four industry icons who offered survival tips at ULI’s 2009 Fall Meeting in San Francisco.

James D. Klingbeil, chairman and chief executive officer of Klingbeil Capital; Gerald D. Hines, chairman and owner of the Hines real estate organization; Joseph Brown, group chief executive of design and planning at AECOM; and Robert B. McLeod, chairman and chief executive officer of Newland Communities--collectively with about 200 years of industry experience--reminded attendees that longevity is about sticking to the basics of sound business practices. Surviving and thriving, they said, is a matter of staying  focused on such fundamentals as providing excellent service to clients, hiring the brightest and best, mentoring employees through tough times, and offering a product that is a cut above the rest.

Among the advice from the panelists:

• Do the best work you can locally, no matter how many places you expand--be the best provider in each market.
• Your integrity and that of your company should be your top priority--never compromise your values.
• Avoid becoming over-leveraged, even during times of easy credit availability.
• Make frequent visits to your projects--meet with your management and keep the communication flowing throughout your organization. Fear of the unknown has a paralyzing impact that stifles productivity.
• Seek ideas and heed creative direction from your best clients.
• Seek public-sector partners--public-private partnerships will be important catalysts for development that will help move the economy from recession to recovery.
• Above all, remember that real estate is a long-term business, and that no bust--or boom--lasts forever.

Top Four Markets for Real Estate

This post was written by Trisha Riggs, vice president of communications for ULI.

Washington, D.C. ranks as the top market in the United States for real estate investment and development, which, in the current economic environment, means it is the least troubled. So says the 2010 version of Emerging Trends in Real Estate®, released this week at ULI’s Annual Fall Meeting in San Francisco.

The widely anticipated annual industry overview, copublished by ULI and PricewaterhouseCoopers, was based this year on a record number of surveys and interviews with more than 900 developers, investors, brokers, analysts, researchers, appraisers, and academics. The overriding sentiment: No one is bullish on any particular market--even the perennial favorites such as Washington. Still, despite the faint enthusiasm, the report notes that "markets performing well before the crash will perform better coming out of it, while those lagging before will continue to lag."

The top four markets--all of which are gateway, 24-hour cities heavy on brain power with significant geographic barriers to entry:
• Washington: "Always the top market during recessions, buffered by the federal government;"
• San Francisco: "Highly volatile, but bounces back quickly;"
• Boston: "All those universities help buffer the market;" and
• New York: "Wall Street is down, but not out and always reinvents itself"

The number five market, Houston, is not a gateway city, but is an energy capital with a talented workforce, says the report.

Out of favor: manufacturing centers (mainly in the Midwest); secondary or tertiary cities requiring a flight connection to go overseas; formerly high-growth markets now suffering from overdevelopment and a bubble burst; and places where most development has been concentrated on the fringe.

Emerging Trends predicts that investment and development will start to pick up steam in a couple of years. In the meantime, those who are in a position to do so should buy or hold multifamily; buy hotels; buy distressed condos and second homes; buy land; buy or hold industrial; hold office; and apply a "triage" approach to retail.

Looking past the recession, "The future is about green development, infill, and transit-oriented development."

Demographics of the Next Decade Will Transform New Housing and Retail

This post was written for The Ground Floor by Robert Krueger, communications associate with the Urban Land Institute.

SAN FRANCISCO -- There is no doubt that the big question at this year’s ULI Fall Meeting is what the U.S. and international markets will look like once the recession is over. For those in the industry, they realize that this economic downturn is uncharted territory and uncertainty for the future leads to many unanswered questions. A session panel focused specifically on the next decade and the implications that changing demographics will have on commercial real estate and land use patterns. Specifically, the panel answered the question of how people of the next decade will live, play, and shop.

The panel discussed two main demographic groups that will drive the next decade’s housing market: Generation Y and their parents (the aging baby boomers). As one panelist, Deborah L. Brett, president of Deborah L. Brett & Associates, stated that the demand from these two generations will determine the location of housing and heavily influence the success of retail and office space. 

James H. Johnson, director of the Urban Investment Strategies Center at the University of North Carolina, got more specific by addressing what he called 'disruptive demographics."”  With this, Johnson referred to changing demographics that are seriously altering real estate development and needs that have been in place for over a generation.

"The browning and graying America will transform all of our political and economic institutions, but especially real estate," said Johnson. "Increased minorities, immigrants, and seniors make up this package."

Brett pointed to the implications of these two generations as well as other statistics that are changing the market.  These include:

• Little or no growth in purchasing power due to the expectation of continued stagnation of household income over the next decade.

• Changes in the work place, such as delayed retirement, working from home, and computer based virtual meetings instead in-person less business travel.

• Greater diversity in housing since there are more single households, nontraditional households comprised of multiple roommates, and more minority and immigrant groups.

Will commercial real estate be in a position to handle these changes? In a publication released at the Fall Meeting, Five ULI Fellows Present Ideas for the Next Years, ULI senior resident fellow John McIlwain, said that these two groups and other changing demographics "will bring long-term growth to cities and help redevelop town centers. The bad news is that it is unlikely that enough new housing can be built in urban areas to meet this growing demand.  The result is likely to be rising urban housing costs--good for developers and owners and bad for homebuyers and renters with limited funds."

New Models for Resort Development

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

SAN FRANCISCO -- What will resort development look like in a post-recession economy?  As investors experience the worse market collapse in a generation, the best and most talented professionals in the resort development industry have taken advantage of the current economic climate by researching and reinventing themselves so that they are better prepared for when people start buying again. During a session at the Urban Land Institute’s 2009 Fall Meeting in San Francisco, a few of these developers spoke about what innovative solutions are paying off and the industry transformation that they are experiencing.

The consensus of the panel appeared to be: The future of the resort will emphasize social and environmental responsibility. According to one panelist, Brian De Lowe of Viceroy Hotel Group of Los Angeles, California, the "resort development model of the past is dead." Lowe said that there needs to be a revised model for the industry that makes projects more adaptable to the market. There needs to be a diverse combination of brands instead of the "traditional resort." The old method of stamping out traditional-style resorts will not work in the future. He presented a "Triple Bottom-Line Thinking," which weaves the need to make profit with a wider balance of social and environmental responsibilities for the local community. While sustainable development is not a new concept, Lowe emphasized how this approach is attractive local governments. Particularly in tough economic times, partnering with government can help relieve some of the costs.

"Governments like being involved with such developments," Lowe said.  "They feel that they are helping to protecting the area's human heritage and natural landscape . . . such measures are attractive to buyers since it adds to an authentic experience that is unique."

Rebecca Zimmerman, president of Design Workshop, later spoke of what it means to be simple, in regards to amenities. She highlighted the need to create experiences and going back to nature." Social connection is truly important," she said. "Now, people need people, and people find social nourishment by engaging with others."

She emphasized that when people begin buying again, what they will look for is places that show social and environmental awareness. In addition, Zimmerman stated that simple, natural amenities are critical to attracting knowledge-based workers.

She pointed out the fact that 82 percent of the U.S. population walk outdoors for either fun or exercise and that such numbers show the growing trend of the future: a desire for simple amenities that do not cost $50 million each.

"It is about being simple and bringing people back to the places that are already built," Zimmerman added. "More is no longer better. The key is simple…but connected. What are needed are such things as easy acquisition to airports with daily flights to major cities. Economic growth is a combination of amenities, telecommunications, and availability to air travel. This brings a whole new obligation to sustainable development."

Paranoid Optimism: The Best Attitude Toward Economic Recovery

This post was written by Trisha Riggs, vice president of communications for ULI.

"Paranoid" optimism--a belief in the ability to overcome the negatives that could be coming--may be the best attitude to take regarding the economy’s recovery, according to renowned economist Bill Emmott. The former editor-in-chief of The Economist provided a global economic outlook during yesterday’s opening session of ULI’s Annual Fall Meeting in San Francisco.

Borrowing an analogy from former U.S. Department of Defense Secretary Donald Rumsfeld, Emmott said that moving from recession to recovery might best be analyzed by considering the "known knowns" versus the "known unknowns."

Among Emmott’s known knowns: 

• An economic recovery is underway to some extent in most countries, with the rebound in the U.S. and Western Europe being more gradual while China and India will be more immediate.
• Economic globalization and openness to cross-border trade has remained intact. "We are seeing some sense of global sharing of the rebound," Emmott said.
• A continuation of the fiscal stimulus in the U.S. and Western Europe helps to keep the momentum going.
• An acknowledgement that consumers remain cautious and that consumer spending will not lead the recovery.
• The likelihood that more government-funded programs will be created in the U.S., China, and Japan.
• The likelihood of tighter financial regulation in the U.S. and the U.K.

Among the "known unknowns":

• The extent to which consumers and corporations will pay down debt.
• How quickly eliminated jobs will be recreated.
• How quickly the value of Chinese currency will be re-evaluated in relation to the dollar. Quicker re-valuation so the currency is not artificially low would benefit world trade and revive U.S. exports, Emmott noted.
• The future of oil prices, which as yet have not reflected the global recession.

The known unknowns, Emmott said, have created a course of "uncharted waters" that could change the character of the economic recovery. His reasons for optimism: a belief that job growth will occur sooner rather than later; faith in the flexibility of the economy, particularly that of the U.S.; and encouraging prospects for U.S. exports.

"Be realistic but positive," he advised ULI fall meeting attendees. "There is much we do not know, but new situations bring as many positive possibilities for growth and change as negative ones. Paranoid optimism is the right feeling to have as we move forward."  

24th European Photovoltaic Solar Energy Conference & Exhibition

This post was written for The Ground Floor by Rick Abelson, ULI Council Member, and director at Online Land Planning in Redondo Beach, California.

The world’s largest solar PV conference was held September 21-25, 2009 in Hamburg, Germany. Online Land Planning had a chance to attend and used the event as an opportunity to understand the key players, learn about new technology, latest trends and assess the current state of the industry. Here are a few impressions of what I heard and saw:

1. The solar PV industry appears quite mature and poised to launch in dramatic fashion once global capital markets rebound and cash becomes available.  Japan, Germany and the U.S. remain the technology leaders. But now, there is overcapacity. So the goal is to maintain margins as prices get cut based on competition.

2. Solar PV manufacturers are being cautious about expansion and instead are focused on building market share. They are strategically looking for new opportunities in the 50-100 MW range.

3. To offset this concern and meet the pressing demand, a special ‘solar economic zone’ where a public – private partnership offers a business park setting, shared resources, tax and trade credits, green jobs, training and no government interference throughout the entire value chain - was proposed by India.

4. Governments trying to lure solar PV business into their regions have plenty to choose from as new competition enters the industry. As a result, third-party industry experts are now being asked to make independent evaluations on business plans to determine which companies will get government incentives. 

5. Grid parity is still considered a nearly a decade away.  But when it occurs, the solar PV industry is considered boundless in terms of financial potential, thus the continued investments to reach this milestone.

6. Solar PV farms, consisting of different applications including condensers, modules and reflective mirrors are the most ubiquitous large-scale applications. In populated areas and small countries, they take up a large amount of land, require constant maintenance and have poor visual quality.

7. Solar PV makes the most sense to alleviate 'brown outs' in many parts of the world where the demand for electricity is highest during the day and correlates to when the sun is shining.

8. Solar PV manufacturers are beginning to include vertical integration into their business models such as developing utility size power plants to capitalize on their output as they predict the future of the energy market and how power will be distributed.

9. The biggest technology drawback to solar PV is that the power produced must be used right away. It cannot be stored efficiently and affordably.

10. Uncertainty of the market has made leading solar PV companies unwilling to share lessons learned and competitive data with the industry.