Real-estate projects boom near Phoenix, AZ light rail
Light rail is six months from operation, but the transit system's impact on the Valley's real-estate market has been in full swing with new condos, office buildings and mixed-use developments rising throughout metro Phoenix.
By Andrew Johnson
Published in the Arizona Republic on June 17, 2008.
Arizona - Light rail is six months from operation, but the transit system's impact on the Valley's real-estate market has been in full swing with new condos, office buildings and mixed-use developments rising throughout metro Phoenix.
Transit officials estimate that since 2004, developers have spent close to $6 billion on public and private projects on and around the future light-rail line.
Critics, however, say that the transit system has put a burden on taxpayers and that construction of the line has shut down businesses.
The $6 billion figure is based on information Metro light rail routinely gathers from planners in Phoenix, Tempe and Mesa, the three cities in which the 20-mile system will operate beginning in December.
The number includes projects already completed, developments under construction and announced projects within a half-mile radius of the line that officials from those cities say will likely come to fruition, according to Ben Limmer, a Metro light rail planner.
Light rail is not the sole reason why projects in the transit system's vicinity have developed, real-estate analysts note.
But the future system has definitely been a catalyst prompting developers to pay higher prices for property adjacent to the line for condominiums, office buildings and retail centers.
Economic factors, including soaring fuel prices, have caused developers like Eugene Marchese to focus attention on transit-oriented projects.
Marchese's San Diego-based company, Constellation Property Group, bought about 2 acres near Sun Devil Stadium in Tempe on which it intends to develop Stadium Tower.
Current plans for the project, on which Marchese expects to break ground in early 2009, include a 20-story residential building, a 17-story hotel and retail space.
As gas becomes more expensive and drive times grow longer, public transit becomes more attractive, said Marchese, who added that's why developments built with commuters in mind fare well.
"What we find is there's a higher demand for the product because of the location (near light rail)," he said.
Developers also expect the arrival of light rail to deliver a boost to property values in certain areas surrounding the line - a phenomenon that has happened in other cities that have built their own systems.
In metro Dallas, median values between 1997 and 2001 increased nearly 25 percent for office buildings and about 32 percent for residential properties near light-rail stations, according to a University of North Texas study.
That compares with an 11.5 percent increase for comparable office buildings and a 19.5 percent hike for residential properties not located near light-rail stations.
Phoenix-based Equus Development Corp. currently is putting the finishing touches on Century Plaza, a 15-story office tower in midtown Phoenix it has converted into a 17-story condo building.
Equus bought the building at the southeast corner of Central and Lexington avenues in December 2004.
The property's location just south of a future light-rail station was one factor that enticed the company to develop there.
"We were very specific to select right around a light-rail station," said Douglas Edgelow, president of Equus.
Equus also is drafting plans to build four new high-rise towers that could include a five-star hotel, office space and more residential units.
The condo project has seen a significant amount of leasing activity. The company has received down payments on about 80 percent of Century Plaza's 145 units, which are currently priced from about $370,000 for a one-bedroom unit to $2.5 million for a two-floor penthouse, according to Michael Webb, a sales representative for Equus Realty LLC.
Webb and Edgelow say the project's location on the light-rail line, which cuts down Central Avenue to downtown Phoenix, has helped spur demand, along with proximity to office buildings and downtown's entertainment venues.
Commercial real-estate brokers say light rail also has become an attractive selling point for non-residential projects.
Marcus Muirhead, an associate vice president in Colliers International's Phoenix office, said the transit system has even helped spur interest in older office properties that are within a stone's throw of the line.
There is "strong interest" among investors for Class B and C office properties, older buildings that do not include the latest amenities and need improvement, that are located within a few blocks of Central Avenue, Muirhead said.
Muirhead and his colleague, Charlotte Christian, say they expect to see properties within a half-mile of the line to get a boost in value down the road.
"It has created demand and I think it will create more price increases when the rail is in operation," said Christian, a senior vice president with Colliers International who specializes in mixed-use projects.
Christian represented Marchese, the San Diego developer, in his purchase of land for his proposed Stadium Tower project.
Marchese said he paid $6.5 million for the approximately 2 acres about two years ago.
As the Valley's office market struggles to retain and attract tenants during the economic downtown, light-rail proximity also could be an effective marketing point for landlords trying to lease space.
Mindy Korth, an executive vice president with CB Richard Ellis Inc. in Phoenix, recently highlighted the presence of light rail in a marketing package for Meridian Tower, a 21-story office building at 3550 N. Central Ave. that she is marketing on behalf of its owner.
Light rail also could benefit retail centers, which have taken a hit because of the general downturn in the economy.
Mike James, deputy transportation director for Mesa, pointed to the Tri-City Pavilions at the end of the current light-rail line.
The neighborhood retail center, which is anchored by a Safeway, could fare well from people who don't want to drive to do their shopping, said Greg Greenstein, president of JG Management Inc.
The Westlake Village, Calif.-based real-estate investment firm bought the center in 2006.
"Our feeling is that (its location) will add trips to the shopping center because of the adjacent park and ride station," said President Greg Greenstein.