Development Firm Invades Valley's Space

By Andrew Johnson
The Arizona Republic
Jan 25, 2008

Lauth Property Group has some aggressive goals for the Phoenix market.

The Indianapolis-based development firm has already built several hundred thousand square feet of industrial space in the Valley.

It recently broke ground on additional projects that could add millions more to Metro Phoenix's industrial and office supply in the coming years.

The company is planning all this at a time when commercial real estate is softening and fears of recession are running amuck.

But Dave Carder, who runs the firm's Phoenix office, is bullish on the company's prospects.

"The fundamentals of Arizona are better than other parts of the country," said Carder, a former commercial real estate broker who left CB Richard Ellis two years ago to head Lauth's local operations.

"Historically we've had excellent population and employment growth," he added. "We anticipate this to be a little bit slower in '08, but the longer term fundamentals for Arizona will be good."

Lauth is one of several national development companies that have been enticed by Arizona's growth. The company and its competitors, including Opus West Corp., Ryan Cos., Lincoln Property Co. and others, view Phoenix as an integral part of their strategy because of those factors.

Carder said he believes Lauth's projects are insulated from much of the softening that has occurred in commercial real estate in recent months because of their location.

The average vacancy rate for Valley office space reached 13.9 percent in the fourth quarter of last year, up from 11.1 percent a year ago, according to data from CB Richard Ellis.

The amount of sublease office space on the books at the end of the year also reached about 1.6 million square feet, more than 50 percent the amount being subleased last year.

Most other property types are experiencing rising vacancies, slower absorption and smaller rent growth, but Carder points out that many of the company's planned projects are near major freeway interchanges or in submarkets where demand for new space is strong.

Earlier this month the company broke ground on the first building of Goodyear Point, a 2.4 million-square-foot industrial park on 159 acres southwest of Litchfield and Lower Buckeye roads.

Plans for the project call for six buildings, Carder said. The first one will be 418,200 square feet and should be completed in late summer or early fall.

Next month Lauth plans to break ground on a 650,000-square-foot office complex called Washington Point at the southeast corner of Arizona Route 143 and Washington Street in Phoenix.

Carder said the company plans to obtain LEED certification with the U.S. Green Building Council for the project and all of its future office developments.

"We think that buildings that are geared toward environmental sustainability are definitely attractive to future investors and tenants in Phoenix and across the country," he said.

The first building in Washington Point is a six-story, 200,000-square-foot mid-rise that is planned for completion in the third quarter of 2009. Other phases will commence depending on market demand, Carder said.

Despite a deluge of sublease office space that has hit the market in the last year, commercial real estate broker Mark Krison said he believes Lauth is well positioned to weather the market conditions.

Krison, a senior vice president with CB Richard Ellis' Phoenix office, said given Phoenix's size and Lauth's site locations, the company should not be hurt by rising vacancies.

"Phoenix is big enough where the submarkets kind of take on a life of their own," said Krison, who handles leasing for Lauth's projects. "Where they're developing product the market is pretty tight."

Although turmoil in the credit markets has caused concern for commercial real estate investors and developers, Carder said the company has not been affected by new requirements that call for more up-front money to finance projects.

"Thankfully we're in a great equity position," he said.