Monday, July 2, 2012

Mesa developer's new tactic: Build jobs, then homes

It will be another year before houses go up on one of the last large pieces of residential land in Mesa, even though the developer bought it six years ago.

The former General Motors Co. proving ground in east Mesa sold at the height of the housing boom amid a fanfare of development plans and with images of the site becoming a new city at the metro region's eastern edge.

Today, the site has become a case study in post-boom housing business and the search for new jobs and new industries in post-recession Arizona.

The push to grow new jobs -- and the delay in building housing -- has been planned, but this wasn't the original plan.

When Scottsdale-based developer DMB paid GM $260 million for the 3,200-acre property in 2006, new housing subdivisions were already springing up on surrounding parcels.

In summer 2007, a town-hall meeting in downtown Mesa focusing on the proving-ground redevelopment drew hundreds from the real-estate industry. At the event, excitement over the project was most apparent among homebuilders, who asked about design requirements and when the first lots would be for sale.

By the end of that year, the picture had changed for homebuilders.

In 2008, developers and homebuilders began giving land back to the banks or going out of business. Privately held DMB suffered, too, slowing its projects and eventually laying off a third of its staff. The long-standing model of building new homes farther and farther outside metro Phoenix stopped working.

As the housing market went from slowing to a crash, it became clear to the developer that Arizona's model of building homes was broken.

The developer began focusing on the future of the surrounding area.

DMB's Eastmark community is part of Mesa's Gateway area, already home to an airport and a rapidly growing Arizona State University campus.

An existing commercial base on Power Road lies a few miles west. And just east is a huge piece of vacant state land already planned for development.

"Building homes dropped on our priority list in Eastmark during the crash, and building a bigger regional economy became the obvious priority," said Drew Brown, a founding partner and chairman of DMB.

During the recession, DMB shelved its plans for homes and began working to draw big employers to the Gateway region, keep other large firms in the area and work with other communities in the southeast Valley to build the infrastructure needed to support future growth.

"DMB is taking the responsible approach to developing Eastmark, instead of incrementally building subdivisions," said Mark Stapp, director of the Master of Real Estate Development program at the ASU's W.P. Carey School of Business and a former developer.

"The company is trying to raise the economy for the entire region and thinking about the last parcel it sells, instead of the first parcel," Stapp said.

DMB realized in 2007 that to fill a large development far from metro Phoenix's core with as many as 100,000 people, its east Mesa community would first need much more than housing.

Change of plans

The development would need jobs, shopping and an urban-style infrastructure with parks, high-rise condominiums and other amenities that residents and employees wouldn't have to drive to downtown Tempe to find.

In 2008, Gaylord Entertainment committed itself to building a 1,200-room resort in the community. But that project was placed on hold in 2009 after the economy fell into a recession.

The developer started working more with the area's growing Phoenix-Mesa Gateway Airport, ASU's Polytechic campus and the surrounding communities of Chandler, Gilbert and Queen Creek.

DMB executive Karrin Kunasek Taylor, who grew up just a few miles from the East Valley site, helped form Arizona's Aerospace and Defense Initiative partly to ensure that large Valley employer Boeing could keep testing its Apache helicopters in the Gateway area without flying afoul of new development.

The state aerospace group and developer also has worked with the military, taking one of the Air Force's top generals on a tour of the region. The effort helped bring a government contractor's record-keeping lab and 250 jobs to the area.

Last year, Tempe-based First Solar broke ground on the first phase of a 1.3 million-square-foot plant at Eastmark.

"DMB took the downturn as an opportunity to readjust its plan and focus on the economic development of its community before housing," said Mesa Mayor Scott Smith, a former homebuilder.

A new look

The 50-year-old proving ground for Corvettes and other GM-made cars was far from the Valley development and the prying eyes of competitors when it opened. But, by 2006, GM saw growth headed too close to the proving ground and decided to sell. The carmaker moved its western proving ground to Mexico.

Only a year ago, most of Eastmark looked like a huge junkyard with piles of scrap metal and old drywall and miles of torn-up asphalt lying around. DMB took a few years to tear up the former proving ground, recycling most of the scrap.

Now, where the tracks formerly lay, DMB is building the infrastructure of Eastmark -- "the streets, utilities and early amenities to prepare for future businesses and the homebuilders," said DMB's Eastmark general manager, Dea McDonald.

DMB is known for building infrastructure and amenities in its large developments early on.

The Urban Land Institute, a Washington, D.C.-based real-estate think tank, calls the developer's DC Ranch/Silverleaf community in north Scottsdale one of the nation's best planned large mixed-use projects.

The community has a mix of high-end and midrange houses, apartments, retail space, office complexes, schools, trails up to the mountains, and lots of parks and walkways connecting all the neighborhoods.

Verrado, DMB's 8,800-acre Buckeye development modeled as a more-affordable DC Ranch, opened in 2004 with record sales for two years until the crash.

It wasn't difficult for DMB to draw regional support for economic-development efforts.

The southeast Valley has seen the most new homes built in metro Phoenix during the past two decades.

But the area's job growth has significantly lagged its new housing. Estimates vary, but at least 35 percent of metro Phoenix's population is in the southeast Valley, while less than 20 percent of the region's jobs are located there.

DMB President Charley Freericks said so much has changed in the Gateway area, it's easy to forget the area was formerly Williams Air Force Base. "Eastmark will help redefine the Gateway area," he said.

Future in flux

Today, five years after that town-hall meeting, not a single foundation has been poured for a house on the site.

There has been plenty of preparation work, but the plans for what comes next are fluid.

Eastmark's resort is still on hold, though Gaylord executives visited Eastmark with Smith, the mayor, earlier this year. Last month, hotel giant Marriott agreed to buy and manage Gaylord's existing four resorts.

DMB executives plan to meet with Marriott later this year.

First Solar has delayed the opening of its solar-panel fabrication plant after laying off 2,000 people earlier this year.

Still, the region's economic supporters are counting on the plant's development as an example to draw more big employers.

ASU's Polytechnic campus has doubled its enrollment to more than 10,000 in the past six years.

Gateway Airport is still quite small compared with Phoenix Sky Harbor International Airport, but the number of passengers flying in and out of the Mesa airport is up 50 percent from last year.

Smith compares the Gateway area, including Eastmark, to Irvine, Calif., calling it an "aerotropolis" that will evolve over decades.

Recently, construction started on a new freeway in the southeast Valley. The first mile of Arizona 24 will link Loop 202 to the Gateway area.

DMB hopes to sell 800 houses next year. During the next few decades, plans call for 15,000 homes, including high-rise condos, houses next to golf courses, and townhouses.

East of Eastmark in Pinal County is the state-owned Superstition Vistas project. In 2006, planners, southeast Valley government officials and the State Land Department developed a plan for the 275-square-mile site with the hope of landing a developer by year-end. That project has been on hold since the housing crash.

But housing analysts say that if jobs and then housing come to Eastmark and Gateway, it could lead to the development of Superstition Vistas.

Arizona housing analyst RL Brown calls Eastmark "a game changer" for residential development in metro Phoenix.

"What DMB is doing at Eastmark by bringing jobs and a community core first will change the way homebuyers and builders think in the future," he said.

by Catherine Reagor - Jun. 18, 2012 11:13 PM The Republic |

Mesa developer's new tactic: Build jobs, then homes

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