July 24, 2015
Written by: Bob Mulhern
Managing Director, Colliers International
NAIOP Board Member
A key consideration when looking at the Arizona commercial market and its potential is to recognize how major commercial developers are faring in the marketplace. Two of the hot issues in the development community at the moment include funding needs at the state and local levels.
The first issue surrounds the need for approximately $23 million to support the development of trolley car lines in Tempe that will connect to the main light rail line. To this point, the City of Tempe is not asking for developer impact fees to fund the project, but is instead asking those developers that would likely benefit the most from the trolley car stops along Rio Salado Parkway to make a voluntary payment. This apparent willingness by Tempe to consider a plan to obtain funding through means other than developer impact fees is a step in the right direction.
At the state level, there is another issue that could well impact the development community, specifically the current shortfall in the state budget for K-12 education. In early June, Governor Doug Ducey announced a plan to pump approximately $2.2 billion in new funding for K-12 education over a 10-year period from sales of state trust lands. Currently, the beneficiaries receive a 2.5 percent disbursement from the Permanent Land Endowment Trust Fund, and nearly all of these funds go to school funding. The Governor’s proposed plan would temporarily increase the amount distributed to the beneficiaries of the Permanent Land Endowment Trust Fund, quadrupling to 10% for the first five years then to 5% for the next five years. This surge in school funding could ultimately support development, as additional sales of state lands will likely be used to replenish the trust fund.
Because these possible changes are constitutional in nature, the Governor’s proposal would need to be referred by the Arizona Legislature to the November 2016 ballot. This referral would likely take place early next year in the General Session, although it is possible that a special session could be called sooner. This proposal would have a direct impact to current students, increasing the amount of per-pupil funding by nearly 10 percent from the current total of approximately $3,400.
Each of these issues highlights how external issues can influence real estate conditions beyond traditional measures of job growth, new business formation and existing tenants expanding or contracting in the market. A budget shortfall could open up more state land for development. A city’s proposal of how to best generate funds for a local transportation system could influence the costs and feasibility of new development. These issues—and others like them—will continue to play a role in future development projects throughout the Valley in the years ahead.
Bob will be a host speaker at our upcoming Commercial Seminar on Friday, August 28.