Categories Narrative

Arizona’s Water–A Quick Overview/Status

As I speak to out-of-state users, owners, and investors, one of the most popular topics I get to discuss is water. The general feeling by out-of-state people is that Arizona is a desert and we are running out of water. Not true. Below is a great summary written by the local paper, The Arizona Republic, that covers the top 5 reasons to panic about Arizona’s water, and 5 reasons not to.
 
As Arizona grows and matures, we will use more water. At the same time, we will use less water for farming. It turns out that cotton is very thirsty to grow. But that is not the main concerns today. Below is a great summary of our status and covers both sides of the issue.
 
Thanks,

Craig
602.954.3762
ccoppola@leearizona.com

P.S. As a follow-up to our 5-week series in the beginning of this year, the new headquarters for Apple is now under construction, for those of you who are interested. If you scroll down below the water article, you can see some updated photos of the site and a schedule. Amazing project.


5 Reasons to Panic About Arizona’s Water, and 5 Reasons Not To

Is Arizona Really Running Out of Water?

azcentral

By: Shaun McKinnon
August 11, 2014

AZ water 2
(Photo: Ethan Miller/Getty Images)

As brown became the new green in drought-stricken California this summer (and as “Drought-Stricken” became that state’s unofficial first name), some of the national media took a quick look around and started asking: If the Golden State was shutting down its sprinklers, was the whole West about to dry up and blow away?

A June story in the Arizona Daily Star outlined the ways Arizona could end up with an official water shortage, but it pronounced the chances of that happening anytime soon to be “slim.”

Within days, the New York Times weighed in with a more dire take. Citing drought projections by the Central Arizona Project — which moves water from the Colorado River to Phoenix and Tucson — an article warned the canal might cut its deliveries to the state’s urban areas as early as 2019.

That opened the floodgates (even if they hold back less water these days) of the idea. Arizona was out of water.

Smithsonian.com posted an item online with the headline “Arizona could be out of water in six years,” linking to the Times story, an Environmental Protection Agency report on climate change and background material. Other online sources followed up.

Suddenly, the Internet was mourning Arizona’s final days.

Not so fast, Arizona’s water experts say. First, projections about shortages on the Colorado River weren’t new. As early as 2004, after a series of record-dry years on the river and across Arizona, CAP hydrologists had started saying the Colorado system might run short by 2015 or 2016. One worst-case outlook pegged the date at 2011. Of course, 2011 came and went, and the Colorado was still running.

The CAP disputed the Times story. Water agencies in the state tried to reassure residents and businesses that there was no impending crisis.

But then in July, Lake Mead, the giant reservoir that had been dwindling for most of the past decade, finally sank to its lowest level in 77 years. The milestone raised the commotion again.

So, is it time to hightail it out of here? Brace for waterless Wednesdays?

Is Arizona really running out of water?

Yes. And no.

Here are five reasons why the drought should concern you and five more why we’ll survive it — this time:

You should take this drought seriously because:

1. The drought is real.

Yes, Arizonans have been hearing about the drought for so long it has become background noise, but that’s because the state has had below-normal rainfall levels for so long — all but a few years since 1999. If the monsoon can’t recover, Phoenix could post one of its driest years on record, at least at the official Sky Harbor measuring station, which has collected just 0.06 inch since June 15. And things have been dry all across the West, from California to the remote peaks in Colorado, which means …

2. The Colorado River is hurting.

It’s true, rain in metro Phoenix doesn’t do much for the water supply, because there’s so little of it that most water is imported from elsewhere. But a lot of that water comes from the Colorado River, which is a source of water for 40 million people in seven states, including Arizona. And the Colorado has seen below-average runoff in all but three years since 2000. Lake Mead has fallen to its lowest level since it started filling in the 1930s. The other big reservoir on the river, Lake Powell, is half empty. If Lake Mead continues to shrink, current legal compacts lay out how much all seven states have to cut back on water use. Which leads to …

3. When the Colorado shrinks, Arizona gets burned.

Here’s how the deal among states works, in a nutshell: As Lake Mead gets lower, Arizona has to start cutting back on its take; so does Nevada, which agreed to share Arizona’s pain. California gets to keep its whole share, for as long as there’s enough water on the river. Wait, why does Arizona get such a raw deal? It goes way back to 1968 — Arizonans wanted to build the CAP Canal to take more water but needed California’s congressional support. California agreed, as long as it got to keep the water when things got dicey. So yes, Arizona gets the short end on this deal. On the other hand, if the CAP Canal hadn’t been built, Arizona wouldn’t have been able to get much water out of the river anyway. The canal helped provide for a lot of new growth in Phoenix and Tucson. Some parts of town get water from reservoirs inside the state, but …

4. In-state supplies are hurting.

Not everything comes from the Colorado — about half of the water supply for metro Phoenix comes from Roosevelt Lake and the Salt and Verde rivers, right? Well, things aren’t much better there. Roosevelt, the largest in-state reservoir, is just 39 percent full. Together, the six reservoirs on the Salt and Verde are at 49 percent of capacity. (By the way, Flagstaff gets a significant share of its water from Lake Mary — it’s shrinking, too, with no change in sight.) All of this means Salt River Project, which manages the system and delivers water to farmers and Valley cities, will likely start to pump more groundwater instead, as will farmers in central Arizona. And you can probably see where this is going …

5. Groundwater supplies are shrinking at an alarming rate.

A new study by NASA and the University of California-Irvine found the Colorado River basin has lost 41 million acre-feet of groundwater since 2004. That’s the equivalent of the entire amount of water in Lake Mead when it’s full, plus half of another Lake Mead. Enough to supply the residential water needs of every person in America for one year. Gone. And it doesn’t just come back. Scientists say states pumped from their aquifers to make up for dry years on the river. While one wet year can start to refill a reservoir, groundwater stores can take centuries to recover.

But wait. Don’t panic. Arizona is not in the same beached boat as California, because:

1. You might not even notice the cutbacks at first.

If there is a shortage on the Colorado River, the first people to lose it are farmers in central Arizona. Their rights are lowest on the list.Homes and businesses in the three counties served by the CAP Canal (Maricopa, Pinal and Pima) get higher priority. Even under the worst case outlined in the drought plan, about 1 million acre-feet would continue to flow down the canal each year during the shortage, enough to provide what cities currently take from it. (That’s as long as the river can supply that much water. If things get bad, biblically bad, the CAP would have to shut down. The only people with rights to the very last drops of Arizona’s share are the farmers in Yuma — their rights are the most senior of all.)

2. We’ve been saving.

A whole lot of the Colorado River water Arizona has taken with the CAP Canal didn’t actually get used — it was poured into underground water banks, sort of like simulating a recharged, natural aquifer. Since 1996, the state has stored about the equivalent of two full years of CAP water. Recovering the water wouldn’t be cheap because it would require construction of wells that don’t exist and would be a one-time fix in some areas, but it would buy time for drought conditions to ease.

3. We’re getting better at using less.

Water demand leveled off as Arizona and the other states on the river dealt with the recession and downturn in housing. At the same time, requirements to build homes with low-flow plumbing and less landscaping reduced use in the newest developments.

4. We’re getting better at making it last.

Arizona passed laws in 1980 to protect groundwater supplies in five areas. Since then, it has worked with neighboring states to use water more efficiently, building a reservoir west of Yuma to capture water unused by farmers. And the CAP joined water agencies in Colorado, Nevada and California this summer to provide incentives to cities, businesses and farmers to use less water.

5. We’d be better off if we got just … one … good … year.

One above-average runoff year on the Colorado River or on the Salt and Verde rivers could buy Arizona more time to prepare for shortages. Reservoirs have briefly recovered some of their losses during the 15-year span; Roosevelt Lake can, in theory, refill in one wet year — that alone could mean a few extra years of supply.

Still, experts say the West needs to address its water-supply issues soon. Studies show that overall temperatures are rising. That means less snowpack or shorter runoff seasons. That means lower river flows. The groundwater study shocked many water agencies because it revealed huge losses. And it underscored the fact that the states have often drawn more water from the river than annual runoff can replenish.

So yes, Arizona is running out of water — just the way it was when it built the Central Arizona Project, the same way it was when it passed the groundwater-protection laws. It’s highly unlikely that anything dramatic will change for most Arizonans in the next six years. There’s a lot of water left out there. But only time and people’s decisions will tell if it’s enough.


City of Cupertino Shares Official Updated Aerial Shot of Apple’s Campus 2 and Surrounding Area

9to5 Mac

By: Jordan Kahn
August 6, 2014

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Apple Campus 2 aerial 2

Following an update late last month from the City of Cupertino on progress being made at Apple’s currently under construction Campus 2 project, now the City has shared an official updated aerial photo of the site from Apple. 

Last month the city shared the first official photo with an overhead shot showing the entire campus and surrounding area. Today’s shot shows that progress is continuing on the main structure’s foundation and surrounding campus, but also gives us a wider field of view for a nice perspective of how the site fits into the surrounding city. Previously a number of amateur aerial shots of Apple’s Campus 2 popped on Instagram and elsewhere online.

As for the building schedule, the City of Cupertino continues providing updates on road closures and traffic updates related to the project, but as of today’s update its timeline for completion of the campus (below) remains end of 2016.

apple-campus-2-project-schedule 2

Some more shots of the site were posted today by KCBS news and traffic reporter @sky1ron:

Apple Campus 2 aerial 3

Apple Campus 2 aerial 4

Apple Campus 2 aerial 5

Apple Campus 2 aerial 6

Categories Narrative, Office Market

Market Knowledge: Phoenix Office Report Q2 2014

The Phoenix office market continues to slowly improve. Too slow for my taste, but improvement is always good. Unless you are in Tempe, Chandler or Scottsdale, the market is not improving as fast as owners and investors would like. Lee & Associates Arizona released its second quarter Office Market Update in July and showed that success these days is clearly dependent upon the submarket. The disappointing news is that we only had 143,000 SF of net absorption across the Valley. This comes as a surprise after such a strong first quarter with 730,000 SF of space absorbed. As a result, our overall vacancy dropped only slightly from 22.2% to 21.8%; and rental rates in many submarkets remained flat. However, the market remains on the path to recovery highlighted by some bright spots along the way.

Here are my top three takeaways for the quarter and a link below to our second quarter report:

  1. Slow Office Absorption is caused by lack of job creation, there is no getting around that. It’s also due to companies becoming more efficient with their space. Technology groups in particular now design densities of 7-8 per 1,000 SF leased whereas that figure was 4-5 per 1,000 in the last cycle. Despite this, absorption is happening and will continue to increase as the economy improves.
  1. Confidence Is Increasing for both landlords and tenants. There has been enough absorption in the last few years to give landlords a sense of stability. This confidence translates into the high prices and low cap rates that landlords will pay for quality real estate. For newer buildings with walkable amenities, tenants feel good enough about their business to pay increased lease rates. 
  1. Market Health Varies by Submarket. Craig and I negotiated 2 of the top 5 leases in the 2nd quarter. One was in Scottsdale while the other was a renewal and expansion in the SE Valley. Lease rates in both markets have increased substantially since the recession with vacancies falling into the low teens. SkySong 3 in South Scottsdale, a speculative project we lease, has reached 90% occupancy just weeks prior to its opening. On the flip side, Midtown remains weak at 26.8% vacant with owners competitively bidding for precious tenants.

As the third quarter begins, my team is already negotiating some substantial sales and lease transactions. I hope these deals will be a reflection of success the entire market will experience in the second half of the year. If you have any specific questions on the market or your lease, please call me.

Andrew
602.954.3769
acheney@leearizona.com

P.S. Click here to see an article on national leasing trends in which I was featured in the current issue of CCIM Institute Magazine.

For the entire report, click here.

Lee AZ Q2 2014 Phx Market Report 2

Categories Narrative

Government’s Empty Buildings Are Costing Taxpayers Billions

Here is an interesting idea: a database of buildings you own and whether or not they are occupied. Seem simple? Turns out, not for the federal government. Estimates show they may own up to 77,000 buildings that are empty or not fully utilized. The cost to keep them amounts to more than $1.7 Billion per year.

So, why not put out a contract to a commercial real estate company to update, correct, and even maintain a database for the GSA if they cannot figure it out? Within 12 months, they could solve this problem.

Thanks,

Craig
602.954.3762
ccoppola@leearizona.com


Government’s Empty Buildings Are Costing Taxpayers Billions

NPR

By: Laura Sullivan
March 12, 2014

Govt Bldg 2
A 132-year-old building owned by the federal government, just six blocks from the White House, has been sitting empty for three decades. Laura Sullivan/NPR

On a street corner in downtown Washington, D.C., David Wise is opening a century-old iron gate in front of an old, boarded-up brick building.

Wise is an investigator for the Government Accountability Office, the government’s watchdog group. His mission is to figure out why the government owns so many buildings, like this one, that it doesn’t use.

Govt Bldg 2 2
The General Services Administration owns a firehouse in Baltimore with a moldy interior and collapsed ceilings. According to a government report, it hasn’t been used in more than a decade. Courtesy of GAO

The 132-year-old brick structure is sitting on prime real estate six blocks from the White House. It was once a school, but it’s been vacant for almost three decades.

“All the walls are peeled, there’s collapsed ceilings, there’s moisture problems. It runs pretty much the gamut,” Wise says.

Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget says these buildings could be costing taxpayers $1.7 billion a year.

That’s because someone has to mow the lawns, keep the pipes from freezing, maintain security fences, pay for some basic power — even when the buildings are just sitting empty.

“To see a building that’s 28,000 square feet, just boarded up three stories — it’s really a shame not to have it … put to a use that would be of benefit to taxpayers and citizens as a whole,” Wise says.

An Unreliable List
But doing something with these buildings is a complicated job, partly because the federal government does not know what it owns.

Wise and his colleagues have been using the only known centralized database that the government has, the Federal Real Property Profile, and it’s not reliable, he says.

Govt Bldg 3
This federally owned cabin in Great Smoky Mountains National Park in Tennessee was reported in the Federal Real Property Profile database as being in excellent condition. Courtesy of GAO

“We’d see a building that maybe looked something like this, and the data would say it was 100 percent utilized, and we’d look around and see nobody,” he says. “We’d go to other buildings, and [the list would] say it was unutilized, and we’d find that the building was overcrowded.”

Some buildings listed as being in great shape had trees growing through the roofs. And many buildings weren’t even on the list.

Sen. Tom Carper, a Democrat from Delaware, is one of the lawmakers pushing to get a clearer picture.

“We don’t know how many properties we have, we don’t know which ones we own, which ones are leased,” he says. “We don’t know whether we ought to be building or buying instead of leasing.”

But Carper says that even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit what it can do. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.

Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see whether it could be used as a homeless shelter.

Many agencies just lock the doors and say forget it.

Govt Bldg 4
A warehouse in Fort Worth, Texas, owned by the General Services Administration, has been vacant since 2008 and cost nearly $475,000 to maintain in 2010. It was sold the following year. Courtesy of GAO

Carper has introduced legislation to streamline the process. “We know what we’re doing right now doesn’t work,” he says.

Saving Space
A panel made up of the Office of Management and Budget and other agencies is trying to tackle the problem. But the keeper of the property database is the General Services Administration.

Dan Tangherlini inherited it when he took over as GSA administrator two years ago. Tangherlini says he wants to see an accurate list so agencies don’t wind up leasing space when they could use an empty government office somewhere.

“We’re not arguing that the data can’t be better and [that] it shouldn’t be better. In fact, we’re working really hard to make it better,” he says. “But we’re really interested in making it useful.”

He also wants to know which agencies can shrink their workspace, like the GSA did. Tangherlini’s predecessors had a 1,600-square-foot office with floor-to-ceiling carved walnut paneling and silver-plated chandeliers. Tangherlini turned it into a common area that any employee can use. His office is now a large room with 50 GSA officials sitting at desks.

The downsizing was part of his agency’s consolidation plan to get rid of old office buildings and save $24 million, he says.

“I think that people would have detected the cognitive dissonance if I had been sitting in that office, telling them how they have to save money by saving space,” he says.

Tangherlini says space-sharing is the future for government agencies. They just have to figure out where all the space is — and whether or not it’s empty.

Categories Narrative

Top Ten Issues Affecting Real Estate

One of the most thoughtful organizations in commercial real estate is The Counselors of Real Estate. I have been a long time member and find their membership and work output to be outstanding. In June, we published our top 10 issues affecting real estate. Below is that list. My favorite topic over the past six years is still number two on the list–Jobs.

Some other issues that I found interesting were:
#1 – Energy–this topic has become very interesting as the US becomes increasingly energy independent.
#3 – The Millennials–this wave of Americans born after 1980 is a huge group that will influence our economy for decades. They are also the first group that fully embraces technology which will drive real estate.

Take a scroll down for more descriptions of the issues and for the other top 10 issues.

Thanks,

Craig
602.954.3762
ccoppola@leearizona.com


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