The latest episode of the AZ Big Podcast with Michael & Amy has officially dropped. Episode 100 features Andy Abraham, President & shareholder at Burch & Cracchiolo.
Listen to more of the AZ Big Podcast here.
Transcript:
Michael Gossie
Welcome to the AZ Big Podcast sponsored by Burch and Cracchiolo. I'm Michael Gossie editor-in-chief at AZ Big Media, and I'm joined by my co-host, our publisher, Amy Lindsey. Today, we're very excited to be joined in the studio by our 100th guest, Amy, who is also our first guest, Andy Abraham, president of Burch and Cracchiolo and one of the best lawyers in America for real estate–every year since 2008–, Andy, great to see you again.Andy Abraham
Honor to be here. It's a pleasure, that 100 episodes flew.Amy Lindsey
It has, it has been an amazing process. I love it. Thank you so much for coming and joining us today for this. It's a milestone.Michael Gossie
It did, it really did.Andy Abraham
It’s a great thing you do for our community.Amy Lindsey
Yeah, we, we were happy we survived the 1st ones.Andy Abraham
I was too.Amy Lindsey
You guys have been great partners so, we appreciate that.Michael Gossie
So, Andy, Speaking of milestones, have you ever seen anything like what's going on in the commercial real estate industry in Arizona right now? I don't think... like I used to think that trends were kind of like a slow burn. Well, now trends just seem to be like one day you flip a switch and… and... and the world has changed. Have you ever seen anything like it?Amy Lindsey
No slow burn anymore.Andy Abraham
It is a wild roller coaster how I describe it. It is beyond anything that Disneyland could ever come up with, up... up fast, down fast. Hold on.Michael Gossie
Right, it's... it's crazy. So... so, how do you see the state of commercial real estate right now in Arizona?Andy Abraham
Unpredictable, completely unpredictable on the commercial side, I think some of the other sectors like industrial are very predictable and doing great. I mean, they've really come out of the back corner of the stage, so to speak and they're really leading I think the community. But the commercial continues to be unpredictable. I think a lot of it is still COVID-related. I think most people have gotten comfortable in remote work and part time or full time, and I think there's lots of uncertainty around that. I think we finally got into a place where people can get comfortable and work any place in the world they want to work and I... I know lots of individuals that's just been their goal in life. I want to be a professional or I want to do whatever I do, but I want to do it from some place other than a office building.Michael Gossie
So, we... we see a lot of unpredictability.. unpredictability out there but are.. are we lucky that we're in Arizona right now? Is... is Arizona reacting differently than the rest of the country in terms of commercial real estate?Andy Abraham
We are very lucky. We are very lucky. It's a... it's a tremendous environment cause there's so much synergy within the real estate industry.For example, I'm working on a big industrial mining-related project in part of the state where they are building an office building for all their employees who are going to work remotely to run the mine from a commercial office building 100 miles away from the mine.
Michael Gossie
Oh, my gosh.Andy Abraham
But they're going to run the mine from there. So, there's a commercial component that's even tied to industrial, which I think is sort of a new thing as opposed to industrial being a standalone traditional big box, it's sort of, you know, boring environment. There's now I think a lot of creativity around it that will help support the commercial market.Michael Gossie
You know, as somebody who.. who publishes the.. the news, it used to be a huge deal when there was a million square foot project announced and then a couple weeks ago, we had two 4,000,000 square foot projects announced like kind of back to back. Are we seeing more of those mega projects in Arizona than... than we've ever seen before?Andy Abraham
For sure, we're seeing more of them. I think there's a lot of prediction of the future going on with those kinds of projects. Those commercial projects, for example, might support communities that are far, far out in the... in the in the valley, you know, huge development going on in the far west valley creating lots of jobs, lots of people moving out there and I think these big projects that you're talking about, well, there's synergy between where new communities for residential are being built and in these commercial developments.Michael Gossie
So, Andy, we thought we'd have a little bit of fun with you today.Amy Lindsey
OK. So, we want to throw out a few topics and get your take on how much each topic impacts the health of the real estate sector in Arizona. That was really hard to say. So, what is the total impact on Arizona real estate with city intervention?Andy Abraham
Alright, I like this.Michael Gossie
Yeah. How.. how much do the cities impact? How much we can develop and how much we can grow in terms of commercial real estate?Andy Abraham
10 years ago or 20 years ago, I would have said 40% impact. I would say today 20% impact.Michael Gossie
Oh, is that right?Amy Lindsey
That much less?Andy Abraham
Less because the cities have gotten better and smarter about wanting to partner and wanting to see it happen and wanting to make it easier. City of Phoenix years ago started self-certification on certain projects where instead of having staff have to approve everything that you submit, if you have a licensed professional, an architect, an engineer certified plan, you can self-certify and you can get your permits to develop much, much faster. The City of Phoenix has started the cutting edge of that and that... that's sort of welcoming at the city certainly has grown quite a bit. By the same token, I still hear stories every single day about projects that are slowed down because of red tape in communities, that sort of thing. So, there's still some of it, but I think the... it's much more of a supportive attitude than throwing up hurdles for developers.Michael Gossie
That's great.Amy Lindsey
I'd say we've definitely seen that.Michael Gossie
OK. The semiconductor industry and all the billions of dollars of investment, how is that impacting development? What's the trickle down from that?Andy Abraham
Love, love that that's going on. That's the industrial that I was talking to, all the stuff that's going on, for example, in the north, North Valley, huge risk takers, but they've... they've agreed to take on this community, be fundamental in this community, the... the jobs that are created by that, the residential created by that I... I think that's gone from 10%, which was Motorola here 50 years ago to 50%.Michael Gossie
Oh, wow.Andy Abraham
...as a real leader of what's going to happen in this community. You know, whoever would have thought that we would have been something similar to Silicon Valley in Phoenix, AZ or the Metro Phoenix area, but we're becoming that.Michael Gossie
Yeah, and what's… what's been really interesting to me is to see kind of like all the spin off's that have happened. You know that... like you said, the residential communities that have popped up, the chemical companies that have moved here in order to supply the semiconductor industry. You know the battery factory, it's just it's... it's so impressive to me and... and the trickle down I've never, I've never seen anything like it.Andy Abraham
And well the education is chasing... is chasing it too, right.Michael Gossie
Right.Andy Abraham
ASU, U of A, other universities, Creighton, who's built their medical school here. You know, starting to educate people for those jobs. I... I think there's a real synergy between the cities, education, and the private sector that's driving what you're talking about.Amy Lindsey
Absolutely. OK, So, what about the impact with the water limit regulations?Andy Abraham
I think everybody's working on a way to get to yes on it, wherever they can get to, but I think that issue has gone from a 10% to a 60 to 70% issue. On new growth on new residential growth, you know there's lots of exceptions where the water rules don't apply, but for the traditional subdivisions that are being built in the southeast valley and the far west valley, that's the number one issue. That's and that's another thing I hear about every single day from one client or another or one other lawyer or another. That's a major, major issue, but that all the leaders, all the political leaders, want to see that drive our economy, the growth, the residential growth that comes with that and providing that to the public and so they're going to find a way to get to yes but there's a big tug of war going on right now about how that's going to be handled.Michael Gossie
You know, we get a lot of mixed messages on water. Some people say that you know we have... We... we've managed it really, really well. Other people say it's a huge crisis. What's.. what's your opinion on that? Is it what... on a scale of 1 to 10, how big a crisis is it?Andy Abraham
Five. I'll take.. I'll take the... the middle of the road.Amy Lindsey
Boy, that sounds like a legal...Andy Abraham
I was going to say, you want a lawyer answer?Amy Lindsey
Well played, Andy.Andy Abraham
It's a 5 moving towards a six or seven, I would say.Michael Gossie
OK.Andy Abraham
I mean I... I think there are some serious legitimate concerns about that but I also think that there are. Solutions less dramatic than cutting a new deal with Colorado or a new deal with California or a new deal with Mexico, I think those are more significant ways to address things but I think there's a whole bunch of things in between that will allow growth to continue.Michael Gossie
Okay, before we get to the next topic and Andy, we have a bunch of them for you. I want to say, you want to make a difference in your business and life in 2023. Contact an attorney at Burch and Cracchiolo to handle all your legal needs. Burch and Cracchiolo is a time honored full service law firm who can partner with you no matter what your challenges, goals, or new horizons on the radar. Contact them today at bcattorneys.com. That's bcattorneys.com.OK, so I'm going to ask the guy who's made some of the biggest land deals in Arizona history, Amy. Land costs they're.... they're kind of going up.
Amy Lindsey
They're kind of going up?Michael Gossie
Land costs and land availability. How is that impacting the commercial real estate sector in Arizona?Andy Abraham
If you were to talk to the leading brokers, land brokers in this community, they would tell you that they have as many deals starting as falling off of their plate. I talked to somebody who's probably got his finger on that best in the community earlier this week.
He said that about 50% of the deals he had in escrow were falling off because of uncertainties about the future but by the same token, that many more were coming right back on and the cost we were in that conversation talking about land, farmland in the southeast valley, you know, there was a big piece that just went an auction, the state land department, I think it went for somewhere between $350,000 to $400,000 an acre. And you know who would have thought that years ago, way, way south of Gilbert, this broker was talking about, you know, the land values down there are, you know, $400,000 plus an acre, so, the idea is to get those deals over the finish line and lots of those deals are being delayed months and months and months and months. I think they'll still go for those prices, but it's about delaying it long enough for the demand to follow it.Michael Gossie
OK, financing how... how, how big a deal is that becoming the commercial real estate industry?Andy Abraham
Interest rates are just smothering, I think. Smothering... They're certainly smothering people buying houses. I think in the commercial market, they're somewhat smothering too. I think a lot of the new development that happened in this community with financing from years ago where they're fluctuating rates or their rates that follow LIBOR or.. or what's now been replaced with LIBOR is called sofr, SOFR, I think that's... that's probably the hold back on a lot of commercial development. It's just too expensive.Michael Gossie
Okay. Last topic that we want to touch on is, Okay, the challenges of doing business in California, how do those challenges become opportunities for people in Arizona?Andy Abraham
California just keeps needs to keep doing what they're doing. It is... It is just amazing. The number of california-based commercial business companies who are coming here and able to say straight up it's it's because we're just not welcome from an economic point of view it's too.. Incentive for us to do business, we can't hire people because we can't pay them enough because they can't live here. So many disincentives and it's. You know, I guess the beaches are great. You can take advantage of that but...Amy Lindsey
It's definitely become our opportunity.Andy Abraham
It is a huge opportunity to us.Amy Lindsey
So, Andy, what are some of the trends or issues that we should be watching for as we head into 2024?Andy Abraham
I think industrial growth like I was saying at the beginning of this conversation, I think that is certainly something to follow and I think for most people that's been off the radar the last 30 or 40 years. I mean, there's a whole bunch of, you know, really highly skilled industrial real estate brokers who have been in this community a long time, but they've sort of worked behind it seems like behind the commercial ones you always hear about. So, I think industrial and when I say industrials, the kinds of things Michael that you were talking about the chip plants and those kinds of things. I think that is going to be fast growth and... and job producing and economic producing and a real driver in this community and when I say this community, I'm talking about not this Phoenix itself, but you know, places like Mesa, places like Gilbert, even down in Maricopa and I think industrial will drive housing in Maricopa.Because people will be able to work closer to home and that's sort of a thing. So, I think there's lots of spin off and so the stronger industrial gets, I think that has to trickle down effect. I continue to think hesitation about commercial is going to be a big issue. Do we have enough commercial now or not? I know a couple of big projects on Central Ave. are in the pipeline and I was looking at it, there's some commercial towers there, but you look at the project timeline and it's at 10 to 15 to 20 year development plan.
Michael Gossie
Oh, my gosh.Andy Abraham
Oh my gosh. So you know, in the past, somebody would get their permit and they would want to have a shovel in the ground as fast as you get a shovel in the ground. Now, it's sort of phased and I looked at those projects and and it seems like the residential and the multifamily is phase one, and then there's some retail that's sort of phase two and then the commercial office buildings are later in the project. So, that tells me that those leading the development know that the commercial is coming, but it's further off in time.Michael Gossie
OK, so I've been told that the only crystal ball in commercial real estate is to watch what real estate attorneys are doing today because then you know what's going to be happening two years from now. So, Andy, look in your... in your crystal ball. Positive or negative, what's the outlook for Arizona?Andy Abraham
Thumbs up. It's a 10 out of 10. It's, it's... there is no question that it's a great community. It's a vibrant community. People are moving here. They're moving here from places where you wouldn't have thought in the past are moving here from Florida, the Northeast. You know, it's having weather problems. We might have consistent hot, but we don't have consistent disaster. Right, and, and, and.. so, it's driving people here and I think that growth is just going to continue and going to continue and so, the crystal ball to me is... is bright as can be.Michael Gossie
That's fantastic. Andy, thank you so much for being here today, and thank you for listening to the AZ Big Podcast with Michael and Amy for the latest and greatest business, real estate, and lifestyle news. Check out the all-new azbigmedia.com and once again, thank you to our sponsors, Burch and Cracchiolo, and the man himself, the president of Burch and Cracchiolo, Andy Abraham. Thank you, Andy.Andy Abraham
Thank you very much. Really enjoyed it.Amy Lindsey
Thank you, Andy.