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Tuesday, August 21, 2018

Vacancies at Retail Centers Present Risk for Developers and Tenants

The signs of distress in the commercial real estate market are evident in the South Mountain and Laveen Villages, with vacancies especially high along Baseline Road. And while the outlook is dim, there are still reasons for optimism.

From a commercial developer perspective, these are challenging times. Compounding vacancy problems are plummeting property values – a dilemma that started with housing and expanded to the car industry.

To help minimize the economic stress on his tenants, Michael Moreines, a local developer with Terrazona, LLC, said his company launched an extensive advertising and marketing campaign designed to attract visitors to his two shopping centers on the southwest and northeast corners of 35th & Southern avenues.

He is also partnering with community groups to hold monthly events.

“Our take on it is I’m not going to wait for our tenants to go dark,” Moreines said. “They can only do so much on their own. We, as a landlord and as a developer, are going to have to assist with our tenants.”

In developments with high vacancies, low lease rates are one way developers are attempting to lure tenants – an approach Moreines says is risky.

“The problem with this deflation is that none of these guys [developers] are going to get the rates they need to pay off their loans,” he said.

Low lease rates can increase the probability of developers having to dig into their own pockets to make loan payments or risk losing the property. If a development goes into foreclosure or the developer files for bankruptcy, tenants’ lease agreements can become void.

“It would be ludicrous for anybody in their right mind to take the bait right now,” Moreines stressed.

However, even during these troubling times, there are signs of hope. First, prices for commodities – food, clothing, gas, etc. – are dropping. And, despite the odds, new services are still coming to the area, including L.A. Fitness to the southwest corner of 51st Avenue and Baseline Road.

According to District 7 Councilman Michael Nowakowski, the Loop 202 will play a big factor in future commercial development, especially in Laveen.

“I have spoken to many businesses and hospitals that are interested in moving to Laveen, provided that there are some assurances that a highway is being built,” he said, adding that his staff and many land owners in the path of the South Mountain Freeway have lobbied the Arizona Department of Transportation to continue with the funding and planning process.

The councilman also sees the addition of a community center at Cesar Chavez Park as an amenity that could trigger development and increase the number of new families in the area.

“We are constantly working with our economic development department to attract new tenants to Laveen,” he said. “We know that once they see the steady population growth in Laveen, as well as the great amenities, Laveen looks like a great deal.”

For more information, contact Moreines of Terrazona at 602-956-5744 or Michael Nowakowski at 602-262-7492.


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