Rockefeller Group eyes Chandler AZ area for mixed use development, by Bob Canter, President of Performance Realty Solutions, "Is it really that risky a venture?"

Implications: The article in question highlights the fact that developers of commercial real estate are willing to risk capital on new "development" rather than buying existing cash flow investments at the historic high sale prices investment properties have been getting over the last few years. The article suggests this could be a risky venture due to the lack of historical market performance and other competitors eyeing the same market for development.

Analysis: The first part should be seen as a negative for the investment climate that developers would be willing to create their own investments rather than buy another cash flow at an overly inflated price. Rockefeller Development are long term holders and generally don't sell. To those that are thinking this is a build, lease and sell strategy you would be wrong. Rockefeller has had great success in the East building along major Interstates and Free Trade Zones. They are being insightful as they are going to build near an airport. Airports and Seaports are where the future demand for logistic space will be in light of the expanding global marketplace. Since AZ is a land locked State, being close the airport is the next best thing.

It is also a smart move as AZ and the Sunbelt States in general are expanding population wise, especially in light of AZ being where many upcoming Baby Boomers will be retiring. This population expansion will help those companies fill the jobs that are forecasted.

The last bit of insight is that when you plan such a large development, and in light of the sizes that are to be built, Rockefeller will be able to build according to the demand they see, so there is a smaller chance of over building, unlike when you buy existing investments, you automatically get the whole project with all the headaches of lease expirations, vacancy, capex improvements etc to keep the returns stable.

At the end of the day this is a smart and less risky venture.