In the high desert of Albuquerque, developer Forest City Enterprises is creating from scratch a 12,900-acre master-planned community called Mesa del Sol that is spurring industrial growth and attracting thousands of new jobs. It represents a long-term commitment by the company, the city, and the State of New Mexico that has already begun to strengthen the region's economic base and draw investments from across the country and abroad.
“Albuquerque's economic development efforts have suffered for decades from a shortage of reasonably priced industrial and office land,” says Mark Lautman, director of economic development for Mesa del Sol. The project, a public-private partnership, addresses that shortage, Lautman says. “[It] will fill a serious industrial and office land market deficit and make Albuquerque competitive again for high-value, high-demand economic development projects.”
It could take five decades to reach full build-out and a projected population of 100,000 at Mesa del Sol, which will feature residential, office, retail and industrial components, including a 1,400-acre industrial office park.
Residential grading starts this month at the site, which lies on a treeless mesa south of the airport, a 15-minute drive from downtown. Roughly three-fourths of the 12,900 master-planned acres, or 9,000 acres, are developable, and were annexed by the City of Albuquerque 15 years ago.
When finished, Mesa del Sol will be the size of a city, offering 38,000 residential units and 18 million sq. ft. of industrial and office space, five town centers and an urban center, to be built in phases over the next three to five decades, Lautman says.
Cleveland-based Forest City, a publicly traded real estate development company, bought 3,000 acres of the property from the University of New Mexico, a partner in the land agreement, for the modest price of $9.5 million in 2006, about $3,167 per acre.
The project's first phase is being built on those 3,000 acres, and includes about 300 acres of industrial and office space. Although the complex land agreement was signed two years ago, Forest City actually entered the market earlier, in 2002, when it began studying the land deal that evolved into Mesa del Sol.
Today, more than $500 million in private investment, including $60 million in company equity, has been committed to the massive project, according to Forest City. Schott Solar, a German subsidiary that manufactures solar energy equipment, and Boston-based Fidelity Investments, a financial services firm, will bring in 600 jobs within the year and up to 2,000 jobs later.
Schott is building a 200,000 sq. ft. manufacturing facility on 80 acres at Mesa del Sol, while Fidelity has agreed to locate a 210,000 sq. ft. operations center there.
So far, two completed projects occupy the industrial park, encompassing 378,000 sq. ft. on 35 acres, reports Forest City Covington, the Forest City subsidiary developing Mesa del Sol. Another five projects are under construction, totaling 730,000 sq. ft. on 116 acres, with an additional three projects under contract, calling for 130,000 sq. ft. of construction on 7.3 acres. That adds up to 1.2 million sq. ft. spread over 10 projects.
Albuquerque Studios is producing feature films and TV series at eight sound stages on 50 acres of Mesa's arid industrial sector. Sony Pictures Imageworks plans a 100,000 sq. ft. facility.
Drumming up jobs
Mesa del Sol's master plan calls for creation of 60,000 jobs for goods or services paid outside the region and representing economic expansion. Half the jobs are slated to have annual salaries of $40,000 to $50,000. The other half will be retail, service sector and construction jobs.
“We promised the state and city that we would launch the Mesa del Sol project with a job- creation effort [to boost the economy],” says Lautman. The influx of jobs, including the solar technology and financial service positions, comes at an ideal time. Last year, the Albuquerque region, New Mexico's biggest economic hub, suffered a loss when Santa Clara, Calif.-based Intel Corp. laid off 1,500 of its 4,800 employees at a chip-making plant in the City of Rio Rancho. Local jet manufacturer Eclipse Aviation, which employs 1,600 people, struggled to maintain adequate financing as it lagged behind schedule in producing its new very light business jet.
But overall, area demographics reveal a workforce that many companies would find attractive. About 54% of metro area residents are minorities, mostly Hispanic, and the area is home to a major university and research labs.
“Diversity, affordability, creativity and Ph.D.s — Albuquerque scored well,” says Michael Daly, president of Forest City Covington. The well-educated population may lure companies to Mesa del Sol, Daly says, along with the sunny, dry climate. “Companies will want to relocate here for the quality of life.”
Industrial supply dwindles
Outside Mesa del Sol's emerging industry corridor, Albuquerque offers 35 million sq. ft. of industrial space, 60% owned by users and 40% by investors. But most of the industrial structures are too small — 10,000 sq. ft. to 60,000 sq. ft. buildings are the norm — for major national investors and REITs, explains Jim Chynoweth, managing director of the CB Richard Ellis Albuquerque office, which is marketing a portion — about 200 acres — of Mesa's industrial land.
“They cannot get enough economies of scale to make an attractive deal” with the smaller properties, says Chynoweth.
A major exception is the portfolio of family-owned Brunacini Development Co., which built Meridian Business Park off Interstate 40 and still owns and manages almost two-thirds of the park's 1.5 million sq. ft. of space. None of the firm's buildings are older than 10 years, says 37-year-old president Angelo Brunacini, who has no plans to sell his holdings.
A diminishing supply of land zoned for industrial use and ready to build on poses a major problem for the region, particularly since local industrial land is being consumed at 100 to 150 acres a year, according to area commercial real estate agents. Albuquerque faces unique constraints to growth, including the Sandia Mountains dominating the eastern landscape, while land to the north and south is owned by Pueblo Indians.
Some 1,200 acres zoned for industrial use is for sale in the metropolitan core at $4 per sq. ft. to $13 per sq. ft., according to CB Richard Ellis, but the land could be converted to non-industrial purposes, particularly since some of it lies near a newly opened commuter rail station.
Over the last 15 years, 5,000 to 6,000 acres of land previously zoned industrial have been converted to other uses, says Tim Cummins, an industrial real estate developer and local politician. In the fourth quarter of 2007, the industrial vacancy rate was 5.9% compared with the national vacancy rate of 9.5%. The average cap rate for industrial property in Albuquerque is 8.5% compared with 8.14% nationally, reports Grubb & Ellis.
The dwindling supply of industrial land shines the spotlight onto Mesa del Sol. “A severe long-term limitation on the availability of industrial and office land in the metro area means that the more than 1,400-acre industrial office park at Mesa del Sol will be by default the real estate platform for the future economy of the region,” says Lautman.
An appealing lifestyle
While the industrial sector powers new jobs, a big part of Mesa del Sol's appeal is its quality of life and affordability. Forest City Covington's agreement requires that 20% of new housing be affordable, and that it meet sustainability or energy-efficiency standards. The strategy also calls for services and jobs in entertainment and digital media, federal and financial services, and at medical, sports and wellness facilities.
Mesa del Sol is Forest City co-chairman Albert Ratner's pet project, and it's no accident that it is located in a region where local, state and federal political leaders share his vision for an economic model in which research universities and laboratories help spur growth by attracting qualified workers, new companies and real estate development.
Under the public-private partnership, state and local government pony up tax financing to pay for Mesa del Sol's infrastructure and public amenities. On the other hand, Forest City's deal with the State Land Office and the University of New Mexico provides long-term income for the university. Over time, the public could net 30% of the project's profit, given the expected appreciation in property value, Lautman says.
The end result is a community that may serve as a national prototype in pairing economic and industrial development with quality of life. Residents can choose to bike or walk to work, and reduce commuting time from more than two hours in other urban markets to under 12 minutes, says Lautman.
Some may telecommute, and families will have access to superior schools, parks and recreational amenities and town centers., according to Lautman. “In other words, residents of Mesa del Sol will be able to get their lives back.”
Richard Metcalf is an Albuquerque writer.
ALBUQUERQUE - BY THE NUMBERS
LARGEST EMPLOYERS:
- Kirtland Air Force Base
35,690 civilian employees - University of New Mexico
19,100 employees - Albuquerque Public Schools
15,000 employees
Source: Albuquerque Economic Development
METRO POPULATION:
817,000
Source: U.S. Census Bureau
UNEMPLOYMENT RATE:
3.5%
Source: New Mexico Department of Workforce Solutions
METRO AREA VITAL SIGNS
Office:
10.8% vacancy, 4Q 2007
13.4% vacancy, 4Q 2006
$21.50 rent per sq. ft., 4Q 2007
$19.87 rent per sq. ft., 4Q 2006
Source: Grubb & Ellis
Multifamily:
7.4% vacancy, 4Q 2007
4.9% vacancy, 4Q 2006
$707 effective rent, 4Q 2007
$680 effective rent, 4Q 2006
Source: RealFacts
Retail:
8% vacancy, 4Q 2007
8% vacancy, 4Q 2006
$17.47 rent per sq. ft., 4Q 2007
$15.91 rent per sq. ft., 4Q 2006
Source: Grubb & Ellis
Industrial:
5.9% vacancy 4Q 2007
6.5% vacancy, 4Q 2006
$6.88 asking rent per sq. ft., 4Q 2007
$6.94 asking rent per sq. ft., 4Q 2006
Source: Grubb & Ellis
Hotel:
63.1% occupancy, 2007
64.5% occupancy, 2006
$86.94 average daily rate, 3Q 2007
$80.59 average daily rate, 3Q 2006
Source: Smith Travel Research
MAJOR PROJECTS
Rio Rancho hospital: One of New Mexico's major health care systems is planning to break ground in the third quarter on a 330,000 sq. ft. hospital on 50 acres in Rio Rancho, the metro's second largest city with a population of about 90,000. The hospital's five-story main building will be the tallest building west of the Rio Grande in the Albuquerque metro area.
Developer: Presbyterian Healthcare Services
Completion: 2010
Cost: $150 million
New Mexico Tri-Lab Building: Construction is scheduled to begin in the second half of 2008 on the five-story, 190,000 sq. ft. building, which houses the Office of Medical Investigator and similar scientific labs, not far from the University of New Mexico campus. The building will replace an antiquated 34-year-old building less than half the size on the University of New Mexico campus.
Developer: New Mexico General Services Department
Completion: mid-2010
Cost: $70 million