Phoenix Developer of the Year:

Vestar Development Co.

by Sue Kern-Fleischer

"Build it and they will come," could have been a slogan for Phoenix-based Vestar Development Co., one of the leading privately held real estate companies in the western United States.

The innovative firm specializes in building and managing open-air, entertainment-retail complexes throughout Arizona and Southern California.

While the company's explosive growth has gained industry attention, the firm's vision and commitment to community is equally impressive.

"We are a long-term holder of real estate," said David Malin, Vestar's project manager. "We pride ourselves on being a partner with the community, towns and municipalities that we are working in."

Created in 1977, originally as the commercial division of Tucson, Ariz.-based Estes Homes, the firm evolved with the help of its five founding principals: Lee T. Hanley, chairman and CEO; Richard J. Kuhle, president; David J. Larcher, executive vice president; J. Paul Rhodes, senior vice president; and Peter G. Thomas, CPA and chief financial officer. Each has devoted more than two decades to making the team's vision for Vestar become a reality.

Rhodes, who joined the firm in 1984, remembered the early days.

"In 1989, we teamed up with a Fortune 50 pension fund and bought the commercial assets of The Estes Co. and formed Vestar. Since that point in time we have specialized in the developing and managing of large open air shopping centers," Rhodes said.

The weak economy in the mid-80s resulted in a slow start in Arizona, so Vestar focused on developing Southern California projects.

When Phoenix's economy showed signs of recovery, Vestar returned to the market in 1989 with the Scottsdale Pavilions Shopping Center, a 1.2-million-sq.-ft. power center on the Pima Indian Reservation.

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"It was a turning point for us," Rhodes said.

One of Vestar's most notable development projects is the award-winning Desert Ridge Marketplace, a 1.2-million-sq.-ft. regional entertainment, lifestyle and power center that opened in 2001 in northeast Phoenix.

The project occupies 110 acres and offers strategically integrated shopping, dining and entertainment in a town center environment. Last year, 22 million customers shopped or dined there.

In May, Vestar announced plans to build more than 11 million sq. ft. in the form of 17 new shopping, dining and entertainment centers in and around the Phoenix metropolitan area. Dubbed by Vestar as "DESTINATION AZ," it is the single largest retail expansion plan in Arizona to date.

The $1.5 billion group of projects is estimated to be complete by 2009.

One signature project includes Tempe Marketplace, a 1.3-million-sq.-ft., open-air destination for shopping, dining and entertainment now under construction near two major freeways, the Loop 101 and 202. The innovative project will include outdoor terraces with seating and elevated fireplaces, and the nation's first-ever laser canopy.

Malin said Tempe Marketplace is not a typical project in Arizona and is more in line with Vestar's projects in California.

"Most of our projects in Arizona are in growth areas, and we are usually dealing with one owner," he added. "In Tempe, this is an infill project in an already mature market. It was one of the most complicated land deals ever done in the state of Arizona," Malin said, referring to the 52 separate properties comprising the site.

Rick Butler, president of Phoenix-based Butler Design Group, who has collaborated with Vestar on seven major retail projects over the past five years, including Tempe Marketplace, said the development team in Tempe had many geotechnical and environmental issues to overcome.

"The site has been in the planning stages for many years, even before Vestar was selected to develop the current project," Butler said. "Portions of the site were long ago built up from the Salt River bed itself, and several other areas were also used as public and private landfills. These areas are comprised of soils that are typically unsuitable to build on without some sort of stabilization." >>

Butler said other portions of the site were once used for various industrial processes, which contaminated the underlying soil.

"Work is under way to abate and stabilize these portions of the site to prepare for the new construction," he added.

Butler said his experience working with Vestar on Tempe Marketplace and other projects has been "fantastic."

"They are certainly leaders in the retail development area," he said. "They always strive to create high-quality developments that fit within the community they are in. The design styles have varied because of that.

"Gilbert Gateway Towne Center, for example, has a rural/agrarian feel due to the historical context of that area. The city required it, and Vestar was willing to oblige."

Phoenix-based architecture firm DFD CornoyerHedrick collaborated with Vestar to design and develop the Sundance Towne Center and Buckeye Towne Center, both retail developments in Buckeye west of Phoenix.

"Our first project with Vestar, the Sundance Towne Center, presented some unique challenges," said Eric Zobrist, DFD's principal and senior designer. "We ran into some difficulty navigating the city's planning and zoning procedures."

"Vestar handled the situation with professionalism and helped DFD in providing the municipality the information and data it needed to get the project online," Zobrist added. "Ultimately, with Vestar's cooperation, we were able to navigate the planning process and begin development of an impressive retail project. It's been wonderful working with the professionals at Vestar. They take pride in developing exceptional projects.

Malin said Vestar typically seeks opportunities to build open-air shopping centers on parcels of land that are at a minimum 50 acres in size, upwards to 130 acres.

"That narrows down the opportunity of where to build these projects," he added. "The site also needs to either be zoned for commercial use, or set in a city's general plan as designated for commercial use." >>

He said Vestar's commitment to community is another key factor in the firm's successful retail developments.

"We meet personally with folks who reside near the project sites and try to obtain input from them as early as possible so we can plan a project that is well-received in the community," he added.

Malin said Vestar's strong relationships with retailers is also important but reaching a design agreement is not always easy.

"It presents a unique challenge whenever we put together a project and want a tenant to deviate from its typical design and look," he said. "We feel it is worth the extra effort to offer and produce something that is special and unique, different from other developers in the region, or for that matter, the country."

Despite its successes, Vestar is not immune from some of the problems facing the construction industry.

"We face labor shortages, and our building costs are up 30 to 40 percent," Rhodes said. "The softening market has not helped either. Rents are not rising as fast as the construction costs are."

Rhodes said that while Vestar is doing more value engineering, it is careful not to risk the quality of each development.

"Our design standards are high, and we believe it is important to include elements that create interest," he added. "We want all of our centers to look good and reflect the communities that they serve."