Phoenix’s proposed Innovation District in ‘premature’ phase, gains momentum in Warehouse District

For Phoenix's proposed Innovation District, the spotlight has been on The Warehouse District in downtown Phoenix, which is becoming a tech and startup hub. (Kristy Westgard/DD)
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In the historic Warehouse District of downtown Phoenix sits a 64,000 square feet building at Lincoln and Fourth streets. It’s a behemoth of a space that broker Mark Stratz of Cushman & Wakefield leads potential buyers through, pointing out old beer signs from the building’s conception as a Coors distribution facility in 1968 and a photo shoot area used by Ultimate Consignment, the latest ex-tenant, to catalog its used products.

The building has served a variety of purposes, but the vision Stratz paints for its future is two to three tenants, most likely tech companies, working together in what has been rebranded by the city as part of the Innovation District.

The district received its official designation by Mayor Greg Stanton earlier this year and is currently in a one-year development phase led by the Innovation District Steering Committee, a group of private individuals approved by the Phoenix City Council who represent technological or innovative companies and institutions.

“Phoenix is so incredibly unique in its reach and opportunities. We don’t tend to model our activity off of others, so instead of saying we want it (the Innovation District) to look like those in Cambridge Park or Chicago, we have the steering committee,” said Christine Mackay, the city’s director of Community and Economic Development.

With two meetings under its belt so far, the committee has primarily discussed what assets exist in downtown, but it is still in the premature stages of planning, according to Mackay.

Mackay said she is unable to provide a single, agreed upon phrase to define the district at this point.

“This is a year-long process and we are only in month two. I think everybody has ideas of what it should be in their head and the mayor appointed a steering committee to find that out,” Mackay said.

The committee intends to formally define the district boundaries and recommend financial incentives the city should implement within those boundaries at the end of the process, Mackay said.

An eye towards collaborative industries

While the Innovation District does not have formal boundaries currently, it does house Phoenix’s more established Warehouse District. The less-than-half square mile area, located just south of downtown Phoenix’s core, formerly served as an agricultural shipping hub and the stomping grounds for Phoenix’s old Chinatown until corporations began buying out buildings in the 1950s.

Twenty-three unique businesses now occupy the district, representing industries from creative design and healthcare technology to arts and entertainment.

“The demand has never been as high as it is today, however it is a unique tenant that is interested in the district — not accounting or law, more tech and entrepreneurial—so product niche,” Stratz said.

Stratz said some reasons businesses are attracted to the district are its proximity to downtown’s core, its more abundant parking options and its close location to where labor pools are coming from. An extension of the light rail into the district by 2019 is another attractive feature of the area, Stratz said.

“We’re selling more than just a building, we’re selling downtown, a warehouse district, a piece of history,” Stratz said. “It’s not for everybody, but it (the Warehouse District) is a high demand sub market.”

The city is specifically targeting companies within the advanced business services, biosciences and information technology industries for the Warehouse District, Mackay said. Advanced business services is one of the largest industries in Arizona, accounting for 26 percent of total private employment, according to the Bureau of Labor Statistics. It includes customer care centers, data centers and global tech centers.

The slant towards tech industries for the district has some comparing it to other tech hubs across the nation such as in Boston, Chicago or San Diego, but modeling the district off of other locales is not the city’s intent, Mackay said.

“The single most important thing is that those are the types of companies that want to work collaboratively because there are other like minded companies to work in that area,” Mackay said.

An attractive district, a business friendly state

The migration of tech companies to Arizona is adding to the buzz of development happening across downtown Phoenix as the cyclical boom-bust nature of the tech industry pushes companies out of less business-friendly states such as California.

Already at a lower corporate tax level of 5.5 percent compared to California’s 8.84 percent, Arizona will drop that level down further to 4.9 percent next year. That, paired with lower lease rates, property taxes and workers compensation requirements makes it significantly easier for a business to realize profits in Arizona.

The Warehouse District has a small amount of purely economic incentives for businesses looking to locate specifically in the area according to Brian Cassidy, owner of CCBG Architects Inc., an architecture firm located in the Warehouse District.

“The city doesn’t have a huge toolbox of things they can assist with,” Cassidy said with regards to economic incentives.

He said where the city contributes the most to the district is by offering programs such as adaptive reuse, which makes it easier for businesses to renovate and move into existing buildings built prior to 2000 through development guidance, streamlined processes, a reduced time frame and cost savings.

Cassidy said through the program businesses can benefit from a slight reduction in permitting fees and a relaxation of modern day building codes through alternative ways of compliance.

Another economic incentive that has received considerable attention within downtown Phoenix is the Government Property Lease Excise Tax, a tax incentive that exempts land owned by governments from property taxes. A GPLET agreement allows the city to take over the rights to a piece of land and lease it back to the developer at a significantly reduced rate that replaces the normal property tax.

Cassidy said the district has only one or two GPLET agreements at the moment, with more agreements happening within downtown’s core.

Striking a balance between old and new

When CCBG Architects Inc. first located in the Warehouse District 11 years ago, it was the sole business on Buchanan Street, according to Cassidy. It was not until two and a half years ago that the firm received a neighboring business.

Now, seven businesses employing 100 people surround the firm and Cassidy said he sees even more traction just north of his block.

Through his work with the Warehouse District Council and his architecture firm, Cassidy said he is talking with a couple of interested businesses looking to locate in the area. He could not divulge specifics but said all interest is coming from tech and creative enterprises.

“They’re anti-corporate, want big open tall spaces, character, to walk outside, they’re lone rangers,” Cassidy said of the prospective buyers and tenants he works with.

Putting a damper on the excitement of movement in the district are concerns about preserving the historical integrity of the warehouses in the area, such as the 120,000 square feet General Sales Co. Wholesale Grocery warehouse, which is currently being renovated to house physical therapy software company WebPT and Denver-based computer coding school Galvanize, as well as incubator space Seed Spot and SaaS Industries.

This concern was brought into focus last month after three structures on Jackson Street were demolished by medical and dental practice training company The Scheduling Institute. Cassidy said rumors that the cleared area would be turned into a parking lot stoked further anger at the demolition, but those fears lessened after documents were provided showing plans for a new office building.

“We could say we don’t like to have that (demolition) happen, but we can’t do much else beyond that,” Cassidy said. He said the landowner followed all necessary protocol including receiving demolition permits from the city and postponing demolition to hold a community meeting.

A recently passed city ordinance requiring a 30-day waiting period and public notice before demolition of historic buildings should help quell this issue of tear down Cassidy said.

Immense infill potential for creative spaces

The development of the Warehouse District is patchy, with vacant lots speckled throughout like a smile with some teeth knocked out. These lots are where Cassidy said he sees a huge amount of infill potential.

His firm has worked on a number of adaptive reuse and infill projects including a historic building just across the street from the firm which is now occupied by marketing and communications agency R&R Partners.

A deeper penetration of restaurants, bars and entertainment venues in the area is something Cassidy said he would like to see but will have to come with time.

“It’s a great idea of stringing together parts of the city and this is just one of the great areas—by my count there’s 18 city blocks of dirt that will be transformed,” Cassidy said.

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