Real Estate Lawyer Talks about the Commercial Real Estate Market

Published on in News Articles Firm Highlights

The latest episode of the AZ Big Podcast with Michael & Amy has officially dropped. Episode 1 guest Andy Abraham of Burch & Cracchiolo, talks about the red-hot commercial real estate market, focusing on its sustainability and outlook.

LISTEN TO THE PODCAST: https://open.spotify.com/episode/0yfn2gUg7OCkE4BxQcbfN1?si=etAhc7qDQ1y1dAC9L-oo0A

Listen to more of the AZ Big Podcast here.

Podcast Transcript:

Michael Gossie 
Welcome to the AZ Big Podcast sponsored by Burch and Cracchiolo. I'm Michael Gossie and I'm joined by my co-host Amy Lindsey. Today we are joined by Andy Abraham of Burch and Cracchiolo. Andy, welcome to the podcast. 

Andy Abraham 
Good morning, happy to be here. 

Amy Lindsey 
Good morning, Andy, tell us a little about yourself and the focus of your law practice. 

Andy Abraham 
You bet. I'm a native Arizonan. My practice for the last 40 years – next year – is mostly real estate-oriented, real estate transactions, finance, and real estate-related litigation. When things go a different direction than they should, my job is to anticipate those kinds of problems and avoid them and protect my clients from that unfortunate end, and get deals over the finish line in a good place. 

Michael Gossie 
You know the real estate market is crazy right now. You know, you're a native of Arizona. Have you ever seen anything like what is going on out in the market right now? 

Andy Abraham 
So, obviously people think about what happened 7 or 8 or 9, 10 years ago when the market was going crazy as it is now. But, I think it's crazy in a different direction now. I think it's crazy in the high-dollar area, particularly on the residential side, I think lenders are much, much, much smarter which protects people from themselves sometimes. I think a lot of consumers see that as interference in what they want. But I think what it really is protecting them from themselves. We had eight or nine or ten years ago. Hair stylists making $20,000 a year buying houses for $800,000 and prequalifying and then massive foreclosure. I don't see that happening here. I think it's smarter. I just think our market is that good because of what is happening in other places in the country. Particularly California migration here, people getting away from taxes there, high prices of real estate there, and gas there is $4.50 a gallon. Here it’s $3 a gallon, and I think that's what's driving what's going on here. 

Amy Lindsey 
What has the state done right to help reduce the risk? 

Andy Abraham 
So, obviously, we have a relatively flat tax state income tax, which I think is helpful with a lot of people. We don't have transfer taxes like other states do. I think to reduce the risk, there's more regulation, but it's more on a federal level, I think than on a state level. I think that protects people quite a bit. It protects lenders as well, and there are also a lot more lenders in the market and they're regulated as well. So, I think that a moderate level of regulation I think protects people indirectly as well.

Amy Lindsey 
Do you feel the real estate market is sustainable? 

Andy Abraham 
I think it is. I think it is. I think what we're seeing right now is you know a pretty vertical growth that's going on. But I also think it's softening quite a bit. I think every day there's an article in the paper about how it's softened a little bit from the month before.  You know, in the past we would look at the curve over a year or two or three. Now we're looking at the curve over a month or two or three. And I think that's a much different pro forma going forward and it is softening a little bit. But still, many, many, particularly on the residential side and we can talk about the non-residential, but particularly on the residential side, people paying well over market, so they can get into the front of the line, it's still is clearly a seller's market. But I think sellers, too, are, tend to be too aggressive on their pricing. 

Michael Gossie 
What lessons do you think we learned in 2008, 2009, 2010? That, that is going to help us get through this and keep this, this market sustainable. 

Andy Abraham 
Primarily back on the lending side, I think lenders are requiring more down. That creates more equity in the property right away. But, I think that also flushes out buyers who would only put down 5%, or put down nothing. I mean that was happening a lot. You put down nothing, you get 90% financing from your primary lender and then 10% financing from somebody else into somebody else would be lending it, you know, eight, nine, 10% in the second position and that would, that would crush people six months into ownership or a year into ownership. 

Michael Gossie 
You know, how about on the commercial side, what do you, what do you see as the hottest sectors coming out of 2021? 

Andy Abraham 
Industrial for sure, industrial for sure. If you fill in multi-family and apartments on commercial – that's more residential. But, I think industrial certainly, obviously everybody is looking hard at the commercial office market – you know post  COVID. You know, our office is a perfect example. We downsized the square footage by ⅓ pre-COVID, obviously not knowing what was coming, and we have the same number, actually, more lawyers, and more employees than we had, but we have more people working remotely. So, and I think that's going to stick. I think the COVID cloud lasted long enough to change people's habits, work habits. I think there's more productivity in many ways, you know, less interruption. I think Zoom is taken advantage of. I think everything is Zoom, Zoom, Zoom when you can just pick up the phone and call somebody and have a quick conversation. But, I think that will soften, too, and I think, but I think that's going to have a lasting impact on the commercial market and we're already seeing it. 

Michael Gossie 
It seems like every other day there's a million-square-foot industrial project being announced in the valley, both in the East Valley and the West Valley. Why do you think Arizona has become such a hot industrial market right now? 

Andy Abraham 
That goes back to the question about the state and what the state is doing, incentivizing. They're offering certain types of programs, whether it's tax incentives. Or, it's some sort of a subsidy in some sort of a way to attract these businesses here. And many of those that you're talking about are coming from California or are relocating. Maybe not fully relocating, but primarily relocating here and taking up those big box industrial uses, and you know bringing jobs here. There's no question that our state has done a superb job about taking advantage of the timing over the last 6 to 8 years, and you're seeing that in the locations you're talking about. 

Michael Gossie 
Do you see the growth, the population growth continuing in Arizona? 

Andy Abraham 
For sure, for sure, I mean as a native, I mean, I'm sitting here in Scottsdale and, grew up 3 miles from here and you know, rode a bike here all the time. There was nobody around. One of the beauties about living here is that you get to move without physically moving, right, because it keeps changing around you and I think that's going to continue to happen. I was in California recently and like back to that example, everybody's complaining about it. I think a lot of things that are happening in Florida. I know Florida has massive growth, but I also think a lot of people are looking here for second opportunities. 

Michael Gossie 
Okay, I have an important question to ask you, but before that, I just want to say the attorneys at Burch and Cracchiolo have been proving for more than 50 years that a successful business or legal case of any kind starts when you hire the right lawyer. Let them prove it to you. Learn more at bcattorneys.com. That's bcattorneys.com. Okay., 

Andy Abraham 
Well said.

Michael Gossie 
Just as the real estate market goes crazy we get, we get COVID. Now as a manager of a law firm. How do you manage, how do you manage that when you all of a sudden you have more work probably than ever, but then you have most of your team working remotely? How do, you how do you, how do you deal with that from a management perspective? 

Andy Abraham 
Trust your team, trust your team is the absolute motto to it. 

Amy Lindsey 
Great answer. 

Andy Abraham 
I mean, that's exactly what we did. We had all sorts of meetings about what should we do and what shouldn't we do and how do we handle work from home and that sort of thing. At the end of the day, we looked at each other and said just trust your team and now we're a year and a half later and it's true. You have to hire the right people. You keep the right people. You create a family atmosphere. Your clients interest is first, your employees interest is right there with the clients interest and you keep doing it over and over and over again every day. To me, that's the answer to your question. 

Amy Lindsey 
Do you think it will change a lot of the office expectations moving forward? 

Andy Abraham 
I think so. It'll affect accountability. I think people will, you know management will look for accountability and I think we'll have to find different ways to track work product and work production. One of the things about being a lawyer is if you're putting time on a time sheet, you know somebody's working or they're not working. If they're, if they're generating time, good time. Real time, time is, you know, legitimate time. Those kinds of things. But I think it'll make management stop and think a lot more often than they have in the past. 

Michael Gossie 
You know, Andy, I'm going to pivot here a little bit. You won our AZ Business Angels award for Angel of the Year. So, giving back to the community is incredibly important to you. Can you tell me how giving back to the community and your community involvement has impacted your business? 

Andy Abraham 
Sure, I remember when I first started, we'd sit around and talk about, OK, so where do you want to volunteer? Where would it make sense to volunteer? But always with the cloud of, and how would that result in business to the law firm? I think it's important to get away from that approach entirely. I think you have to find whatever your passion is for where you're going to volunteer. You just do it because it's – You feel good about doing it. You're giving to the community and that becomes your marketing. You don't have to go out, and actually, you know, walk up to somebody at some sort of a social function and say, hey, I'm a lawyer, I'd love to do your real estate work. 

You just show up, you show passion, you show interest, people get it, and they follow you and just being out there and being visible. And, letting people know you love what you're volunteering to do. 

Amy Lindsey 
You're also a well known advocate for those in law school, and the firm supports primary education. I’m going to repeat that. You’re also a well-known advocate for those in law school and the firm supports primary education. How does this enhance the firm and your practice? 

Andy Abraham 
Well, you know, in a selfish kind of way, many of us volunteer at the ASU Law School because it’s down around the corner and as a result of that, you sort of get refreshed when your surrounded by 20-somethings, 30-somethings going to law school when you're 50 or 60, you sort of get reenergized by that. But, you also meet a lot of people that you can sort of feel on a personal level, that there's a good connection there. So, it helps us with our hiring and our hiring has really expanded at the at the very at the entry level. We had gotten away from a clerk program, a summer clerk program years ago, and now we're really deep into that again and so that relationship has really helped our firm – a lot. For the future, because we're now planning succession planning, that sort of thing. But the other piece of it is the primary education you have this, this Star Teacher Program, and we honor a teacher every month that is nominated by their peers or by their students or by the parents of the students. But, somehow the name gets into us. And you know, it gets us out into the community, at the very primary level, I think a lot of our lawyers have actually taught government in grade schools and in high schools. It's just part of building this whole community and the better the community is,  thrives economically, which generates work for not just lawyers, but in all business sectors. 

Michael Gossie 
How did that Star Teacher Program come about. It's very unique for a law firm to be, to be doing that. How did that program come about? 

Andy Abraham 
Well, I'm going to give credit to Chris Long in our office, I think she brainstormed the idea with the help of others. She's passionate about it. She loves that program. She gets to touch it every month, throughout every month. We talked about it yesterday with somebody in particular our Star Teacher this month. She gets to present or involved in presenting it. It's sort of back to your volunteer question. I mean, that's sort of, you know, Chris, I tell her all the time, come up with quote unquote marketing ideas that really make you warm and really excite you. And let's see if we can get other people behind the same kind of thing. And it shows that same kind of passion we were talking about a few minutes ago. 

Michael Gossie 
Okay, let's get back to real estate because we're running out of time here. What should we be watching for in the coming year or five years? What are, what are the biggest things that people should know? 

Andy Abraham 
I think that the average price of housing for the $300,000 to $500,000 sector is going to continue to rise. I think that the best opportunities are going to be like it was eight or ten years ago in the far reaches of the valley. There is so much going on. For example, in the Southeast Valley. I don't know if there's going to be a farm left, sort of, it's sort of a happy thing and a sad thing. You know, you know, years ago, all of the flower gardens along Baseline went away. I think there's one or two left. And now that's happening in droves in the Southeast Valley and the far West Valley. Beautiful developments. There’s a big project that the state land department is involved in out to basically makeover Apache Junction and you know, you think about that years ago anybody's been here a long time. You scratch your head. First of all, Apache Junction is too far away. And second of all really? But it's going to be, it's a gorgeous project, with wonderful developers involved in it. I think a lot of people are living there and I think that the post-COVID experience is going to let people buy out there and work and be productive because of remote work being recognized in most all sectors. So, I think, watching for that, obviously, that's going to increase freeway traffic and I think that's sort of a downside. I think the idea of a commute is going to be more and more difficult. And I think job hunters and I frankly think that the students coming out of graduate schools, they're all electronic oriented anyway, I think that's where the job market is going to grow as well. 

Michael Gossie 
OK, last question, how do you see material prices impacting the future development both on the residential and commercial side? 

Andy Abraham 
Well, everybody’s seeing the press about lumber prices, you know lumber prices going up and I think anybody who's building a custom home is not going to be able to lock in their price at the front. I think they're going to have to really watch out for price increases throughout the job and they're going to have to protect themselves, not just custom homes, but any sort of construction. They have to protect themselves along the way. On the other hand, the contractors, they can only supply what it costs them to supply, so they need protection as well. So, you know, at the end of the day, it's all going to pass down to the consumer, right, everybody. The contractor needs to make a profit. The real estate developer needs to make a profit and it's going to land with the consumer. But I think consumers need to be really smart about that and understand that there's exposure that they need to protect themselves on at the front end. 

Michael Gossie 
Great. Andy, we could talk to you all day. Fascinating stuff. But thank you for listening to the AZ Big Podcast with Michael and Amy. And once again, thank you to Andy Abraham from Burch and Cracchiolo. And thank you to our sponsors, Burch and Cracchiolo. 

Andy Abraham 
Thanks for having me. Thank you. 

Michael Gossie 
Thank you. 

Amy Lindsey 
Thanks, Andy.

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