Can a makeover of the exodus-plagued Esplanade restore its lost luster?
Friends told Jeff Hostenske he was crazy when he settled on a location for TEN Handcrafted American Fare & Spirits: the Camelback Esplanade. Save for traffic to a few restaurants and the AMC Dine-in Theatres, the Esplanade was a ghost town after 5 o’clock, they said. But Hostenske was undeterred.
“I wouldn’t have sunk my entire life savings, practically every penny that I had, to come into a place where I did not see success down the road,” he says. “I think I’m on the ground floor of something outstandingly fantastic.”
Ten years ago, that statement would not have seemed particularly wishful. After all, the Esplanade – anchored by its five high-end office towers, built at 24th Street and Camelback Road between 1989 and 2000 – was long one of the most exclusive addresses in the Valley. Steakhouses Morton’s and Houston’s hosted power lunches for the lawyers and financiers who worked upstairs. On the same corner, Ritz-Carlton opened what was its seventh hotel in the United States.
In recent years, though, the Esplanade hasn’t exactly been bustling. Morton’s and Houston’s closed. So did another high-end steakhouse, McCormick and Schmick’s. Shockingly, 40 percent of the Esplanade’s retail spaces were vacant in the second quarter of 2015. Meanwhile, vacancy rates for the four MetLife-owned towers ranged from 29 to 39 percent – compared to just 15 percent of similar “Class A” office space in the Valley. And the Ritz-Carlton Phoenix shuttered in July, leaving the nation’s sixth-largest city without the premier hotel brand – for now, anyway (see sidebar).
A recession, competition from newer developments in Scottsdale, Tempe and the East Valley, and high rental rates seem to have spurred the exodus. According to one Valley corporate real estate professional, MetLife “jacked up” leases at the Esplanade shortly after purchasing the property in 2005. “The guys that bought it had some unrealistic expectations about what they could charge for rent,” says the source, who requested anonymity. “When Houston’s left, that was huge. As an office space manager, you want to keep those retail occupants around as an amenity. Then the recession hit. The timing could not have been worse.”
Today, the average office lease rate at the Esplanade is $35 per square foot; according to market analyst Colliers International, the average price for similar office space in Phoenix is $25 per square foot.
But the Esplanade does have a plan to restore its appeal. Property manager CBRE is overseeing a $10 million renovation for MetLife, which owns Esplanade I, II, IV and V. (In March, Crow Holdings bought Esplanade III for $74.3 million.) Redesigned outdoor public spaces will be marked by bold, new signs visible from Camelback, and the former Morton’s space will be renovated to include three quick-service restaurants that will share a patio. Other prospective tenants include a high-end restaurant, a breakfast spot and even a bowling alley.
Still, regaining traction may be a challenge when the area is no longer a commercial real estate hotspot. Camelback Corridor offices currently show 21.5 percent vacancy, according to a report from Colliers. Meanwhile, Tempe and South Scottsdale have vacancy rates at or below 13 percent. “I think the bigger story is this: corporate real estate is shifting east,” the anonymous source says. “And that’s because the big catchphrase for companies is ‘millennials’ and ‘live, work, play.’ The Biltmore has entertainment and retail, but the cost of living... prices out a lot of young workers.”
Appealing to the younger, millennial-minded market seems part of the Esplanade’s plan. To replace the Ritz-Carlton, Jones Lang LaSalle, which oversees Esplanade office leasing, has lined up The Camby, part of the Marriott Autograph Collection of upscale hotels. Due to open on December 16, the concept aims to appeal to the “playful professional” and is a better fit than the staid Ritz, spokesman John Bonnell believes.
“There’s a brand-new 24th and Camelback feel. From the hotel to the offices to the retail, it’s going to be an experience.”
Miss the Ritz already? You might be in luck – if you can wait two years for the next afternoon tea.
Scottsdale-based Five Star Development plans to build a Ritz-Carlton resort with Camelback Mountain views on 120 acres at the northwest corner of Scottsdale Road and Lincoln Drive. In addition to the 320-room resort, the development would include the Ritz-Carlton Residences, a luxury neighborhood, and The Palmeraie, a mixed-use center with high-end shops and restaurants.
The Development, which Five Star president Jerry Ayoub values at $1.5 to $2 billion, awaits approval from the Paradise Valley Town Council this fall. Construction would begin in January 2016, with the resort aiming for a September 2017 opening.
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