Rick Tollakson recently saw a picture of someone surfing in Boise, Idaho. The Hubbell Realty Co. president and CEO, who also heads a water trail task force, found himself asking why there and not here.

Principal Financial Group Inc. is spending in the range of $250 million to renovate its campus in downtown Des Moines and it isn't adding a single square foot to its multi-block presence. That fact, said Matt Anderson, is an example of experiential development.

Experiential development. That tongue twister is behind much of what is moving and shaking commercial development in Greater Des Moines.

Anderson and Tollakson joined Jennifer Cooper of Bankers Trust Co., Heath Bullock of Jones Lang LaSalle Brokerage Inc. and Chris Costa of Knapp Properties Inc. to answer questions and provide insights during the Business Record's Commercial Real Estate Forum in Urbandale on Wednesday.

Experience is a word that has been tossed around quite a bit in local development circles. Residential projects are packed with amenities to provide renters with unique experiences. One luxury project planned for downtown wants to scale down the size of the structure and number of rooms so tenants have less competition for the project's amenities.

Office users, such as Principal and many others in Greater Des Moines, are spending a lot of money to make sure their spaces are unique enough to retain workers and attract new ones, Bullock said.

Once you get the workers here, they have a difficult time leaving, and that's just what community leaders want.

"Iowa, Des Moines, the metro area, there is a stickiness to it," Bullock said. "You get somebody to move here and it's awfully hard to leave."

Experiential development, and water trails are a part of it, are crucial to getting those somebodies to move here.

"We cannot rest on our laurels. We are in competition across the United States," Tollakson said.

Just think of the projects that have been announced in recent months. Two luxury high rise developments, and a third luxury development in a market that really hasn't been tested, certainly not in downtown Des Moines.

Tollakson pointed out that Hubbell Realty's plans for the 75-acre Gray's Station development between Martin Luther King Jr. Parkway and the Raccoon River is driven by a desire for more diverse housing options than are currently offered.

Though not considered a full-blown luxury housing project, the Confluence on 3rd project is offering feature-rich accommodations that have caught the attention of many developers and they are coming at a lease price — in the $2.40 per square foot range — that will test how much people are willing to pay for a high-end experience.

Anderson noted that the folks who will pay the bill at Confluence on 3rd are people who can afford to buy a home. They are making a choice instead to rent downtown.

"It's a different market, these are people who can rent by choice, not by necessity," Anderson said. "They are choosing a lifestyle downtown."

Bullock pointed out that office users are showing some reluctance to move out of downtown out of fear that they will leave behind workers who don't want to work in the suburbs. In recent months, three major employers have elected to stay downtown after considering alternatives across Greater Des Moines.

Downtown aside, the panel agreed that all of Greater Des Moines is thriving.

Costa pointed to three areas of focus for Knapp Properties: 1,500 acres it owns along the Raccoon River, the Grand Prairie Parkway area of Waukee where it is building an office park and expects some retail to follow, and an area just south of the convention center hotel in downtown Des Moines.

And Cooper said she is excited about progress in what might be considered forgotten areas of Greater Des Moines. Among those areas is Merle Hay Mall. "Rebirth is finally happening there," she said, driven by a movie theater where you can eat and drink and still enjoy a movie.

Here are some other takeaways from the event:

One more word on experiential development
Anderson said it applies to office and retail and hotel and other segments too, "particularly as the markets start to plateau a little bit in Des Moines and you're not adding inventory just for the sake of adding inventory. … The same is true in hotel development. We're adding about 1,000 hotel rooms downtown and the suburbs are still booming with hotel rooms so how do you make your hotel stand out. I think Mike Whalen's AC Hotel in the East Village is an example of driving that experience. He put in a rooftop bar called the Republic that takes the game to the next level."

Worrying tax reform
Chris Costa brought up the worry of potential federal tax reform: "There have been a lot of different balloons floated that would have, we think, a fairly significant impact on real estate values and how real estate is funded. One of the ideas being floated is either the elimination or rollback of Section 1031 exchanges. A lot of us in this room could easily understand how reducing the effectiveness of tax deferred exchanges would affect the values in commercial real estate. And the other balloon that's been floated is the elimination of the mortgage interest deduction. … We see any major changes in tax reform could have a substantial impact on the value of our portfolio."

From a banker's perspective?
Cooper agreed that tax reform could affect markets, possibly in a negative way. "We're 90-plus months into this part of the cycle, that's a lot longer than previous cycles. The stock market is trading higher because of expected tax reform. A lot of our underwriting is looking at how can we reduce risk at all times with additional equity, more recourse, short amortization, all of those factors are coming back into play. You also have banks getting very full in certain buckets of real estate. Multifamily is pretty full, not just in the Des Moines market, but Omaha, Chicago, all of the markets. It's hard to find a lender that has those funds available. Hospitality is another sector that has grown substantially. It's not total impending doom, but it certainly feels like the bubble is going to burst a little bit at the end of the year or early 2018 if some of the reforms don't come through."

And lending from a developer's perspective?

"We're not seeing the same thing that Jennifer described," Tollakson said. "The access is very generous. Lenders are out there pushing very hard to lend money. Yes, certain ones might be full in certain categories, but others are not. The ability to find debt is not a problem."

"I agree with Rick," Costa said. "I'd consider it a blessing and a curse. It feels a lot like the mid-2000s when the cash flow into real estate was exorbitant and a lot of it came from local and regional banks. If there is a slowdown, the timing at the end of 2018 could have significant impact on anybody who is trying to place money this year and next."

Hat's off to tax incentives
Bullock noted that much development has been sparked by a variety of tax incentives, whether tax credits from the state of Iowa or tax increment finance funding from local communities. He noted that some incentives have come under fire with the tightening of the state budget this year. He pointed out that the incentives feed growth and the overall economy.

Costa said the use of tax increment financing revenues from Microsoft Corp.'s Project Osmium data center in West Des Moines will advance development of several thousand acres of ground by two decades. Investments in infrastructure along Mills Civic Parkway in West Des Moines and Grand Prairie Parkway in Waukee are having a similar effect.

Anderson said his staff frequently prepares "grocery store talking points" for City Council members who might be confronted by constituents who want to know why the Council approved incentives for developments. "We put together a couple of bullets on why we did it, what it is, why it's good for the city," he said.

"Most people own a home, and you're going to pay 2 percent in property taxes on your home. If you're going to pay 2 percent you want your home to grow 3 or 4 percent and jobs and growth are really what creates that. It's self-preservation, it's reinvesting in the community," Bullock said.

Cooper is a member of the Iowa Economic Development Authority board that awards state tax credits. "It's a complex system. In the current system, I was surprised to learn that with many of the incentives, the capital investment was typically a strong multiple over the tax credit and they don't receive the benefit unless they provide the jobs. A bigger concern we have now is that companies are not getting the benefit they were promised because they can't find the people to fill the jobs."

And as we know, finding those people is a matter of experiential development.