Corporations Flocking to Phoenix
A major corporate influx is underway into Phoenix, and rather than settle for old space, they're looking for new (just this week, Northern Trust announced it's building a 450k SF operations center in Tempe). That's one of the reasons we're excited to hold the second annual Bisnow Phoenix State of the Market on March 3 at 7:30am at the Hyatt Regency Scottsdale Resort & Spa.
One of the hotspots for office in greater Phoenix is Tempe, says Douglas Wilson Cos CEO Douglas Wilson (snapped with his son Nich, at Nich's wedding last year), who will be one of our speakers. “We see Tempe as the leader in the commercial real estate recovery, attracting tech users and professional services firms." He adds that the City of Tempe understands smart growth and has worked hard to attract businesses with the light rail system, developed infrastructure, a walkable downtown area, and overall central location in the Valley.
"All of these elements are what attracts businesses to the area," Douglas adds. "We've witnessed this first hand with the traction we have received on our project at Mill Ave & Rio Salado [pictured], the former Monti’s Restaurant site.” Plans for that property, which Douglas Wilson is developing with Phelps Development of Greeley, call for a 274-room hotel and a 280k SF office building. Tempe's got a tight office market, with vacancy of about 9%.
One thing that sets Phoenix apart are its lower barriers to entry, Walker & Dunlop SVP Brandon Harrington (right, at a Bisnow event last year), who will also be a speaker, tells us. "If you want to purchase a 150-plus unit Class-B multifamily asset in San Francisco or LA, you could easily be north of $30M, which takes many private entrepreneur owners out of the market," he says. In Phoenix, an investor can potentially purchase a 150-unit, Class-B asset in the $10M to $15M range with a higher cap rate. In addition, Phoenix has a very friendly business environment, no rent control, relatively affordable real estate taxes and in general is more landlord friendly.
Also, Phoenix has been adding jobs at a pace of about 50,000 per year in the last three years, Brandon points out. Most sectors are adding locally, with the big exception being construction, which still isn’t adding jobs because housing construction has been limited. "A larger share of the jobs we're adding locally are in white-collar sectors, which tend to be higher wage," he adds. Companies are feeling better about the state of the economy, which leads to better occupancies in all sectors.
With interest rates still low, and owners keen to goose returns as much as possible, it's also still prime time for refi in the Phoenix multifamily market. "For borrowers, there are several new lending options, such as the new Freddie Mac Small Balance program, and lenders are getting very aggressive to win business," Hunt Mortgage Group SVP Darrell Clark tells us.
Aside from a wave of maturities, rates are low enough to entice borrowers to refi now even though they may have to incur prepayment penalties, Darrell notes. All together, it's going to be a strong year for multifamily lending. Pictured: Pinchot Tower Apartments in Phoenix, whose refi Hunt Mortgage recently oversaw. Come hear more about all aspects of the Phoenix market at our State of the Market on March 3 at 7:30am at the Hyatt Regency Scottsdale Resort & Spa. Sign up here.
