Multifamily Mania!
Résumé holders, rejoice: The Valley saw more job-growth momentum than previously estimated, powered by industries like education, finance, business, and healthcare services, according to RED Capital Group research guru Dan Hogan. (If there was ever a time to open the tie shop you've always dreamed of, it's now.) Of course, this fuels real estate—especially multifamily—and that’s why we’re thrilled to hold our first-ever Phoenix State of the Market event on April 29.
Government stats show 41,500 jobs were created in 2012, jumping to 43,100 in 2013. Although growth rates exceeded the national average both years, they were uncharacteristically slow for Phoenix, Dan says—it added between 70,000 and 100,000 jobs annually during after the past two national recessions, led by construction and consumer services. He forecasts that after a sluggish 2014, Phoenix will likely return to its past norms until 2018. (After a long winter, Ohio-based Dan is tempted to follow these employees’ lead to the desert sunshine, but will instead be consoled to dust off his golf clubs for the next six months… that is, after he shoveled the inch of snow that fell yesterday.)
While Phoenix home prices are booming, Dan’s models suggest the market has reached peak growth, and price appreciation is likely to cool off. In turn, apartment demand has been exceptional, he says; the Valley absorbed 2,744 units between July and December, up nearly 40% year-over-year, according to Reis. Occupancy also reached a 14-year high (94.9%) at year’s end. Although Dan expects supply pressures to raise vacancies through 2017, he’s optimistic about rent growth, projecting a 3% to 4% uptick through 2018, which will place Phoenix among the top 15 large markets nationwide. (We're headed to the big leagues. Make sure you brush your teeth.)
Yesterday, MIG Real Estate announced that it snapped up Quadrangles Village, a 510-unit apartment home community adjacent to ASU in Tempe. MIG CEO Greg Merage, above, tells us the firm was attracted to the property's location on University Drive, which is within walking distance to the school's main campus. It's now going to focus on student renters by tapping management company Greystar and undertaking a significant capital improvement program that'll provide an upgraded amenity package and updated interior finishes. The seller was repped by CBRE's Tyler Anderson and Sean Cunningham.
The property, above, totals 23 three-story buildings with studio, one-, and two-bedroom units and is MIG’s second investment in Arizona multifamily, following its buy of Scottsdale’s Acacia Creek last year. Dan says overall, national institutional investors—including co-mingled investment funds, hedge funds, and insurance companies—have re-entered Phoenix multifamily, eager to add Scottsdale and North Phoenix recent construction trophies to their investment portfolios. Sales dollar volumes skyrocketed last fall as result.
RED has seen considerable demand for GSE financing in the Valley from owners of vintage ‘70s and ‘80s office buildings (lot of residual hairspray in those buildings) seeking to refi at current low interest rates, which’ll likely continue for the next six to 18 months. Others are using supplemental loans to reposition value-add properties to a higher class, a trend attracting attention from mezz and balance sheet lenders. (Dan says that RED also expects competition from local and regional banks lenders to be fierce.)
