UPDATED: Jul 9, 2014, 7:26am MST Mike Sunnucks Senior Reporter-Phoenix Business Journal
Fueled by profit-taking, low risk and high demand, the Phoenix-area multifamily real estate market keeps churning out property sales and new development plans.
The last bubble is sufficiently in the rear-view mirror, though commercial real estate and the job market are still recovering.
A steady stream of apartment complex sales continues in the Valley. There are also thousands of multifamily units under construction and even more in the development and planning pipeline. A sizable portion of the commercial real estate developments under construction or proposed are of the mixed-use variety and include apartments.
Real estate brokers, developers and investors remain optimistic the post-recession regional marketplace for apartments and are not worried about over saturation or risks for the current crop of post-recession buyers.
Apartment property sales are up 8.6 percent so far this year compared with the previous 12 months, according to second-quarter data from Marcus & Millichap Real Estate Investment Services in Phoenix. There are 4,900 units under construction right now and another 27,900 in the planning pipeline, according to Marcus.
City agendas throughout the region continue to be dotted with zoning and planning requests for apartment developers and their influential attorneys and lobbyists.
A good number of the recent apartment sales are from profit-taking landlords who purchased foreclosed and distressed apartment complexes during the recession. They are now selling those apartment complexes to new crop of investors and other buyers.
Todd Braun, a principal and multifamily expert with Lee & Associates Commercial Real Estate Services, said some of the risk takers who bought distressed properties during the recession are being rewarded with profitable sales.
Multifamily also continues to be safer bet for real estate investors and their banks with the segment still looking fundamentally stronger than commercial real estate, especially offices in markets such as Phoenix.
“Multifamily housing is a less risky investment,” said Brett Polachek, director of Cushman & Wakefield’s Multifamily Advisory Group.
Polachek said the Phoenix multifamily segment is a seller’s market with plenty of buyers looking for properties. Those buyers are optimistic about rents and that they can turn a profit.
A number of those wealthy buyers are from Southern California, said Brian Tranetzki, a commercial real estate broker and multifamily specialist with Marcus & Millichap.
Tranetzki is seeing an apartment marketplace where complexes sold for as low as $30,000 or $40,000 per unit during the market collapse to a climate where some of those same complexes are fetching $85,000 to $90,000 per unit.
Scottsdale apartments are selling for $116,000 per unit. They are going for $91,000 per unit in Tempe, according to Marcus’ data.
Tranetzki s also seeing a number of sales involving smaller and older apartment complexes. Part of that stems from what kind of capital buyers have at their disposal and what kind of financing they can obtain.
That is leading investors and other buyers to older complexes and apartments and parts of Phoenix where units average $51,800 citywide.
Polacheck sees buyers holding onto multifamily properties for three to seven years and then trying to grab a profit after making some improvements. “They’re make a good profit in some cases,” Polacheck said.
Braun pegs it as even shorter at two to six years. “Phoenix usually tends to be more a trading market than a long-term hold market,” he said.
The key is not to be the one holding the cards when the next downturn hits.
Recent sales include:
- Long Beach, California-based Rance King Properties Inc. has bought the 420-unit, Class B Northern Greens complex in Glendale for $21.2 million, or $50,500 per unit, from Iowa-based Principal Commercial Acceptance, according to Colliers International brokers Bill Hahn andJeffrey Sherman.
- The City 15 complex near Camelback Road and 15th Street sold for $10.9 million to a Canadian buyer. That translated into $67,400 per unit. The complex was acquired in 2011 for $5.3 million, or $33,000 per unit, and underwent a $1 million renovation.
- Boston-based TA Associates Realty just spent close to $75.5 million to buy a combined 564 units in Chandler and Phoenix. The purchases were for between $131,000 and $137,000 per unit.
Apartment brokers and landlords are also still optimistic about rents.
Marcus and Millichap forecasts that rents will rise 2.1 percent to an average of $795 per month, coming on the heels of a 3.5 percent climb in 2013.
There are still plenty of tenants who can’t qualify for mortgages or are not interested in home ownership after foreclosures and lost equity. There are also hopes that lagging population growth will improve and bring more transplants to Phoenix. Millennials are also proving to be less interested in home ownership and square footage as previous generations.
Those factors are resulting in more apartment developments in the pipeline and investors in the market for multifamily properties. Downtown Phoenix, Tempe, Chandler and Scottsdale all have plenty of planned apartment units.
Mike Sunnucks writes about politics, law, airlines, sports business and the economy.
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