KLCG Partners with AMA
The Kasten Long Commercial Group (KLCG) recently formed a partnership with the Arizona Multihousing Association (AMA) to oversee their Independent Apartment Owners Group and will provide quarterly meetings that focus on what’s currently and projected to drive the major economic engines across metro Phoenix. The 1st meeting focused on Tempe and the second meeting (May 17) highlighted the HOT downtown Phoenix Apartment market – with the keynote speaker Christine Mackay, the Director of Economic Development for the City of Phoenix.
The unique GOAL of this partnership is to provide metro Phoenix apartment owners with the knowledge to make the most informed decisions and to suggest multiple ways to increase cash flow and overall property value. Meetings are open to everyone. Please contact Jim Kasten, CCIM for detailed information on past presentations and future meetings.
New Apt. Units Construction Slowing
There were 8,024 units completed in 2016 but only 7,456 are scheduled for completion in 2017. Site availability, plus escalating land and construction costs are partly the cause. This is a trend nationwide as well. Currently, there are 15,406 units under construction, 14,620 planned and 11,854 prospective. More details available upon request.
Occupancy Strong – Rental Rates Leveling
With occupancy across the Valley in all class properties reporting at 95.1%, rental rates are continuing to climb. While all class properties are still reporting rental rate growth, the increase over the past year is only a small fraction of the growth over the past four years. Minimal concessions are common across the Valley for all class properties. The exception being the class “A” properties that now exceed 10% in the South Scottsdale, South Paradise Valley and MetroCenter submarkets.
The Metro Phoenix Apartment Market (Q1 2017)
There were 69 regular apartment sales (10+ units) in Q1 with 32 having 100 units or more. The 32 sales are about 25% off the typical quarter 100+ sales, which is also reflected in Q1 sales nationally. Of all our Q1 sales, 17 included at least one leg of a 1031 exchange and 28 were “flips” (properties resold within a four-year hold).
Metro Phoenix vs the US (by Arvle) – In summarizing my presentation last month for the KLCG – AMA event, metro Phoenix continues to be one of the most desirable markets for multi-family investments in the country. With a limited supply of single-family working class housing, the demand for Class B and C apartments continues to increase. While pressure is beginning to build on the Class A sector due to increasing supply, the owners of B and C units still have room for repositioning and rent increases due to limited supply with no new inventory being built. With one of the fastest growing populations in the country, Phoenix appears to be positioned for a continued, consistent growth pattern for at least the next 24 to 36 months. Our annual absorption rate of Class A units is one of the highest of all metropolitan areas in United States due to our steadily growing diversified income and population. And the affordability of our overall rents places Phoenix as one of the top 10 most affordable markets for both the working class and executives. Compared to the national market, we are still one of the most balanced, attractive and safe places for a growing business market. You might say, “So what?” Bottom Line – be cautious with Class A investments, Class B and C rents should increase, and creating wealth by repositioning B and C properties is today’s opportunity.
The “Back” Story (by Linda) – Often we never hear the “Back” story in a sales transaction. These stories occur in every deal, at every size level and I’m sure in every type of commercial real estate sold. Having sold apartments for 25 years, I have a few of the “back” stories. As a new section to our newsletter, I will share some of these, and try to give you a feel for current happenings.
I work with both Sellers and Buyers and recently represented a couple selling their $6 million property from Portland and doing a 1031 exchange into our market. They felt the upside potential is better in our market plus the landlord / tenant rules are more favorable in AZ. They were looking for a property or a couple properties that would total the $6 million to satisfy their exchange. They came to Phoenix every other weekend for two months. We looked at about 30 “B” and “C” class properties and saw everything from over-priced junk to really-cool, totally renovated properties. What they were surprised by was the amount of genuine cash flow generated by the quality repositioned properties in the Central Phoenix area, even with the seemingly high price (+$150K /unit). There are several quality developers doing these renovations with unique interiors and creative exteriors. These units lease up quickly and stay full. They are often smaller complexes with less than 40 units, rent for about $1.50/sf and attract both the young professional and the downsizing adult, both singles and couples.
What also surprised them was the wide range in the quality of the properties noted as rehabbed or renovated. Many say “we have renovated units”; but often this means only painted cabinets, resurfaced countertops and new vinyl plank flooring. Both types of renovation work, but the higher quality work commands significantly higher rent! You need to know your specific market, your competition and your tenant base.
Kasten Long Commercial Group: Scott Trevey, CCIM (480 205 0862), Linda Fritz-Salazar, Assoc. Broker (602 989 9487), Jim Kasten, CCIM (602 677 0655), Jan Long, CCIM (602 434 9882), Arvle Knight, CCIM (602 885 8000), Walter Unger, CCIM (520 975 5207), John Locke (480 432 7179), Jon Coffen (602 653 3600), and Chris Norton (480 559 9775).