Qtr 3 2013 – The Metro Phoenix Apartment Market Part 1

Jim Kasten
By |2017-10-04T14:31:07+00:00November 22nd, 2013|

In Q3, there were a total of 69 individual multifamily transactions with 25 having 100+ units and 44 consisting of 10 to 100 units.  Of the 100+ units, all but four were financed, two were REO’s, one was a short sale and one was a broken condo.    Six (24%) of these sales were “Flips” – properties purchased in the past four years and then sold for a profit (see pages 2 & 3 for past sales).  There was also a two-property portfolio sale with 472 combined units ($30.3M).  Of the 44 sales with 10 to 100 units, only nine were purchased “all cash”, one was REO, and one was a broken condo.  Of these sales, 17 (38%) were “Flips”.  Note that there was a significant jump in percentage of “flips” and number of properties financed for this size range compared to recent quarters.  Investors are taking their profit!   Our Apartment Team provides a weekly e-mail list of all apartment sales – please let us know if you would like to be included and also call us with any questions or your insight. 

Impact of the New Apartment Construction.  With the recent apartment completions, pressure on class “A” rental rates and occupancy is already being felt.   The question is: with 4,733 units currently under construction plus an additional 19,840 units in the pipeline with more to come – what’s the future for the class “A” communities?  The hope is that as the US economy improves and families are able to move to the sunbelt, Arizona will regain its previous strong growth rate. Metro Phoenix grew at 2.2% between 2000 and 2010, but we were at only 1% for the past three years.  Over the past ten years, the class “A” and “B” communities have done very well – first with many being sold at high prices for condo conversions and second, even with the downturn in the economy in 2008, with large funds having no home for money and mortgage rates at giveaway rates, class “A” and “B” properties with low vacancy rates sold for very low cap rates – but highly leveraged.  If the overall US economy does not improve and we do not get the population influx we hope for soon – the current building activity may have a significant negative impact.