If there’s any good news to be had in today’s challenging economic climate, perhaps it’s that now is an opportune time to be an apartment investor in metropolitan Phoenix.
While the credit crunch has undeniably put a dent in sales activity — the difference between $52 million so far this year compared to $600 million for all of 2008 and $3.5 billion during 2007 — interest from well-capitalized private investors hunting for bargains among the rising selection of lender-owned properties for sale may provide a boost moving forward.
The number of distressed properties has crept into the double digits since early 2009. Offerings in good locations, where the pricing reflects the market correction, can easily garner 15 to 20 offers, on par with bidding activity occurring even during the best of economic times. Active investors are primarily individuals and private capital sources searching for positive leverage and high returns. Meanwhile, REITs and advisors looking to firm up balance sheets, developers needing to pay off maturing construction loans, and lenders hoping to unload distressed properties make up the bulk of sellers.
Another piece of good news: tighter lending requirements, coupled with a downturn in population and job growth, have effectively put the brakes on new development. The addition of just 6,000 to 6,500 new units in 2009 and less than 1,500 units in 2010 should aid a strong market recovery. Future development will be concentrated inside the Loop 101 and in infill locations close to employment centers and transportation corridors.
Overall, Phoenix’s 88 percent multifamily occupancy is down slightly from 90 percent in 2008. Concessions, averaging 1 to 2 months free rent, have pushed the effective economic rate closer to 80 percent.
In the near term, renters will enjoy lower rental rates, however concessions will disappear as the single-family market improves and employment growth returns. The significant slowdown in multifamily construction will ultimately result in a shortage of multifamily rentals. Sales will increase in the second half of 2009, as lenders dispose of assets and pricing adjusts to the current investor expectations.
— Tyler Anderson is a vice chairman and multifamily specialist
in the Phoenix office of CB Richard Ellis.