REBusinessOnline

Rail system drawing renters.

What area is your expertise?
Phoenix Metropolitan Area

What trends do you see presently in multifamily development in your area?

As construction on the first phase of the Phoenix light rail system wraps up, we’re seeing a major trend towards mixed-use projects with multifamily housing with commercial space along the line’s route from Central Phoenix to Tempe and Mesa. Developers are also targeting the renters-by-choice market by building upscale apartments that offer high-end amenities and finishes.

Who are the active multifamily developers in your area?
Alliance Residential, Embrey, Fairfield Residential, Trammell Crow Residential, Gray Development, Mark-Taylor, Greystone, Trillium Residential, and the Zaremba Group.

Please name one or two significant multifamily developments in your area. What impact will these projects have on the market?

CityScape —
RED Development and CDK Partners are building this $900 million, 2.5 million-square-foot project in downtown Phoenix. CityScape will feature 1,200 multifamily units, along with a 600,000-square-foot office tower, shops, restaurants, and a 250-room hotel operated by San Francisco-based Kimpton Hotels & Restaurants. Office tenants already committed to the project include Wachovia (regional headquarters) and Squire, Sanders & Dempsey LLP (global law firm). This project is currently supporting more than 3,000 construction jobs, and on-site employment will total nearly 3,500 at build-out, scheduled for 2011. Significantly, CityScape will include an upscale AJ’s Fine Foods market, the downtown area’s first grocery store in nearly 30 years. The grocery component is crucial to the success of downtown revitalization efforts, while CityScape’s overall size and scope will aid in making the city’s core a prime destination for residents, businesses, and visitors.

Grigio — Gray Development is pioneering a new luxury brand in the Phoenix market, with its first Grigio project recently opening at Tempe Town Lake. The 523 units at the Tempe property command rents from $900 to $6,525 per month, and the property features views of the lake, as well as a spa, an outdoor café, dining delivery service, a 24-hour health club, a boutique, floor-to-ceiling windows, private poolside cabanas, turn-down service, and more. The company is planning new Grigio developments in the Biltmore area of East Phoenix, as well as near the Desert Ridge lifestyle center and resort in North Phoenix and also in San Diego.

Westgate City Center/cbd 101 — Work continues on the Ellman Companies’ $1.5 billion Westgate mixed-use project near the new Cardinals football stadium and arena in Glendale. Upon completion, Westgate will consist of 8 million square feet of stores, restaurants, residential units, and hotels. In total, 2,200 multifamily units will be built, including a mix of lofts, flats, condos, and apartments. In 2007, Trammell Crow Residential completed The Quarter, consisting of 171 townhomes, and Alexan Westgate, with 251 apartments. (The Alexan sold earlier this year for $46.43 million to a Seattle buyer, Pillar at Westgate LLC). Planning is underway for the first condo tower, Majestic, which will feature 180 units priced from $400,000 to $2 million. Westgate exemplifies the growing prestige of Glendale and the entire West Valley, and will create a new urban center for the area. In addition, the owners of the Cardinals team, the Bidwill family, are planning a $1.2 billion project – dubbed “cbd 101” – near Westgate. This development, intended to serve as an employment center, will support 23,000 jobs (directly and indirectly) and feature 2.6 million square feet of office space, three hotels, and 850 multifamily housing units at build-out.

Where is the majority of development taking place? Why is this area doing well?
Due to its sheer size, the Phoenix Metro Area has a number of development centers. Currently, approximately 11,500 apartment units and 17,000 condo units are under construction, planned, or proposed throughout the Valley of the Sun, with large concentrations in Central Phoenix, Tempe, Scottsdale, and Avondale/Goodyear.

Central Phoenix — The downtown area is benefiting from the synergy created by the development of the light rail line, the new downtown campus for Arizona State University (ASU), the University of Arizona’s new medical school campus, the new Phoenix Biomedical Center, and the expansion of the Phoenix Convention Center. Approximately 10,000 new housing units are expected in this area over the next decade. Currently underway or planned are 6,200 condos and about 800 apartments.

Tempe — Also has a number of multifamily units in the pipeline, particularly in the area around Tempe Town Lake, where developers are taking advantage of the scenic waterfront setting, access to employment centers and transit, and the proximity of the main ASU campus. A number of high-rise and/or mixed-use projects are currently in development, totaling more than 5,000 units, with 3,500 condos and 1,700 apartments.

Avondale/Goodyear — On the western edge of the Valley, this is another area that is growing rapidly. A total of 3,300 multifamily units are slated for this area, including 1,700 condos and 1,600 apartments. Avondale and Goodyear are located along Interstate 10, which is gaining prominence as a distribution/trade corridor due to the rising costs of doing business in nearby California — businesses can enjoy the cost benefits of locating along I-10 in the Phoenix area but still be close to the Southern California ports. Thus, the Avondale/Goodyear area is experiencing a boom in new office and industrial construction, which is generating strong population growth. In fact, this area is projected to add more than 368,000 new residents by 2040.

What area do you expect to be the next big development market? Why?
New developments have already been completed or are underway in the farthest corners of the metro area, such as the city of Surprise in the West Valley and far northern Phoenix. While the outer suburbs, particularly those in the West Valley, will continue to see new development, urban cores in Phoenix and Tempe will remain development centers due to their large employment bases and proximity to mass transit.

What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
Areas with the strongest leasing activity in the second quarter include North Scottsdale, North Phoenix, Avondale/Goodyear, Glendale/Peoria, and Gilbert. Negative absorption was noted in several submarkets during the second quarter, including Mesa, Tempe, East Phoenix, and South Scottsdale.

Please give a measure of apartment vacancy rates.
The overall average vacancy rate for the Phoenix Metro Area was 11.1 percent in second quarter 2008, up from 9.3 percent a year prior. This figure was the highest for the market in 16 years. Submarkets with the lowest vacancy rates in second quarter included North Scottsdale (9.3 percent), South Scottsdale/Paradise Valley (9.1 percent), North Phoenix (9.8 percent), and Deer Valley (9.7 percent). Rates were highest in Mesa (13.3 percent), West Phoenix (13.2 percent), and Tempe (12.6 percent).

Please give a measure of condo sales activity in the area.
Total condo/townhome sales for the Phoenix Metro Area, including both new and resale unit

Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Pavlov Media
‣ Walker & Dunlop

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