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Two Extremes Dominate

In Phoenix, the only place to go is up. Commercial real estate transaction velocity came to a virtual standstill last year with total dollar volume equating…

By Alan L. Pontius - Managing Director of the Special Assets Services Division of Marcus & Millichap Real Estate Investment Services. | Updated on December 09, 2011

In Phoenix, the only place to go is up. Commercial real estate transaction velocity came to a virtual standstill last year with total dollar volume equating to less than 10% of the properties traded in 2005. In Q4 of 2010, investment sales velocity began to increase, a trend that will continue through 2012. However, only two types of transactions are expected to dominate the investment arena this year: trophy and trauma sales. Trophy assets, including class A office, retail and multifamily properties in primary locations with strong occupancies and operational performance, will trade at near-market rates. Meanwhile, trauma assets, B and C apartment complexes, multi-tenanted retail assets and office buildings under duress, will trade at a significant discount. In most cases, trauma properties that were either foreclosed upon or were the subject of potential short-sales that owners and lenders sat on last year, will now have to be moved to the market. Apartments

Although it posted dramatic improvements in fundamentals last year, the Phoenix apartment sector continues to account for the greatest share of known distress in the marketplace. Nonetheless, property fundamentals were bolstered by above-average job creation, which is expected to continue through year’s end. In addition, multifamily construction will drop to its lowest level in more than 15 years and single-family foreclosures will push many former homeowners into rentals. An estimated two-thirds of homeowners with mortgages in the metro area owe more than their homes are worth, which will continue to encourage strategic defaults and expand the renter pool. Class A units accounted for most of the absorption last year, due in part to renewed job growth in the typically higher-paying professional and business-services sector.

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