Phoenix Metro Multifamily Sales Well Exceed Billion Mark

Metro 50-plus unit multifamily property sales from 2013 through 2016 were analyzed.

PHOENIX—At the beginning of the year and well into the March/April months, many in the multifamily sector were talking about a general slowdown in transaction activity. Reasons for the perceived slowdown stemmed from several areas most notably, slack in CMBS loan issuance to others stating investor appetite had waned after 2015′s record-setting pace. Those predictions, particularly for the Phoenix metro have not only been proven untrue, in fact, year-over-year-to-date sales volume has increased 81.7% to $1.63 billion for 50-plus unit multifamily properties, says an analysis by Thomas Brophy, ABI Multifamily ‘s director of research, and Ethan Millstein , financial analyst with ABI Multifamily. The two analyzed 50-plus unit multifamily property sales from 2013 through May 24, 2016 in the Phoenix metro. This year, on both a total transaction and average price/unit basis, has already surpassed the previous three year-over-year sales total amounts and, if this sales trend continues, is set to break all records by the end of the year. In just number of transactions, 2016′s current total of 68 is up 33% year-over-year and 112% from 2014′s 32 total transactions. Brophy tells GlobeSt.com: “As evidenced by the data, Phoenix metro multifamily is exploding with investor interest. If you look at the buyers of Phoenix apartments, some 44 transactions totaling 9,515 units have been purchased by investors from California and Canada who, not surprisingly, have sourced much of their equity capital from foreign investors, specifically investors who are operating in a negative interest rate environment in both Asian and European markets.  As negative rates continue their pressure on both the saving/investing class, I would expect the flight to hard assets to continue with more records to be broken in the months ahead.” 1980s-built product has experienced the greatest year-over-year sales price/unit appreciation with 65.8% to $91,460/unit, followed by pre-1980s-built product with 30.1% to $59,166/unit. With the averaging the sales price/unit appreciation rate, pre-1980s product has recorded the highest average appreciation rate of 15.1% per year from 2013, followed closely by 2000 to 2009′s average yearly appreciation rate of 12.9%. It stands to reason that pre-1980s product would have higher appreciation rates as those properties are more likely to be rehabbed and repositioned for greater rental rate increases. West Phoenix, above all other submarkets, recorded the greatest amount of repositioning activity for the entire Metro with 10 properties experiencing one or more transactions during the 2013 to year-to-date 2016 time period. Average appreciation (unweighted) for the submarket, on a per-unit basis, was 39.2% to $42,684/unit. Coming in second is South Tempe, AZ with five properties experiencing one or more transactions. Average appreciation (unweighted) for the South Tempe submarket, on a per-unit basis, was 26.8% to $100,477/unit. Of the submarkets that experienced three or more asset repositionings, South Glendale, AZ recorded the highest appreciation rate of 56.6% to $48,277/unit. The North Tempe/University submarket, with only one asset re-traded during this time period, had the highest appreciation amount in the metro at 120.7% to $104,280/unit. The Federal Reserve ‘s current near-Zero Interest Rate Policy (ZIRP), coupled with the rest of the developed world’s Negative Interest Rate Policy (NIRP), have forced investors to scramble for safety as opposed to yield. As the more draconian effects of NIRP take hold, and as the current ABI data suggests, investors are looking for stable assets in which invest. Commercial real estate, particularly the multifamily asset class, across most metros provides that stability for a whole host of reasons, most notably people’s either inability or not wanting to purchase single-family homes. Although there are limits on how much new apartment product various metros can absorb, Phoenix, much like many areas in the greater southwest, are still woefully undersupplied. This latent supply gap, combined with the explosion of the rental class in the Phoenix metro, should continue a demand for multifamily product, both from renters and investors, with robust growth through 2016, predicts ABI.