In Q1, Expect More of the Same in Phoenix

Land investment activity is expected to pick up in the first quarter, in response to high demand for multifamily units in Phoenix. Investment sales slowed at the end of the year during the holiday season, as is common for land deals. At the start of the year, however, the market is expected to spring back as developers continue to look for multifamily development opportunities.

“There is nothing on the horizon, both nationally and locally, to disrupt the current market cycle. Interest rate increases, higher construction costs, both horizontal and vertical, and tight labor markets will continue to impact new home affordability,” Mike Schwab, principal and designated broker at Land Advisors Organization, tells GlobeSt.com. “Less affordability will cause certain potential new home buyers to stay on the sideline and remain in rental property.  Aforementioned bodes well for the multi-family developers and existing multifamily product in sub-markets where new home affordability is an issue.”

The holiday season is typically a slow period for land investment, especially considering that construction financing allocations have typically run out by the fourth quarter. “We notice that investment activity generally slows during the holiday season as decision-makers are out of the office more often between Thanksgiving and New Year,” Schwab says. “Once the new year hits and everyone is back in the office, it’s business as usual.”

This year was no different, according to Schwab. He says the firm focuses on investment deals that are contingent on closing at the end of the year, while new deals are pushed into the new year. “This season is very typical of past seasons.  If any of our deals are in escrow with a year-end close requirement, or a 1031 property identification requirement, we hustle to get it closed and make sure everything goes smoothly,” he explains. “However, if there is nothing in the immediate pipeline, it can usually wait until after the holiday season.”

This year, the volatility in the stock market and rising interest rates should fuel a particularly strong constriction market, and subsequently land sale activity. “A declining or flat stock market typically spurs more investment in all classes of Real Estate, land included,” says Schwab. “As a result, investment/pre-development land values will increase, but generally slowly and over time. All bets off if stock market crashes, most recent example: 2008 and resulting depressed land values through 2014.”

Land Advisors focuses specifically on home and multifamily lots for developers. In general, shovel ready and properly zoned lots are always in highest demand, and Schwab expects that to remain true through 2019. For us platted and engineered lots and/or land with zoning in place is always our most popular during this time of year,” he says.