Investors aren't only finding yields in the Phoenix market, but speed as well. Capital Square 1031, which specializes in Delaware statutory trust offerings, has brought a property full-cycle in record time and has achieved 131% return on equity and an 18% annualized return of equity. The firm sold Crossroads Apartments, a 316-unit multifamily property in Phoenix, which it purchased three years ago.
“Our strategy was to hold this desirable asset for up to 10 years while positioning it for an ultimate sale when the market was at or near its peak, as it is now,” Louis Rogers, founder and CEO of Capital Square 1031, tells GlobeSt.com. “Our positioning entailed a property-wide appliance upgrade program and unit refurbishments to drive increased rents thus elevating revenues, NOI, and value.”
In addition to the capital improvement strategy executed by the firm, Rogers says that the Phoenix market also improved significantly during its ownership. “Market conditions steadily improved and hit peak levels subsequent to the 2016 acquisition enabling us to execute and realize our strategic plan and capital appreciation objectives, much earlier than anticipated,” he explains.
Crossroads was located in the Deer Valley submarket, and featured 18 buildings with resort-style amenities, including swimming pools, a clubhouse, playgrounds and gated entry. Capital Square traded out of the asset in a 1031 exchange into another property. The exchange information and the sales price were not disclosed.
While the firm was able to significantly capitalize off of this investment, Rogers isn't looking for more opportunities in the market due to the peak pricing levels. In fact, he says this deal would be impossible to duplicate today. “Pricing is too frothy today and cap rates have continued to compress since acquisition,” he explains, adding that he is still bullish on the market, but is cautious of the pricing. “At the present time, Capital Square is bullish on Phoenix but the pricing is too high.”
Still, the Phoenix market has strong fundamentals, exceeding national investment trends and has seen strong rent growth. However, those fundamentals have attracted huge pools of capital. “Consistent with national multifamily trends, the Phoenix multifamily market is very strong presenting better than average demand in excess of supply, which has led to strong rent growth,” adds Rogers. “This has made Phoenix multifamily property investments very attractive to a large pool of buyers who are pursuing better performing markets and properties.”
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Kelsi Maree Borland
