Roland Murphy
In the second quarter, investment sales of large apartment units increased in Phoenix. According to a report from ABI Multifamily, sales of apartment properties with 100-plus units increased 32.8% year-over-year for a total of $1.8 billion. Smaller apartment property sales—defined as properties with 10 to 99 units—actually decreased during the quarter, down 13.6% year-over-year for a total of $170 million in sales.
“It's certainly interesting,” Roland Murphy, director of research at ABI Multifamily, tells GlobeSt.com. “Quarter one of this year saw 56 properties change hands in the 100-plus bracket. There were 40 in quarter two. When you compare that to the 62 we saw in first half of last year, it's certainly a sector to keep close tabs on.”
While this certainly indicates appetite for large apartment communities, Murphy also notes that Phoenix has a large supply of 100-plus unit buildings. With rising apartment sales, there is bound to be an increase in this segment of the market. “It's the vast majority of the market,” he says. “There are 1,100 properties/281,000 units in the 100-plus range, roughly 85% of the total unit count inventory. There are roughly 345 sites totaling 25,000 units in 5-99. It's a high statistical likelihood that any given property that comes on the market will be 100-plus.”
The large apartment sales are also an indication that larger players have arrived to the market—which isn't surprising considering the market's growth record in the last few years. “Phoenix is one of the most attractive multifamily investment markets in the country,” says Murphy. “It leads in in-migration and is a major tech and employment hub, particularly in bioscience innovation, and has significant strength in several core industries. Owners, particularly owners who have held their properties for any length of time, can sell for a pretty significant return. Most importantly, Phoenix is the best of both worlds with demographics solidly in the major market world and prices still closer to secondary market levels. As a result, there's massive institutional interest, particularly in the 100-plus unit category.”
In fact, only two other cities are comparable to Phoenix in terms of rents and pricing, Houston and San Antonio. “Phoenix has a lot more appeal across multiple economic development and growth vectors,” adds Murphy. “The compressed returns in other markets of similar size, particularly notoriously expensive areas like New York City, Chicago and anything in California, make Phoenix an ideal location to park multifamily investment dollars for strong and sustained returns.”
The sales bump in this segment is a good sign for the market, but Murphy says that predicting the market is difficult. “We're in uncharted territory in that this is the longest sustained economic recovery in history,” he says. “It's possible some owners are looking to reap their profits before any downturn forms on the horizon. Conversely, since the market is still doing very well, buyers are eager to snap up properties now, since prices will continue to rise unless and until that downturn happens.”
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Kelsi Maree Borland
