Roland Murphy
Multifamily investment capital is flooding into the Mesa submarket. According to the second quarter multifamily report from ABI Multifamily, Mesa had a 136% increase in investment sales last quarter with a total of $119 million in activity. By comparison, investment sales totaled only $50 million in the second quarter 2018. The sales activity by far led the market in growth in the market.
“Compared to other East Valley cities, Mesa is older in development terms. Mesa was a fully formed city when neighbors like Chandler and Gilbert, which have seen exceptional growth, were still largely agricultural,” Roland Murphy, director of research at ABI Multifamily, tells GlobeSt.com. “As a result, Mesa has a much larger inventory of properties and units. Buyers are clamoring to acquire properties while the market is doing well—certainly before it peaks—and since Mesa has so many more, there will be more opportunity there just as a function of volume.”
In addition, the market has good value-add opportunities, which is popular for the capital in Phoenix. “Since Mesa has an older development history, it’s average year built is markedly older,” says Murphy. “AYB for 100-plus for Mesa is 1988, compared to 1999 for Chandler and 2004 for Gilbert. You have older properties that have, in many cases, been under the same ownership for a longer time.”
Large apartment communities in particular have been popular in Mesa. Apartments with 100-plus units have dominated the investment sales activity, while the market actually saw a decrease of 21%. “It may largely be a function of volume. There are only, roughly, 4,000 more units in the 50-plus range than in the 100+ range. Most investors who could look at acquiring a 50-plus property could reasonably also acquire 100-plus units,” says Murphy.
The returns are also more attractive for the value-add large multifamily properties. “If you’re looking at the property as a value-add—a legitimate supposition given the older inventory in Mesa—the returns can pencil out nicely for larger properties. There’s a $40,000 Price-Per-Unit difference between 50-plus and 100-plus, but if you’re targeting a reasonable rent shift of $200/unit/month when the upgrades are complete, the returns can justify the higher initial outlay,” says Murphy.
As the cycle matures and capital remains aggressive in Phoenix, more owners in Phoenix are bringing properties to market to take advantage of the dynamic. “Some of these owners may be motivated to sell before the market takes a downturn, and, because of the relative age, many buyers may be seeing value-add potential in those properties, making them attractive propositions on both sides of the table,” says Murphy.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Kelsi Maree Borland
