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Predictions for the Phoenix Multifamily Market in 2022
Phoenix real estate is on fire, and multifamily investments have enjoyed a year of unprecedented growth. The key drivers generating the tremendous sales volume of apartment buildings in the Valley last year are expected to continue into 2022, making the outlook for Phoenix multifamily incredibly positive.
The No. 1 driver of the Phoenix multifamily real estate market is the skyrocketing demand for housing. According to a recently released report from Redfin, Phoenix is the No. 2 destination for U.S. homebuyers looking to move to a new city. People continue to move here for higher-paying jobs, quality of life and, in some cases, a more desirable environment for a work-fromhome scenario.
This is not the case in many other major cities. In cities such as Chicago, New York and San Francisco, higher vacancies, net loss of residents and higher perceived risk factors are causing banks to markets to be much more conservative with their lending practices than they have been in the past. Phoenix is a more stable growth market because strong companies continue to move here, attracted by a number of factors that include a qualified labor pool, a business-friendly environment and an appetite for more development.
For the first time in years, Phoenix is seeing a real maturation of the downtown and uptown neighborhoods, where it comes to supporting more housing. Multifamily developers who would have built further out are now building in the core urban areas where people want to be. This should continue at a strong pace into 2022, with Phoenix seeing more properties in the core areas of Phoenix, Scottsdale and Tempe.
This is a very good thing for Phoenix, as we see an emergence of small to midsize apartment buildings in these urban cores. The real money will be going to the downtown core where there is a high-density zoning allowance. People are looking to locate in spots where they can live, work and play. Residents want more density and developers appreciate the fact that it is less expensive to develop these areas because infrastructure is already there. Instead of a 500-unit building in the suburbs, 2022 will see more projects in the 20- to 200-unit range being built on one tenth the amount of land. Phoenix should also start seeing more properties of less than 50 units on two-acre or smaller parcels. This is something we haven’t seen much of in Phoenix before now.
The cost of capital is lower than ever, and this shouldn’t change much this year. Of all asset classes now, multifamily is by far the most resilient to the markets. Multifamily is a more attractive investment because people always need housing, and we’ve seen over the past year that people don’t always need so much office and retail space.
There will be challenges — fuel costs and material costs are up, and the supply chain is still getting unkinked. These considerations make it more expensive to build in short term (before pro formas can be proved out in operations). but eventually things will catch up and these costs should be absorbed into the process over time. Locating land in the right place at the right price and finding labor will also be hurdles to overcome. However, there is a ton of opportunity for investors, developers and brokers to ride the wave of this incredible momentum. —John Kobierowski, CEO of ABI Multifamily (abimultifamily.com), the leading multifamily and advisory services firm in the Western U.S., focused exclusively on apartment investment transactions GET REAL
by Mike Hunter
Milhaus, a national award-winning developer, owner and operator of Class A multifamily properties, has closed on its second residential apartment development in Tempe, Arizona. The $56-million Qualified Opportunity Zone development located at 2119 E Apache Blvd. will offer 219 studio, one- and two-bedroom apartment units and five live-work spaces.
The complex will be Milhaus’ first-ever partially solar-powered property with solar panels on carports to help reduce common area electricity usage. Along with top-tier amenities, the complex offers easy access to a new, car-free, mixed-use cultural district. milhaus.com
Class A Multifamily for Avondale
Scottsdale-based Sterling Real Estate Partners recently acquired 9.6 acres of land with plans to develop Crystal Cove, a 238-unit, Class A apartment complex in the heart of Avondale’s rapidly expanding community. The land is located in a Qualified Opportunity Zone, which provides for significant tax benefits to investors and will deliver additional multifamily housing to the rapidly growing West Valley community. “In the Phoenix metro, pricing for existing assets has now exceeded replacement cost. Sterling has always been a value investor and now, the better value is to build,” says Sterling’s president, David Zeff. sterling-partners.com
Build-to-Rent in Avondale
Scottsdale-based Empire Group of Companies, a leader in mixed-use high-rise and build-for-rent development, recently broke ground on a build-for-rent community in the West Valley. The Village at The BLVD will include 187 single-family homes for rent within the gated community located in Avondale, just west of Avondale Blvd. on the southwest corner of 111th Avenue and Roosevelt Street.
Empire Group’s president of land development Shelby Duplessis says, “Demand for rentals is strong and people are looking for space and privacy,” and Mayor Weise believes this high demand “will attract complementary investment — such as more dining, entertainment and retail establishments.” builtbyempire.com
New Boutique Hotel in Old Town Scottsdale
Flexibility Designed into Fully Spec Industrial in Gilbert
On the site where once sports fans crowded the hallways or gazed from their tables to revel in the sports memorabilia mecca that was Don & Charlie’s steakhouse, Opwest Partners and Argosy Real Estate Partners last month opened the doors to Senna House. It is the first new hotel to open in the Scottsdale Entertainment District in 13 years.
“Senna House has been in the making since before the pandemic and we were able to plan accordingly and pivot when needed,” says Tyler Kent, managing partner at Opwest Partners, a Phoenix-based investment and development firm. Acknowledging that they hit some of the same supply chain issues that many businesses faced during the pandemic, he notes their opening timeline was never pushed back and those issues were very few.
With 169 rooms spanning six stories, Senna House was designed by architect Nelson Partners and built from the ground-up as a uniquely branded boutique hotel concept. The hotel’s authentic naming comes from the Senna flower of the Sonoran Desert and is representative of the property’s unique desert-modern design. Inside, guests will be greeted with lush living walls featuring sustainable succulents, luxe mixed media interiors, contrasting finishes and a home-away-from-home desert vibe, as designed by interior design specialists Studio 11 and House of Form.
Part of the Curio Collection by Hilton, Senna House was built to meet the rising demand for high-end hotel options in Scottsdale’s Entertainment District as tourism continues to thrive in the area. “Scottsdale was able to bounce back from the pandemic quicker than possibly any other city in the U.S., and we are fortunate to be located in the heart of Old Town Scottsdale’s Entertainment District, where tourists and locals flock for robust F&B and entertainment options,” shares Kent.
Argosy Real Estate Partners argosyrep.com Opwest Partners opwestpartners.com Senna House thesennahouse.com
Developers GID and SunCap Property Group recently broke ground on the next major stage of development at Gilbert Spectrum: three brand new, fully speculative, Class A industrial buildings.
“The Phoenix industrial market has been on a growth streak since before the start of the pandemic,” says Rusty Martin, operations manager of the Southwest Division at Graycor Construction Company, the design-build general contractor. “That curve has become even steeper in the months that have followed, driven by record e-commerce demand. Our local market is expected to continue to outperform on just about every level, including new construction and leasing.” Citing Lee and Associates of Arizona, whose Ken McQueen and Chris McClurg are the project’s leasing brokers, Martin says that Q3 2021 absorption hit almost 16 million square feet, which is nearly double the 10-year average, with continued growth expected in the years ahead.
At build-out, Gilbert Spectrum will include up to 850,000 square feet of office, flex industrial and technology-related space. The three new speculative industrial buildings will range in size from 66,446 to 142,200 square feet and will be able to support tenants needing as much as its full 309,547 square feet, or as little as 20,000 square feet with the possibility to expand as they grow.
Gilbert Spectrum is a great infill development that offers a variety of functional attributes for traditional industrial users,” says McQueen. “With multiple points of ingress and egress, and centered between three freeways, the park offers an attractive corporate setting with proximity to skilled labor.”
“Gilbert Spectrum’s combination of quality and scalability will keep it highly relevant in an industrial market that continues to rapidly expand and evolve,” says Mike Orr, senior vice president with SunCap Property Group. “These new buildings continue our strategy to deliver smart, flexible space that can serve large-scale global users as easily as it serves modern, midsize tenants.”
Noting that that Metro Phoenix industrial demand is running the gamut of size requirements, Martin says, “Projects designed with the flexibility to accommodate these different sizes are poised for the greatest success.”
Graycor Construction Company graycorconstruction.com Lee & Associates of Arizona leearizona.com SunCap Property Group suncappg.com
