Value-add Multifamily Investors Rush to Phoenix
Rapid rent growth, surging demand and an outdated apartment stock has meant big opportunities for value-add apartment investors.
“Phoenix is demonstrating long-term sustainable job growth,” John Cunningham, managing director at JLL Capital Markets, tells GlobeSt.com. “In addition the growth is more diversified than previous cycles, which is attracting all types of investors . With a growing population and very balanced pipeline of new construction, many investors are seeking to gain a foothold in high barrier-to-entry submarkets through a value-add strategy.” Cunningham represented DRA in the recent sale, along with his JLL colleague Charles Steele.
Institutional investors, in particular, are taking note of the fundamentals in the market and the opportunities. This year, there has been an increase in institutional capital chasing deals. “We saw how attractive Phoenix is to institutional investors again earlier this year with the Optima Sonoran Village transaction,” adds Cunningham. “Also contributing to this demand is a lack of single family new construction and millennials’ desire to rent versus own. Currently Phoenix offers one of the best values in the Southwest for rent-to-median-income ratio , which gives investors the confidence that there is room to grow.”
Rising rental rates, demand and economic fundamentals are only part of the equation. Phoenix also has an attractive development pipeline—in that it is limited. “We are experiencing a diametric shift in development,” says Cunningham. “Increased supply in previously high barrier-to-entry markets is resulting in access to capital and ability to develop vertically with rents that support this type of development. Markets such as Phoenix have not benefited from this shift resulting in an economic barrier limiting supply. Phoenix as a whole is popular for value- add investment with areas demonstrating little to no new construction as a premium.”
Value-add investors have left markets like Southern California, as a result of top market pricing. While Phoenix has provided opportunities to this investor segment, Cunningham says that apartment investment in general has been strong in Phoenix. “Market rent acceleration is allowing for immediate asset reposition affording investors the luxury of multiple strategies and timing options,” he says. “Current market conditions are favorable to all aspects of investors to meet their investment horizons, and we anticipate this to continue to be the case given the market’s strong fundamentals.”