It started before the pandemic, but the trend has only gained steam in the last 12 months. California investors are exiting the market. Regulatory challenges and low cap rates in the state are driving investors to greener pastures—namely Phoenix.

"We are seeing a big migration of California investors into Phoenix. If you think about what is happening in California right now, there is really restrictive rent control, statewide lockdowns and an eviction moratorium that has been extended. There are a large percentage of California investors that want to exit the state for those reasons," Tom Jonsson, multifamily director at James Capital Advisors, tells GlobeSt.com.

The exodus is driven by more than just regulatory challenges in California. The Arizona metro has all of the solutions that are giving California buyers a headache. Phoenix is business friendly, has better multifamily returns and a growing economy, both in terms of population growth and job growth. "In the last year, cap rates for multifamily properties in California were below 3%," says Jonsson. "Because there has been so much demand from California investors, you are now seeing deals in Phoenix that were selling at a 5% cap rate fall to sub 4%."