Phoenix Yields Tempt Multifamily Investors

David Rich, national director of multifamily properties for Sperry Van Ness, tells GlobeSt.com that the city's apartment market is luring California investors with higher CAP rates and lower per-unit costs that can sometimes double their yield. "About 50% of the buyers of Phoenix properties come from Southern California," Rich notes. "That's not unusual to once you see that diversity in CAP rates. The returns that Phoenix and other markets are offering is better-- in some cases double their return."

The swarm of California multifamily buyers pushed the city to a third slot on Sperry Van Ness' study of the nation's top five buyers' markets. The ranking also is shared by Las Vegas, which ranked on top of the listing, followed by Dallas, Phoenix, Fresno and Atlanta.

California captured all five spots in the study's top five sellers' markets with San Francisco winning the first spot. San Jose, Marin County, Los Angeles and San Diego rounded out the ranking.

The 40-market study compared 1,697 transactions, totaling more than $82 billion, in terms median CAP rates, employment growth and price per unit for the first six months of this year. Rich says the study indicates investors could increase their returns substantially by divesting of properties in low-growth markets and reinvesting in multifamily units in rapidly expanding regions.

"There's an opportunity here for clients to be net sellers in some of the higher priced, low-growth markets and be net buyers in the lower priced, high-growth markets and get better returns," Rich says.

An investor who owns a rent-controlled multifamily property in Los Angeles with a value of $96,333 per unit and a 6.37% yield could buy a similar property just 300 miles away in Phoenix at almost half the cost with yields in the 9% range, Rich points out.