While we help implement real estate investment strategies all around the United States, we are always excited to see hotspots emerge in certain cities or regions because they represent new opportunities for our investors.
After spending years off of many investors’ radar, Phoenix has become one of those hotspots on the real estate market. Apartment construction and management are at the center of the activity here, which signals that the time is right for the city to receive serious consideration if you’re rethinking your investment strategy.
Economic growth, tax incentives, and rising land prices have combined favorably in Phoenix. There are plenty of investment opportunities there and more coming.
Job Growth Spearheads New Phoenix Apartment Construction
“Infill” is the buzzword on the Phoenix real estate market today. Once known for its innumerable vacant lots and easy downtown parking, Arizona’s largest city led the country in absolute population growth last year and has now edged out Philadelphia to be the fifth largest city in the country. High-rise apartment buildings are springing up around central Phoenix and its sprawling outer areas in response to this growth.
In the last year, construction has started on more than 10,000 new units, and 3,300 apartments entered the market in the first quarter of the year. Even with this expansion, vacancy rates hover around a low 5%. The city’s rental rates—up well over 50% as compared to 2010—are also remaining steadily high.
Job growth is behind most of this activity. Christine Mackay, director of community and economic development for the City of Phoenix, told the online publication Construction Dive, for example, that software, web design, and bioscience companies in Phoenix have grown from 67 in 2012 to 265 in 2017. Those industries draw employees with certain lifestyle expectations, like living close to work and enjoying easy access to service and other urban benefits, such as cafes and restaurants, parks, and walking spaces. Importantly, those employees have the income to support this lifestyle.
The success of the city’s downtown revitalization depends to no small degree on maintaining this trend toward greater urbanization. Population density has to increase to create a vibrant downtown in Phoenix and that means building in and up (high-rises in the inner city’s abundant empty space) rather than allowing more suburban sprawl.
With this goal in mind, the city council has been adamant in maintaining its GPLET (Government Property Lease Excise Tax, pronounced “jeep-let”) incentive program for property developers. Under the program, developers can avoid some or all property taxes on new construction for eight years or more. The program has many critics, who often point to development that has not taken advantage of GPLET. But even with the ongoing controversy and recent reforms at the state level, the program is clearly well established in the economic climate.
Investors spent a record-breaking $4.5 billion on Phoenix-area apartment buildings in 2016, AZCentral.com reported. In May 2017, the Andante, an upscale 576-unit complex in the toney suburb of Ahwatukee, was bought by Seattle investors for $85.25 million. The publication quoted CBRE broker Asher Gunter as saying that the deal was a “tremendous value.” Many developers are hoping for similar results with projects they have underway.
Another factor is the city’s successful experience with mass transit. Its light rail line, begun in 2008, is increasing access to the downtown area and stimulating apartment construction along its route.
Phoenix Multifamily Communities Solid Investment Choices
Apartment investing is booming in the Phoenix housing market. Rising land prices have made it harder for builders to obtain lots for any price range but the high-end sector, according to industry analyst Metrostudy. Therefore, buying existing properties below replacement cost is a good strategy as the rent gap between brand-new construction and existing apartments is quite large given the much higher rent levels newly constructed apartments require. The greater number of choices throughout the apartment market is encouraging customer flow in that direction at all economic levels.
Phoenix is entering a new chapter in its development. Investors may want to think about entering the Phoenix apartment market at this crucial point in the city’s history.
We believe now is the time to invest in multifamily housing in Phoenix. With decades of experience helping real estate investors meet their needs and goals, CWS Capital Partners is well positioned to find the best opportunities in this complex market. Contact us today to find out more.
The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.