General Phoenix Metro Discussion Thread

[biggus diggus]

Vacancies are starting to rise, guys. I'm wondering if the machine is starting to sputter. From one of my instutitional investors:

"Since our previous report, delivered units and vacancy rates are up, while 12-month asking rent growth is down slightly. Overall, 12-month absorption was down almost 2,000 units—although it should be noted that during the current quarter, absorptions were up in Class A properties and down in Class B and C.

Once again, the overall vacancy rate rose slightly, from 5.3% to 5.6% since our previous report. Vacancies increased in all three property classes: Class A from 6.2% to 6.6%, Class B from 4.4% to 4.9% and Class C from 4.7% to 4.8%. 12-month absorption dropped for the fifth month in a row, falling below 10,000 at 9,459."

I find the statistics interesting when paired with the possibility of financial constraints coming from what's happening in Ukaraine. I truly wonder about the short-term future of apartment growth in the Valley.

[Obadno]

Originally Posted by biggus diggus

Vacancies are starting to rise, guys. I'm wondering if the machine is starting to sputter. From one of my instutitional investors:

"Since our previous report, delivered units and vacancy rates are up, while 12-month asking rent growth is down slightly. Overall, 12-month absorption was down almost 2,000 units—although it should be noted that during the current quarter, absorptions were up in Class A properties and down in Class B and C.

Once again, the overall vacancy rate rose slightly, from 5.3% to 5.6% since our previous report. Vacancies increased in all three property classes: Class A from 6.2% to 6.6%, Class B from 4.4% to 4.9% and Class C from 4.7% to 4.8%. 12-month absorption dropped for the fifth month in a row, falling below 10,000 at 9,459."

I find the statistics interesting when paired with the possibility of financial constraints coming from what's happening in Ukaraine. I truly wonder about the short-term future of apartment growth in the Valley.

haven't we bene having record rent rise for like a solid 4 or 5 years in a row. Im not going to be upset if things cool off a little. Theres a lot going on economically with inflation and shortages Its not surprising it would eventually hit rates.

Not to mention with Covid we have a sudden rebirth in suburban demand over urban living.

We still have the insane population growth to keep fueling whats already in the pipe

[biggus diggus]

I agree as long as the population is growing we'll obviously still have a market for rentals.

But, bear with me here.

There are 180,740 six figure incomes in the valley according to a recent Stessa report and the census says 35% of people are renters. My math says that means about 63K six figure earners are renters in the valey.

Rule of thumb (3x rent:income) says a $100,000 earner can afford $2,777/mo rent. Anyone here know how much new apartment stock exceeds that price?

All of this leads me to believe we may have reached the cap. A majority of the new housing stock is unaffordable for most people - the median household income can afford about $1,600 - and single family homes are out of budget for most.

That's not sustainable so I am not surprised to see rents dipping when the average rent is exceeding the average income.

[Obadno]

Originally Posted by biggus diggus

I agree as long as the population is growing we'll obviously still have a market for rentals.

But, bear with me here.

There are 180,740 six figure incomes in the valley according to a recent Stessa report and the census says 35% of people are renters. My math says that means about 63K six figure earners are renters in the valey.

Rule of thumb (3x rent:income) says a $100,000 earner can afford $2,777/mo rent. Anyone here know how much new apartment stock exceeds that price?

All of this leads me to believe we may have reached the cap. A majority of the new housing stock is unaffordable for most people - the median household income can afford about $1,600 - and single family homes are out of budget for most.

That's not sustainable so I am not surprised to see rents dipping when the average rent is exceeding the average income.

When was the last time you even saw an apartment marketed for middle incomes? they are all luxury, some of these developments will have to down-brand.

This is also an environment I think where small apartments could flourish (4-50 units) but there seems to be nothing of that size in the pipeline.

Just a bunch of Massive 200+ complexes, Towers and Townhoms

[TJPHXskyscraperfan]

I definitely won’t be mad if rents starts going down a little.

[biggus diggus]

Originally Posted by Obadno

When was the last time you even saw an apartment marketed for middle incomes?

Honestly, we've been targeting that market (and lower) exclusively for the past three years because all the REIT money is focused on building luxury and pumping rents up.

The smaller complexes are difficult if you don't own the land or can't broker a deal with a land owner. We have a 54K ft parcel around 17th ave and roosevelt that would need 20+ units just to start making sense. It's really challenging to build small right now.

[Obadno]

INteresting:https://www.abc15.com/news/state/governor-doug-ducey-to-create-arizona-water-authority

PHOENIX — Governor Doug Ducey announced Friday he is creating the Arizona Water Authority.

The authority will be charged with identifying and developing new and innovative long term water sources.

It will also have the power to acquire, own and sell water on behalf of the state.

The Arizona Water Authority will be the policy arm of the governor's $1 billion budget investment to secure Arizona's water security. The state, like all of the U.S. Southwest in the midst of a over 20 year drought.

The 9-member board will administer two funds, a Water Supply Development Revolving Fund which will be used for providing loans and grants for water supply development. The second fund, the Long-term Water Augmentation Fund, will provide grants for innovation and conservation projects including purchasing water or water rights and acquisition or construction of water-related facilities or infrastructure in the state.

The authority will be charged with identifying and developing new and innovative long term water sources.

It will also have the power to acquire, own and sell water on behalf of the state.

The Arizona Water Authority will be the policy arm of the governor's $1 billion budget investment to secure Arizona's water security. The state, like all of the U.S. Southwest in the midst of a over 20 year drought.

The 9-member board will administer two funds, a Water Supply Development Revolving Fund which will be used for providing loans and grants for water supply development. The second fund, the Long-term Water Augmentation Fund, will provide grants for innovation and conservation projects including purchasing water or water rights and acquisition or construction of water-related facilities or infrastructure in the state.


A new Joint Legislative Committee, which will include the President of the Senate and the Speaker of the House, will be created to oversee the authority.


Funding for the Arizona Water Authority will be included in the next fiscal year budget.

Despite being obvious big government communistic garbage , these guys will be involved in infrasturcture, canals, pipelines, reservoirs etc. Will have an impacts on development so it will be interesting to watch.

Also they need an office!

[downtownphxguy12]

People have been saying on this board that the rental market is a overheated, and -s going to crash for the last couple of years. i guess eventually they will be right.

[biggus diggus]

Who said it's going to crash? Seems like we're all on the same page about it, prices are unaffordable for most and it will correct.

Correcting isn't the same as crashing.

[YourBuddy]

Why they just don’t target large agriculture users with regulations is beyond me. Instead we will likely get desalination in which case this investment is a joke. The state could literally buy back land from foreign corporate farms and save more water.

[downtownphxguy12]

Originally Posted by biggus diggus

Who said it's going to crash? Seems like we're all on the same page about it, prices are unaffordable for most and it will correct.

Correcting isn't the same as crashing.

ok correcting would have been more accurate. but you've been saying it for years.




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Old Posted May 9, 2017, 8:46 AM
biggus diggus biggus diggus is online now
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I had an interesting conversation with one of the more important cogs with Baron the other day who told me, as if already surmised, that rents were starting to come down across the market due to the now increased competition downtown. It's time for someone to build a less expensive product and enter that market which is not already saturated. That's how you'll do well if you want to build at this point. The $1,600+ one bedroom stuff is too easy to find.
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biggus diggus biggus diggus is online now
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Rents have not been holding in other saturated areas for a while (Tempe up to Scottsdale) and our higher end apartments in Biltmore have been taking a hit. I think we are experiencing fatigue. Rents went skyrocketing upward and wages did not.

The point of the story is that the thing I've been waiting for has fj ah happened. The mass build out of apartments for $60k+ incomes saturated that market badly but has helped those of us who believe in providing housing for those who need not those who want. I have better quality applicants nearly across the board because I think nearly every blue collar renter is realizing they can get by with a lot less than they have. It's very surprising how many people I've seen coming to me from much higher priced housing in much nicer areas.
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[biggus diggus]

In 2017 we were seeing surging rental prices (and construction) that were historically unsustainable. This was my prediction based on seeing the same rodeo play out multiple times over the years.

In 2020 a pandemic happened and all the normalcy in the world was thrown to the wind - I assume you noticed this. There was a new rodeo that no one has seen before.

In 2022 we have rents that are outpacing income which is a recipe for market correction that is already happening. It's supported by actual real world data - those statistics weren't pulled out of my head. The rental market is correcting right now, in real time.

What sort of argument are you trying to pick, here? Digging things up from five years ago seems like a pretty desperate attempt to discredit someone, as if all things stay static forever.

[Obadno]

I read an interesting article from several years ago that due to the insanely low nature of interest rates we had broken the 7-9 year recession cycle.

I beleive it was in the WSJ but what it basically said was instead of having a boom-bust cycle like we had seen since the 1970's we were seeing a more drawn out trajectory with intermittent periods of cool down and less intense spiking highs.

They went through basically 2009-2018 I think at the time and pointed out market cooling periods in 2013 and 2016 that weren't really recessions but they were relatively flat economically. Of course then the Pandemic came which created a very sharp and very short "Recession" if you can really call a shock event like that a recession. And now we are dealing with the follow on effects of lockdown, mass gov spending, supply disruption etc.

So basically we have a had a long period of more moderate growth with Minnie recessions sort of sprinkled across it. The fed is terrified of moving the needle because this carful balance will be broken but with inflation rates as they are they will need too.

Still that does not necessarily apply to the local phoenix market where we will likely still see massive population growth to offset most of the cooling effect of higher interest rates etc. As any downturn in this climate is likely to just send even more Californians fleeing California and more Midwesterners choosing (or being pushed) into early retirement.

[CrestedSaguaro]

Originally Posted by biggus diggus

In 2022 we have rents that are outpacing income which is a recipe for market correction that is already happening. It's supported by actual real world data - those statistics weren't pulled out of my head. The rental market is correcting right now, in real time.

Re: Market correction. Could you provide a site or data to support this? It's not that I don't believe you. IIRC, you own rental units and most likely know much more than I do. However, I am a renter and I just re-signed my lease 1 month ago at $250 more than I was paying the previous year. I knew it was going to be raised and I spent 2 months searching prior to re-signing my lease and could not find anything that was in the range I was looking for.

I just did a quick search after reading your post and some of the units I just checked 3 months ago are already up higher since then.


Also, let's be sure to keep this topic civil as I don't want to mod anyone.

[biggus diggus]

And as tech manufacturing continues to grow I think even those who aren't fleeing for an early retirement will move here.

But, to an earlier point, population growth and rent growth can be mutually exclusive.

[biggus diggus]

Originally Posted by CrestedSaguaro

Re: Market correction. Could you provide a site or data to support this? It's not that I don't believe you. IIRC, you own rental units and most likely know much more than I do. However, I am a renter and I just re-signed my lease 1 month ago at $250 more than I was paying the previous year. I knew it was going to be raised and I spent 2 months searching prior to re-signing my lease and could not find anything that was in the range I was looking for.

I just did a quick search after reading your post and some of the units I just checked 3 months ago are already up higher since then.


Also, let's be sure to keep this topic civil as I don't want to mod anyone.

My information came directly from my friends at R.O.I. you're welcome to sign up for their newsletter or google search. All that info I shared with you was posted publicly as well. I have a large-scale management consulting firm, I talk to most of these guys on a regular basis. Vacancies are rising.

And stop threatening people you little e-Napoleon. We're having a discussion.

[PHX31]

Originally Posted by CrestedSaguaro

Re: Market correction. Could you provide a site or data to support this? It's not that I don't believe you. IIRC, you own rental units and most likely know much more than I do. However, I am a renter and I just re-signed my lease 1 month ago at $250 more than I was paying the previous year. I knew it was going to be raised and I spent 2 months searching prior to re-signing my lease and could not find anything that was in the range I was looking for.

I just did a quick search after reading your post and some of the units I just checked 3 months ago are already up higher since then.


Also, let's be sure to keep this topic civil as I don't want to mod anyone.

I'm a landlord. I think I gave my tenants a good deal while also raising their rent last year (let them sign up for a bit longer term so they locked in, also didn't charge them the top monthly rent my realtor friend said I could). I'm interested in seeing where prices are about a year.

I'd be interested in knowing what my house vs a swanky new schlock apartment build would rent for, considering similar SF and BD/BA. Both near midtown. One is a historic house with a nice yard, the other is a new product with amenities. Which would you say could rent for more?

[ASU Diablo]

This article paints a different picture about rents rising by 7.2% this year. Maybe the market correction occurs over the next couple of years but certainly ain't happening this year...

https://azbigmedia.com/real-estate/phoen...-to-register-outsized-rent-growth-again/

The Phoenix multifamily market is positioned to register outsized rent growth again, according to a report from Marcus & Millichap.

Several indicators showcase the demand tailwinds in Phoenix. The market is projected to add nearly 50,000 households this year, growing at a pace more than twice as fast as the national average. Robust in-migration is the driving force, with many relocating from colder weather climates or more expensive metros along the coasts. At the same time, the local economy is welcoming. The job total surpassed the pre-recession crest by the third quarter of 2021, yet the unemployment rate held above 5 percent, keeping job availability elevated and leaving room for further gains.

[Sunsfan87]

Cool map showing tech presence in the Valley and Tucson. Pretty cool to see. You could even throw Lucid, Nikola, and TSMC (eventually).

[Obadno]

That seems way out dated ^^

But this story today from the guys that brought us Central Park and Skysong. Good news for density but also seems like these guys are true Phoenix boosters which is nice to see.

https://www.bizjournals.com/phoenix/news...-to-build-workforce-housing-phoenix.html

In an attempt to bring much-needed workforce housing to some of the Valley’s most expensive neighborhoods, Holualoa Cos. is taking a unique approach to mixed-use development, buying office properties and infilling the sites with apartment buildings.

“I sit on the (Greater Phoenix Economic Council) executive committee, and I’ve been watching how much we have been successful in creating jobs,” Steve Betts, director of development for Tucson-based Holualoa said. “But the average wage of those jobs is about $67,000. We as an industry aren’t doing a very good job of making for-sale and for-rent product for someone at that income level.”

Betts said Holualoa has been working on ideas for adding more attainably priced rental housing for years, and is now rolling out the new model, called Dwell.

According to real estate database Vizzda, Holualoa bought a 2-acre site in Tempe, which already had two office and retail buildings on the site, for $12 million. Holualoa bought the site from Architekton, which has an office on the site, and is one of the architects for Holualoa’s project, along with Worksbureau.

Holualoa now plans to build three additional buildings on the site, located at Fifth Street and Farmer Avenue. The residential buildings will share the on-site parking with the office users, and Holualoa will own the office buildings as well, collecting rent from those tenants which can offset the cost of renting the apartments at a lower rate.

Keeping units affordable
Betts said the costs of construction, including land, materials and labor has “gotten so out of reach for most attainably priced product,” but said by focusing on the level of amenities offered and the level of finishes in the apartments, the resulting units can be made affordable for people who earn 80% to 120% of the area median income.

“It’s not an easy thing to do, to back into a pro forma to make attainably priced housing,” Betts said.

The Dwell units are designed for people who work remotely. Amenities include rooms for video calls, private meeting rooms and conference rooms. All of the units are studios or one-bedroom units, which Betts said also keeps the rental rate lower.

“The amenities here are all the cool, fun things to do around downtown Tempe,” Betts said. “All of those amenities are outside the complex. The ones inside the complex are for business needs. It’s not designed to feel like you’re living in a Ritz Carlton hotel.”

Betts said as far as he knows, the combination of techniques used at the Dwell project are unique, but the ideas have come from various other places. Other developments have used techniques like shared parking, units designed for working from home, or purposefully creating workforce housing.

“Wrapping an existing office building with workforce housing, I don’t know if that’s been done before,” he said. “But we are hoping to be able to replicate it in other places around the Valley.”
In total, the project will add 129 units, all studios and one-bedrooms. Some of the units will also have a small office. The buildings will be built above grade-level parking that will be used by residents and office tenants. Rents for the units are anticipated to range from $1,325 to $1,900, which is considered attainable for a person earning 94% to 110% of the area median income, according to Holualoa’s analysis. The formula used for calculating housing affordability is generally accepted that a person should spend about 30% of their income on housing. Betts said around the Valley, it is not uncommon for people to spend 40% to 50% of their income on housing.

Another project
In addition to the Tempe location, which will begin demolition work in the next couple of months, Holualoa has also identified another location in the 24th Street and Camelback Road corridor where they are working on planning a similar project.

“Because you’re acquiring land that already has a high-quality use on the site, like office, sharing the cost with that use helps to be able to afford that site,” Betts said when asked about selecting sites in areas that are known to be expensive areas in the Valley.

Betts said the difference between housing that is designated affordable and what Holualoa is doing with workforce housing is that affordable housing serves people earning below 80% of the area median income, and often requires government subsidies. Attainable housing, he said, should not need a government subsidy. The units will also not be deed restricted, but instead will naturally fetch lower rental rates because of the size and relative simplicity of the units.

“Dwell is our first attempt at addressing attainably priced housing in an urban concept,” Betts said. “Attainably priced housing used to be one of our greatest assets in Arizona, but it is starting to be very difficult.”