by Marc Brodeur on August 17, 2010
Where is the Multi-Family Real Estate market headed? We are seeing economic incentives start to slowly head in the opposite way. Though Phoenix leads the nation in economic incentives, we do appear to have bottomed in that area. With vacancies over 20% in some areas, economic vacancies on top of that close to 20%, and rents down 30%+, there is a whole heck of a lot of room for improvement!
The numbers seem to be indicating a bottom. But is it a false bottom? Cap rates are going down to where they were at the peak, which was the 3rd quarter of 2007. The price per square foot is currently 41.7% of the peak. So for cap rates to be matching peak cap rates means the NOI has also dropped by an equal amount….almost 60%. A huge hit. Enough to make all of those mortgages set to reset…..pretty much ticking time bombs. Or opportunities for those in a position to take advantage of them.
The Phoenix Commercial Real Estate market leads the nation in CMBS defaults, however, that stat is a distraction. Don’t be fooled by it. Those commercial properties will most likely be bought up as non performing notes by larger players who then sell the notes off to regional players who then will either try to sell the properties for a short term small gain, or those who plan on holding on for the longer term gain.
With employment improving slowly, economic incentives decreasing slowly and the effects of SB 1070 fizzling. I would advise anyone thinking of buying to act in the next few quarters or regret it going forward in a year or two. Even if the market does turn down a bit more, the room for upside in a historically extremely fast growing economy is too good to pass up. Have you seen the growth rate for Phoenix each of the last 4 decades? It has always been between 40 and 60% per decade. Our population was 2.1 million in 1990. It’s 4.5 million now! That is over a 100% increase in 20 years. Even now we are one of the fastest growing cities and the sunbelt should continue on in a similar fashion in the near future when the market recovers.
Looking at the macro picture for this market. It is a no-brainer, especially given the areas where one’s dollars can be improved from rents, to vacancies, economic vacancies to performance improvements in management. Plus there is always commercial property tax appeals. In a market hit so hard in valuations, the assessors are running ragged. Look at your APOD and see where you can make a large impact and property taxes will always jump out at you.
Our sister organization, Prodeo Consultants LLC provides that service at no charge to the property owner. They are paid based strictly on a percentage of what they can save you. If they can’t save you anything, you pay them nothing. What is the risk to you the property owner?
Again. Let’s take a look at every possible area we can improve your bottom line. Let us help you improve the return on your investment. Do you think the Airlines cut out peanuts only because of allergies? Look at what pretzels cost vs peanuts. Its not just peanuts money wise!
If you have questions about the current Arizona Commercial Real Estate market feel free to contact me at (602) 692-4288 or Marc@PhoenixCommercialRealEstate.com.
Marc Brodeur BS, DC
Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
Copyright © 2010 by Marc Brodeur- All Rights Reserved – Where is the Multi-Family Real Estate Market Headed?
by Marc Brodeur on August 11, 2010
The metro Phoenix Commercial Real Estate market leads the nation in commercial mortgage backed securities defaults. At least we are leading the nation in something right? If we include running minorities out of town, we are probably leading in 2 categories. Both of which are embarassing. Trepp LLC a NY based research firm gave us the “honor” of leading the CMBS default category. The default rate is 16.5%.
This does not mean the sky is falling or that a lot more Commercial Foreclosure activity lies ahead. The opportunity as it has been all along is farther up the food chain. In the note buying department or short sale department. Purchasing the notes depend on how they are packaged. The larger investors (read billionairres) buying over 100 million in non performing notes were looking at packages usually spread across multiple states. They were not given the opportunity to just pick and choose the best of the bunch. More likely than not the owner of the notes throws in “dog states” in the package to divest themselves if possible, not only of states that have had high growth historically (AZ, NV, FL) but the former also. No offense Michigan, but that dog state usually means you or one of your rust belt neighbors.
If an investor is allowed to choose only notes in the exact city or region they want, it’s usually after they have already been purchased once. Not always, but many times the deepest pockets have already bought the largest packages and are now splitting them up regionally or by state.
That doesn’t mean we won’t have a larger collapse if something happens to the capital markets again like a double dip. But it isn’t likely. A recovery is very hard to stop. It may slow but to reverse it is not easy. The local multi family market has started to stabilize and that happens when there is a great deal of competition for what is available, which means the clock has swung down to 6 O’Clock and is most likely on its way up. Albeit that may be extremely slow and that clock may have a very wide bottom. What we should see next year is increased “main street” CRE activity and a farther upswing in the market, while the financial world divests itself of these non performing CMBS.
Usually when this sort of news hits the news market, its old news, and the underlying data already points in another direction. As the old adage goes, be greedy when everyone is fearful, and fearful when everyone is greedy. Q4 2008, Q1 2009 was the real opportunity for the “whales” out there as far as lack of competition and ability to buy with cash. That abated over 2009 a lot faster than anyone imagined.
The current opportunity is to buy the products available while you can. 17% economic vacancies (2 month rental abatements) with 10%+ vacancies leaves a lot of room for improvement of a product even at a lower cap rate. Especially when you consider the 30%+ decay in rents we have seen. If you are too greedy, you will regret buying too little.
If you have any questions about the current Phoenix Commercial Real Estate market feel free to contact me at (602) 692-4288 or by e-mail at Marc@PhoenixCommercialRealEstate.com.
Marc Brodeur BS, DC
Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
Copyright © 2010 by Marc Brodeur- All Rights Reserved – Metro Phoenix Leads Nation in Commercial Mortgage Backed Securities Defaults
by Marc Brodeur on July 24, 2010
The Phoenix Multi Family market appears to be at 7 O’clock. There are a lot of positive signs that the market has more than bottomed for Multi Family, locally and nationally. Phoenix Office Space, retail and commercial have a ways to go locally. The question is, is it truly the bottom or a false bottom for multifamily? There is intense competition for “A” product multifamily which has pushed a lot of investors to look at “B” class. This increase in competition at the “B” level has now even pushed down into the “C” level product….and now the developers are starting to gear up for new builds. If that is NOT a sign the bottom has passed and we are on the way up. I don’t know what is.
What about the horrific vacancy levels we see in some parts of the valley? Specifically the near west valley, with 20% vacancies. The short answer is….those who work in the Scottsdale Airpark (2nd largest employment area in Metro Phoenix) were never going to live in the West Valley, nor were people who work in the north or east valley. Those are completely different markets. The reason the vacancy rate is 5-6% in north Scottsdale is because of its prime location relative to employment, shopping and recreational amenities.
Phoenix Commercial Real Estate in general is starting to turn as unemployment has leveled off. As new hires begin, they play immediately into office and industrial, shortly followed by multi family and last into retail. Due to the compressed cap rates and competition in multifamily, developers are now planning to build. New build will not occur in the infill areas of the near West Valley where the vacancy rates are 20%. At least not until that area sees a decrease in vacancy and we see the wash out from the institution or lack thereof of SB 1070 (our immigration enforcement law). Its that simple. Its a big market, and the sub markets are truly unique individual markets. Some have turned the corner, others have a ways to go.
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Copyright © 2010 by Marc Brodeur- All Rights Reserved- Phoenix Multi Family Market Appears to be at 7 O’Clock
