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?
{ 3 comments… read them below or add one }
Very insightful read. thanks for sharing.
How does Phoenix differ from other major markets on the commercial side?
Because of its high growth historically (50+% per decade for 4 decades), Phoenix was hit harder than most cities like Boston with slower but steady growth rates. When construction stopped here, more jobs were lost than in other markets with lower growth simply because more people were employed in those areas as a percentage of the work force. As it was hit harder than other cities, it presents a great opportunity. The risk is when will it come back. Given its history it should lead growth again when the national economy slowly recovers.