December 18, 2018
The Southwest region regularly ratchets up positive metrics when it comes to multifamily. To learn more, Connect Media asked Cindy Cooke, Senior Vice President, Multifamily Investments with Colliers International about the fundamentals driving multifamily success in Phoenix and the Southwest.
Q: Why is the Southwest region taken seriously by multifamily investors?
A: Investment activity in the Southwest has been—and remains—extremely strong in the multifamily sector, which is driven by the employment and population growth in these markets, as well as the affordability of rental housing when compared to other parts of the nation.
Employment growth has occurred in many segments, such as the technology, medical and finance industries. Technology companies are focused on cities with governments that are business-friendly, as well as cities where universities are providing an abundant supply of skilled workers for these types of jobs. Arizona State University (ASU) in Metro Phoenix is one of the largest universities in the country with more than 87,000 students. The school is working hand-in-hand with these technology companies and other expanding employers to provide the education its students need to fill openings once they enter the job market. A skilled workforce, along with affordable housing, has presented a strong pull for companies who are relocating, expanding or starting new.
These are some of the underlying fundamentals that attract investors to the Southwest, along with great transportation systems, excellent medical centers and a stable government.
Q. What is the typical investor profile?
A. Investors in the Southwest are quite varied. There are foreign and domestic investors, as well as short-term and long-terms holders. It all depends on the nature of the investor, the quality of the asset, the expected future stability and growth of the city.
Although we have seen an increase in foreign capital making direct investments, we normally see domestic investors with foreign capital behind them. Today, the typical investor in the multifamily sector for assets more than $30 million is a discretionary fund, whereas private capital is the typical investor for assets less than $30 million.
The population growth in the Southwest and the change of the public’s perception and desire from owning single-family homes to the freedom offered in renting, along with the amenities provided in apartment communities today, has propelled the public’s demand for multifamily opportunities. This demand has made the multifamily sector a highly sought-after investment, coupled with the attractive available financing for it.
There are numerous programs—both Fannie and Freddie—available now, as well as life companies and commercial mortgage-backed securities (CMBS) lenders. These great financing options have allowed investors to focus on the value-add Class B assets, as well as Class A products. The cost of new construction has also impacted Class B products favorably with the value-add opportunity being less risky to investors, which allows them to push their improvements up to an A-level product and capture significant rental increases. We have seen dramatic rental increases in Class B product, and we expect much of Class A urban products to reflect in rental increases in the near future, as construction slows due to the increase in cost of labor, steel, concrete and etc.
Q. How has technology impacted multifamily investing?
A. Technology has made a huge impact in the multifamily sector, making it much easier to understand individual markets and make quickly-informed decisions. This has opened up more markets nationwide to buyers. It has also been very beneficial to sellers who need to complete an exchange.
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