How are value-add investors evaluating new multifamily acquisitions in today's market? Specifically, what type of YOC figure are sponsors solving to and what assumptions are they using to get there?
The obvious tailwinds in Phoenix are the rapidly growing/diversifying economy and population growth, both of which contributed to nation leading rent growth and fueled massive amounts of investment into the region over the past 2+ years. In this timeframe, most multifamily properties in Phoenix/Tempe/Scottsdale/Glendale traded hands at least once and have been infused with CAPEX & fresh renovations. Today, class B & C properties are trading in the mid to low 4% caps and on very large deals sub 4%. There are very few, true "value-add" deals left (think same owner for the past 20 years).
Most would agree that the underlying fundamentals in Phoenix (mainly economy and population growth) will continue to have a positive impact on multifamily. However, major headwinds I see are 1. Rising interest rates impacting leverage and take-out loan test 2. Large new supply coming online (35,000 units under construction), and 3. Decreasing affordability for tenants in certain submarkets. Will rent growth be able to outpace these headwinds?
Lol 4 caps? Everything is 3-3.5%?
Good point. The properties I buy and track closely are in the 10-40 unit range, and those are trading in the mid 4s. I don’t follow the 50+ unit deals as closely.
I work for a large developer in another state and primarily build office and mixed-use projects. I have syndicated a few smaller multifamily properties in Phoenix for personal investments. Wanted to hear how anyone that else investing in Phoenix is viewing the market.
rents can only go up a certain amount...i dont get how people are making these deals pencil out. 15% YOY rent growth is not sustainable. Renters will get priced out, and wont be able to afford the rent.
4% cap, that's market cap not true tax adjusted going in cap rate for Phoenix today. You are buying 6 to 12 months ahead of current in-place assumptions with some aggressive 4-6% growth or you are using some bridge product. Only 1031 buyers or syndications with OPM can make phoenix work today! Add Blackstone. Nothing is penciling in that market today for rational buyers.
NGL you don't know anything about the market.... no tax adjustments in AZ
5% cap on taxes but insurance and other cost will F.U. up!! Yes, rents are growing at 20% plus but nothing is penciling in that market without aggressive bets! Good luck buying without getting doing something funky in your analysis.
People are doing deals, is everyone in AZ going to get wrecked if you buy today... Probably not, sure pricing is getting up there but so are rents. You are seeing the bigger players in the market move to the further out markets, and you are seeing older vintage properties really start to benefit from that max tax increase.
Sure new product is building for 300-400k per door, but you are getting fully stepped up on taxes on anything new built. It is happening in Vegas too, the going-in adjusted cap rates are about the same in AZ/NV as they are in FL/TX/NC but I would argue there is more upside in Phx.
These deals aren't that out of line, but in a vaccume going in cap rates seem low.
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