ABI Multifamily Phoenix MSA Construction Pipeline 2Q 2016
[{"id": "d5jzqy9", "text": "Have you been noticing a cool down in the market? Are units being leased/sold as quick as they are being built? I've read that Miami condo sales are slowing and SF housing rents have dropped by a tick. ", "replies": [{"id": "d5k0lnl", "text": "Very good question.  What's interesting for the Phoenix market is that we are delivering units at a rate some 70% below what we were delivering at its height pre-Great Recession.  For example, pre-Recession MF was delivering approximately 100 to 120 units per month (Garden style units - 3 stories on less with multiple buildings/phases - considering we had very few mid-rise to high rise that number wouldn't change much).  Now those same garden style units are delivering between 20 to 30 units per month which is 60 to 90 per quarter.  As a result of the decreased delivery has allowed Phoenix Metro, as a whole, to absorb units more quickly thus our historically high occupancy rate (currently at 96%) has barely been affected, if at all.  Nonetheless, over these next 4 quarters Phoenix's construction type will significantly change, i.e. from garden style centric to mid-rise centric.  As a result this should increase the amount of average unit deliveries to the 40 to 60 unit range which should see occupancy levels begin a downward trend starting 4Q and beyond.  However, it should be noted, that current renewal rates for the metro are the best we've ever seen according to the property management firms I survey.  It will be interesting to see if that continues to remain the same as more and more deliveries hit the market.", "replies": [{"id": "d5k0yo4", "text": "Thanks for the comprehensive answer! Where can I get the data for the 20-30 unit delivery per month? \n\nAs a follow-up: why has there been a shift in trends from garden style to mid-rise? Also if we are heading towards the end of the up-cycle, wouldn't a shift towards mid-rises and more inventory be bad for the general area? I understand the Phoenix MSA is very sensitive to boom and busts and was hit hard by the Recession. ", "replies": [{"id": "d5k4bdg", "text": "I get a lot of delivery data by talking to my developer/project manager contacts who are actually overseeing the projects, most of whom have been developing projects in the Valley for the past 20+ years.  You can get some ancillary data via quarterly reports from publicly traded REITs and/or by investing in private developers who typically issue their own internal reports, but those are not published publicly.  Can always go the subscription data route via Axiometrics, Yardi or CoStar but theirs is typically more high level type data and granularity is key especially in real estate. (Hope this answers your question).\n\nAs to your second question, which is actually a topic I'm going to be writing about in an upcoming article which hopes to illuminate where we are in the current market cycle.  In a nutshell, the shift to mid-rise, I believe, is more reflective of increased land/building costs due to cheap credit, i.e. 10+ years at, essentially, the zero bound has fostered asset inflation.  However, what no one really expected, even die hard Keynesians, is that negative interest rate policy (NIRP) would now account for some 40% of the entire industrialized world.  Combine that with [ECB's more recent direct purchases of corporate debt, high-yield credits, bonds (junk or otherwise) etc etc](http://www.zerohedge.com/news/2016-07-19/so-what-did-ecb-buy-short-almost-everything) and the financial world is truly upside down.  Thus the entire world from sovereign wealth funds to pensions (city, state, union), etc is in search of yield.  As we've expanded, as a company, I've been heavily focused on tracking capital movements between both regions and internationally.  A good place for this info, on a macro level, is [Preqin](https://www.preqin.com/) who's quarterly reports are mandatory reading for myself, their free newsletters also provide tons of great insights.  Although still hard to call it a specific trend, the Southwest has seen elevated levels of foreign investment/1031 reinvestment.  Combine this with the fact that private real estate related funds are sitting on high levels of 'dry powder' (i.e. funds ready to be deployed) and now several large pension funds have announced they are deploying significantly more capital to commercial real estate debt (mortgage, bridge + other), signals to me the market is going to continue its upward trend, especially in the near term.\n\nHow does this impact Phoenix?  Fundamentally, we're still not building enough apartments/single family homes to keep up with basic population growth.  Combine this with the explosion of the renter household and we're still under-supplied.  Now you can make the argument that we're over-supplied with Class A product, but not in enough product.  Also, the delta between Class A and Class B value add rents, depending upon region of the Phoenix market, still hovers anywhere between $200-$400/month.  For those funds (referenced above) looking to lever that which cheap debt, and a hunger for yield, Phoenix is WAY more attractive than anywhere in the south/northwest US.\n\nSorry for such a long answer, wasn't expecting it to be this long but hope I've helped.     ", "replies": [{"id": "d5l1m2n", "text": "Great analysis. Seems like Phoenix is much more affordable than most major metro areas, and is more in-line with income growth.\n\nThere's room to see rent hikes in the near future, right?\n\nI'm on the East Coast, and while we mostly rep MF developers, we have an eye toward investment sales. To that end, how are you surveying your market with regards to rental/occupancy? Do you send out Google forms to your contacts on a quarterly basis?\n\nPM if you want to exchange info. Big fan of ABI's work.", "replies": [{"id": "d5l4gbk", "text": "Thank you for your kind words and awesome to get accolades for the work/research all of us at ABI provide.  FYI, I also sent you a PM.\n\nTo answer your question:\n\nThere's certainly more room for rent hikes, especially in your B category product which I think, as all this new Class A is delivered, will become some of the most sought after rental product in the market.  Additionally, on the SFR side out here is a complete seller's market for anything sub-$250K.  In most cases those listings last no more than a week and many close within the day it lists.  I know a number of investment firms (several from Canada) have instituted fractured condo purchase strategies (helpful to note that we are the top fractured condo sales firm in the Valley).  Part of their success, so far, is that with minor upgrades they're able to deliver product at a fraction of the time/cost it takes to deliver ground up product.  Combine our lack of supply with now Yardi teaming up with Experian Credit Reporting (I believe that's who it was) to make on-time rent payments count towards building credit and you now have a more equitable exit strategy by selling units to current tenants. \n\nFor rents/occupancy, I use an amalgam of Yardi (due, in large part, to the fact that a lot of properties run their property management software through them so you're getting real time results), the hundreds of rent comp calls the research dept makes on a quarterly basis (normal course of business for OM, BOVs etc), and then there's a select 30 properties I personally track which, I feel, represents all the varying shades (submarket, type, location etc) of the market.  Helps to get me a consistent macro-view across all the markets and gives me questions to raise, data to analyze more closely etc.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "d5k4fak", "text": "Also, as a follow-up, [here's an analysis](http://abimultifamily.com/phoenix-metro-per-city-analysis-rents-occupancy-population-affordability/) of the major cities within the Phoenix Metro and looking at rents, occupancy, population and affordability.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]