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Mid-Year Multifamily Outlook

  
  
  

Operating fundamentals took their usual second quarter dip with students, seasonal visitors and seasonal employees departing for the summer. Market occupancy dropped 285 units which is on the light side of typical for Tucson. During the past 12 months, total occupied units continued climbing upward, increasing 995 units over Q2 2011 and gaining 2,245 units since Q2 2010. 

Van Buren Apartments TucsonVacancy rates jumped up 1.06% to a citywide vacancy of 10.09%. Again this jump in vacancy is typical and on the light side for a second quarter increase.  The University area submarket experienced a 6.97% increase in vacancy and is the cause for much of the negative absorption.

Rental rates are flat to slightly down throughout the market with a $2 drop from the previous quarter; however, concessions continue their slow decline in all submarkets resulting in slightly higher net rent for owners.  

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Investor Overview

Sales volume picked up in the second quarter as a combination of large investment grade properties and smaller properties changed hands. One interesting note about year-to-date sales is the low number of distress sales. Of the 12 closed transactions this year, only three can be considered distress sales. As predicted, the market is moving back to stabilized properties trading hands for reasons other than financial distress. More lender owned and otherwise distressed properties will be coming to market over the next few years, but the bulk of those transactions have occurred.

Investor interest remains strong as Tucson comes back onto the radar screen for more investors. With cap rate compression continuing in first and second tier markets, more investors are looking at tertiary markets such as Tucson for higher returns. Investors today are interested in both stabilized properties as well as value add opportunities, in contrast to 2011 when interest was primarily from investors seeking value add opportunities.   

The gap is narrowing between buyer and seller expectations, and the low cost of debt is making many more transactions possible. 

Tucson Apartment Vacancy Rents

The overall outlook for the rental market is for continued improvement.  Melanie Morrison from MEB Management Services, which manages over 15,000 units in Arizona, has noticed a continued improvement for Tucson apartment complexes. On a positive note, concessions have been declining, and delinquencies are significantly lower than last year. Existing student housing stock has seen some weakness due to the new student housing product under construction and on the market. 

With an eye toward the lending market, “we are seeing an increased demand for credit in Arizona,” said Michael J. Blaker, Commercial Development Officer with Wells Fargo. “We want to make every loan we possibly can to creditworthy businesses. When businesses thrive, our community thrives.”

Outlook

View at Catalina Apartments TucsonLooking forward to the balance of 2012, the Tucson apartment rental market should continue its gradual improvement. We expect an increase in stabilized properties changing hands with the continued slowdown of distressed and over-leveraged properties in the marketplace. With the uncertainty of the upcoming presidential election, many apartment owners have considered selling, anticipating the potential for an increase in the capital gains tax from 15% to 20%.

PICOR Advantage

Bob Kaplan and Allan Mendelsberg are the most active brokerage team in Southern Arizona marketing “middle market”, multi-family properties, 20 units to 140 units.  Cushman & Wakefield | PICOR’s marketing platform leverages strategies to reach local and national investors along with the brokerage community. We also work with and gain support from the Cushman & Wakefield national marketing platform. We focus on the client’s objectives in each disposition assignment, with a focus on the timing of the sale, sensitivity to market exposure and generating the highest price by a qualified purchaser.

Cushman & Wakefield | PICOR Commercial Real Estate Services offers owners a complimentary analysis of your property.  The report will include a current market value with sold and rent comparables and will offer suggestions on ways to increase property value. 

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A multi-year top producer with his previous firm, Bob Kaplan,Bob Kaplan PICOR investment broker
Principal, joined PICOR in 2006 
advising on the sale and purchase of multifamily investments serving the needs of local, regional and national apartment owners and investors. Bob also represents buyers and sellers of industrial, office, retail and NNN leased investment real estate.


Allan Mendelsberg PICOR investment brokerAllan Mendelsberg
, a Denver native, launched his commercial real estate brokerage career in Tucson in 2004. Previously with Marcus & Millichap, Allan joined PICOR to specialize in manufactured housing parks in the southwestern U.S., where he also brokers apartment complexes in greater Tucson for private investors as well as REITs.

 

 

Data source: Real Data Apartment Insights

Photo credits: MEB ManagementGary Rumack Photography

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Comments

I do agree there is the potential for substantial uptick in ROI for all investment properties, as we see at least a 25% increase in foreclosures this year. This increase comes on the heals of the $25B shakedown of mortgage banks by the attorneys general without them having to admit to any wrongdoing (business as usual). 
 
In addition, the release of a substantial number of REOs in to the market (the 'shadow' inventory to by followed by the 'shadow-shadow' inventory) will spark a wave of further decline in home value, turning many current underwater home owners in to strategic defaulters, who will then become renters. 
 
Bottomline, the flood of renters will have the supply/demand affect that investors seek. As an investor/advisor, single to multifamily is a strong play if the buy is right.
Posted @ Friday, July 27, 2012 12:43 PM by Bruce Specter
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