R.O.I. Real State – Commercial Newsletter- January 2022
Posted on January 1, 2022
In recent years, Phoenix has transcended its past reputation as a boom-and-bust market. Domestic commercial real estate investors can leverage affordability and logistical advantages versus pricier U.S. markets, while companies with international portfolios can access diversification in a fast-growth region.
Not surprisingly, the industrial market has been the hotbed of activity for out-of-state and in-state investors. According to the Phoenix Business Journal, for example, Los Angeles-based Silver Creek Development and Phoenix-based Mutual Development Partners are currently building or planning a total of 3.3 million SF between dozens of buildings worth $560 million across the Phoenix metro. Contour, a privately held real estate development company in Costa Mesa, Calif., is working on a trio of projects in Buckeye and Mesa totaling about 3.6 million SF.
How active has foreign money been? For perspective, the Phoenix Business Journal noted that the $1.16 billion in foreign investment during the past three years is nearly equal to what was spent during the previous decade. Taiwan Semiconductor, of course, represents the largest foreign investment deal in the state’s history. Notable deals have included Singapore-based Manulife’s purchases of Allred Park Place in Chandler and Diablo Technology Park in Tempe for a total of $167.75 million, and the acquisition of Block 23 in downtown Phoenix by Canada-based City Office REIT, for $150 million.
Multifamily sales set volume records in 2021, in no small part due to out-of-state investment interest. Tides Equities and Decron Properties, both out of L.A., have been among the most active players in the market. Foreign investment predominately involves Canadian buyers, such as the Oxford Properties Group’s $146 million acquisition of Ten01 on the Lake in Tempe last year.
On a related note, the burgeoning build-to-rent market is also attracting out-of-state, as well as in-state, money. In Q4 2021, San Diego-based Logan Capital Advisors acquired NexMetro’s Avilla Paseo single-family rental community in Deer Valley for $417,980/unit, while GTIS Partners LP, a New York real estate private equity fund manager and developer, recently purchased a Glendale site with plans to build 144 units. Local build-to-rent builders such as NexMetro, Walton Global, Empire and Christopher Todd are going strong, with over 5,000 units currently and more than 7,000 units underway.
In multifamily, part of the challenge for investors is strategizing where to deploy capital, with prices up and cap rates down. For multifamily property owners considering an exit point, this might be a good time to consider a 1031 exchange into a higher-yielding sector.
Looking forward, it appears the trend of local, national and international interest in the Valley will persist. In recent weeks, Montreal-based Xnrgy Climate Systems announced plans to build a 1 million SF U.S. headquarters and manufacturing facility in either Mesa or Chandler. Meyer Burger, a Swiss solar company, announced the selection of Arizona as the location for a new manufacturing facility, beating out Tennessee and Georgia.