Cushman & Wakefield | Picor Multifamily Specialists, Allan Mendelberg and Conrad Martinez give Q4 2021 Market Insight

TUCSON ECONOMY UPDATE:
In the fourth quarter of 2021, the Tucson market recorded employment of 383,700 jobs, a 3.2% increase over the previous year. Household income rose 3.5% from $51,800 Q4 2020 to $53,600 in Q4 2021. Regional unemployment stood at 4.9%, 70 basis points (bps) higher than the national average but improved dramatically over the previous quarter. In good news for the state, Arizona had recovered all jobs lost during the pandemic by November. Housing remained strong with Tucson named a top ten “Hidden Gem” market by the National Association of Realtors and median sales prices up 20.8% over November 2020. Projected interest rate adjustments in 2022 to ease inflation may temper the frenetic pace of demand in the housing market.

COVID / UofA UPDATE:
In early fourth quarter, the FDA announced the availability of the Booster vaccine for anyone above the age of 18. In addition, the Center for Disease Control and Prevention’s (CDC) approved the pediatric COVID-19 vaccine on November 2nd making the vaccine widely available across the country and the state of Arizona. Because of this, Governor Ducey has continued to allow non-essential businesses to stay open but, due to the Omicron Variant, mask mandates are back in place in workplaces and most public areas. The University of Arizona finished up the first semester of the 2021-2022 year with a successful semester back to in-person classes. Furthermore, the University is allowing gathering and events in a masked and socially distanced environment.

TRANSACTION UPDATES:
Continued out of market and out of state demand from new investors makes opportunities for local buyers more and more difficult. With over inflation occurring in Phoenix and other southwest MSA’s, Tucson has been a hot spot for investment leading to more competitive transactions. Those investors are bringing to Tucson pricing expectations and terms that would be seen in primary markets. After a strong third quarter in 2021, the fourth quarter kept status quo, even through the holiday season. The average price per unit sold was $156,657 which is down $6,775 from last quarter. The winning bidder of a property for sale usually comes down to terms as all the groups are coming in at similar pricing. To secure a highly desirable deal on the market, investors are needing to go non-refundable immediately with their earnest money.

SUPPLY (INVENTORY) VS. DEMAND (INVESTORS):
The demand for Tucson multifamily properties has been extremely high over the recent years due to it becoming a desirable second market. With more investors directing away from the more populated areas that consistently have inflated markets like Denver, California, and Phoenix, Tucson has emerged as the new hot market with low cap rates as well as low price per unit by comparison. Supply through the end of year remained minimal, though an increase of transactions and available properties is expected for the start of 2022. A slight change in demand is expected to occur as we see an up-tick in interest rates throughout 2022. Given that, Tucson remains a very strong market for sellers of apartment complexes.

FINANCING
Agency lending is expected to increase in 2022, as the FHFA increased their “lending cap” to $78 billion for 2022, up $8 billion from 2021 and in-line with the market cap for 2020. Interest rates are increasing as the 10-year Treasury is climbing (1.83% on 1/19/22), which is up over 30 basis points over the last month and 60 basis points compared to 6 months ago. Inflation concerns and the likelihood of the Federal Reserve tapering asset purchases are expected to place upwards pressure on interest rates. Borrowers have witnessed an increase to commercial mortgage rate but rates are still near historic lows. Agency rates for stabilized, higher-leverage loans for properties with less than 100 units range from 3.50% – 4%. Value-add coupons are stable in the 3.75% – 4.75% range. These rates can decrease for loans above $10 million. Overall, the lending markets have a caution bullishness belief in real estate in 2022 despite impacts from COVID, as the consensus is that fundamental CRE backdrop is on solid footing.
(Credit: Kevin & Brian Prouty, Mortgage Bankers – Tucson, AZ)

OUTLOOK
As we move into the new year, Tucson’s market is expected to start the year strong and continue to boast record numbers and sales. With the holiday season ending, we expect multiple new properties to be listed at the start of 2022 as investors set their goals for the year. The recent slight dip to the market activity due to the holidays did not affect Tucson as one of the nation’s leading multifamily markets for investors. If interest rates stay relatively low, we expect continued growth in the Tucson market this year as there are many untouched properties investors can pursue to increase value and cash returns post renovation and stabilization. A slight uptick in interest rates will likely cause a slight increase in Cap Rates and inventory.

See full report here.

PHOENIX, ARIZONA  – NAI Horizon’s Investment Services Group represented three ownership entities in a $7.254 million assemblage and disposition land sale. The land is located at 1820, 1836 and 1840 East Apache Blvd., in Tempe, Arizona.

The 4.94-acre land tract is located in a prime location on the north side of Apache Boulevard, just east of McClintock Drive. The property is conveniently situated adjacent to the McClintock and Apache light rail station, approximately 1.1 miles southeast of Arizona State University. The buyer is Trinsic Residential Group of Dallas, Texas (trinsicresidential.com). This new high-density residential project is called Aura Apache.

NAI Horizon Executive Vice President Lane Neville, Senior Associate Logan Crum and Associate Cole Neville represented the sellers, IPIRG Opportunity Fund, LLC, Stafford Properties of Arizona, Inc., and Stafford Apache, LLC.

“The escrow for the Aura Apache land sale was 23 months, during which the buyer attained new zoning, received site plan approval, architectural design review and City of

Tempe approval of the building permit,” Lane Neville said. “The mixed-use, apartment project has 295 units.

“Trinsic Residential Group was a pleasure to work with, our NAI Horizon team is proud to be a small part of such a great high-density development project. We are excited to watch their build-out, and Class-A amenities being constructed and completed over the next two years,” Lane Neville said.

Aura Apache will include three distinct building types: a wrap-style apartment structure, townhomes, and a standalone office building. The asset will feature high-end amenities with resort-style improvements.

“Trinsic Residential Group is excited to begin construction on Aura Apache, our third project in Tempe. The project will bring high-end apartment units to a developing stretch of Apache Boulevard,” said Tristan Charlesworth, Development Director with Trinsic Residential Group in Arizona.

The NAI Horizon Investment Services Group specializes in the sale of commercial land, multi-tenant office, and retail properties throughout the Phoenix MSA and the greater Southwest.

PHOTO: Aura Apache Rendering.

TUCSON, ARIZONA – Continuing to grow and build for the future, GLHN Architects & Engineers, Inc., is pleased to announce the promotion of a pair of industry experts to Director of Architecture and Director of Design.

An employee-owned firm with more than 50 years of expertise in healthcare and higher education projects, GLHN promoted Dan Maher to Director of Architecture in the Tucson office and Russell Combs to Director of Design in its Phoenix office. The promotions are the result of a new dedication to design and the firm’s commitment to improving its communities by elevating the built environment.

The promotions are also a continuation of leadership growth. Last year, GLHN promoted Robert Lamb, PE, to CEO and Tiffany Gorrell to Director of Business Development and Marketing.

Maher, a native of Tucson, formerly served as Project Manager, Architecture. His new responsibilities include managing the architectural staff, business development, management of office graphic standards, and staff professional development.

Combs, a native of New Jersey, formerly served as Healthcare/Wellness Studio Lead. His new responsibilities will include inspiring the staff to deliver service and environments that contribute to client success by advancing GLHN’s collaborative design process.

“These promotions represent a passionate architectural and design process with purposeful intent toward empathizing with users,” Lamb said. “Our goal is to encourage our teams under our new directors to be enthusiastic about creating environments that enrich and enhance sustainability, wellness, and functionality.”

Maher has been with GLHN for 2½ years. He holds a bachelor of science degree in supply chain management from Arizona State University and a master’s degree in architecture from the University of Arizona. He is a member of AIA Arizona, ULI Arizona, and the Design-Build Institute of America. Away from the office Maher enjoys running, cycling, and working with wood and steel. Maher is an adjunct lecturer at CAPLA (UA College of Architecture, Planning and Landscape Architecture).

Combs has been with GLHN for more than 6 years. He holds a master’s degree in architecture from ASU. A native of Ewing Township, New Jersey, Combs found his creative side early on working as a carpenter. He worked on grand residences in the area, including some that totaled more than 10,000 SF. He built kitchens, libraries, wine cellars, and grand staircases. He even worked on a bookcase that concealed a secret door that led to a smoking and drinking lounge.

Away from the office, Combs enjoys watching football and playing golf and poker. He and his wife have two children and a Great Dane, Henderson.

GLHN excels at medical and laboratory facilities, utility master planning, design of central plants and underground utility distribution systems, complex multi-phased renovation projects, fleet vehicle maintenance facilities, and enhanced systems commissioning.