Strong permits, house starts and land development add to an improved economic outlook

TUCSON, Arizona — The year 2016 was a good one for the Tucson home building market and for Tucson in general. The Great Recession took its toll on Tucson and attitudes regarding the economy and future growth were often negative for many years. It seemed jobs and growth were passing us by in favor of larger markets, including Phoenix just to our north. The housing market began its turnaround in 2012 but it was slow. The driving force of the housing rebound was the move-up markets, particularly in the Northwest submarket. While the higher prices and increased sales were welcomed, there was also an underlying concern of the sustainability and depth of this move-up market in Tucson where the median household income is only $46,162 (per US Census). The lack of high paying jobs was always a point of discussion.

In 2016 things began to change. In March, Banner Health announced that it had allocated $500 million for capital improvements in Tucson which would result in significant construction and other related jobs. Home Goods purchased land to construct a distribution center and announced in April that it would be looking to hire 400 employees initially and then increasing that number to 900 in subsequent years. Then in May, Caterpillar announced that it would be relocating its Surface, Mining & Technology Division to downtown Tucson. They estimated this would bring in 600 executive level jobs within the next five years. The biotech company Monsanto purchased 155 acres in Marana in October and plans to employ 50 initially but the operations may expand to employ much more. Raytheon announced in November that they plan to expand in Tucson and hire an additional 2,000 employees over the next five years. That same month Lucid Motors announced plans to construct a plant in Casa Grand to assemble electric cars. It hopes to employ 2,000 workers and be at full capacity within six years.

The impact of the employment and economic benefit of these future jobs is significant. An additional benefit that is hard to quantify is the number of supporting vendors and businesses that will follow these larger corporations to Tucson. With these job announcements attitudes regarding the economic outlook of Tucson are now extremely positive, a near 180 from just a year ago. This optimism is spreading through the home building industry as now they can more easily identify future demand for housing.

The builders and developers deserve credit for exercising their faith in the future growth and strength of the Tucson market as 620 permits were pulled in Q1. This was 80 more than Q4 2015 and 150 more than Q1 2015. In Q2 there were 750 single family permits pulled. This was followed up with 622 and 667 in Quarters 3 and 4 respectively, for an annual total of 2,699 permits, a 24% (523 permit) increase over 2015.

Builders have been working hard to fill their pipelines with lot inventory over the past few years primarily with platted lot purchases. These lots began to enter the market in significant numbers in 2016 with 1,953 new lots being completed. This is a roughly the same number as the prior two years combined when 873 and 1,139 lots were brought to market. It will be crucial to maintain or increase this pace of development to meet the demands of the improving market.

One negative aspect of the year related to land was a significant drop in the value of land transactions and correlated lots. In 2016 the total value of the 49 single family related land purchases was $64.9 million with 1,474 lots. This is considerably lower than the prior four years:

2015: $118.8 million / 3,766 lots*
2014: $108.6 million / 2,457 lots*
2013: $127.1 million / 4,765 lots*
2012: $ 97.4 million / 2,362 lots*

* lot numbers are approximate as some raw or block platted land deals did not have lot counts associated with them. Once entitled, these lot counts will increase.

Each of the prior four years had at least one extraordinary purchase, which 2016 lacked. While this lower number of lots purchased should not impact 2017, it may start to impact 2018 and beyond if builders and investors do not increase their land purchases and lot development going forward. The current strong economic outlook should bolster confidence and we should see more deals being done this next year. We are excited for the Tucson land market as we begin the new year in 2017.

* Permit data from Bright Future Real Estate Research, LLC and Sales comp data from RED Comps a division of Real Estate Daily News Comps (realestatedaily-news.com)

For the full report click here.  To learn more Aaron Mendenhall can be reached at 520.747.4000 x102 for additional insight and information.

If the number of lots being bought by homebuilders is any indication, homebuilders’ optimism bodes well for Tucson in Q4. During the last quarter 2016 over 720-lots have sold to-date. That’s an increase of over 200% from Q3 and a 28% increase over Q4 2015.

The National builder sentiment index released last week had reached its highest point in 11 years, on the expectation of tax cuts and regulatory changes. See RED News here for full story: https://realestatedaily-news.com/us-homebuilders-turn-increasingly-optimistic/

Some of the latest year end land sales for metro Tucson follow:

NORTHWEST SUBMARKET
D.R. Horton bought 8 more finished lots at Fianchetto Farms within Gladden Farms Master Planned Community for $306,000 ($38,250 per lot) from Fianchetto Farms, LLC. This was the second takedown of a 49-lot option within this 114-SFR lot subdivision. D.R. Horton began construction here last August. Dan Feig and Aaron Mendenhall of Chapman Lindsey Commercial Real Estate Services in Tucson handled the transaction. To learn more, see RED Comp #4379.

Miramonte Homes bought four lots at La Reserve Villas for construction of townhomes for $220,000 ($55,000 per lot) from Pusch Ridge Properties, LLC of California. Buyer was exercising a rolling option for 49-lots at La Reserve Villas. To learn more, see RED Comp #4278.

SOUTHEAST SUBMARKET
A newly platted 25-lot infill project was purchased by Richmond America Homes for $1.25 million ($50,000 per lot) from Tucson Land and Cattle Company. The 19-acre Rancho Reina subdivision, located northeast of Old Spanish Trail Road and Los Reyes, received final plat approval on November 9^th from the City of Tucson. Both buyer and seller were self- represented in the transaction. To learn more, see RED Comp #4340.

SOUTHWEST SUBMARKET
Richmond American continues to build at Madera Highlands Villages at Madera Highlands Community in Sahuarita where they added another 3-lots for $266,880 ($88,960 per lot). These one-acre lots were part of a rolling option with MK Company Southwest of Scottsdale and represent 60% of the total option here. Will White and John Carroll with Land Advisors Organization in Tucson handled the transaction for buyer and seller. To learn more, see RED Comp #4350.

RB Price and Company of Tucson (Rick Price, principal) bought 336 platted and 59 partially developed lots at Diablo Village Estates for $630,000 from RES-AZ DVL, LLC of Florida. Diablo Village Estates Townhomes consists of approximately 5.95 acres with 59 partially developed lots and Diablo Village Estates is 89 acres platted for 336 SFR lots. Located near Valencia and Ajo in Southwest Tucson submarket, property is near Casino Del Sol Resort, Tucson International Airport, Raytheon, and UA Tech Park.  Ben Becker and Adam Becker with CBRE in Tucson represented the seller in this transaction. To learn more, see RED Comp #4349.

Chicago-based, Boyd Watterson Asset Management (Jack Walsh, Sr. Vice-President), an SEC-registered investment advisory firm, purchased the Rio Nuevo Professional Plaza at 201 N Bonita Avenue in Tucson for $12.4 million ($168 PSF).

The 73,826-square-foot, two-story office building sits on 5-acres and was constructed in 2002. It sold 100% occupied by two GSA tenants, the US Census and Social Security, KB Homes, Carrington College, an affiliate of Devry Schools and Markham Contracting.

The seller was RNPP LLC, an affiliate of Diamond Ventures (Bill Kelley, CFO) that represented itself. The buyer was represented by David Montijo, Michael Sandahl, Martin Encinas and Damien Wilkinson of CBRE’s Tucson office.

For more information, the CBRE team can be reached at 520.323.5100. To learn more, see RED Comp #3521.

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WCCP Rosemont LLC, an affiliate of West Coast Capital Partners (William Metzler, manager) and PVP Investments, LLC bought the former AOL Building at 155 N Rosemont Blvd in Tucson for $7.13 million ($143 PSF).

The 50,000-square-foot office building was constructed in 1998 and sits on a 5.28-acre lot. It sold 100% occupied by two tenants: Open Text, a training facility on the first floor, and Centene Corporation (Centene), a national leader in the healthcare services field, on the second floor.

WCCP, that recently sold 333 E Wetmore Road in Tucson (click here for full story), reported that they intend to update the common areas of the property, such as redoing the lobby, refresh landscaping, and other general cosmetic updates to the property over the next three months.

The seller, BP 155 Investors LLC, an affiliate of Bourn Partners of Tucson (Don Bourn, manager) was represented by Bill Palmer of Palmer Capital in Roseville, CA. The investor was represented by Phil Skillings of NAI Horizon in Tucson.

For more information, Palmer can be reached at 916.462.6300 and Skillings should be contacted at 520.977.6369. To learn more, see RED Comp #3544.

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Five Daughters LLC, an affiliate of TCI Wealth Advisors of Tucson (John Stephens, member) bought the office building at 4021 E Sunrise Drive in Tucson at La Paloma Office Center for $1.4 million ($222 PSF). The buyer exercise a lease purchase agreement entered into one year prior.

The 6,328-square-foot building, constructed in 2008 on a 10,233-square-foot lot. It was 50% occupied by the buyer, TCI, and 50% occupied by the tenant, Catalina Eye Care.

The seller, Sunrise HDS LLC, an affiliate of Scotia Group Ltd.of Tucson (Peter Aronoff, manager) was self-represented. Alan Moore with Chapman Lindsey Commercial Real Estate Services represented the buyer in the lease agreement and purchase.

For more information, Moore can be reached at 520.747.4000. To learn more, see RED Comp #3498.