Phoenix, Arizona – Neighborhood Ventures (NV), Arizona’s first crowdfunding real estate company, is pleased to announce its formation and launch in the Arizona (Phoenix) marketplace.  The company allows all Arizona residents the opportunity to be shareholders in apartment projects in the Phoenix area.

The company was formed by apartment real estate veteran John Kobierowski and former Goldman Sachs tech analyst Jamison Manwaring.

Mr. Kobierowski, also Senior Managing Partner at Phoenix based ABI Multifamily, brings 25+ years’ experience in multifamily real estate, has brokered 900+ multifamily transactions, owned/operated over 1,000+ multifamily units and successfully developed and sold 500+ condominium units.

Mr. Kobierowski states, “The new Crowdfunding legislation has empowered all Arizonans with the opportunity to invest locally in business start-ups, which had been for decades, reserved for only qualified investors. Neighborhood Ventures will focus on commercial Real Estate investment property, specifically multifamily assets. Investing in income producing apartment buildings with the guidance of a team of seasoned professionals is the core of our investment strategy. We intend to be the go-to company for Arizonan’s to make investments in the apartment market.”

Prior to launching Neighborhood Ventures, Mr. Manwaring was VP of Investor Relations at Tempe-based LifeLock, where he helped lead the company to a successful sale in February 2017. Prior to LifeLock, Mr. Manwaring was a software analyst at Goldman Sachs in New York City where he participated in over a dozen software IPOs, including LifeLock’s public offering in 2012.

Mr. Manwaring, states, “Crowdfunding platforms like Kickstarter have given entrepreneurs a large audience to showcase and fund new technologies. Platforms like GoFundMe have transformed how donations for charitable causes can be raised quickly online. Neighborhood Ventures is excited to take crowdfunding to commercial real estate to allow every Arizona resident the opportunity to own a portion of an apartment project within their neighborhood.”

Thomas M. Brophy, Director of Research for Neighborhood Ventures, states, “Never has there been a better time to invest in multifamily (apartment) real estate then now.  Rental housing has entered its most significant growth period in a generation fueled, in large part, by monumental demographic changes at both ends of the age spectrum.  These changes will continue to propel the industry for years to come.”

The company plans to open its first project for investment in November 2017.

By: Thomas M. Brophy, Director of Research, ABI Multifamily

PHOENIX, Arizona — The Phoenix MSA multifamily market had another stellar first quarter fueled by both robust jobs and population growth.  In fact, Maricopa overtook Texas’ Harris County as top spot for population growth adding 81,000 people, an average of 222 new residents per day, between July 1, 2105 to July 1, 2016.  Total nonfarm employment grew by 2.7% led by the leisure/hospitality (+6.2%), financial activities (+6.1%), and education/ health services (+2.9%) industries.

Major job/economic announcements for Phoenix, as referenced on the map located on Page 6 of this report, are Intel’s plans to invest $7 billion into its Chandler manufacturing plant and hire 3,000+ over the next several years.  Other 2016 thru 1Q announcements include: JPMorgan Chase’s plan to build a new regional office hub at Tempe’s Discovery Business Campus which will house up to 4,000 employees, ADP’s new Tempe office to bring 1,500 jobs, Santander Consumer USA’s regional operations center in Mesa’s Fiesta District set to bring 1,000+ jobs, Orbital ATK’s Chandler expansion with 500 new jobs, Clearlink’s expansion into Downtown Scottsdale with 500+ jobs, Rogers Corp (NYSE: ROG) global HQ move to Chandler and Kudelski Group’s international HQ move to Phoenix just to name a few.

Although Phoenix’s emergence from the Great Recession took longer than most expected, beginning in the latter half of 2015 through YTD, Phoenix has experienced a downright boom in job and economic development announcements.  At the end of 2016, according to WalletHub’s analysis of the 150 biggest cities in the country, five (5) Phoenix MSA cities cracked the Top 20 of best places to find a job: Scottsdale (#1), Chandler, (#7), Tempe (#9), Peoria (#11) and Gilbert (#18).

Phoenix Market Metrics: Got Sales? The MSA’s total sales volume (10+ unit properties) increased 28%, year-over-year, to $780.87 million across 74 transactions representing 7,908 total units sold.  California-based investors continue to be the dominant buyer of multifamily properties in the Valley accounting for 31% of total units transacted or 2,486 units, Arizona-based investors came in 2nd with a little over 1,000 units purchased and, rounding out the top five: (#3) Utah-investors with 976 units purchase, (#4) Canadian investors with 874 units and (#5) New York-based investors with 772 units.

Sales of 100+ unit properties led the multifamily investment landscape increasing 35% y-o-y to $684.3M with a marginal contraction in average price per unit amounts of approximately (7%) to $101,789.  Whereas 100+ unit properties saw sales volume increase and price per unit amounts decrease, 10 to 99 unit properties saw its volume dip (6%) to $96.5M with a surge of 34% in average price per unit amounts to $81,472.  Reason for the average price per unit increase stems, in large part, to smaller, extensively repositioned properties coming back online for sale.

How Does Development Type Affect Deliveries? As with much of the country, Phoenix area construction deliveries continued to increase rising 37% to 1,794 units delivered.  As a result of increased deliveries, particularly in the Mid-to-High Rise building type category, resulted in an Occupancy Rate contraction of (0.7%) to 94.9%.   As noted in our August 11, 2016, ABInsight article, “Phoenix Rising from the Garden-Style Apartment Community,” Phoenix is in the middle of a development type maturation, i.e. from one primarily focused on Garden-style to one more dominated by Mid-to-High Rise developments.  For context, at the end of 2015, the Phoenix Metro was home to 29 Mid-to-High Rise developments accounting for 7,062 units.  By the end of 2016, that increased to a total of 42 developments representing 10,057 units which is a 42% y-o-y increase.  Of the projects currently under construction (50+ units in size, with delivery through 2019/20), the Mid-to-High Rise category is set to nearly double with the addition of 37 projects or 10,216 units.

Phoenix’s trailing 5-year unit delivery rate average had been trending in the 30 to 40 units per month per project through early-2016 which was nearly 70% below peak, pre-Great Recession delivery amount of 120 to 150 units per month.  However, as taller projects have hit the market average delivery rate has increased almost 100% to approximately 70 units per month.  The net result of increasing delivery levels led to the contraction in occupancy seen at the end of 1Q 2017.  Despite the slight occupancy contraction, average rent for the MSA increased 5.6% to $977.

Going forward, it should be expected that the average delivery rate of units will increase towards the 90 to 110 units per month per project range which should have a corresponding impact on occupancy rates and concession amount offered by developers.  Nonetheless, Phoenix area developments averaged a lease rate of 17 units per property per month, a 30% y-o-y increase, by end of 1Q 2017.  Although Phoenix saw an increase of 15% in the amount of units under construction, ‘Planned’ projects witnessed their largest five year contraction dropping some (27%) to its current 14,834 units. The Road Ahead As stated in our 2017 Market Forecast, it is unlikely the Fed will continue with its gradual interest rate increase in 2017 despite many economists predicting otherwise.  Basis for this sentiment is rooted in weak preliminary 1Q GDP which at 0.7% growth is the slowest in three years, significant instability in international markets, particularly Europe and Asia, and domestic policy struggles of the new Trump Administration.  Despite stocks hitting all-time highs, based in large part on investors factoring in massive deregulation, markets the world over have been prone to ever increasing volatility fits.

As a result of high market volatility, and both ancillary observed evidence within our client base and Investment Company Institute’s Investment Company Fact Book publication, middle age-to-older market investors have been switching to a combination of passive ETF funds, a now decade-long trend, and purchasing a mix of closed-fund shares and/or direct investments in real estate to provide a more consistent return.  This change in investor sentiment, ceteris paribus, will continue to propel real estate transactions, particularly multifamily, into the foreseeable future.

Phoenix multifamily’s greatest competitor, single-family home construction, although rebounding, is still far from normal. As was stated at the 2017 Belfiore Annual Housing Conference, and reiterated at the Infill Conference, home builders have been struggling with a whole host of issues from labor shortages, rising material costs and lack of available land, particularly in more urban core areas where people want to live.  Of particular note at the Belfiore Infill Conference was consensus among builders/developers/investors that the wave of Californians moving to Arizona has only just begun.  As Silicon Valley has increasingly morphed into the Silicon Desert, looking for qualified staff and more amendable business climate, it was only a matter of time before individuals started to march with their feet with Arizona, specifically Phoenix area, as their top destination.   Despite significant headwinds, particularly those outside the MSA, and barring any Black Swan events, Phoenix multifamily should continue growing well into 2017/18.

See the full Q1 Multifamily report here: ABI-Multifamily-Phoenix-MSA-1Q-2017-Quarterly-Report

By: Thomas M. Brophy, Director of Research, ABI Multifamily

Do Negative Interest Rates Abroad Impact Domestic Commercial Real Estate? In Arizona?

In NIRP We Trust
As I sit down to type this post much in the world of economics and markets has occurred; first, the Nation’s August jobs data was released. As referenced on the chart/table below, most of the job/wage growth came from the lower-tier (Bottom 20%) of the job spectrum.

According to Elliott D. Pollack & Company, Arizona, during the first 7 months of 2016, continued to see robust employment growth up 3% to date. In fact, both the Phoenix and Tucson Metro’s outpaced most of the country with robust employment growth 3.4% (or 58,000 jobs since July 2015) and 3.3% (or 14,900 jobs since July 2015) respectively over the same time period. The largest job category gains were seen in the information, financial activities, educational and health services and manufacturing sectors.

Second, Fed Chairwoman, Janet Yellen, gave her highly anticipated, albeit underwhelming, Jackson Hole speech. As Janus Capital’s, Bill Gross, points out, “With Yellen, there is no right or left hand — no “on the one hand but then on the other” – there are only decades of old orthodoxy that follows the tarnished golden rule of lowering interest rates to elevate asset prices, which in turn could (should) trickle down to the real economy.”

Third, the ECB (European Central Bank) confirmed its continued commitment to negative interest rates of (0.4%) on deposits and left its benchmark main refinancing rate at 0%. Additionally, the ECB will continue its massive QE schedule of €80 billion in monthly asset purchases through March 2017 and beyond. Mike Shedlock, SitkaPacific Capital Management, in his blog, MishTalk, summed up the ECB’s failed monetary policy in one chart (shown below):

Last but not least, both the stock and bond markets have experienced tremendous volatility resulting in investor whiplash.  Although the DOW, NASDAQ and S&P are still up for 2016 (as of 9/13/16) at 3.68%, 2.95% and 4.06% respectively, they’ve seen an average reduction of 1.33% in the last few days of trading alone. The sum total of the Jackson Hole meet, stated ECB monetary policies, continued Abenomics in Japan, lackluster US growth and continued market volatility all points to very little chance of a US interest rate increase for the rest of this year, despite some Fed official’s hawkish comments otherwise. In light of the Fed’s focus on NIRP at Jackson Hole, particularly Marvin Goodfriend (Carnegie Mellon University) and Marianne Nessen’s (Swedish Central Bank) in defense of NIRP (and more negative rates) speeches, I’d say we’re all but guaranteed no interest rate increases for, at least, the next few quarters.

Got Yield? The Capital That Moves Markets
As I stated in my 2016 Market Forecast back in January, Congress passed a provision in its December 2015 $1.1 trillion spending bill modifying the 1980 Foreign Investment in Real Property Tax (FIRPTA). To recap:

“FIRPTA has historically made direct investment in U.S. property a non-starter for trillions of dollars-worth of foreign pensions,” said James Corl, a managing director at private equity firm Siguler Guff & Co. “This tax-law modification is a game changer” that could result in hundreds of billions of new capital flows into U.S. real estate….The new law also allows foreign pensions to buy as much as 10 percent of a U.S. publicly traded real estate investment trust without triggering FIRPTA liability, up from 5 percent previously….Cross-border investment in U.S. real estate has totaled about $78.4 billion this year, or 16 percent of the total $483 billion investment in U.S. property, according to Real Capital Analytics Inc. Pension funds accounted for about $7.5 billion, or almost 10 percent, of the foreign total, according to the New York-based property research firm.

Professional researchers, such as myself, and economists are (or should be) obsessed with the impact of marginal, or outlier, moves in a given market. The reason marginal/outlier moves impact markets is that they can, but not always, exacerbate and distort normal market pricing conditions, which one could postulate is already distorted due to our decade old Fed-induced Zero Interest Rate Policy (ZIRP).

For example, I’ve been particularly interested in following the capital that has come from Europe, specifically Germany where NIRP policies have pushed banks to charge fees for nominal deposits (€111,000 or more), to US (Arizona) commercial real estate. Specifically, is there a price per unit premium paid by foreign investors fleeing the draconian impacts of NIRP policies? Although our more detailed analysis is for clients only, suffice-it-to-say that in late 2015 the Phoenix Metro began seeing a noticeable increase in German investment capital targeting multifamily properties in the Tempe and Chandler submarkets.  As GlobeSt recently reported, North Carolina-based Bell Partners and Hamburg, Germany-based Hanseatische Investment-GmbH have partnered in the creation of a multifamily investment fund.  The new investment fund has a $1 billion, $500 million of equity, cap and is targeting core multifamily properties in metro areas with strong fundamentals. As NIRP policies continue to distort investor sentiment (especially acute in European markets), I would not be surprised to see ever increasing amounts of foreign money pushing the sales price per unit margins higher in the coming months and into next year.

Despite Significant Price Increases, Phoenix is still below Peak Pricing
Whereas many markets across the US have exceeded peak sales price per unit amounts, Phoenix Metro, despite our frenetic sales pace, is still an average of 7% below our 2007 peak (see chart below):

As shown in our Phoenix Metro per City Analysis: Rents, Occupancy, Population & Affordability post, despite sustained average per year rental rate increases of approximately 4%+, elevated construction amounts (although nowhere near peak building), the Phoenix Metro is at historical highs both in terms of occupancy, trending towards 97%, and renter retention, which at nearly 55% is some 3% higher than the national average.

Conclusion
Whether or not one agrees with current Central Banker NIRP (or ZIRP) policy, truly matters not, as it is the market in which we must play. Considering Fed governor posturing, and although there are those who disagree, I anticipate stasis of domestic interest rates and further dives into deeper negative rates for most of Europe which has the potential to set off massive capital flights to preservation as opposed to yield. In Phoenix, we’re already experiencing some of that premium pricing setting in, however is not as extreme as those markets on the East/West coasts. As such, I would expect both the Phoenix and Tucson markets to continue their upward trends through the end of the year and well into next.

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