For investors looking for investments $20 million and under, Tucson ranked number 4 on the list of small/middle sized markets. A larger driver of the demand for multifamily in Tucson is the attractive year-over-year (YOY) average rent growth of 9.1%. The shortage of affordable and traditional housing in Tucson also fuels apartment rental demand. With construction costs tripling on certain building materials, housing development has slowed down drastically over the past 12 months. In a market with the typical average residential for sale inventory at about 6,000 listings, fewer than 1,000 homes are for sale. This shortage has led to increased demand for multifamily living, which in turn has driven down Tucson’s vacancy rate.

COVID UPDATE

Since the late December COVID-19 vaccine rollout, more than 61% of eligible Pima County residents have been fully vaccinated. Governor Ducey relaxed mask mandates and lifted restrictions for bars, movie theaters, restaurants, public events, concerts, and clubs. The University of Arizona held an in-person commencement ceremony for spring 2021 graduates. The University is also rolling out their Fall 2021 re-opening plan which includes a full in-person class schedule along with optional virtual learning. The CDC’s federal ban on evictions was set to expire on June 30th, but a recent ban by the Center for Disease Control and Prevention (CDC) has extended the eviction moratorium through July 31st.

TRANSACTION UPDATES

Tucson is primed for a strong second half of the year for sale transactions following a nearly record first half of 2021. Total sales volume totaled approximately $190 million in Q2 2021 (up 102% YOY) and an average price per unit of $108,000 (up 93% YOY). Timelines and transaction terms are drastically swaying sellers’ decision when receiving offers. With financing contingencies a thing of the past, quick due diligence timelines or even immediately non-refundable earnest money are common offering terms in the current market. With investors eager to acquire Tucson properties, we expect similar sales volume and activity in the upcoming quarter.

SUPPLY (INVENTORY) VS. DEMAND (INVESTORS)

Multifamily properties that hit the market are faced with a heady amount of demand from investors eager to break into the red-hot Tucson market. With more and more syndication groups focusing their sights on secondary markets like Tucson, it brings more nationwide money and interest to the market. Tucson’s relatively low cost per unit and favorable cap rates are attractive to investors leaving inflated markets like California, the Pacific Northwest, Denver, Texas, and even Phoenix. With heightened demand, the Tucson multifamily market has not skipped a beat; average time on the market for well-priced properties is under two weeks. It is a great time to be a seller in Tucson as supply of properties available for sale remains low amid soaring demand from investors.

FINANCING

Lending activity and lender appetite for Tucson multifamily continued to increase in 2Q. Both Freddie Mac and Fannie Mae have become more aggressive to win business as they posted lower production numbers than expected in Q1 as they were adjusting to a lower production cap by the regulators. It is expected that they will remain aggressive throughout the year to compete with banks, life insurance companies, and debt funds as each of those lending sources are actively chasing more multifamily opportunities. Rates are stabilized and expected to remain near historic lows throughout the rest of the year. Both Freddie and Fannie have removed most of their requirements for debt-service escrows at closing related to COVID. For stabilized properties, monthly rental collections are extremely important and a property that can demonstrate success throughout the pandemic will be highly attractive to lenders. Stabilized loans are more frequently DSCR constrained due to low cap rates, but 70-75% LTV loans for less than 100 unit properties will witness rates between 3% – 3.5%. Value-add loans in the same range can typically achieve 75% Loan-to-Cost with floating-rate coupons in the 3.5% – 4.5% range. For loans above $10 million, these rates can decrease significantly. Credit: Kevin Prouty –  Mortgage Banker  – Tucson, AZ

OUTLOOK

For the remainder of 2021, the Tucson multifamily market will see strong continued growth. This is due to the market’s relatively low pricing per unit and competitive market cap rates compared to larger markets like Phoenix, AZ. The shortage of supply is causing competitive marketing processes and groups assuming more risk in their offers to secure a deal. With a drastic need for Tucson housing supply, that won’t easily be fixed unless construction costs lower, the Tucson multifamily market will likely see continued rental increases while vacancy remains low.

View full report here.

OPED by Greg Clark, former Co-Chair of Mile Neighborhood

TUCSON, ARIZONA — This Wednesday, July 7, 2021 the Tucson Mayor and City Council are set to consider an urban overlay district (UOD) rezoning proposal for the area known as the Sunshine Mile.

Unfortunately, many have not been following this overlay district, being advanced by Rio Nuevo, and some believe the goals have devolved into solely an historic preservation zone that does little to advance its own stated goals for economic development in the area.

Rio Nuevo and City staff claim the overlay is an effort to boost density, commercial activity, energy-efficient building practices, affordable housing, generate higher tax revenue, and support a zone of higher multi-use living that will sustain new modes of transportation and mass transit.

In fact, the UOD has blessed last year’s creation of the “Sunshine Mile Historic District,” and the overlay proposal now excludes its rezoning incentives to any project that would alter or demolish any structure that is eligible or contributing to an “historical” zone.  Rio Nuevo CEO, Fletcher McCusker has said that this keeps 120 buildings unavailable for any kind of development besides getting a change of use and some parking abatements. Even the areas that were to be available for new mid- and high-rise development (areas near Broadway & Euclid, Campbell/Kino) have been substantially curtailed in recent drafts.

The major East-West arterial in and out of downtown should be an area of commerce and business vibrancy.  It is to be a major 6-lane thoroughfare, which can accommodate higher residential and commercial density.  Tucson survives on tax revenue and Central Broadway provides a crucial opportunity to boost businesses and economic uses that would generate jobs, new commercial and residential spaces and revenue sources for Tucson.

Sadly however, rather than activate the potential for redevelopment, this UOD sets aside 2-bedroom residential bungalows and other old, functionally obsolete structures for “preservation”. Rather than creating a gateway to downtown, the Sunshine Mile overlay is gazing backwards and prioritizing historic petrification above all else.  The result will be a stretch of reliquary roadway similar to Speedway Blvd. between 1^st and 4^th Ave.: many small old buildings, barely any business.

We all know Tucson has some of the most restrictive historical preservation requirements found anyplace. Yet we were told the Sunshine Mile would support economic development.

It is concerning that while we public stakeholders were busy dealing with the pandemic, the Sunshine Mile District purpose was altered into a set of convoluted requirements to make development nearly impossible along this two-mile stretch. In June 2020, the stated primary purpose of the Sunshine Mile District was “economic development” but in December, the purpose was changed to read “economic vitality”. There’s a reason for this change and I think we all know what it is.

The proposal being considered Wednesday will be a lost opportunity if passed. It is not what the city needs from its major central corridor.

Fortunately, it can still be changed if the Mayor and Council decide to. I hope that others who agree will share their opinions with the Mayor and Council before the July 7 meeting, or attend the virtual city council meeting to let Council Members know how we citizens feel.

Members of the public may submit written comments on any items scheduled.  To do so, send an email to [email protected].  The email should include the individual’s name, the agenda item for comment and be limited to no more than 500 words.  Comments must be received by no later than 5:00 p.m., Tuesday, July 6, 2021.

Individuals wishing to speak during call to the audience and/or the public hearing (subject to technological availability) will join the meeting via teleconference.  You must submit a written request to [email protected].  The email should include your name, and the phone number you will use for the teleconference.  The phone # will be used to identify the individual when/if being called upon to speak.  Once your request to speak has been received by the City Clerk, you will be provided instructions on how to connect to the teleconference.

Requests to speak must be submitted no later than 12:00 p.m., Wednesday, July 7, 2021. Please join us.

Go to City Of Tucson link for agenda and to register for the Zoom meeting Wednesday July 7 scheduled at or about 5:30 PM.

The public can watch the live stream of this meeting here https://www.tucsonaz.gov/gov/mayor-and-council-live

MARANA, ARIZONA – I recently toured the prestigious gated community of Saguaro Ranch with roads and infrastructure in place,  is starting to take shape in becoming the most prestigious luxury home community in Arizona. From the moment you enter the 1100+ acre majestic Sonoran Desert community through a 600-foot tunnel, the length of two football fields, until you reach the Owners’ Club next to Moonlight Canyon, you know you are entering a unique, resort-style living community.

Saguaro Property Development LLC, Scott Lundberg and Brian Peschel development partners, bought the community in 2019 with a vision to make it the “Best of the Best” in luxury, natural desert, community living, a dream come true! Located at the northern end of Thornydale Drive in the Tortolita Mountains, north of Tucson.

The owners recently entered into a partnership with Miramonte Homes for development of Moonlight Canyon that features 43 one- to two-acre homesites on various levels of the mountain slopes at extremely reasonable prices. Buyers considering a Moonlight Canyon at Saguaro Ranch residence will be able to select from four thoughtfully designed semi-custom floor plans ranging from approximately 2,800- to 3,800-square-feet.

Chris Kemmerly, Prinicpl and CEO of Miramonte Homes calls it a ‘one-of-a-kind community’ unlike anything in the western United States in that only 20 percent of the land is designated for development and 80 percent preserved as undisturbed natural desert.

Robinette Architects, Inc., an award-winning local firm, designed the new Saguaro Ranch Owners’ Club, which was the former renowned McClintock’s Steakhouse.

Tucson-based Aqua Design International, a Landscape Architecture firm specializing in the design of swimming pools, spas and water features completed the design for the new Saguaro Ranch Owners’ Club pool and spa complex. Aqua Design International has designed some of the most iconic pool complexes in the world, including Amangiri, Four Seasons Punta Mita, Four Seasons Anguilla, Omni Tucson National, Loews Santa Monica Beach Resort, and more.

Club amenities will include a multi-lane 25-yard lap pool with intimate spa for a relaxing and soothing atmosphere, two pickle ball courts, a bocce ball court, fitness center, catering facilities, and club area that inlcudes numerous outdoor patios with umbrellas and firepits designed for stargazing in the phenomenally clear night sky.

The New Owners’ Club is slated to open early 2021.

Tours are designed for social distancing and are an outstanding example of how social distancing doesn’t have to mean boredom. Visitors are encouraged to bring camp chairs and stop for the views overlooking Tucson and all its surrounding mountains with a picnic lunch, or enjoy a spectacular sunset on Pusch Ridge with a bottle of wine!

To learn more, contact Mike Conlin with Miramonte Homes at (520) 429-4773 to be put on the guest list and to arrange your own tour. Brokers are protected.