Investors are seeing a gold mine in Valley apartment complexes.
One of the most recent examples occurred last month when three Mesa apartment complexes sold for a total of more than $354.5 million in a series of deals over two days with one selling for nearly three times the price paid for it four years earlier.
A pair of nine-figure deals on Aug. 26 occurred in Scottsdale, data compiled by Valley real estate tracker vizzda.com show.
On Aug. 26, Bascom Group, an Irvine, California, private equity group specializing in commercial and multifamily complexes, sold two adjacent Scottsdale apartment complexes in the 6600 and 6700 blocks of Greenway Parkway for $287.5 million.
Bascom bought one of those complexes, Tradition at Kierland, for $75.6 million four years ago and sold it for $159 million to another California company, First Pointe Management Group, for $159 million. First Pointe, located in Calabassas, says on its website that it owns more than 8,000 apartment units in western states.
Its deal with Bascom for Tradition at Kierland – financed partially through a $132.3 million loan from LoanCore Capital of Connecticut – added another 364 units to its inventory at a whopping $436,813 per apartment, according to vizzda.
On the same day Bascom turned Tradition at Kierland over to First Pointe, it also netted $128.5 million by selling the 26-year-old Legend at Kierland complex to Elite North Scottsdale 360 LLC, a subsidiary of First Pointe. Although information about what Bascom paid for the complex when it bought it was not known, the August deal represented a price of $426,388 for each of Legend at Kierland’s 360 apartments.
Bascom in October turned another eight-figure deal by selling the 423-unit Sky at McClintock Station Apartments in Tempe to a trio of LLCs related to Apartment Management Consultants of Salt Lake City, Utah, for $160 million. Bascom bought that 423-unit complex only two years earlier from Fore Property Co. for $89.2 million.
Another nine-figure apartment complex deal that occurred not far from Scottsdale was completed only a few weeks ago, when DiNapoli Capital Partners of Walnut Creek, California, sold the old Paradise Ridge Apartments on North 68th Street near Mayo Boulevard for $114 million – four years after it bought the property for $72 million.
The buyer, Sunroad Enterprises of San Diego, apparently is renaming the complex Sunroad Slate Apartments after paying $410,071 for each of the complex’s 278 units, according to vizzda.
While the activity of large investment groups in the single-family housing market has been widely publicized as a major driver of the double-digit increases in Valley home prices, their interest in multifamily complexes also has risen sharply – especially in Maricopa County, where thousands of out-of-state residents are coming to live.
That feeding frenzy is fueled by several factors that all spell one thing for renters: “There’s more money than ever betting that apartment rents are heading to new heights,” Bloomburg.com reported, citing a Real Capital Analytics report that investors spent $53 billion on multifamily real estate nationally in just the second quarter of 2021 alone.
In Mesa, the three biggest multifamily complex transactions occurred between Nov. 29-30 and involved one of the West’s major real estate investment companies, Los Angeles-based Tides Equities.
“We specialize in well-located, Class-B and Core Plus multifamily real estate with high value-add upside,” the company boasts on its website, promising to bring “institutional grade acquisitions acumen and operational efficiency across all realms of multifamily real estate.”
Tides Equities demonstrated that acumen Nov. 29 when it sold a property it bought four years ago for $47.2 million to another investment group for $137 million, according to vizzda. The following day, Tides Equities bought two Mesa complexes for a total $217.5 million.
Tides has called attention on its website to its expansion in Phoenix, boasting of more than 50 acquisitions in the Phoenix Metro market.
“Tides has remained active in the Phoenix market over the past couple of years. This year alone, we have acquired 19 properties in the Phoenix MSA, which accounts for approximately $1.2 billion in transaction volume," Sean Kia, co-founder and principal at Tides Equities, told Multi-Housing News a week before the three Mesa transactions.
It also told the industry newsletter, “Favorable market conditions continue to drive demand across the Greater Phoenix area. … The robust population growth is not only supporting rent increases, but also luring in investors.”
“Tides continues to believe in the short- and long-term growth of Phoenix as it is forecasted to lead the nation in job growth over the coming years and is further aided by the accelerating demand by millennials and generation Z to relocate to cities within the Sun Belt,“ said Tides Co-founder and Principal Ryan Andrade.
Multi-Housing News noted that Phoenix isn’t the only market where Tides is aggressively courting complexes, noting it has acquired a string of sites in Las Vegas for more than $313 million. The newsletter added that Tides has acquired more than 80 complexes in the West in the last five years.
Part of the rising interest in apartment complexes, Bloomberg noted involves a move by real estate investors from offices, hotels and malls, which it said “fared poorly in the pandemic.”
“The influx of money has pushed prices higher and forced private equity firms to behave like the aggressive homebuyers in the frenzied housing market,” Bloomberg said. “Some investors are frustrated by current prices for apartment buildings. But many are raising their bids, waiving inspections and promising to close fast, with rising rents driving a flurry of deals.”
It quoted one investment activist as stating: “That’s what happens in a white-hot market. Some of them will sharpen the pencil on the next one and get a little more aggressive because they need to deploy that capital.”
According to a number of analysts, the interest in apartment complexes also is being fueled by soaring home prices that have especially impacted first-time homebuyers and aging baby boomers anxious to downsize.
Large investors also aren’t just looking at apartment complexes for the long-term benefit of a steady revenue stream that rent delivers.
The Cromford Report, which closely watches the Phoenix Metro housing market, noted that large investors also are buying single-family homes in bulk – and not turning them over for resale.
Instead, the Cromford Report noted, “investors are extremely interested in purchasing single-family homes in Phoenix. The receipts from rents are rising faster than anywhere else in the country.
“Rents are rising because there are more people wanting to rent than there are rental properties. Many families are starting to see single-family rentals as preferable to apartments or condo-style rentals. This effect is probably supported by living conditions during a pandemic.
“While this continues, we can expect investor demand to remain robust, which in turn prevents the market cooling down as it would if ordinary home buyers were the only source of demand.”
Manage Case, a company that manages apartment complexes, echoed that lure of rent for investors.
“There is little to support any prediction other than rising rent prices,” it said. “Those hoping for a lull in the rising price trend will likely be disappointed.”