Downtown Phoenix Multifamily Sales Volume Climbs in Second Quarter

Multifamily investors are following renters back to downtown Phoenix, sending quarterly transaction volume in the area to an all-time high. As a result, sales volume has climbed above $644 million in downtown Phoenix so far this quarter, outstripping the previous record for quarterly sales of $338 million in the third quarter of 2019.

The return in investment comes after buyers sat on the sidelines for four quarters. Investors have been cautious in downtown Phoenix during the coronavirus pandemic as they watched renters leave dense and expensive urban apartments for the more affordable suburbs. At the same time, more than 1,000 luxury apartment complexes delivered Downtown, and the construction pipeline remained full.

During the height of the pandemic, downtown vacancies climbed to 9.5%. But over the past few quarters, renters have made their way back Downtown as more people were vaccinated, employers invited workers back to the office and socially distancing policies loosened. Downtown vacancies have tumbled to about 6%, and the rate is about 200 basis points lower for stabilized apartments.

The 34 deals that traded so far this quarter sold at an average price of $239,770 per unit. The transaction price during the quarter is above CoStar’s market price — an estimate of the average price across all assets Downtown — of $214,110 per unit. The difference is due to the sale of several top-tier assets that traded in the second quarter, with an average sales price above $250,000 per unit.

Large national private and institutional investors were behind the largest deals over the past few months. These buyers targeted recent deliveries that were both stabilized and in lease-up:

• San Diego-based MG Properties Group acquired the 223-unit Centra apartments in midtown Phoenix in June for $74.5 million, or $334,000 per unit, from the developer, Fore Property Co. The sale marked the investment group’s third high-dollar acquisition this year in the Phoenix market and its 11th acquisition in the Valley. The four-star Centra apartments were built last year, and the property was 97% occupied at the time of the sale.

• In May, Dallas-based Knightvest Management purchased the 340-unit Portrait at Hance Park apartments for $99.5 million, or $292,650 per unit, from the developer, Transwestern Real Estate Services. The luxury apartments were built in 2019, and the property was 94% occupied at the time of the sale.

• Also in May, New York-based The Blackstone Group acquired the Encore Tessera Apartments for $70 million, or $291,670 per unit, from the developer, Encore Enterprises. The 240-unit luxury apartment complex delivered in 2020 and was 82% occupied at the time of the sale.