Three Mesa apartment complexes sold for a total of more than $354.5 million in a series of deals over two days last month as the investor feeding frenzy intensifies in the region’s multifamily market.
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.
“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, three big 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 Valley real estate tracker vizzda.com. The following day, Tides Equities bought two Mesa complexes for a $217.5 million.
Tides’ sale of the Midtown on Main Street Apartments in the 2100 block of W. Main Street was the fifth time the 472-unit complex changed hands since 2005, vizzda’s records show.
Built in 1985 on 18.7 acres, Midtown first sold in 2005 for $20.5 million.
Tides sold the property to KKR & Co., a New York City-based global investment company that manages a wide variety of assets that include real estate and energy.
That deal represented a sale price of $344 a square foot and $290,254 for each of its 186 one-bedroom apartments and 286 two-bedroom units.
While it sold Midtown, Tides paid $133.25 million for the Tides at Mesa in the 2000 block of E. Broadway Road at S. Acacia Avenue, a 35-year-old complex on nearly 23 acres that had been owned by IMT Superstition Vista LLC, a subsidiary of IMT Residential, which owns and manages more than 17,000 apartments across the country.
The Tides at Mesa sale, at $318 a square foot, represented a per-unit price of $287,176 for each of the complex’s 464 apartments.
Tides also bought from IMT the Tides on Southern at Gilbert Road and Southern Avenue on Nov. 30, paying $84.25 million – or $337 a square foot – for a 306-unit complex that was built in 1984 on 15 acres. The sale represented a per-unit price of $275,326.
Tides has called attention on its website to its expansion in Phoenix, boasting of more than 50 acquisitions in the Valley 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 about a week before the three Mesa transactions.
Tides 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, reporting that it acquired a string of sites in Las Vegas for more than $313 million in recent months. 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 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 but rather to rent. “Investors are extremely interested in purchasing single-family homes in Phoenix," it said. "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.”