Victor’s Insider Scoop on Scottsdale’s Apartment Tsunami
September 21st, 2012 | top of page
Unless you happen to have a seismograph in your den there’s an unseen event that occurs well before a tsunami strikes shore: an earthquake causing a rapid shift in the sea floor.
Scottsdale, Arizona is poised to be flooded with a new wave of Class A apartments. But, unlike an actual tsunami whose wave train only lasts from several minutes to a few hours before the water begins to recede, Scottsdale’s apartment tsunami will be stretched out over the next 12 to 36 months. Scottsdale’s coming apartment tsunami is the result of a perfect storm of several unseen events.
- Fewer than 300 new apartments have been built in Scottsdale since 2005.
- Average apartment rents in north Scottsdale are approaching $1000 per month and $900 per month in south Scottsdale.
- Vacancy rates in Q2 were sub-3.6% in south Scottsdale and less than 5% in north Scottsdale.
- The condo conversion craze that occurred during housing bubble of 2006 to 2008 resulted in 6,000 units being withdrawn from the apartment supply.
- The recession has lowered the price of land suitable for multi-family developments.
- The cachet of a north Scottsdale address remains attractive and downtown (south) Scottsdale remains an attractive and amenity laden location.
- A large number of residents now don’t want to be tied to a mortgage plus pricey homeowner association fees, can’t qualify for a mortgage, or no longer believe in home ownership as an equity building investment.
Scottsdale planners and its City Council have been flooded with rezoning requests and plans to build new apartments over the past two years. Twenty apartment projects totaling about 6,900 units are currently in the development pipeline. Some of the notable ones include:
- Broadstone on Lincoln a 264 unit complex that’s replacing a demolished medical plaza at the NEC Scottsdale Road and Lincoln (adjacent to a proposed Ritz Carlton hotel site) is under construction and being developed by Alliance Residential.
- Optima Sonoran Village at the SEC 68th Street and Camelback Road is under construction with 210 of a proposed 780 units in a mixed-use project developed by Optima.
- Chason Development of New York has submitted rezoning plans for a former car dealership site at the NWC of 68th Street and MdDowell Road. They’re proposing to build 154 units in three storeys on the 5 acre site.
- Dallas, TX based developers JLB Partners received Scottsdale City Council approval for a 369 unit, $65m apartment development just north of Scottsdale Fashion Square.
- The $135m, 13 storey Blue Sky apartments to be built by Gray Development Group received design review approval in April for its 749 unit, mixed-use site located just east of Scottsdale Fashion Square.
- Skysong, Arizona State University’s Innovation Center located at the SEC Scottsdale Road and McDowell Road will be adding 325 apartment units that will be ready for tenants by October 2013 in a $44m project.
- Another Alliance Residential project will add 259 units to and complete The Scottsdale Waterfront when its mixed-use project dubbed Broadstone Waterfront. This $54m proejct begins construction on Goldwater Blvd. just south of Camelback Road in Q4. Alliance purchased this site for $92.53 psf.
- Although not technically in Scottsdale, the OliverMcMillan Co. of San Diego plans to develop The Lofts at Hayden Ferry, a 258 unit apartment on the south side of Tempe Town Lake and north of Arizona State University.
One characteristic common to all of these developments is that they can all be classified as “urban-infll” projects. No one is currently talking about building new apartments on the periphery of the metro Phoenix area.
The projects referenced above account for 46% of the 6,900 planned units. All things being equal, the projects that open their onsite rental offices first stand the best chance of being well occupied and financially successful. My crystal ball says those that wait too long may find themselves being constructed near or after the peak of the next real estate cycle which never bodes well for their investors. Many of the 3,700 units not accounted for in the sampling above may never get built.
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This article only references new developments in Scottsdale. If you're interested in hearing about infill development opportunities in the rest of the metro Phoenix area contact me at 602 320.6200. You'll be glad you did!