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CAP Rates for Apartment/Multifamily Properties in Phoenix Arizona

Multifamily Apartment Cap Rates

Cap Rates for Multifamily Apartment properties are relatively flat for 2019 in this market. Averaging 4.60 for newer Luxury Metro properties, 4.87 for A Class, 5.24 for B Class, 6.02 for C Class and 6.40 for Value Added Acquisitions.  With the economy adding more jobs and moderate wage increases rents are stable and vacancies are less than 5.00%. The continual increase in single-family home prices throughout 2019 has strengthened the demand for rental units. The volatility of the Stock Market has pushed more investors into US Treasury Bonds and Income Property Investments.  The increase in residential interest rates during the first quarter of 2019 initially increased the demand for rental units.  In June of 2019 interest rates came down significantly, but the demand for multifamily rental units is still increasing.   

 

Multifamily Apartment Cap Rates
Rates as of: 09/19/2020
Description Cap Rate
New Luxury Metro 4.60
A Class 4.87
B Class 5.24
C Class 6.02
Value Added Acquisition 6.40

 

DON’T FALL INTO THE CAP RATE TRAP

“Are you kidding me?” my client asked.  “You’re telling me that the property taxes are going up by $19,500 when the county reassess the property I’m buying based on the purchase price after I own it?”

“Yes”, I answered.  “In California they do that.” 

“Well then”, he said, “ that means I’m buying the property for a 4.70 cap instead of the 6 cap the listing agent said it was. That means I’m getting ripped off and the listing agent lied to me. Why would he put the seller’s lower property taxes in the list of expenses and calculate a 6 cap? This is the only property I’ve identified in my 1031 exchange.  What am I going to do?”     READ MORE

 

With a stronger economy and the increase in jobs and moderate increase in wages, rents have remained strong on multifamily units but are trending towards being flat in 2018.The increase throughout 2017 in single family home prices have kept more working class families renting.On the flip side there were 1.2 million new homes created out of which 854 bought and 365,000 rented.The millennial’s are favoring renting A and B quality apartment units rather than homeownership. More Seniors are choosing to rent as well.These factors show that demand for rental units will continue to be steady.

Realpage has reported that absorption of existing rental units picked up in the 2nd and 3rd quarters of 2017.Currently there are many multifamily units being added to the market awaiting completion.This is expected to moderately increase vacancy rates. Multifamily permits have slowed in the last 2 quarters of 2017. With the increase of new apartment units the supply is slightly expected to be higher than demand resulting in a slight increase in market vacancy.

About the Phoenix, Arizona Real-Estate Market

In the city of Phoenix, Arizona, $231,200 is the house value median. In the last year, there has been an increase of 7.3 percent in the value of homes in Phoenix. There has been a prediction made that in the following year, the value of homes will increase by 2.8 percent.

In Phoenix, $167 is the per square foot, list price median. The Metro Area of Phoenix-Mesa-Scottsdale has a lower per square foot list price median of $157.

$280,000 is the presently listed house price median in Phoenix, AZ. For houses that have been sold, $241,300 is the price median.

$1,400 is the cost of rent median in the city of Phoenix. The Metro Area of Phoenix-Mesa-Scottsdale has a higher cost of rent median, which is $1,495.

The foreclosure rate can have a big impact on the value of homes. The lower the foreclosure rate, the higher the value of real estate.

 If the foreclosure rate increases massively for a particular area, the value of homes will decrease significantly. If there is a low foreclosure rate for a particular area, the home value will be minimally affected by those foreclosures.

For every 10,000 houses in the city of Phoenix, 0.5 houses are foreclosed. The Phoenix-Mesa-Scottsdale Metro Area has the same foreclosure rate of 0.5 percent. The United States has a much higher foreclosure rate of 1.6.

There is a first step that occurs in the process of foreclosure. It is called mortgage delinquency. Mortgage delinquency is the condition of homeowner missing a mortgage payment.

Mortgage delinquencies are a serious financial matter. This is because when a homeowner has a mortgage delinquency, they are at the beginning stages of what can lead to foreclosure.

If they miss three more mortgage payments, the bank could very well start the process of foreclosure. Since mortgage delinquencies are a serious concern, credit scores can be greatly lowered from them especially if there are multiple mortgage delinquencies.

For Phoenix, AZ, 1.0 percent is the percentage of mortgage delinquencies. The USA has a higher mortgage delinquency rate of 1.6 percent.

Due to the recession of 2008, in the United States, the value of houses dropped more than 20%.

That recession had such a negative effect on the real estate economy, that a large number of homeowners are presently underwater regarding their mortgages.

Being underwater on a mortgage means that the owner of the home has a mortgage debt that exceeds the value of their house. 11.3% of homeowners in Phoenix are underwater regarding their mortgages. The Metro Area of Phoenix-Mesa-Scottsdale has a lower underwater rate of 10.6%.

Moving on to commercial real estate, there has been an industrial property sale of $48.5 million of Southwest Industrial Center in Phoenix. It is located at 7775 West Buckeye Road in Phoenix, AZ. The purchaser is CBRE Global Investors Acquisitions, LLC, which is based in Los Angeles, CA. The seller is Hines, of a global real estate company which is located in Houston, Texas.

The location of Southwest Industrial Center is superb. For the West, it is one of the most highly sought after and biggest industrial markets.

For those who become lease holders, there is an immediate advantage of having vacant space available now for further lease up. Stable in-place income is also another advantage.

Southwest Industrial Center has 684,420 square feet and it was built in 2015.

There is a clear height of 32 feet in Southwest Industrial Center. It is also a class A cross-dock distribution facility.

In 2011, the annual median household income in the city of Phoenix, Arizona was $43,960.

A good source to immerse yourself into learning about the Arizona multifamily market is Arizona Multihousing Association – http://www.azama.org/

To find out more about apartment real-estate in Phoenix, go to http://www.biggerpockets.com/

Apartment Loan Store is proud to serve the entire Greater Phoenix area:

  •  Apache Junction
  •  Avondale
  •  Buckeye
  •  Carefree
  •  Cave Creek
  •  Chandler
  •  El Mirage
  •  Fountain Hills
  •  Gilbert
  •  Glendale
  •  Goodyear
  •  Guadalupe
  •  Litchfield Park
  •  Mesa
  •  Paradise Valley
  •  Peoria
  •  Queen Creek
  •  San Tan Valley
  •  Scottsdale
  •  Sun City
  •  Sun City West
  •  Sun Lakes
  •  Surprise
  •  Tempe
  •  Tolleson
  •  Youngtown

 

 

 

 

 

 

 

 

U.S. National-Level CAP Rates and Expected Rates of Return by Property Type, Sector, Class and/or Segment

   

Stabilized Property Acquisitions

Value-Add Property Acquisitions

   
CAP Rate
 
AD Over 10-Yr Treasury
Expected Return on Cost 
 
AD Over 10-Yr  Treasury
Property Type
​Sector
Class/
Segment
H1 2017
(%)
H2 2017
(%)
Change
(bps)
H1 2017 (%)
EOP 1.49
H2 2017 (%)
EOP 2.45
H1 2017
(%)
H2 2017
(%)
Change
(bps)
H1 2017(%)
EOP 1.49
H@ 2017 (%)
EOP 2.45
Office
CBD
ALL 6.61 6.63 2 512 418 8.22 8.24 2 673 579
AA 5.19 5.24 5 370 279 - - - - -
A 5.95 5.99 4 446 354 7.12 7.10 -2 563 465
B 6.85 6.84 -1 536 439 8.02 8.03 2 653 558
C 8.61 8.64 3 712 619 9.83 9.8 6 834 744
Office
Suburban
ALL 7.64 7.76 11 615 531 9.21 9.33 11 772 688
AA 6.20 6.31 11 471 386 - - - - -
A 6.96 7.07 11 547 462 8.06 8.18 12 657 573
B 7.97 8.13 16 648 568 9.20 9.27 7 771 682
C 9.30 9.46 16 781 701 10.45 10.60 15 896 815
 
Industrial
ALL
ALL 6.72 6,73 1 523 428 7.71 7.74 3 622 573
A 5.48 5.54 5 399 309 6.34 6.41 8 485 396
B 6.59 6.52 -7 510 407 7.53 7.53 0 604 508
C 8.13 8.16 4 644 571 9.31 9.33 3 782 688
 
Retail 
Neighborhood
Community
ALL 6.94 7.12 18 545 467 7.92 8.14 22 643 569
A 5.62 5.66 4 413 321 6.59 6.85 26 510 440
B 6.83 7.03 20 534 458 7.81 8.00 19 632 555
C 8.39 8.68 29 690 623 9.36 9.58 22 787 713
Retail
Power
ALL 7.36 7.54 18 587 509 8.25 8.47 22 676 602
A 6.11 6.16 5 462 371 7.21 7.31 10 572 486
B 7.30 7.47 16 581 502 8.06 8.40 34 657 595
C 8.70 9.03 33 721 658 9.52 9.74 22 803 729
Retail
High Street
                     
A 4.23 4.37 13 274 192 - - - - -
                     
 
Multifamily
Infill
ALL 5.26 5.32 6 377 287 5.95 6.03 8 446 358
A 4.60 4.67 8 311 222 5.34 5.41 7 385 296
B 5.15 5.20 5 366 275 5.78 5.87 9 429 342
C 6.06 6.12 6 457 367 6.75 6.81 7 526 436
Multifamily
Suburban
ALL 5.67 5.74 7 418 329 6.33 6.45 11 484 400
A 5.01 5.10 10 352 265 5.62 5.71 9 413 326
B 5.53 5.61 8 404 316 6.16 6.26 10 467 381
C 6.48 6.50 2 499 405 7.22 7.37 15 573 492
 
Hotels
CBD
ALL 7.85 7.91 6 636 546 - - - - -
LUXURY 6.83 6.92 8 534 447 - - - - -
FULL SERVICE 7.55 7.62 8 606 517 - - - - -
SELECT SERVICE 7.94 8.01 8 645 556 - - - - -
ECONOMY 9.10 9.11 1 761 666 - - - - -
Hotels
Suburban
ALL 8.39 8.44 5 690 599 - - - - -
LUXURY 7.42 7.50 7 593 505 - - - - -
FULL SERVICE 8.07 8.14 7 658 569 - - - - -
SELECT SERVICE 8.46 8.53 7 697 608 - - - - -
ECONOMY 9.59 9.58 -1 810 713 - - - - -

 

 

 

Other Cities in Arizona served by Apartment Loan Store

  • Phoenix
  • Tucson
  • Mesa
  • Chandler
  • Glendale
  • Scottsdale
  • Gilbert
  • Tempe
  • Peoria
  • Surprise
  • Yuma
  • San Tan Valley
  • Avondale
  • Casas Adobes
  • Flagstaff
  • Goodyear
  • Lake Havasu City
  • Buckeye
  • Catalina Foothills
  • Casa Grande
  • Sierra Vista
  • Maricopa
  • Oro Valley
  • Prescott
  • Bullhead City
  • Prescott Valley
  • Sun City
  • Apache Junction
  • Marana
  • El Mirage
  • Kingman
  • Drexel Heights
  • Queen Creek
  • Fortuna Foothills
  • Florence
  • San Luis
  • Sahuarita
  • Sun City West
  • Fountain Hills
  • Anthem
  • Green Valley
  • Nogales