I Love the Smell of Cactus in the Morning

In what can only be described as an economic calamity meets public policy overload, today we travel to sunny Phoenix, where the cactus is in bloom, the temperature is a very modest 86 degrees and lots of apartments are empty. If you listen closely, you can hear the sounds of cars leaving Phoenix and not coming back. Phoenix, once the dominant poster child for institutional investment has achieved some level of notoriety lately since the city government, in their infinite wisdom passed a law suggesting that it was unlawful to hire anyone without absolute, ironclad, irrefutable, concrete proof they were here legally and could work legally. Apparently lots of residents got the hint and left town, in what turned out to be very large numbers. Oh, the law of unintended consequences.

From about 2005 to 2006, according to data from well known research firm Pierce-Eislen (www.pi-ei.com <http://www.pi-ei.com/> ) Phoenix garnered rent increases at 8.7%, and from 2006 to 2007,similarly saw rents rise by 4.3%. With strong rent growth driven by the relocation of businesses from administratively expensive California, Phoenix became a Wall Street investment grade phenomena. The Phoenix initiative to correct whatever problem the city felt it had, real or imagined, took Phoenix back to business conditions not seen since 2003 when year over year rent increases averaged, well nothing. With 2008 over 2007 running a very disappointing 0.3%, I can only imagine what the Chamber of Commerce is going to say on their next brochure. "Phoenix – a great place to, well leave…"

So is Phoenix, with falling apartment prices and deteriorating economic conditions a great place to buy units at a bargain? Opinion seems split, with some institutional investors carefully weighing out the future returns, and other local owners very wary of the situation. With Phoenix dependent on both local and regional employment growth and relocation, it’s probably unlikely market conditions will improve much faster than 2010. A major factor in the coming years will be the policy response of the new White House on immigration reform, with mounting court challenges to local initiatives becoming part of the local legal landscape. Only when these court actions are settled can owners in the Southwest feel confident about their undocumented residents.