What Attracts Investors to Phoenix
- Jun 14, 2019
With a diversified economy, business-friendly environment and skilled workforce at hand, Phoenix has been experiencing a boost in housing demand. Its convenient affordability and modern workspaces underway are contributing factors to the steady rise of the market.
Los Angeles-based Tides Equities owns more than 2,700 units in the Phoenix metro and is currently working on expanding its portfolio in the area. In an interview with Multi-Housing News, Sean Kia, co-founder & principal of the company, shared his insights on current trends in the market and the value-add investment opportunities his firm is looking into while trying to exceed last year’s acquisition volume of $300 million.
How would you characterize Phoenix’s multifamily market today? What are the main trends?
Kia: The Phoenix multifamily market is becoming an increasingly Millennial and affordable destination city for post-college graduates. There has been a resurgence of night life, restaurants and retail at a very affordable price relative to other major metros in the country, which has attracted a large number of recent Millennial migrants.
Affordability is the main trend we see as to why people are moving to Phoenix. You can live in a nicely renovated two-bed, two-bathroom apartment for $1,200 in a great part of town that is within walking distance to retail and night life, whereas if you live in another major metro such as Los Angeles, New York, Boston or San Francisco, you are paying three to four times that price for a comparable product.
What makes Phoenix an attractive market for multifamily investment? Which submarket do you see as the most promising for investment opportunities and why?
Kia: Phoenix is an attractive market for multifamily investment because of the job, wage and population growth stories. Maricopa County was the fastest growing county in the country last year, adding just over 81,000 new residents year over year. People are flocking to Phoenix because of the affordability story and due to the fact that it’s a fun place to live and play.
Our current favorite submarket in Phoenix is Tempe as it not only has the largest university in the country as an anchor, but it also has a couple million square feet of office and biomedical (projects) under construction, which will further bolster the surrounding area and continue to bring high paying jobs/residents.
What are the main challenges you face in this business and how do you overcome them?
Kia: Our biggest challenge to date was building out an efficient construction team as we continued to scale and buy more in the area. We grew very quickly since 2017, buying over 4,000 units equating to roughly $550 million of real estate, and bringing on crews that could handle that kind of growth and scale in renovation was not easy. Our solution to this problem was making the renovation as simple and seamless as possible for these contractors.
Tides decided to brand all of its properties “The Tides at”—The Tides at Scottsdale, The Tides at Tempe or The Tides at Arcadia—and in doing so, we made all the properties look and feel almost identical. We do the same exterior paint job by painting the buildings white and adding a black trim on the fascia, complemented with our horizontal tides wood slats underneath the windows to give it a more contemporary feel.
With regards to the unit interiors we make them all look identical as well with the same color quartz countertops, stainless steel appliances, sheet vinyl flooring, subway tile backsplash, track lighting and floating vanities. By doing an identical scope on every property we are minimizing our margin for error with our construction team as they have familiarity with the renovation.
With a forecasted steady rise in the market, what is the company’s strategy going forward? What are your next projects and goals?
Kia: We are continuing to stay disciplined in our acquisitions as we have seen steady cap rate compression and increased competition for value-add product in the Phoenix area. We are still planning to target buildings with operational and management upside, as well as branding and renovation upside. We have two buildings in escrow now, one is 442 units and the other is 224, both are 80s vintage buildings in the Phoenix area.
Tides Equities’ acquisitions volume totaled more than $300 million in 2018 and has already exceeded $100 million this year. Are you planning to exceed last year’s amount?
Kia: We have roughly 700 units or $90 million of real estate in escrow set to close at the end of June and we certainly are on track to beat last year’s number by at least $100 million.
Are you planning to invest in other markets as well? If so, what markets are you considering and why?
Kia: We love Phoenix and will continue to focus primarily in that market, but we certainly are targeting other markets with Salt Lake City and Denver right at the top of our lists. We love the affordability stories in both markets and see an influx of in-migration, job and wage growth over the next 5 years in each market. Denver does have a bit more new supply, which is concerning, but we like the long-term growth prospects of the markets.