What do Tucson and the UK have in common? One of the most stable asset classes available. And the same asset class is stable in many countries globally.
The answer is STUDENT HOUSING.
Multifamily markets (especially Student Housing) in the US and worldwide continue to defy the skeptics. Tucson’s multifamily market is keeping pace with 2015. We are almost exactly the same in sales volume according to John Affleck, a research strategist with CoStar Group.
Multifamily in Tucson is robust and the inventory for sale is shrinking. California and other out of state buyers are seeing the cap rates and the Tucson market prices and buying our properties like crazy. Some properties go on the market and are sold the same day.
Tucson vacancy rates are at a 10-year low which means there is more opportunity for new construction. The reason multifamily is so strong is the record of rent growth and stability as an investment asset. The upswing in stability started in 2011 and has increased every year after that. The steady performance of the multifamily market has attracted new capital for investors seeking to leverage their investment capital.
The capital market indicators of debt coverage ratios and gross rent multipliers are high and growing. As long as the interest rates continue to be stable the trends will continue and leverage capital will be available to investors.
There doesn’t seem to be a bubble just yet and the economists and industry gurus are keeping an eye on it. Let’s all hope we see the bubble before it explodes like it did nearly a decade ago. Multifamily assets in the high end are experiencing some softness but the midrange assets are continuing to stay strong. Some midrange multifamily properties are foregoing amenities in favor of keeping rents down. There is only so much rents can go up before the renters begin to see they can own a home.
In lower income areas there are no signs of weakening rents or vacancies. The lower income markets continue to experience high occupancy rates and modest rent increases. The lower income areas do not offer the luxury amenities in favor of maintaining affordable rents.
Multifamily investments continue to indicate satisfactory returns on invested capital which suggests that sales of these properties will continue to be robust in the US and Tucson. Tucson has been a late bloomer in the CRE recovery but indications are that the recovery is underway in most sectors especially multifamily.
More good news is Fannie Mae announced recently that over $12 billion of multifamily mortgage-backed securities was issued in the first quarter of 2016. This year is $2+ billion ahead of the same period of 2015.
In my humble opinion Tucson has lagged behind the rest of the US for far too long; which confirms my feelings that we need some new faces guiding our community. We need leaders who have strong visions of prosperity who can implement strategies to move us forward at warp speed.
Change is welcome.
Chuck Corriere, MBA