Heading into the final stretch of 2024, the Greater Phoenix market is seeing a continuation of the trend over the past few months: a decent number of cash deals and value-add CRE buyers. Marketplace activity is highest among individual property owners and private equity buyers who recognize the opportunities available based on discounts from the last market peak, particularly in multi-family. While institutional buyers mostly remain on the sidelines, there have been some high-profile deals. In early November, Brookfield Properties purchased a portfolio of eight multifamily complexes in Las Vegas, Phoenix and other major markets from Blackstone Real Estate Income Trust for $845 million.
R.O.I. Properties recently brought a large distressed portfolio to market in Phoenix, including multifamily commercial assets as well as single family residential properties. We priced it right in the sweet spot of current market comps—in other words, somewhat discounted from the multifamily market peak of late 2021 and early 2022—and received multiple offers on all of the properties. Yes, that is just one anecdote, but a good illustration of how buyers are ready to roll up their sleeves, move forward, and not waste time when the right situation arises.
Although this happened to be a distressed portfolio, note that it came about due to unusual circumstances. We are not seeing much distress elsewhere in the market, with some exceptions: A few significant defaults have occurred with large, multifamily properties that were acquired in late 2021/early 2022, as well as office defaults. In the case of the multifamily defaults, the financing was short-term. On those deals, the sponsors/borrowers were not able to refinance, and the deals no longer had the same equity (with market decline, increasing vacancy rates, etc.) as when they were initially acquired.
Looking Ahead
With the election in the rear-view mirror, there is optimism about a more pro-business environment in 2025—although uncertainty about inflation and the overall economy remains. According to a recent briefing by Moody’s Analytics, Q3 “saw positive annual growth in commercial real estate lending across all lender types” and CRE transaction volume was up year-over-year by about 3%. In particular, there is a question about how interest rates might impact transaction volume, and whether the Federal Reserve might have another cut lined up for their December 18 meeting. While cap rates are compressing in most CRE sectors, they are rising and will likely put pressure on multifamily in the coming year.
