Metro Phoenix Multifamily flashing red

[Serge S.]

Phoenix multifamily can't lose right? We have been purchasing based on three primary inputs:

1. Perpetual rising rents.

2. Perpetually low interest rates/ability to refinance.

3, High occupancy/low economic vacancy.

Unfortunately, none of these 3 pillars are  holding up. Take a look at the exit cap rate on deals from 2021 into peak Q1 2022. Try not to cry. Yes those are 3.5-4% projected exit cap rates. Now revalue your exit price at 5%, 5.5%, etc etc whatever you think that rates can and will get to. 

At least those rents are still rising right? Nope, most submarkets decreased. AZ Rent price drop
Now look at that investment prospectus and change the topline growth to decreasing and/or concessions over any time period of your choice (I am underwriting 3 years rent concessions and NO growth and and minimum 15% economic vacancy). 

The interest rate picture is a disaster and I don't have a clue in the world how anyone can sleep at night knowing a 3 year bridge time bomb is ticking. I am very long on this market and have assets in play, but the smart money is on the sidelines right now. We are in the 1st inning of a long term devaluation of multifamily.