Phoenix-Area Project Seeks To Time Market as Supply Issues Squeeze Housing

Article originally posted on CoStar on January 25, 2024

GTIS Partners and Clyde Capital plan to develop 90 acres outside Phoenix into a mixed-use property with hundreds of built-to-rent units as supply issues in both the rental and for-sale housing markets create pricing problems for the metropolitan area.

The developers believe they can time the market, however, as they expect an expanding population.

The announcement comes as housing prices in greater Phoenix have risen steeply since the outbreak of the COVID-19 pandemic. Although the area’s Case-Shiller home price index has been relatively flat recently, home prices over the past four years have risen nearly 65%.

Much of that price growth has been driven by inventory levels that have dropped 17% over that same period and more than 39% over the past year ending in October, according to listing data from the St. Louis Federal Reserve.

Phoenix “has experienced steady growth over the past five years and continues to face an unprecedented shortage of housing at all price points in every submarket,” Jim Stockwell, president of Clyde Capital, said in a statement.

The project, valued at $250 million, is set to be located along North 163rd Avenue between U.S. Highway 60 and Pat Tillman Boulevard in Surprise, Arizona, in the northwestern corner of the region. The plot is slated to include 20 acres reserved for HonorHealth, one of Arizona’s largest hospital systems; 45 acres for a multiphase retail center in partnership with the commercial development company Simon CRE; and 25 acres to develop the built-to-rent site.

Plans for the rental development, named Tavalo at Asante, include 282 single-story duplex and detached houses ranging from one to three bedrooms. The complex is designed to be contiguous and walkable to the future retail center and is likely to include a gated entry, a pool and a central park.

Across the Sun Belt, oversupply has held down rents over the past year. Asking rents in the West rose just 0.4% in 2023, according to data from Apartments.com. CoStar analysts predict oversupply will hinder growth in asking rents well into 2024.

Among the metropolitan areas pulling down rent growth in the West was Phoenix, where prices shrunk by 2.3%. CoStar data shows the number of units completed has outpaced demand for 10 consecutive quarters.

In the North West Valley area, where Surprise is located, inventory is up 14% year over year and vacancy rates are above 16.5%, according to CoStar data. That’s led to a 150-basis-point decline in asking rents over the past year. Like the metropolitan area at large, completions have been outpacing supply for most of the past two years.

For Theodore Karatz, the head of built-to-rent acquisitions at GTIS, these headwinds are a temporary tempest likely to lose its bluster by the time the project is completed.

“Elevated supply across multifamily or [built-to-rent], that has really stopped,” he told CoStar News. “New projects that are starting is quite low, if any, because of a dislocation in the capital markets.” By the time this project is ready roughly 30 months from now, Karatz estimates there may be no new housing coming on line.

And if Karatz is correct in estimating that Surprise will grow by 65,000 people in the next seven years — creating a need for 24,000 new housing units — then the city may wind up undersupplied.

“We don’t think they’ve built enough multifamily in Surprise,” he said, citing statistics that only 8% percent of the housing stock there is multifamily compared to 23% across the Phoenix metropolitan area. “So as Surprise matures, whether it’s over the next 10 years or beyond, if it gets the growth that our data suggests is coming, we think we have an attractive position.”

Tavalo at Asante will be developed through Tavalo, a subsidiary that New York-based GTIS launched in April. GTIS and Clyde Capital said they initially pursued the project in April 2021 before the companies took it through a rezoning and site planning approval process.

The development marks the sixth built-to-rent project for Tavalo, bringing its total number of apartment units to 1,381. Projects in various stages of production are located across greater Phoenix, including in Mesa, Queen Creek, Glendale and Avondale. Another 216-unit project was completed by the company in Port St. Lucie, Florida.