Scottsdale Developer to Bring 1,000 Build-To-Rent Units to Metro Phoenix

Article originally posted on Phoenix Business Journal on April 23, 2024

Scottsdale-based Modus Cos. is going big in the build-to-rent space, to the tune of $425 million.

The apartment developer is preparing to break ground on 1,030 build-to-rent units across the metro. High mortgage interest rates and a housing shortage are driving more people to rent homes, said Ed Gorman, founder of Modus Cos.

Phoenix has long been considered ground zero for build-to-rent, with builders choosing the Valley to roll out this new type of home rental product, and developers such as TerraLane Communities making big investments in the sector.

As a long-time developer of net-zero energy apartment units, Gorman is bringing the sustainable technology to the build-to-rent sector, which typically features a rental community with shared amenities. Zero Energy Ready Homes help renters cut their utility bills by 50% to 70%, he said.

A new federal tax credit is also offering up to $5,000 per unit to developers of these ZERH communities, Gorman added.

“It offsets any cost differential we have in getting to a Zero Energy Ready Home,” Gorman said. “Our buildouts cost no more than non-NZE competitors.”

Monthly rental rates are expected to range between $1,800 and $2,800 for these new units, which will be dispersed across the metro. Community amenities will include a clubhouse, fitness center, pool and spa, dog park, and electrical car chargers. Each unit has its own backyard, with these units a minimum of 15 feet deep, which is about twice the size of the industry standard, Gorman said.

Modus Cos: Projects in Buckeye, Casa Grande, Scottsdale

Upcoming projects include the 78-unit Buckeye Village Centre in Buckeye, a 272-unit apartment community called Sundance Station Apartments, also in Buckeye, the 426-unit Promenade Village in Casa Grande and 100 units in Scottsdale.

“We’re getting ready to break ground in Buckeye, then Casa Grande,” Gorman said. “We won’t see openings until mid to late next year. The others will follow shortly thereafter.”

Financing for these projects comes from a combination of Modus equity, partner equity and debt financing, Gorman said.

Rounding up the capital for projects has been more challenging, but there’s still money available, he added.

“Interest rates are certainly higher and terms aren’t as great as they once were,” Gorman said. “This is a temporary situation in the marketplace. As a developer, we take a long view on the market. We have confidence interest rates over time will come back down.”

Meanwhile, he continues to look for more land.

“We’re very bullish on build-to-rent as well as the Valley with population growth,” he said.

Gorman recently sold his first build-to-rent project for $8.5 million. Called Arcadia Views, that project at 2640 N. 52nd St. in Phoenix was developed with equity partner Kinella Capital.

“Our partners wanted to sell that,” Gorman said, adding that he plans to hold the rest of the properties he develops.

“These are in great locations,” he said. “We would like to hold them for a long time.”