Apartment investments are performing poorly in Phoenix now

Implications: When you combine rents set and projected at unrealistic levels and an economy where only 22% of jobs statewide pay $17 per hour plus benefits with a surplus of single family homes, you get high vacancy rates in apartment communities.  When the government is seeking higher tax revenue from income property with increased assessments and the property insurers are raising rates and the utilities are charging way higher rates, you get losses from operations.  Then you figure that in some cases apartment community acquisition costs went from $ 50,000 per unit or less to as much as $ 90,000 per unit in just a few years for Class B units, and you get investment catastrophe.

Analysis: Name that catastrophe Phoenix right now.   And you can probably name California’s major communities and Las Vegas as catastrophes of like nature now too.   It’s going to take a while to get out of this one and it’s probably going to take foreclosures to do it.  In my mind the existing owners have lost their investment in many cases and the lenders that aided the run-up are going to lose a significant portion of theirs too.  I liked some of the better kept communities at under $ 50,000 per unit way back when, and I think that’s where the value is now for many of these communities.  Sorry, there was no value created here in the frenzy of the last few years, just a lot of trading of tulips.