A Rising Tide?

I'm watching with a cautious eye what's happening around the Valley with loft and high rise RESALES. We all know that lofts and high rises have been all the rage for the last couple years. You can hardly pick up the paper without reading about the phenomenal rate of development and the "selling out" of another new "urban" project. Things sure did change. I have been watching the loft and high rise market in Phoenix for nine years and remember when it was far from popular. Until about 2003-ish everyone seemed to want to live in an outlying area vs. going vertical closer in.

It would seem that all is rosy in our city except for one potential issue. Inventory is starting to rise while at the same time hundreds of new units are about to be delivered. The question might be how can inventory go up when lofts and high rises are so popular? I think we all know that the answer lies in the number of units that were originally sold to investors vs. owner occupants. Let's face it, the buying frenzy largely fed on the speculative purchases by investors who hoped to tie up a property for ten or twenty percent down, ride the appreciation for two years and then flip it (or them) at a huge profit. That's a brilliant idea if the purchase mix includes only twenty percent investors or so. Unfortunately it appears that developer sales people may have sold to investors at a rate as high as fifty percent (or greater). Don't believe me? Let's look at some numbers.

Orpheum Lofts was delivered about a year ago. By summer of 2005 there were approximately 30 percent of the units on the market for sale with some of the same units and others for rent. Fortunately, a lot of that inventory has been absorbed and today there are only 16 unit’s actively for sale (about 18%). Not bad.

Optima Biltmore with 213 units is currently delivering units. My guess is that they have delivered about 90 units so far in the first tower. Today there are 34 units (about 38%) actively for sale on the RESALE market. That may not sound bad right now but consider the following 1) Can you imagine pulling into a neighborhood where every third home had a "for sale" sign in front of it? 2) With another 123 units slated for delivery in the next couple months it's entirely possible that we'll see seventy or eighty units in this community alone up for resale or rent.

2211 Camelback is close to delivery and there are currently 12 of the 87 total units for sale (14%). This is not bad at all but since the community is one building down from Optima Biltmore it does increase the area's inventory by another 12 units on top of the seventy or eighty that might be coming from Optima not to mention the eight currently for sale at Esplanade Place just across the street.

Don't forget that Scottsdale Waterfront will begin delivery of 99 of their 198 units at the end of 2006 and Optima Camelview is looking to deliver their first phase (about 90 units) at the same time.

DON’T GET ME WRONG; I’M A BIG FAN OF LOFTS AND HIGH RISES AND I’M LOOKING FORWARD TO WATCHING PHOENIX GROW “UP.” I JUST HOPE THAT IRRESPONSIBLE AND GREEDY BEHAVIOR OF PEOPLE TRYING TO MAKE A QUICK BUCK DOESN’T JEOPARDIZE THE HEALTH OF THE ENTIRE MARKET NICHE FOR YEARS TO COME.