Thursday, July 9, 2009

News about Our Newest Apartment Re-Zoning

While searching for commercial properties in Laveen today, I uncovered this listing for the entire Sun West mixed-use development: http://listing.loopnet.com/16196817.

Remember, this is the development group that made all kinds of concessions to improve the quality/image of their project in order to receive approval for re-zoning and a general plan amendment (to drastically increase density). In their appeals to the LCRD, City Planning Office, and City Council, Sun West repeatedly mentioned a high-end apartment community. Yes, this apartment complex would accomplish the extraordinary and charge above average rents in a declining residential market! They would buck the trend toward $700 average rents in the Phoenix market--and without a strong nearby employment base.

Remember also that I called into question the developer's investment strategy here and here. I've since toned down my concern about the suitability of this site for apartments, but remain concerned about the developer's investment model. As noted toward the end of the real estate listing referenced above, the developer is currently seeking HUD Section 221D4 financing to complete the project. While this is intended for projects aimed at moderate income residents, I still fear that Sun West will fail in this attempt given the still-distressed housing market.

Here are my specific hang-ups for such a project (just bear with me):
  • Senior and handicap-focused housing are both difficult with more than one floor, without including elevators. This project is 3-stories and has no elevators. Therefore, it won't likely be restricted to either of these uses (which I would favor--except for the illogical location).
  • Foreclosed single-family homes are selling for under $100,000, which means that they can be profitably rented out for less than the 2008 average apartment lease rates. This is a tough sell to banks that are already sour on residential and commercial uses, if your projections for an apartment community are significantly higher.
  • My guess is that Sun West bought the property from our school district for less than the $333,000 per acre in its current list price (anyone care to check the tax records to verify?). Their holding costs have not been much yet, which means that they are likely better off selling to the highest bidder.
  • Knowing nothing about Sun West's current financial well-being, I question whether they need to raise capital--thus leading to a distressed sale situation--because of a high debt load (common story for developers right now).
  • The best financial outcome for any developer holding an entitled apartment site within walking distance of Wal-Mart and other neighborhood sevices, and on a bus line, is for the developer to target the lower end of the affordable housing segment. And that's exactly what I think Sun West or the future buyer will do.

I still feel strongly that, if this project moves forward, it will target Section-8 renters and others benefiting from such programs. While these people most certainly require affordable housing, we must remember that this use is quite different from what has consistently been promised for this specific site. Meanwhile, our general plan is designed to focus the necessary resources on a long-term basis toward the future village core, near where the freeway will someday intersect with Baseline Road. This project still strikes me as poor long-term planning for that reason alone.

2 comments:

Toothdoc said...

What happened with this land? Is there an update?

Patrick said...

No update that I know.... the land sits vacant, but with the multifamily zoning in place. I couldn't tell you if it has sold or not. But there has not been a construction permit application (or not from what I've heard anyhow).

And again, the only big construction projects that I know are getting financed in the Phoenix area involve government guarantees and/or very conservative terms. So I'm counting on our poor real estate market to discourage any new apartment construction for the time being.