Lending data: Mesa West funds $108m loan for Phoenix multifamily deal

The city has seen many multifamily deals in recent months, but concerns remain around affordability.

Mesa West Capital has provided KB Investment Development Company with $108 million in first mortgage debt for the acquisition of a multifamily property in Phoenix. The loan is part of REC USA’s weekly lending data report, published every Tuesday.

The five-year, floating rate loan is secured by Skywater at Town Lake, in the submarket of Tempe. The 2015-built, five-acre property offers a mix of studios to three-bedroom apartment homes across five four-story buildings and draws from the approximately 54,000 students attending nearby Arizona State University and more than 100,000 people that now work in the area.

“Tempe’s unique demand drivers – including proximity to major employers and ASU, as well as entertainment and lifestyle amenities in the market – are supporting the strong demand for housing,” said Mesa West vice president Brian Hirsh, who led the origination team. “Rent growth has accelerated at a historic pace in the submarket as vacancy rates compressed to their lowest level in a decade.”

Skywater at Town Lake was 96.6 percent leased at closing. The financing was arranged by Rocco Mandala, vice chairman at CBRE in Phoenix.

Phoenix multifamily

The deal highlights the growing strength of the multifamily asset class across the US, and particularly in Phoenix – a city which has seen a number of significant deals close in recent months.

Data center real estate investment trust QTS Realty Trust this month acquired nearly 400 acres of residential property in the city for $255 million.

Earlier in the year, the city’s biggest apartment community traded hands in a $255 million deal whereby CIM Group and Tides Equities partnered to purchase Del Mar Terrace. The 1,012-unit property is the largest market-rate asset in Phoenix, and marked the second-largest multifamily transaction in Phoenix’s history.

Arizona affordability

While deals suggest the housing market in this part of the country is strong, affordability in the Arizona housing market is collapsing expeditiously due to an overall lack of inventory, increasing prices and rapid interest rate hikes.

According to a new report by the Common Sense Institute Arizona, the state’s housing market is on a precipice, with Phoenix Metropolitan market seeing housing prices increasing by 40% compared to 25% nationally since the end of 2020.

The report also highlights that Arizona’s housing shortage is damaging affordable housing as well.

“Simply put, demand is outpacing supply and people are paying more because of it,” said Glenn Farley, CSI Arizona director of policy and research. “Low borrowing costs have been enabling this for months but that is now coming to an end.”

On top of that, Arizona’s population growth is outracing available housing. Consequently, Arizona has an imbalance between availability and demand.

Currently, Arizona is on pace to welcome more than 100,000 individuals at a time where few houses are for sale and rental occupancy is 98%.

CSI reports that, while Arizona is on the cusp of the largest home construction boom in a decade, it may not survive a weakening US economy and slowing housing market.