Last month a 180+ unit Tempe multi-family property sold for $6.4 million – over $35K per door. This is highly unusual under current market circumstances, especially considering it was a C-level property in need of substantial physical rehab.
According to a veteran multi-family broker I spoke to recently, the apartment market is getting “frothy.” You might say the same about the distressed residential market in general.
Demand for deeply discounted Greater Phoenix residential real estate has grown steadily stronger. Inventory is decreasing and monthly unit sales are increasing, putting upward pressure on prices. We see this everywhere from REO listings in the MLS to the trustee sales on the courthouse steps.
Last month I showed you the upward trend in the number of properties going to trustee sale around the Valley. Residential trustee sales are up 37.5% for similar 1st Quarter time periods from 2009 to 2011. But nearly 70% of them are going back to the bank. Through the first 4 months of 2011, only 31.2% of the properties that went to trustee sale actually sold to a 3rd party buyer. Here’s how the numbers break out:
Trustee Sales 2011 %Tot
3rd Party Sales 5,703 31.2%
Back to Bank 12,570 68.8%
In addition, the prices some buyers are willing to pay have been going up to rather surprising levels. The other day at the courthouse I watched a Surprise property with an opening bid of $86,000 sell for over $146,000. The bidding was competitive and for a time there were 4-5 active bidders on the property. Our analysis was that this property had a “market value” of $152,000 – $155,000. In our view, the property sold for approximately 95% of market value… at the trustee sale. Frothy indeed!
A few days later, I was at an attorney’s office for an apartment building auction. We were interested in buying it at the right price. This particular complex was a medium-sized 64 unit building in good physical condition, but in a C- neighborhood. Bidding opened at $900,000. The bank was “protecting” their position – every time a buyer entered a bid, the bank raised the bid $100,000. They did this until it reached the bank’s minimum acceptable bid price, which happened to be very close to the defaulted loan amount. One buyer hung in there until that price was found – $1,825,000. The buyer then offered $1 more and got the property for $1,825,001 ($28,516 per door). This was well above what we were willing to pay for it.
After analyzing April 2011 residential trustee sales in Maricopa County, we concluded that buyers had paid 93% of “market value” for 3rd party purchases. In our opinion, this only makes sense for end-user buyers. There’s still too much distressed inventory in the “pipeline” for this to be happening. We may find later that some have made expensive mistakes.
It really matters to have experienced, level headed experts in your corner when it comes to investment decisions. That’s why we offer a state-of-the-art database for your research and analysis through our AZ Auction Bidder service, and the expertise that comes with 10+ years of experience in the trustee sales arena. Not only does it make a difference, but it may save you from some rather costly mistakes.
PTE Real Estate Group is a Phoenix-based real estate holding company that owns Arizona Property Wholesalers, AZAuctionBidder.com, US Investment Realty and other companies. They are the largest buyer and seller of distressed real estate in the Greater Phoenix market.