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Rockefeller Group Dips Big Toe Into Valley’s Popular Build-to-Rent Niche

By Angela Gonzales  –  Senior Reporter, Phoenix Business Journal

Jun 12, 2023

Long known for developing industrial and office projects in metro Phoenix, New York-based Rockefeller Group is getting into the build-to-rent sector. The developer of several industrial and retail projects in metro Phoenix bought two parcels totaling 16.5 acres in south Phoenix with plans to invest about $40 million to develop 152 rental townhomes. Ranging between 1,126 and 1,525 square feet, each two-story unit will have a doggie door and private backyard.

Mark Singerman, vice president and regional director for Rockefeller Group, said the two parcels the company bought are nearly two miles apart. A 9.2-acre parcel at 8181 S. 20th St. was purchased from The Bruckal Group for $4.9 million, and a 7.34-acre site at 825 E. Euclid Ave. was purchased from Scottsdale-based Avenue North LLC, which has been developing rental units in the South Mountain area.

Ryan Hartman, chief vision officer for Avenue North, said he was offered a nice price so he sold the parcel he had planned to develop. “We still have more land in South Mountain — three parcels totaling 481 units across 32 acres that we intend to build,” Hartman said. Zack Mishkin, senior vice president with Orion Investment Real Estate in Scottsdale, represented the sellers in both transactions. “Arizona is the epicenter and proving ground for BTR product,” Mishkin said. “Since 2015, Phoenix has added more than 12,000 units completed or in various stages of development in the Phoenix MSA alone.”

Both sites are fully entitled, Singerman said. Groundbreaking on both sites is expected to begin this summer, with first occupancy projected in the first quarter of 2025.

Singerman said it’s too early to determine rental rates.

Both communities will be gated and professionally managed, he said. They each will include a community pool, spa, dog park, BBQ areas and play areas for children. The townhomes at 8181 S. 20th St. will have two-car attached garages. Singerman said he hasn’t selected a general contractor for the project. He expects to have one general contractor for both sites. Over the past 10 years, Rockefeller has been partnering with Liv Communities to develop traditional garden-style apartment communities, Singerman said.

About three or four years ago, Singerman approached the Liv team to consider developing a BTR project together. But Liv was reluctant to venture to this area. “They said, ‘we know apartments, we don’t know that product. We’ll stick to our knitting,'” Singerman said.

So Singerman has been studying the sector and is ready to launch his first BTR project. “We own land, and we have land under contract in Laveen next to our Sol 38 where we’re building 360 conventional multifamily units with Liv at Dobbins and 39th Avenue,” he said. “We’re planning another 200 BTR units and townhomes on land next to that project as well.”

Rockefeller has the financial means to develop these BTR projects with cash, but Singerman said he’ll take out a conservative loan anyway.

“We had to debate whether to build this all cash or get a loan on it,” he said. “We could still move forward all cash, but at this point, we’re going to put a loan on the project. Hopefully, that will be recorded by August for the construction start.” 

BTR trends in the Valley and beyond.

When the BTR phenomenon started in Phoenix, he didn’t think the concept would be embraced.

“If you were to ask me seven, eight, nine years ago if this BTR space would be here 10 years from now, I thought it was a fad,” Singerman said. “It dawned on me three or four years ago it is not going away. It has legs. I decided we should look at this.”

Phoenix is ground zero for the build-to-rent hybrid model, which started out as detached single-family homes built in a rental community with rich amenities.

Over the years, as more builders joined the fray, more attached options, such as duplexes and townhomes, were added to the mix. Phoenix tops the nation for new single-family BTR development, according to a new report released by Northmarq. Its Single-Family Build-to-Rent Special Report shows that 20% of single-family BTR construction starts were in the West. But tighter capital markets are expected to restrict transactions and make it more challenging for new developments nationwide, according to the report. Even so, the Phoenix BTR market is well established and mature relative to other markets in the country that are just starting to get exposure to this property sector, said Trevor Koskovich, president of investment sales for Northmarq.

“BTR owners and operators in Phoenix are better equipped to deal with competition from new communities because they’ve been doing it for the past few years — in some markets, this is the first time there has been more than one or two BTR existing communities,” Koskovich said. “They’ll need to adjust to not being the only game in town.”

Phoenix also has a larger pipeline of projects than nearly every other market in the country, he said.

“Developers have been established in this market for longer, there were more land sites that work for this product, and the sites were acquired earlier in the cycle when it was easier to obtain financing,” Koskovich said. “And the sector has proven that it works in Phoenix, so we’re likely to see projects continue to deliver this year and next year. Starts will slow in Phoenix this year, but we’ve definitely got a larger construction pipeline.”

Concern about a slowing pace of economic growth has cooled the BTR market nationally, but that feeling hasn’t really seemed to hit Phoenix to this point, he said.

“Taiwan Semiconductor is going to have a huge economic impact here locally, the industrial and warehousing market is on fire, with companies relocating here from California, and our overall population growth is strong enough that there is growing demand for essentially all of the population-serving sectors — and that includes housing and rental housing,” Koskovich said.

BTR units command a higher premium than traditional apartments, said Peter O’Neil, research director for Northmarq, who collaborated with Koskovich on the Northmarq BTR report.

“We’re showing rents on BTR units in Phoenix at $1,989 a month; about $375 per month higher than the average apartment rent,” O’Neil said. “Some of that is because the units are larger and newer construction. On a per-square-foot basis, rents in BTR units in Phoenix are nearly $2 per square foot per month, about 6% higher than apartment rents.”

With about 12,000 existing BTR units, another 5,500 or so are under construction, he said, adding that he expects them to deliver in 2023 and 2024.

“The market isn’t as hot as it was, but there’s a lot happening still,” O’Neil said.