Zonda Phoenix Dealmakers

Great to join the Zonda Dealmakers Phoenix session.  Thanks to Tim Sullivan for moderating a timely and lively morning conversation with homebuilders, BTR operators, landowners, and Zonda’s expert team.

The outlook remains mixed, with sales data and homebuilder surveys continuing to show positivity, primarily in the Eastern/Southeastern US, with some projects even seeing a spring uptick in home prices; Western US markets, including Phoenix, continue to experience the heavier weight of price and volume declines in single family home sales

• Expect two more rate hikes from the Fed of 50 bps and 25 bps (@ Ali Wolf)

• Phoenix seems to be finding its floor quickly this cycle – cancelations rates are back to ~20%, new home prices are down ~11% in Feb (6% in base price + 4-5% in incentives/rate buydown), and affordably priced homes (<$400,000) are transacting quickly.  Forecast for new home supply is moderate with only ~15 months’ supply of vacant developed lots (VDLs) in the market, vs. 18-24 month avg.

• Land development costs are the hurdle in underwriting new projects, both for-sale and for-rent.  We need to see relief in costs for more land purchase activity and new project starts to take place

• “Something’s gotta give” in BTR.   Underwriting deals today with debt costs above 10%, flat rent growth, and building costs above 2019 levels doesn’t generate attractive returns.  Returns and deal activity will improve as lender spreads narrow, financing costs differentiate for proven operators, and underwriting rent outlooks extend to years 3-5 vs. year 1

• Words from the Wise:

  • “Now is the time to lean into your strategy”

  • “Don’t chase deals. There’s always another one behind it”

  • “Current times aren’t normal”

  • “Hire smart people… then listen to them”

  • “Focus on what you can control”