Scottsdale building permit records reveal eclipse of multifamily frenzy

Economic Driver: A view of the Scottsdale Waterfront — a place that continues to be the keystone to new commercial and residential development in south Scottsdale. (Independent Newsmedia/Arianna Grainey)

The steady nature of the Scottsdale building permit activity over the last three fiscal years officials say illustrates one of the key hallmarks of a stable economy.

While commercial activity remains relatively constant — things like remodels, additions and tenant improvements — one facet of the building activity ledger over the same time period has slowed down considerably: multifamily building permits.

Multifamily housing includes any building or structure designed to house more than one family with typical dwellings including apartments and condominiums.

Records show in fiscal year 2014-15, the city of Scottsdale saw 503 multifamily building permits generating $1,147,384.07 in fees, but in fiscal year 2016-17 that number shrunk to 114 permits, revenue derived from fees remained steady at $900,521.23.

But while multifamily building permits have slowed, fees collected for the fewer permits has stayed relatively constant.

A Scottsdale building official speculates the trend is likely the result of more units in fewer buildings.

“What seems interesting is the number of units constructed,” said Scottsdale Current Planning Director Tim Curtis. “While in 2015 we issued 503 multifamily building permits compared to 114 in 2017, the number of units as a result of those permits are 1,209 units in 2015 and 1,072 units in 2017. Buildings are larger to accommodate more units. Each building receives a permit.”

On the surface multifamily housing permits seem like a negative storyline in an otherwise positive tale showcasing Scottsdale’s millions in annual permitting activity, two members of city council see the numbers from different perspectives.

However, a key player in the multifamily housing game offers empirical data showing the dwelling sector is offering new stock in-line with historic trends.

John Carlson

“We’ve collected a great deal of data as it relates to the multifamily market over the past 32 years,” said John Carlson, president of Mark Taylor Residential.

“What the data tells us is the Phoenix metropolitan area has delivered on average just over 4,300 units per year — multifamily projects being 50-plus units — dating back to the 1990. From ’11 through ’16, we delivered just under 4,600 units per year, which was right in-line with historical averages.”

Mr. Carlson explains the Great Recession played a role in historic data trends.

“The caveat being deliveries were slow earlier in the decade as we transitioned out of the recession. Deliveries rebounded and have averaged just over 6,500 units from ’14-’16,” he pointed out. “As for the current status of the overall multifamily market from a macro perspective, we believe we are approaching the middle point of the current multifamily expansion.”

Established in 1985, Mark-Taylor is the largest multifamily developer in Arizona history managing over $2.5 billion in its real estate portfolio.

Mr. Curtis says from his view, the Scottsdale economy is on even footing, but pales in comparison to the boom years of the early 2000s.

“Aside from multifamily permits, we are issuing 47 percent fewer commercial building permits compared to pre-recession numbers (2005 to 2007),” he said. “The trend seems to be that multifamily construction may be a result of the favorable lending environment for rental units, and also result in retail and dining permits being built nearby.”

Scottsdale Vice Mayor Virginia Korte says she believes explosive population growth — current and projected — is the great equalizer when considering housing stock. (Independent Newsmedia/Arianna Grainey)

The point of saturation

Scottsdale Councilman Guy Phillips says he keeps his finger close to the pulse of the building community and worries the local community has reached its multifamily housing limit.

Scottsdale Vice Mayor Virginia Korte says the numbers she keeps track of, Census numbers, suggest a different scenario, which routinely show Maricopa County as a one of the fastest growing counties in the nation.

Despite a drop in multifamily permits, Ms. Korte cites strong data in other building sectors that give her confidence the city is still attracting growth.

“It doesn’t surprise me the number of permits are down,” Ms. Korte said. “I see a renaissance in investment in infield projects in our downtown — I think that will speak to the strength of our economy and our community.”

Ms. Korte points to four new resorts coming online in the city of Scottsdale that she says will help show the local economy’s diversity, but also cutting edge tourism offerings.

A view of the McDowell Road Corridor, which is a place fueling commercial re-development in the city of Scottsdale. (File photo)

“We are seeing an infill of under utilized properties that are filling in the corridor between downtown and our McDowell Road. I don’t think you can glean that information from those numbers, but I think the No. 1 number I see is that Maricopa County is consistently the first, second or third fastest growing community in the nation.”

Ms. Korte says consistent resident growth is a powerful thing.

“It is estimated that our market could absorb another 5,000 units because of the growth factor in our county and the number of people who want to live in Scottsdale,” she said. “Are developers going to invest in that? I don’t know? It is their money.”

But aside from the multifamily housing conundrum, Vice Mayor Korte does assert sizable growth in well-paying jobs is a missing economic aptitude of Scottsdale.

“We are failing to attract those industries that provide well-paying jobs, primarily because we don’t have the Class A office inventory,” she explained. “I think we can do a better job attracting those kinds of industries. We need to do a better job creating Class A office space, so we can attract those users.”

Mr. Carlson confirms job growth — the kinds of jobs and specific industry sectors — plays a key role in housing development.

“As we look ahead and try to determine apartment demand, we must attempt to accurately project future job growth,” he explained of the private sector.

“What we do know as it relates to annual job growth figures is that for every 100 jobs gained historically creates a certain percentage of new units of apartment demand. In reviewing job growth from 2011-current, and based on historical absorption, it equated to slightly more units of annual multifamily demand than deliveries. This has helped to maintain strong apartment fundamentals this entire cycle and holds true for Scottsdale as well.”

Scottsdale Councilman Guy Phillips says he is concerned at the level of multifamily development occurring within city limits. (Independent Newsmedia/Arianna Grainey)

Past the point of saturation

Although it’s not a part of his job description, Mr. Phillips keeps tabs on building trends as he has long been reticent to support an influx of multifamily housing in Scottsdale.

“Although as a council body we do not discuss building trends, but rather wait until an attorney brings us a rezoning case, I try to stay current with the trends by following the Business Journal and attending various business and developer group meetings and forums,” he said pointing out his subscription to the multifamily housing association newsletter.

“In the multifamily housing association newsletter a couple years ago, they mentioned over a million newcomers (would be moving) to the Phoenix metro area, which includes Scottsdale.”

Mr. Phillips points out while the point of saturation may have not been met in the Phoenix metropolitan area, he believes it is already here in Scottsdale.

“Recently I attended a meeting hosted by the multifamily association where they talked about how developers are still way behind and can see another 400,000 rentals being built across the Valley,” he explained. “The only area they concluded could be reaching saturation is Scottsdale.”

Mr. Phillips contends multifamily housing to a degree can be a good thing. But too many units can be a recipe for market meltdown.

“The swing you speak of is only in Scottsdale and is indicative of what experts are seeing, that is, Scottsdale is reaching its saturation point,” he noted.

SOHO Scottsdale at 16621 N. 91st St. is a major part of bringing new and exciting design to the multifamily dwelling setting. (Submitted graphic)

“There are three reasons for this. One is that Scottsdale is landlocked; we simply cannot expand and have only about 4,000 more acres left to build on. Two, the high cost of building quality properties excludes Scottsdale from the majority of median income housing. The third reason is Scottsdale’s height restrictions.”

While some experts say the point at which the Scottsdale housing market will be saturated with multifamily housing product is approaching, Mr. Phillips feels that point has been passed.

“I don’t believe the narrative people would rather live in apartments; but for most its only a starting point and after getting married and having children the tendency is to want their own property with a yard to play in and be safe,” he said.

“As soon as people realize they can own property and that their hard-earned money goes toward ownership instead of handing it over to someone else every month, and that a house payment is equal to or even less than rent, the choice is obvious. Not to mention a home has a value that increases and allows profit, while renting can never create prosperity.”

Mr. Phillips suggests too much building activity could have a reverse effect on the community’s marketability.

“While the numbers may look like positive economic activity, it also creates expenses to the city in the form of more public safety, more traffic, social issues and a burden on our infrastructure,” he said. “In the end, the cost of increasing population creates a burden on the very society it created. For Scottsdale, a tourism city, this can be especially damaging to our revenue stream if tourists decide we are no longer a desirable place to visit.”

But Mr. Phillips agrees population growth is the great equalizer and will play role in how Scottsdale continues to evolves into the 21st Century.

“I remember when I first started on the council in 2012 the projection was 240,000 people by 2050. We are already at 230,000,” he pointed out. “The only way to curb growth, if that’s the end game, is to demand high quality product, thereby reducing the number of players.”

Mark-Taylor Residential takes data, perception and speculation all into account when making investments in multifamily development, Mr. Carlson contends.

“With more than 19,000 units and counting, Mark-Taylor is the largest multifamily developer in Arizona history,” he said. Demographics, population, job growth, job corridors, freeway expansion, multifamily delivery schedule, single-family home ownership, single-family permits, legislative issues, operational data, and several economic data points are always considered.”

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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