Lennar Corp., one of the nation’s largest homebuilders, has yet to submit final approval site plans to the City of Phoenix for the development of a luxury apartment complex at McDowell Road and Central Avenue according to Jason Blakley, Team Leader for the City of Phoenix Planning and Development department.
Lennar bought the vacant plot for $12.75 million from Africa Israel Investments Ltd., an Israeli real estate investment firm that purchased the land for just over $25.5 million in 2007 according to Vizzda.com, a commercial real estate research firm.
According to Brad Brauer, President of the Willo Neighborhood Association, Lennar has been working within the surrounding community throughout the site planning process. Willo is an historic neighborhood district located adjacent to the lot and known for its architecturally unique houses.
“We are cautiously satisfied with what they are creating,” Brauer said. “We would have liked to see something more iconic architecturally, but we love to see something going in.”
If Willo residents are cautious, it is due to the false starts and long vacancy of this lot in the past. Africa Israel Investments Ltd. had proposed three 34-story towers in 2007. A year later, the recession hit and the housing market plummeted.
Now, Lennar’s plans for the site are much more conservative. The preliminary draft site plan agreed upon by the city of Phoenix and Lennar is a four-story, 368-unit complex with 13,000 square feet of retail space on the ground floor and an open design. This is a shift from Lennar’s original idea.
“Initially (Lennar) came up with a concept that is very closed in—gated, no retail, no urban platform,” Brauer said. “They thought people wanted that because they assumed downtown was scary. However, we don’t see that in our neighborhoods.”
Brauer said Willo residents also pushed for condominiums rather than apartments, hoping ownership would increase responsibility and longevity. There was a push for more units overall as well, however neither of these requests were adopted.
Renting in downtown Phoenix
Though Lennar is a Miami-based homebuilder, they moved into apartment development last year when they announced a $1-billion investment in their Lennar Multifamily Communities division.
The homebuilder has seen promising returns from their Multifamily Communities division within the last year. In an announcement this September, CEO Stuart Miller said that the division produced more than the targeted 25-percent return on investment capital and would be a “more predictable source of quarterly earnings in late 2015 and 2016”.
The division currently manages rental complexes across the nation, including the SkyWater luxury apartments at Tempe Town Lake. They are in a good position to now move into downtown Phoenix and take advantage of the growing rental market and stagnant housing market.
Since the housing bubble burst in late 2007, homeownership in Phoenix has shown little to no growth. From August of last year to this year total home sales were down 14.4 percent, according to a monthly report on the Greater Phoenix housing market published by the Center for Real Estate Theory and Practice, a division of the W.P. Carey School of Business.
“What’s happened is it has become very difficult to buy a new home. The ability to get a mortgage and underwriting standards are so strict—you need pristine credit and sufficient money,” said Mark Stapp, Director of the Master of Real Estate Development program at ASU. He said it is especially hard for young, first-time homebuyers often burdened with student debt.
Due to the difficulty of trying to secure financing for a home purchase, Stapp pointed to rental housing as the next feasible option, saying, “People have got to live somewhere.”
The Center for Real Estate Theory and Practice housing report shows demand for rentals has been going strong while supply remains fairly low. According to Dan Klocke, Vice President of Development for the Downtown Phoenix Partnership, 95 percent of rental units in downtown Phoenix are occupied.
Due to low vacancy rates and fast turnover, rental rates have been creeping up. Rates have risen 5.8 percent in the last 12 months according to the Center for Real Estate Theory and Practice housing report.
Rates are not yet available for the luxury apartment Lennar is planning to build in downtown Phoenix.
What Is Affordable?
According to the Arizona Department of Housing, true affordable housing refers to “housing, including rent or mortgage, taxes and utilities, that doesn’t cost more than 30 percent of total household income.”
According to data provided by the U.S. Census Bureau for Phoenix in 2010, 41 percent of homeowners and just over 55 percent of renters were paying housing costs over 30 percent of total household income.
Stapp said this trend is happening not only in Phoenix, but across the country.
“I do know that one of the issues is going to be affordability,” Stapp said about luxury apartments.
If rental rates continue their upward climb, at a certain point affordability may push many potential renters towards home buying instead. According to the U.S. Census Bureau statistics, there appears to be a sharp drop in the percentage of people renting when rent hits the $1,500 or more per month mark, while the number of home buyers in this same price bracket remains steady.
Lennar Corp. did not respond to requests for comment Thursday.
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