Condo Conversions Propel The Market in Tucson
By Maura Webber Sadovi
The Wall Street Journal
As the Tucson area's rising population closes in on the one-million mark, investors have been snapping up apartment complexes, betting on rising demand for condominiums that offer a slice of the mountainous Sunbelt region's warm winters and laid-back lifestyle.
The economy of the visually dramatic Sonoran Desert region of Arizona has been ramping up since 2003. The burst of activity in the apartment sector comes as employment levels rose to a 10-year high in 2005 after increasing at a year-to-year rate of 3.7%, more than double the national rate of 1.5%, according to the Bureau of Labor Statistics. The job growth and an above-average influx of new residents strengthened both the commercial and residential real estate market these few last years.
Just over 100 miles southeast of Phoenix and a short drive north of the Mexican border, the area is known for the posh spas that dot the landscape. It is also home to defense contractor Raytheon Co.'s missile systems division, the University of Arizona, a strong optics industry, as well as many smaller service companies.
The housing market has posted the region's most impressive growth in recent years. Median home prices climbed 66% from 2002 to $240,000, just above the national level -- but they are still a deal compared with the Western region's median of $322,000, according to the National Association of Realtors.
The froth carried over to the apartment market last year. Aiming to offer ownership options that are more affordable than single-family homes, developers have turned to condominium conversions in Tucson as property prices in many larger cities soared out of reach, said a senior investment associate with real estate investment brokerage firm in Tucson.
The dollar volume of apartment-complex sales far outstripped all other Tucson-area commercial-property transactions last year, with nearly a half-billion dollars of apartments trading hands, more than double the year-earlier level, according to Real Capital Analytics Inc., a New York research firm.
Developers such as president of Brown Cos. in San Francisco, which began purchasing Tucson apartment units last year and expects to own about 1,600 after closings within the end of 2005, are confident the condos will be in demand, in part because retiring baby boomers are expected to flock to the region. The metro area's population increased at an average annual rate of 1.7% over the past five years to an estimated one million. The population is forecast to rise at twice the national pace through 2010, according to Economy.com, a unit of Moody's Corp., and David Taylor, a Tucson city planner.