arizona rental housing journal - july 2015

July 2015 - Vol. 7 Issue 7Rental Housing Journal Arizona

WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC

A Monthly CirCulAtion to More thAn 10,000 ApArtMent owners, property MAnAgers, on-site & MAintenAnCe personnel

1Q15 Payroll Trends and Forecast

Payroll job formation in the first quarter surged to the fastest pace since 2006 as Phoenix establish-ments hired at a 56,800-job, 3.1% annual rate, up from 4Q14’s 43,100- job, 2.3% performance. Construction, retail trade and employment service companies set the pace, adding workers at a 19,100 (4.9%) rate, 170% of 4Q14’’s 7,100-job advance.

2. Are Businesses too Timid with their Growth Plans?

3. Apartment Security, What Can You Do?

7. Dear Maintenance Men

10. Ask the Secret Shopper

11. A Tax Strategy for Investment

Advertise in Rental Housing Journal ArizonaCirculated to over 10,000 Apartment owners, On-site, and

Maintenance personnel monthly.

Call 503-221-1260 for more info.www.rentalhousingjournal .com

...continued on page 5

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1Q15 Market Overview

Multifamily Housing Update By Andrew M. Hull

The Arizona Residential Land-lord and Tenant Act imposes a legal responsibility on a land-

lord to control the conduct of his or her tenants. This applies to contact with the landlord, on-site employ-ees, vendors and other renters at the apartment community – and in certain situations, to neighboring properties. In the 1993 case of Klim-kowski vs. De La Torre, the Arizona Court of Appeals ruled that the land-lord knew or should have known of the tenants’ recklessness with regard to gasoline and incendiary devices on the rental property. Therefore, the landlord was liable for damage caused by an explosion on the rental property. This article will review this case.

Normally, if a landlord receives a complaint regarding a resident, it comes from another resident at the property, the landlord would give the offender the appropriate legal notice to either cure the problem or

Landlord’s Liability

continued on page 8

The latest national housing mar-ket index produced by Florida Atlantic University and Flori-

da International University faculty indicates it is becoming more favor-able for renters than buyers in terms of wealth accumulation.

The Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index attempts to answer one of the toughest ques-tions American consumers face: Is it better to rent or buy a home in to-

day's housing market? The quarterly index is designed to signal whether current market conditions favor buy-ing or renting a home in terms of wealth creation over a fixed holding period in a particular market relative to historical market conditions and alternative investment opportuni-ties. It examines the entire housing market in the United States and iso-lates the markets of 23 key cities.

According to the latest BH&J In-

dex, as of the end of the first quar-ter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.

Three cities (Dallas, Denver and Houston) are clearly in rent territory, with property pricing clearly out-pacing rents, meaning buyers should

Housing Market Becoming More Favorable for Renters Than Buyers

According To Latest Buy Vs. Rent Index

continued on page 9

Payroll Job SummaryTotal Payrolls 1,896.4mAnnual Change 56.8m (3.1%)2015 Forecast 66.4m (3.6%)2016 Forecast 82.9m (4.3%)2017 Forecast 82.4m (4.1%)2018 Forecast 79.6m (3.8%)Unemployment (NSA)

4.9% (Apr.)

2 RENTAL HOUSING JOURNAL ARIZONA • July 2015

RENTAL HOUSING JOURNAL ARIZONA

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Variety in business is gener-ally good, but when it comes to profit and revenue, an en-

trepreneur’s expectations should be fairly singular – go big.

That’s according to business de-velopment expert Cameron Her-old, who drove 1-800-GOT-JUNK’s growth from $2 million to $106 mil-lion in a handful of years. Otherwise, he says, you’re probably selling yourself short.

“If you’re a CEO or entrepreneur and you do not plan on doubling your profit and revenue within the next three years, you may be lacking focus,” says Herold, author of “Dou-ble Double” (www.DoubleDouble-Book.com).

“It’s within your grasp to increase your business drastically within a few years, but you need to make sev-eral smaller goals in order to do so. It all starts with a vivid vision.”

Herold discusses how to cultivate that vision.

• Get out of your office. A vision needs perspective, and if you’re wait-ing for inspiration to strike at your desk or the boardroom conference table, you’re bound to get dragged into the daily routine. You need to allow your mind to drift into the future, but at the office you will get

pulled back into specific constraints. Go somewhere that allows you to forget metrics, daily tasks and obli-gations. Great locations to set your mind free include the ocean, a forest or a place in the mountains. Or, sim-ply lie down in a hammock in your backyard and start sketching ideas.

• Turn off your computer. Com-puters are notorious for sucking you into the vortex of daily emails and tasks. Instead, put pen to paper. There’s magic in just writing it all out by hand first.

“I got a sketchpad with unlined paper,” Herold says. “Initially, I

had trouble thinking abstractly be-cause I’m so left-brained. I turned my sketchpad sideways, ‘landscape mode,’ and ideas for how my com-pany would look in three years be-gan coming to me.”

• Think “where” and not “how.”

Are Businesses Too Timid with their Growth Plans?

Corporate Development Expert Says CEOs & Entrepreneurs Shouldn’t Sell Their Vision Short

continued on page 10

RENTAL HOUSING JOURNAL ARIZONA • July 2015 3


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By Cliff Hockley and Heather Hill,Bluestone & Hockley Real Estate Services

Property security is an aspect of property management opera-tions often overlooked and not

budgeted for. Properties typically need security for: transient removal, trespassing, illegal dumping, van-dalism, theft, alarm response, illegal camping, and criminal issues on site (like drug dealing for example). Property owners and managers can choose to implement a variety of strategies to improve property secu-rity.

ScreeningProperty owners assume that on-

site managers are responsible for property security. Many years ago we took over management of a low end mobile home park which had many drug dealers onsite (some-thing we did not know when we agreed to manage the property.) The onsite manager and his wife were ex-ceptionally large and had used their size to discourage obvious crime and keep the tenants in line. We were fortunate that the FBI and DEA ar-rested the worst tenants. In any case, once we took over management of

the property, we were able to use im-proved tenant screening techniques to select better tenants and create a safer environment. More impor-tantly, we were able to reposition the property (over a period of seven years) to enable the ownership group to sell the property for a profit.

Community BuildingCommunity organizing is an im-

portant tool for crime prevention. Onsite managers can work with neighborhood police officers to fos-ter positive relationships with law enforcement at the property. Events such as the National Night Out draw attention to police partnerships that can get communities aware of their role in making neighborhoods safer. This is not an easy task. It will take a lot of work to get community mem-bers involved. A good onsite man-ager who understands the benefits of community building will put the extra effort into this and help ten-ants get to know each other, through monthly parties, events and newslet-ters.

Lighting and Landscaping IssuesCrime rarely takes place in open

areas under spotlights. Make sure the property has adequate lighting and that all lamps work at night,

especially in the parking areas to discourage car theft or break-ins. To save energy, motion sensors can be installed that illuminate a space only when a large moving object is pres-ent. This has a dual benefit of scaring away trespassers and relieving ten-ants who might find constant lights too bright in their windows at night.

Overgrown landscaping can pro-vide easy cover for criminals. Make sure that bushes or trees don’t ob-scure property windows, entries, and/or lighting systems. When planting bushes near access points like windows, choose thorny yet or-namental bushes such as holly, haw-thorn, or roses as these are more dif-ficult to climb over. These plants can also serve as a natural fence. If the property has a problem with pass-through traffic, for example, corner properties or those adjacent to a re-tail area where pedestrians might choose to cut through the property to shorten the walk to another street, you can plant thorny bushes to dis-courage this practice. Criminals find properties with only one in and out point of access less desirable than those with multiple escape routes. These steps require the cooperation of the owners, the managers and the landscape team.

CamerasAs the cost of technology has

plummeted, it has become easier to install security cameras and DVRs to track the data. Many commer-cial and some residential buildings have cameras to observe access and help security personnel and property managers track activity at their prop-erties twenty-four hours a day on their smart phones.

At one of our commercial proper-ties we were having a problem with transients sleeping in the entryway of a vacant space. We installed a camera with remote access. This en-abled the property manager to catch the transients in the act and call lo-cal police to arrest them. We did press charges. The security camera worked.

Like good lighting, even the very presence of security cameras can deter crime, however owners and managers should keep in mind that they have limited capabilities when it comes to helping convict criminals after a crime has taken place. The quality of camera images vary great-ly, and without adequate lighting, some are virtually useless for night imaging. Most exterior cameras are effective for collecting evidence such as a car make and model and a gen-eral height, clothing, build or sex of a perpetrator, but fail to capture essen-tial details such as license plates and facial features.

Also, external cameras must be maintained like any other structure on the property that weathers the el-ements. Water, dirt, dust and insects can find their way into the camera housing, obscuring the view. Make sure any external cameras are clean to maximize their value. Again, just as the resolution differs from camera to camera, the quality of the housing differs as well. Vendors who special-ize in electronic security can advise you on the best options for your situ-ation.

Access ControlsSome buildings are designed with

common area central access, which allows for the use of access controls. Typically, tenants are issued cards, fobs, special keys or codes that make it hard for non-tenants to access buildings. Tenants can then allow ac-cess to their guests through the use of audio or video communication to their front or back door entries.

Like camera systems, access con-trol systems require some upkeep to sustain their effectiveness. Property managers should understand their role and responsibilities to control ac-cess in their buildings. First, cards/fobs, like keys, should be tracked and accounted for. Order new cards or fobs from the same vendor to make sure they are not duplicated. Miss-ing cards/fobs should be immediate-ly removed from the system, and al-

Apartment Security, What Can You Do?

vis i t us atwww.rentalhousingjournal.com

continued on page 9



Expansion among other service industries also was robust, account-ing for 33,600 (3.7%) new jobs over the year, a 15% increase from the prior quarter.

Seasonally-adjusted data were not entirely consistent. This series reported a 9,100-job net gain in the January- March period, down from 4Q14’s nine-year high 24,500- job performance. Moreover, the data show net cuts in March and April totaling -8,200 jobs; representing the first sequential month losses recorded since 2010.

The RCR econometric forecast-ing equation for Phoenix employs U.S. payroll and U.S. and metro personal income growth as inde-pendent variables to achieve a 97.8% adjusted R2. The model pro-duces a very optimistic projection, foreseeing sustained growth in the 3%-4% annual range throughout the forecast, yielding annual job growth in the 70,000-85,000 range. RCR have a downward logical bias to this forecast as it would require home construction growth that is unlikely in today’s climate

1Q15 Absorption and Occupancy Rate Trends

Tenant demand for Phoenix apart-ment space during the first quarter was the strongest since 2011 as rent-ers net leased a total of 1,761 units, up from 1,616 and 1,557 units in the prior and year-earlier quarters, respectively. Supply delivered to market (848 units) was less than one-half of supply, resulting in a 30 basis point sequential increase in metro occupancy to 95.6%, a 26-year series record high.

Axiometrics surveys of 641 larger stabilized same-store properties recorded a 94.9% average occupancy rate, representing 80 and 140 bps sequential and year-on-year increas-es, respectively. Class-A properties reported the highest average occu-pancy (95.2%) for the second con-secutive quarter, followed by the

class-B (95.1%) and class-C (94.0%) segments. Class-C notched the larg-est sequential quarter advance, ris-ing 150 bps from the 4Q14 level. Mesa and Scottsdale submarkets reported the highest occupancy rates (96%+), and Central Phoenix (91.2%) the lowest.

RCR find that 95% of historic occupied stock growth changes can be explained by an equation using U.S. payroll and metro inventory growth and metro vacancy as inde-pendent variables. The demand fore-cast is constructive but projected supply overwhelms it, sending occu-pancy down 260 bps by 2018. We have a downward logical bias for supply though, suggesting a better outcome is likely.

1Q15 Effective Rent Trends

Effective rents surged sequential-ly by $8 (1.0%) to $773, according to Reis, raising the year-on-year com-parison from 3.5% during 4Q14 to 3.9%, fastest recorded since 2007. The performance raised Phoenix to 18th rank among the RED 50 on this basis, up from 26th position in the prior quarter. Much of the impetus came from the class-A sector where asking rents increased 4.4% y-o-y, more than twice the 2.1% advance recorded among class-B/C assets.

Axiometrics same-store data uncovered a stronger 6.3% average y-o-y rent increase, down slightly from 4Q14’s post-recession high of 6.4%. Class-B properties posted the largest gain (6.5%), followed by class-A (6.3%) and class-C (5.4%). By contrast, class-C properties stood

alone as the only segment to record a sequential y-o-y acceleration: rent growth increased from 5.1%. Tempe (7.1%-9.0%) and Northeast Phoenix (8.7%) submarkets notched the fast-est gains; S. Scottsdale (3.5%) and East Mesa (4.0%) the slowest.

Fueled by strong job and home price growth, RCR’s rent model fore-sees robust rent growth in Phoenix’s future, despite heavy supply (a nega-tive variable). The forecasts gains in the 3% to 4% range through 2019, yielding a 3.9% compound annual rate, ranked 9th among the RED 46.

1Q15 Property Markets and Total Returns

Investors continued to feast on Valley properties, acquiring 27 assets valued at $5 million or more for total proceeds of $623.8mm, down moder-ately from 31 and 41 closings in 4Q14 and 3Q14, respectively, for sales of $735.3mm and $1,192,5mm. The average price per unit paid increased sequentially, however, rising from $76,303 during 4Q to $89,864, but remained well below the recent high level of $98,140 observed during 3Q14.

Sellers were skewed toward indi-viduals, merchant builders and REITs. Buyers consisted predomi-nately of real estate investment funds and a few private equity players. Cap rates for class-A properties fell in the low– to mid-5% area. Class-B assets traded about 50 bps behind

Market Overview ...continued from 1

Occupancy Rate SummaryOccupancy Rate (Reis)

95.4%

RED 50 Rank 28thAnnual Chg. (Reis) +0.6%RCR YE15 Forecast 94.2%RCR YE16 Forecast 93.6%RCR YE17 Forecast 93.5%RCR YE18 Forecast 92.8%

Effective Rent Summary Mean Rent (Reis) $773Annual Change 3.9%RED 50 Rent Change Rank

18th

RCR YE15 Forecast 3.9%RCR YE16 Forecast 3.4%RCR YE17 Forecast 3.2%RCR YE18 Forecast 3.3%

Trade & Return Summary $5mm+ / 80-unit+ Sales

27

Approx. Proceeds $624mmAvg. Cap Rate (FNM)

5.2%

Avg. Price/Unit $89,864Expected Total Re-turn

7.1%

RED 46 ETR Rank 23rdRED 46 RAI Rank 16thRisk-adjusted Index 5.66

continued on page 5

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NOTABLE TRANSACTIONS

RED Capital Research | June 2015

MARKET OVERVIEW | 1Q15 | PHOENIX, ARIZONA

0

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Phoenix Absorption and Supply Trends

Source: Reis History, RCR Forecasts

6.1%

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Phoenix Cap Rate Trends

Source: eFannie.com, RCR Calculations

Property Name (Submarket)Property Class/Type (Constr.)

Approx. Date ofTransaction

Total Price /(in millions)

Price /per unit

EstimatedCap Rate

Ascent Papago Park (Cent. Phoenix South) A- / LR (2007) 24-Feb-2015 $36.2 $134,148 5.1%

Trillium Deer Valley/Trillium No. (Deer Valley) B+/A– (2006/12) 27-Mar-2015 $91.2 $143,849 4.9%

44 Monroe (Central Phoenix South) A++ / HR (2008) 17-Apr-2015 $50.7 $275,272 4.6% / 5.8% pf

Green Leaf at Dana Park (East Mesa) B- / GLR (1987) 31-May-2015 $22.1 $99,550 5.5%

SkySong Apartments (South Scottsdale) A+ / MR (2013) 11-Jun-2015 $67.5 $207,692 5.1% / 5.7% pf

94.2%

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2012 2013 2014 2015f 2016f 2017f 2018f 2019f 1Q20f

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PHOENIX (REIS/RCR)

Phoenix Occupancy Rate Trends




3.9%

3.4% 3.3% 3.3%3.7%3.9%

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7%RED 46 AVERAGE PHOENIX (REIS/RCR) PHOENIX AXIOMETRICS SAME-STORE

Phoenix Effective Rent Trends

Sources: Reis, Inc., Axiometrics and RCR Forecast

The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accu-racy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errorsor misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any infor-mation contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding yourspecific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

1.6%5.1%

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Phoenix Home Price Trends

Source: S&P Case-Shiller and FHFA Home Price Indices and RCR

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Phoenix Payroll Employment Trends

Source: BLS, BEA Data, RCR Forecasts



3.9%

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6.1%

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94.2%

92.3%

95.6%

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2012 2013 2014 2015f 2016f 2017f 2018f 2019f 1Q20f

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PHOENIX (REIS/RCR)






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Price /per unit

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94.2%

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92.8%

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96%

97%

2012 2013 2014 2015f 2016f 2017f 2018f 2019f 1Q20f

Ave

rage

Occ

upan

cy

91%

92%

93%

94%

95%

96%

97%RED 46 AVERAGE

PHOENIX (REIS/RCR)






0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012 2013 2014 2015f 2016f 2017f 2018f 2019f 1Q20F

Un

its

(T1

2M

on

ths) ABSORPTIONS

COMPLETIONS



6.1%

5.5%5.2%

5.5%

5.4%

5.5%

5.1% 5.2%

6.1%

6.2%

5.7%5.5%5.1%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Av

era

ge

Ca

pR







Price /per unit

EstimatedCap Rate






94.2%

92.3%

95.6%

93.6%93.5%

92.8%

91%

92%

93%

94%

95%

96%

97%

2012 2013 2014 2015f 2016f 2017f 2018f 2019f 1Q20f

Ave

rage

Occ

upan

cy

91%

92%

93%

94%

95%

96%

97%RED 46 AVERAGE

PHOENIX (REIS/RCR)



Notable Transactions

Daniel J. HoganDirector of Research

[email protected]+1.614.857.1416 office

+1.800.837.5100 toll free

continued on page 6

“A” levels. Class-C trades gravitated toward a 6.25% - 7.5% range.

In light of the strong demand for Phoenix properties expressed by buy-ers, RCR elected to reduce the generic cap rate assumption 30 basis points to 5.5%. At this level, our model esti-mates that an investor in metro assets would expect to earn a 7.1% 5-year, unlevered total return, 20 bps above the RED 46 mean and 23rd rank among the group. Equation forecast error is relatively low, boosting risk-adjusted returns to 16th place in the peer group rankings.



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AZ PRINT AD

JOB NO. CCI140272 DATE 3.17.15 INITIALS DATE

CD Michelle R.

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Writer

Layout Designer

Account Mgr. Natalie H.

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Print Prod.

JOB NAME 2015 MDU Collateral

CLIENT Cox Communications

FILE NAME CCI140272_MDU_Print_Ad_7.5x10ROUND

1sTAgE: FINAL

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C M Y K

CCI140272_MDU_Print_Ad_7.5x10 1 3/17/15 10:14 AM

SubmarketEffective Rent Physical Vacancy

1Q14 1Q15 Change 1Q14 1Q15 Change

Central Phoenix North $621 $633 1.8% 8.1% 6.0% -210 bps

Central Phoenix South $711 $733 3.0% 5.3% 4.4% -90 bps

Chandler / Gilbert $859 $886 3.1% 6.2% 5.5% -70 bps

Deer Valley $689 $716 3.8% 3.9% 3.4% -50 bps

East Mesa $745 $765 2.7% 2.0% 1.2% -80 bps

Glendale South $615 $636 3.4% 8.0% 6.2% -180 bps

Goodyear / Avondale $850 $863 1.4% 3.0% 1.9% -110 bps

Maryvale $562 $581 3.4% 6.8% 4.9% -190 bps

North Scottsdale $987 $1,045 5.9% 3.7% 6.1% 240 bps

North Tempe $813 $842 3.6% 4.4% 3.0% -140 bps

Northeast Phoenix $726 $755 4.0% 5.6% 4.4% -120 bps

Paradise Valley $701 $721 2.8% 5.4% 4.6% -80 bps

Peoria / Sun City/ Surprise $774 $803 3.8% 2.9% 1.6% -130 bps

South Mesa $648 $661 2.0% 5.1% 4.6% -50 bps

South Scottsdale $851 $897 5.4% 8.3% 10.7% 240 bps

South Tempe $847 $891 5.2% 3.7% 4.2% 50 bps

Sunnyslope $647 $669 3.4% 3.8% 2.7% -110 bps

West Mesa $617 $632 2.4% 4.5% 3.3% -120 bps

Metro $744 $773 3.9% 5.0% 4.4% -60 bps

RED Capital Group, LLC RED Mortgage Capital, LLC RED Capital Markets, LLC (Member FINRA/SIPC) RED Capital Partners, LLC

1 0 W e s t B r o a d S t r e e t , C o l u m b u s , O h i o 4 3 2 1 5 r e d c a p i t a l g r o u p . c o m + 1 . 8 0 0 . 8 3 7 . 5 1 0 0

THE FACE OF LENDING

Daniel J. HoganDirector of [email protected]+1.614.857.1416 office +1.800.837.5100 toll free

© 2015 RED Capital Group, LLC


SUBMARKET TRENDS (REIS)

FOR MORE INFORMATION ABOUT RED’S RESEARCH CAPABILITIES CONTACT:

3%

4%

5%

6%

7%

8%

9%

10%

11%

13.5% 74.0% 12.5%

2.50% 4.50%

0

5

10

15

20

25

30

35

40

45

50

Phoenix Compound Annual Rent Growth Distribution

Phoenix

Minimum 0.449%

Maximum 7.15%

Mean 3.48%

Median 3.49%

Values 10000

Submarket Trends (Reis)






Deer Valley $689 $716 3.8% 3.9% 3.4% -50 bps

East Mesa $745 $765 2.7% 2.0% 1.2% -80 bps



Maryvale $562 $581 3.4% 6.8% 4.9% -190 bps


North Tempe $813 $842 3.6% 4.4% 3.0% -140 bps




South Mesa $648 $661 2.0% 5.1% 4.6% -50 bps


South Tempe $847 $891 5.2% 3.7% 4.2% 50 bps

Sunnyslope $647 $669 3.4% 3.8% 2.7% -110 bps

West Mesa $617 $632 2.4% 4.5% 3.3% -120 bps

Metro $744 $773 3.9% 5.0% 4.4% -60 bps



THE FACE OF LENDING






3%

4%

5%

6%

7%

8%

9%

10%

11%

13.5% 74.0% 12.5%

2.50% 4.50%

0

5

10

15

20

25

30

35

40

45

50


Phoenix

Minimum 0.449%

Maximum 7.15%

Mean 3.48%

Median 3.49%

Values 10000






Deer Valley $689 $716 3.8% 3.9% 3.4% -50 bps

East Mesa $745 $765 2.7% 2.0% 1.2% -80 bps



Maryvale $562 $581 3.4% 6.8% 4.9% -190 bps


North Tempe $813 $842 3.6% 4.4% 3.0% -140 bps




South Mesa $648 $661 2.0% 5.1% 4.6% -50 bps


South Tempe $847 $891 5.2% 3.7% 4.2% 50 bps

Sunnyslope $647 $669 3.4% 3.8% 2.7% -110 bps

West Mesa $617 $632 2.4% 4.5% 3.3% -120 bps

Metro $744 $773 3.9% 5.0% 4.4% -60 bps



THE FACE OF LENDING





FOR MORE INFORMATION ABOUT RED’S RESEARCH CAPABILITIES CONTACT:3%

4%

5%

6%

7%

8%

9%

10%

11%

13.5% 74.0% 12.5%

2.50% 4.50%

0

5

10

15

20

25

30

35

40

45

50


Phoenix

Minimum 0.449%

Maximum 7.15%

Mean 3.48%

Median 3.49%

Values 10000






Deer Valley $689 $716 3.8% 3.9% 3.4% -50 bps

East Mesa $745 $765 2.7% 2.0% 1.2% -80 bps



Maryvale $562 $581 3.4% 6.8% 4.9% -190 bps


North Tempe $813 $842 3.6% 4.4% 3.0% -140 bps




South Mesa $648 $661 2.0% 5.1% 4.6% -50 bps


South Tempe $847 $891 5.2% 3.7% 4.2% 50 bps

Sunnyslope $647 $669 3.4% 3.8% 2.7% -110 bps

West Mesa $617 $632 2.4% 4.5% 3.3% -120 bps

Metro $744 $773 3.9% 5.0% 4.4% -60 bps



THE FACE OF LENDING






3%

4%

5%

6%

7%

8%

9%

10%

11%

13.5% 74.0% 12.5%

2.50% 4.50%

0

5

10

15

20

25

30

35

40

45

50


Phoenix

Minimum 0.449%

Maximum 7.15%

Mean 3.48%

Median 3.49%

Values 10000

Rental Housing Journal Arizona

Circulated to over 20,000 Apartment owners, On-site, and maintenance personnel monthly.

Advertise/contribute article – call 503-221-1260 for more info.




Dear Maintenance Men:We have been in drought conditions

for a long time here in the West, how-ever I keep hearing about the wet weath-er condition called “El Nino”. What is “El Nino” and how should I prepare my apartment building for its coming?

John

Dear John:An El Niño is a weather pattern

produced by unusually warm ocean temperatures in the Equatorial Pacif-ic. The El Niño phenomenon is asso-ciated with extreme weather around the globe and in California it typi-cally means a wet winter with higher than normal rain levels. The Nation-al Oceanic and Atmospheric Admin-istration (NOAA) is predicting a 60 percent change that the El Niño con-ditions will continue all year.

So how do you prepare for El Niño? Inspect your building’s roofs, gutters, drains, flashing and trim overhanging trees. In other words, don’t wait for the wet season to find out your roof is in poor condition. Get the work done now while it is dry and the roofing companies are not busy. Don’t forget about large trees

that hang over your roofs. In wet windy weather, they can cause a lot of damage to a roof if a limb breaks or a tree falls because of soggy soil. Flat roofs are especially vulnerable to blocked scuppers and roof drains. The backed up water will find the slightest weakness in any roof sys-tem and even cause a roof collapse.

Dear Maintenance Men:Pigeons are driving me crazy! I have

tried everything to get rid of the pigeons that have taken over eaves and patios at my complex. I have used fake owls, high pitch sound devices, goop to give the pi-geons sticky feet and spikes everywhere. They just laugh at the spikes and walk and nest over them. Any advice will be welcome!

Jennifer

Dear Jennifer:Although your situation is beyond

this; the first line of defense is not let-ting pigeons get a foot hold at your property in the first place. Talk to your residents and make sure no one is feeding the pigeons! It sounds like you have tried most of the common antidotes for getting rid of estab-lished unwanted pigeon flocks. Get-ting rid of pigeons is a war of wills. If you give up, they will re-turn. The key is to make them as un-

comfortable as possible and not stop-ping until they are gone. First thing to do is clean the area with bleach to remove any pigeon nesting smells and spraying any stubborn pigeons with a water hose over and over. If the area lends itself to be closed off, put up netting to keep the birds from entering the area. If the spikes are broken, replace with stronger ones. Check at your local farm supply or the internet for stronger better qual-ity spike strips. The area must be monitored constantly until the birds have found a new nesting area away from your building and remember, this is a daily battle if the campaign is to be successful.

Dear Maintenance Men:Drought or no drought, I have decid-

ed to ditch my lawn! I figure in the long term, getting rid of the grass will save me time and money with less watering and maintenance. What recommenda-tion do you have to help me achieve my plan?

Dorothy

Dear Dorothy:Creating a drought tolerant land-

scape is a great idea. As you men-tioned, the drought tolerant land-scape will cost you less money in water and will be easier to maintain. The single greatest consumer of wa-ter in your landscape is the turf. Re-duce the grass area to ease the bur-den on water. Xeriscaping is a term for a water conserving landscape. Some of the benefits of Xeriscaping

is water saving, low maintenance, pesticide free, pollution free (no lawnmowers) and use of local native plants. You might want to consider using Ornamental grasses, as they are drought tolerant, look great and give your landscape a bit of vertical dimension. Succulents of course are great at conserving water. Flax and Delphiniums Iris are a few perenni-als to use. Marigolds, Mexican Sun-flowers, Phlox and Vinca Passion are Annuals that will work well. As for shrubs, look at Japanese Black Pine, Mountain Currant, Sassafras, Hon-eysuckles etc. A good choice in trees are Acacia, Gray Birch, Monterey Cypress, Eucalyptus, Fig, Juniper Amur Maple to name a few. Check with your local nursery for what best suits your area as or climate. Be sure to provide good drainage and using plants native to your area are best.

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Landlord Liability ...continued from page 1

move. If the individual fails to either correct the situation or move, the landlord would take the appropriate legal action.

But Klimkowski v. De La Torre adds another responsibility for the property managers to worry about. In this case, the Arizona Court of Ap-peals had to decide whether the land-lord should be liable for damages resulting from a nuisance created by one of his residents and brought to his attention by a neighboring prop-erty owner. And, despite this notice, the landlord continued to rent to the

offending individual on a month-to-month basis. The court ruled that in this situation, the landlord may be held liable if a third party (the neigh-boring property owner) suffered damages as a result of the offending resident’s nuisance.

Key to the decision was that the landlord continued to rent to the res-ident beyond the expiration date of the lease and time period needed to terminate the lease.

DETAILS OF CASELet’s review the details of the case.

Klimkowski, the neighboring prop-erty owner, observed De La Torre’s renter storing a gas tank, paint thin-ner, tar paper and other flammable products near his property line. He also saw the renter’s children play-ing with cigarette lighters on various occasions.

The neighbor informed De La Torre of the situation and voiced his concern that the condition created a fire hazard to his property. Despite the warning DeLaTorre continued to rent to the individual without requir-ing any corrective actions.

Two months later, Klimkowski discovered the storage shed on De La Torre’s property burning. Before he could take any action, several explo-sions propelled burning items onto his property and burned him. He sued De La Torre for his injuries and damage to his property.

Even though fire officials could not pinpoint the cause of the fire, the court ruled that if the landlord had the power to remedy the nuisance but failed to do so, he or she could be held liable.

Further, continued the court, in Arizona, a landlord has the right to terminate a month-to-month lease at the end of each month with or with-out reason, provided the renter re-ceives proper notice. Said the court:

The notice requirements can scarcely be said to be a serious bar-rier to the landlord exercising the power to abate a nuisance on his property if his tenant will not abate it himself or permit it to be abated by his landlord.

While the court only referenced the landlord’s ability to use a month-to-month termination notice, it also implied that the landlord could use a non-compliance notice.

In certain circumstances, it may be more appropriate to use a five-day health and safety or ten-day material non-compliance notice under A.R.S. § 33-1368(A). Additionally, an imme-diate material and irreparable breach notice is permissible for any situation that jeopardizes the health, safety or welfare of someone.

Andrew M. HullHull, Holliday & Holliday, PLC

Interested in Buying or Selling Multi-Family Properties in Metro Tucson?FREE market analysis & automatic email alerts of newly listed properties.

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Becoming More Favorable ...continued from page 1

proceed with strong caution. In contrast to the latest Standard

& Poor's/Case-Shiller Home Price Indices, which recently reported a five percent year-over-year property appreciation rate, the BH&J Index suggests that potential purchasers in many cities around the U.S. should begin to bargain more aggressively.

"Potential buyers should be cog-nizant that 'the deals' are out of the marketplace and that it is essentially a tossup between rent and owner-ship as to which way will, on aver-age, provide greater wealth accumu-lation," said Ken Johnson, Ph.D., a real estate economist who is one of the index's authors and an associate

dean of graduate programs and pro-fessor in FAU's College of Business. "Miami, in particular, deserves atten-tion as it has been trending toward rent territory for several reporting periods. In Miami, potential buyers should seek to bargain more aggres-sively."

Seven cities (Miami, Honolulu, Los Angeles, Pittsburgh, Portland, San Francisco and Seattle) are at or near the indifference point between ownership and renting. Here the spread between monthly rent pay-ments and ownership payments ap-pears to be at a point where neither ownership nor renting is statistically favored.

Four cities (Chicago, Cincinnati, Cleveland and Detroit) remain in strong buy territory with scores that have historically favored wealth ac-cumulation through home owner-ship.

The index conducts a "horse race" comparison between an individual that is buying a home and an indi-vidual that rents a similar quality home and reinvests all monies oth-erwise invested in homeownership. Johnson's collaborators in this on-going independent research are Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Es-tate at FIU, and William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU's College of Business.

The index's results are standard-

ized between 1 and -1, with nega-tive scores favoring ownership and positive scores favoring renting. The BH&J Index provides information on both the direction and health of varying housing markets, as well as collateral information for real estate professional, developers, lenders and housing policy makers.

The BH&J Index is published quarterly and is available online at http://business.fau.edu/buyvsrent. Due to data availability and the time necessary to calculate the most cur-rent index values, the index is pro-duced two months after the end of the quarter.

Florida Atlantic University

Apartment Security ...continued from page 3

ways either collect the card/fob from the tenant upon move-out or retire the card/fob from the system upon move out.

Though it takes more time and work, the most secure option is to make sure that cards/fobs are re-turned upon move-out and then re-issued to the new tenant. By using this practice you have a general idea of how many fobs are needed for the building. If you find you are buy-ing more fobs without retiring them, you may have an undeclared loss is-sue. Like computer systems, access systems have a limited amount of memory. Adding new codes without retiring any may cause the system to reach the limit requiring the pur-chase of added memory, which can be expensive.

The Police

We encourage our property man-agers and tenants to call the police when faced with a security problem. We do not want anyone to get in-jured by an angry tenant or a crimi-nal. Unlike the strategies previously covered, the police not only discour-age crime, they also document it on the public record through police re-ports and can help draw the local police department’s attention to the issues at the properties. Police pres-ence can be very helpful in discour-aging crime.

Sometimes, when budgets are tight or crime is rampant, the po-lice departments don’t have time or staff to respond to suspicious ac-tivity. When all else fails, you may need to hire private security patrol services.

Private Security Patrol ServicesSecurity patrol services deliver

uniformed visibility to discourage criminal behavior when police de-partments are not available.

The best security patrol compa-nies staff trained and armed officers who wear body cameras to track the audio and video of every incident. Their patrol vehicles are equipped with GPS and computer systems that allow them to take active notes for all properties, map locations of failed lighting systems, track parking

violations, and collect evidence that can be used in court if the property owner chooses to pursue legal pro-ceedings.

Physical security companies offer services that include driving through properties and stationing overnight guards. These security patrol servic-es typically check doors to make sure they are locked up, and respond to calls from on-site managers who re-quest them to roust transients or help break up fights. Like the other strat-egies discussed, security patrol ser-vices deter criminal activity by being visible. Managers and owners can also post their signage at the prop-erty to deter criminals from cruising the property.

If you have an active drug deal-ing problem, onsite security can help protect the onsite manager. At a dif-ficult property it might be almost impossible to recruit and hire a prop-erty manager without twenty-four hour armed and uniformed security.

Many years ago we were hired to manage a property that the city threatened to take over due to the numerous police calls there. We hired onsite security for two months, identified and evicted the problem tenants, and were able to turn the property around.

Summary

Property security should never be overlooked by owners of invest-ment properties. There are many strategies used to improve property security including thorough tenant screening, community building ac-tivities, adequate lighting, trim and effective landscaping, camera sys-tems, access control systems, coop-eration with the police and the hiring of private security patrols.

When properties have a pattern of crime, it makes sense for owners and property managers to review all of the resources that can help create a safer environment for all. Safer properties equate to lower tenant turnover and more profit for prop-erty owners. Safety should always be a component of a property opera-tions plan.



Webster defines the word "objection" as: "A reason or argument presented in

opposition, a feeling or expression of disapproval." He makes an objection sound negative. In reality, an objec-tion from a prospective renter is a positive buying signal. It tells the leasing person that he or she is inter-ested, but needs help figuring out the "details." A prospective renter who really isn't interested will not bother objecting to anything, but just

politely go through the motions of looking and then leave. Recently a question came up about overcoming objections when there doesn't seem to be a solution:

Q: We don't have any "extras" at our community and our apartments don't even come with washers and dryers. How can I deal with objec-tions that pertain to features and benefits that our community just doesn't have?

A: Having a thorough knowledge

of your community, the local neigh-borhood and also your competition will give you the ability to meet objections head on. This will also enable you to anticipate objections, and in some cases deal with them before your prospective renters bring them up.

If you are leasing at a smaller community with no recreational facilities and the majority of your prospective renters are seeking an exercise facility, then make an arrangement with a local gym or health club in order to obtain a dis-count membership for your resi-dents. You could offer your neigh-borhood fitness center free advertis-ing in your newsletter and/or new resident packet, in exchange for the discount. If you have limited storage space at your community, you could work out the same type of a deal with a public mini storage facility in your area.

If you are receiving objections or complaints about certain aspects of the apartment interior, then be hon-est about the situation and offer a solution that your prospective renter can live with. During a past apart-ment tour, I noticed the carpeting was not in great shape; it was clean, but had a worn appearance and a rather large, obvious stain right in the middle of the living room. While I expressed my delight over the size of the apartment and its other posi-tive attributes, I let the leasing per-son know that I was disappointed in the condition of the carpet. I asked what could be done about it. The consultant was very straightforward and honest with me. She agreed that she would not want to live with that

stain either. However, they just did not have money in their budget at this time to do a carpet replacement. As a solution, she offered to give me a $100 "carpet allowance." She told me I could use the money to buy an area rug that would match my furni-ture, and place it over the stain. She said, "I know it's not new carpet, but you will get a new rug and then you won't even know the stain is there."

When it comes to creatively over-coming objections, the challenge is to focus on what you can change, and not dwell on circumstances that are beyond your control. Maintaining a positive attitude and being realistic about what you honestly can and cannot offer will go a long way in earning the respect and trust of your prospective renters.

REMEMBER: Overcoming objec-tions is the key to changing a pro-spective renter into a resident. HOW you creatively "turn the key" is entirely up to YOU!

If you are interested in leasing training or have a question or con-cern that you would like to see addressed, please reach out to me via e-mail. Otherwise, please contact Jancyn for your employee evaluation needs: www.jancyn.com

ASK THE SECRET SHOPPER

Provided by: Joyce (Kirby) Bica Former owner of Shoptalk Service

Evaluations Consultant to Jancyn Evaluation

ShopsE-mail: [email protected] Joyce (Kirby) Bica

sk the Secret Shopper

Too Timid ...continued from page 2

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Look at the road in front of you. Don’t focus on how you’ll make it happen. The “how” mentality is sort of like trying to edit a first draft be-fore it is written; the “where” men-tality allows you to simply get your ideas out first. Where do you want your company to go? Look down the road, see what you see and let the view have its moment. Don’t get ahead of yourself. The how will have its day.

• Think outside the box. Getting out of your comfort zone will change your usual thought patterns and spark creativity. Think about crazy stuff – maybe something too out-landish to share at a meeting or even consider seriously.

“I like to use a technique called ‘mind-mapping,’ which isn’t so much formal writing as it is plop-ping down random thoughts onto paper and fleshing them out later,” Herod says. “Mind-mapping allows you to brainstorm without having to provide explanations of strategies for achieving the desired goal. Here’s a

good rule: if what you think about during one these sessions seems bi-zarre or unlikely, it’s something you should definitely include in your vi-sion.

Beginning his first business at age 21, Cameron Herold (www.DoubleDou-

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author of “Double Double.”



A popular tax-deferral strategy for people who deal in in-vestment property could be

in trouble as Congress ponders do-ing away with it.

But already rescue efforts, such as letter-writing and lobbying cam-paigns, are afoot to counter any talk of repealing Section 1031 of the Internal Revenue Code, which lets taxpayers defer their capital-gains tax on the sale of the property if they reinvest their proceeds in “like-kind” property.

“A lot of people want to make sure Section 1031 exchanges stay in place because doing away with or alter-ing this section of the tax code could be detrimental to investors, the real estate market and the economy,” says Dwight Kay, founder and CEO of Kay Properties and Investments (www.kpi1031.com).

His California and New York-based company specializes in help-ing clients purchase Delaware Statu-tory Trust properties (DSTs) using the Section 1031 Tax Deferred Exchange.

“It’s a strategy that’s becoming in-creasingly popular,” says Kay, whose firm is licensed to do business in all 50 states. “But it’s also something that they have their eyes on in Wash-ington, and it’s on the chopping block with Congress.”

The average American probably knows little or nothing about Section 1031, but it’s a significant tax-plan-ning tool for investors who want to sell investment property, but don’t want to get hit with the capital-gains

tax that would result.Here’s how Section 1031 exchang-

es work:Taxpayers can defer their capital-

gains tax on the sale of investment property if they reinvest the pro-ceeds from the sale in other invest-ment property. There are strict dead-lines and other specifications that must be met.

Several types of property qualify as “like-kind” under the rules. Ex-amples include: apartment build-ings, farmland, office buildings, warehouses and rental homes.

Delaware Statutory Trust prop-erties also fall on the list. Delaware Statutory Trust properties are pre-packaged as 1031 exchange proper-ties, so an investor can close a sale quickly with no worry about missing those deadlines.

The idea of repealing Section 1031 has been talked about before. Critics of 1031 property exchanges say they allow people to defer paying capital-gains taxes for decades. Critics also say the definition of “like-kind” property is imprecise, leading to con-troversy with the Internal Revenue Service and providing significant op-portunities for abuse.

The congressional Joint Commit-tee on Taxation projects repealing Section 1031 would increase reve-nues $40.9 billion over 10 years.

Kay, though, suggests there are at least three reasons why keeping Sec-tion 1031 in place is good not just for investors, but for the overall econo-my as well.

• Like-kind exchanges benefit mil-lions of American investors and businesses every year by encour-aging businesses to expand and by moving dollars within the U.S. economy. “These property exchanges give a boost to the economy, and can create jobs,” Kay says. Without the tax defer-ral benefit, reinvestment by small and medium-sized businesses and investors would be inhibited. The economy could suffer as a result.

• Repeal could cause a decline in real estate values because inves-tors would no longer have the ability to defer their capital gain taxes, one of the reasons many invest in real estate to begin with, and therefore may switch strate-gies and move to more liquid alternatives.

• “Although big-money investors certainly make good use of the 1031 exchanges, this is not some-thing that helps just the wealthiest Americans,” Kay says. It is avail-able to and used by taxpayers of all sizes. “We have helped clients with 1031 exchanges as small as $50,000,” Kay added.

Investors should keep in mind that real estate and Delaware Statu-tory Trust (DST) properties may in-clude risks such as, but not limited to, loss of entire investment princi-pal, declining market values, ten-ant vacancies and illiquidity. Please remember that all investors should speak with their CPA and attorney for tax and legal advice prior to mak-ing any investment decisions.

Dwight Kay, founder and CEO of Kay Properties and Investments, LLC

(KPI) (www.kpi1031.com), is a Se-ries 7, 22 and 63 licensed, Registered

Representative and Real Estate Profes-sional. His firm, Kay Properties and Investments, specializes in Delaware

Statutory Trust (DST) brokerage and advisory services. Kay Properties and

Investments currently has offices in Los Angeles as well as in New York City

and offers securities through Concorde Investment Services, LLC, member

FINRA/SIPC, in which KPI is indepen-dent from.

A Tax Strategy for Investment Real Estate Grows In Popularity Proponents Say 1031 Exchanges Are Good For The Economy, But Congress Eyes Repeal

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