How Old Apartments Are Getting New Life In Central Phoenix
HOW OLD APARTMENTS ARE GETTING NEW LIFE IN CENTRAL PHOENIX
By Brenna Goth | The Republic | azcentral.com
(Phoenix – March 21, 2016) – Half a century after the El Cortez hotel opened in central Phoenix, the complex is returning to resort-style living.
Blue and red paint now brightens the beige building on Seventh Avenue near Osborn Road. The 400-square-foot rooms — most recently condominiums — are being renovated into studio apartments.
A modernized lobby might feature vintage photos or old movies projected on the wall, community manager Amanda Caraig said. The remodeled pool will include cabanas.
“I know the potential this place is going to have,” she said.
El Cortez is one of dozens of old complexes getting new life in the Phoenix metro area as apartment construction booms. In a city known for tearing down and rebuilding, some investors are now also modernizing pieces of the past.
Many of the projects play up their Midcentury Modern architecture roots and a retro 1950s or ‘60s vibe. The dozens of units surrounding a central pool or courtyard stand in contrast to the hundreds of apartments often seen in new developments.
After renovations, they are easily spotted by their sandblasted exteriors or pops of bright colors.
The process has forced out some existing tenants who can’t afford higher rental rates that come with the improvements. But the reimagined spaces offer people quality apartments in prime locations and are more affordable than renting in new projects, said broker Brian Smuckler, senior vice president of multifamily investment properties for CBRE Inc.
And some residents prefer the character of a smaller, boutique complex, Smuckler said.
“Not everyone wants to live in a 300-unit building,” he said.
Old building, new feel
The trend makes sense for developers. Phoenix’s surge in apartment construction and rising rental rates has left a gap for residents who want a place that feels fresh but for a cheaper price, Smuckler said.
Investors are finding a niche in improving older complexes in central locations with new paint, floors, ceilings and appliances. A vintage vibe intends to give the project personality and to highlight — not hide — its age.
The goal usually isn’t to make them historically accurate. Some aren’t the true “garden apartments” of the 1950s and 1960s.
Original colors likely were more muted than the bright blues and greens seen in some renovations today, said Alison King, founder of midcentury architecture group Modern Phoenix. But in a city recognized for its stock of buildings from the era, King said she understands the appeal.
“I think that midcentury architecture has a tendency to make people feel good,” she said.
Deco Communities plays up that feeling in its “Cabana” complexes, said partner Dan Richards. The company started renovating apartments during the economic downtown when partners found units in good locations that “need a little imagination,” Richards said.
Improvements cost between $2 million and $7 million on top of the purchase price for each of the six complexes in the Phoenix area. The buildings are mostly from the 1960s and 1970s and are sandblasted, painted with bright colors and given touches like new amenities and murals.
“Our Number 1 goal is really to infuse energy into the projects,” Richards said.
Return on investment
Smuckler’s team at CBRE has helped broker the sale of 58 complexes that have been re-branded since 2010. Most range from 20 to 100 units.
The majority are from the 1950s and ‘60s as investors look for buildings with “good bones,” Smuckler said.
Although renovations can cost millions of dollars, investors see a return.
The 35-unit Bethany Gardens apartment complex, for example, is now leasing as Rezide Uptown. The $3.2 million complex made sense to renovate based partly on its location near 15th Street and Bethany Home Road, said Kurt Rosene, a member of the Novo Development team behind the project.
The 1970s complex transformed from gray apartments to a blue-and-white exterior reminiscent of Palm Springs, California, Rosene said. New doors and windows are more energy-efficient. The pool is surrounded by turf grass. Two-bedroom, two-bathroom units rent for $1,275 to $1,350 a month. Rosense estimated they averaged $750 before the renovations.
“It’s interesting what a little paint and a little love and care can do,” he said.
The Vestis Group recently purchased its 21st apartment complex and is looking for more, principal Natan Jacobs said. Original construction ranges from the 1940s to the 1970s and is re-branded as a MODE apartment community.
Location is a primary driver for the team to invest, Jacobs said. Deferred maintenance by the previous owner can help keep the price down.
The team usually spends $25,000 to $45,000 on renovations per unit, Jacobs said. It overhauls common areas and improves the infrastructure and aesthetics.
“It’s basically a brand-new building,” Jacobs said.
Giving old buildings new life has its challenges, though.
Redeveloping properties generally is cheaper than building them from the ground up. The zoning and permitting process can also be quicker.
But developers don’t always know what they’re getting when they buy a property and start working on it. Problems with plumbing or electrical systems can go beyond what’s expected.
Rosene said his team dealt with roof rats and termites on the Rezide project. One Vestis Group purchase included a 1960s pool that was built without a permit.
“You are basically uncovering skeletons in someone else’s closet,” Richards said.
Developers also are limited in following current building trends. The number and size of units already are established, and there may not be space for amenities like a pool or fitness center.
“You kind of have to work with what you’re given,” Rosene said.
But the biggest challenges might be finding viable redevelopment opportunities, Smuckler said. There are more interested investors than complexes available, he said.
It’s a business decision for investors to project whether they can make money by renovating a complex. The prices have gone too high in prime spots, some developers said.
“We would love to do it,” Richards said. “Unfortunately, apartments are getting kind of expensive.”
Areas in transition
Prime purchases exist in urbanizing areas, where older complexes might be shuttered or a neighborhood eyesore, according to some investors.
Jacobs said his team is particularly interested parts of central Phoenix where a renovation project can make a big impact. In some cases, residents were living in unsafe conditions or mismanaged complexes, he said.
“We want to revitalize these neighborhoods,” Jacobs said.
The effect on existing tenants varies. Some apartments are hardly occupied but others are almost full.
Residents can be transitioned to a month-to-month lease once their contracts are up. Some move into renovated units or look for housing elsewhere, developers said.
But the process can be frustrating. Soi Breed, 27, said she was notified shortly after her move to the Bethany Gardens apartment that she couldn’t secure a yearlong lease because the complex was sold to new owners.
Renovations for Rezide Uptown began while she was still living there on a month-to-month lease. Breed said she didn’t mind the basic setup and older appliances, but couldn’t afford the significant rent increase she would have to pay once her unit was renovated.
After about three months, Breed left the complex, she said.
“If I would have known, I never would have moved there,” Breed said.
Sense of place
The renovations don’t fill the need for true affordable housing, but they do provide options to urban-minded residents who can’t pay for brand-new construction — or don’t want to, said Mark Stapp, director of the Masters of Real Estate Development program at Arizona State University.
Kathleen Iudicello, 47, said she did a double take when driving by Rezide Uptown and moved in last fall. She was looking for an apartment that felt modern but more unique than the new construction she toured.
“I really enjoy living in renovated spaces and spaces with history,” she said.
The improved complexes also provide a middle price point for renters.
Rents for new construction — ”Class A” apartments with the best amenities and locations — average $1,672 a month including all unit sizes, according to data from CBRE.
The renovations generally modernize the older “Class C” buildings that may have deferred maintenance or infrastructure needs and rent for $898 on average. Before remodeling, those apartments average $596 per month.
And for tenants, the choice in apartments focuses increasingly on place, Stapp said. That includes physical location as well as the personality of a project.
The amenities people are looking for today — especially social spaces like lobbies and pools — can often be added to an older complex, Stapp said. A vintage vibe can give the projects a sense of place.
“They’re in desirable places,” Stapp said, adding, “they make up some of the need for quality, affordable housing.” – more at azcentral.com
Vestis Group is the broker of choice for individuals and institutions investing in multifamily residential real estate throughout Metropolitan Phoenix. Our advisors assist clients in the acquisition and disposition of multifamily investment assets, including, apartments, bulk condo packages, duplex/triplex/fourplex properties, single-family rental portfolios (SFR Portfolios) and income producing single-family investment properties. In the field of housing, Vestis Group’s principals have developed, built, rehabilitated, constructed, improved, managed, and sold thousands of apartments units, condos, single-family homes and home sites.
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