Phoenix, AZ – Market Overview

In the last five years, there are two markets that have had unprecedented growth in comparison to the rest of the country. Both have surpassed several cities on the rankings of “Largest U.S. City Population” held by the US Census Bureau and they now rank at the fourth and fifth largest city, respectively. Houston in on track to surpass Chicago as the third largest city in the country, and Phoenix is following right behind it. As the fifth largest city in the country (1), Phoenix boasts many reasons it has grown at such an exceptional rate and why some experts believe it will continue to grow.

Phoenix continues to attract a new work force, which is demonstrated by having the second largest net migration in the United States. People are moving in droves in Phoenix not only for the warm weather but the job growth. Total employment grew by 3.7% from 2017 to the end of 2018, and the city now boast an unemployment rate of 3.7% as of April this year (2). In December of 2018 alone there were 76,900 jobs added to the Mesa MSA (the county that Phoenix sits in). In that job push, 21% of the jobs came from construction (2). Growth in construction jobs is a sign of a city’s growth, but it can be concerning when there is not growth in other industries that provide more stability. In a down market, construction jobs decrease dramatically. However,  The job growth found in Phoenix was spread out between many different industries but the largest came from the 22% within the professional services industry (2).  Professional services are a strong indicator of the robustness of an economy. These jobs are more likely to be paid higher wages and have a desire to settle down wherever they move, therefor are less likely to leave. In a recent study by CompTIA, the world’s largest tech association, 78% of IT professionals surveyed said the largest factor they would consider leaving their current city is for affordability (3). The dramatic increase in costs throughout other large MSAs has potentially driven job growth in Phoenix.

For being the fifth largest city in the United States, Phoenix is still one of the most affordable for a large MSA. Amongst the 100 most populous cities in the United States, Phoenix ranks 52nd according to an affordability study conducted by RealtyHop in May of this year (5). The study measured the average wage of a worker in that city versus the amount of income it would take to own the average home there. In Los Angeles, it would take 89% of the average worker’s income to buy a home. California cities that rank in the top ten as least affordable include Los Angeles at number one, San Francisco, Oakland, Long Beach, and Irvine – half of the top ten list. Cities known to draw workers from the professional services industry like San Francisco, Los Angeles, and Seattle have increased their cost of living by ridiculous margins. As such, their net migration has dropped dramatically with workers more reluctant to pay for homes in pricey markets. Los Angeles has had a net migration of -381,000 between the years 2012 and 2017 (3). In that same period Phoenix experienced a growth of 221,000. 

Workers  focused on home ownership and cost of living  are running away from cost burden and high taxes of California to places like Phoenix. Arizona is a relatively business friendly state, with an income tax ranging between 2.59% and 4.54% as of 2018 (6). This makes the state rank in the top five lowest income tax rates for states that have them. On average homeowners in Phoenix spend 30.3% of their income on owning a home compared to other comparable cities like Denver, Houston, and Seattle that all land in the 38% range (5). Tax benefits paired with affordability and job opportunities have made Phoenix and market that will seem to grow much more in the future.

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Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over 30 Billion of DST 1031 investments.

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing.  IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.

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