We’ve acquired an approximately $1.7 million senior secured loan on a 52,441 square foot (1.2 acre) site in downtown Phoenix, Arizona. The borrower, DB Builders, plans to demolish the existing buildings and rezone the land to clear the way for a new urban housing development.
Why we invested
- Great location near downtown: The city is expected to add almost 125,000 jobs in total in 2017 and 2018, with a forecasted annual growth rate of 3.1% for the next three years.
- Attractive margin of safety: Our investment of $1.7 million is about 65% of the total purchase price of $2.6 million. This means that the value of the land would have to decrease by approximately $900,000 before our principal was threatened.
- Senior debt with guarantees: The investment is further de-risked with carve-out guarantees, which provide protection against certain acts—such as fraud, theft or misrepresentation—if committed by the borrower.
Market spotlight: Phoenix
As the US technology sector continues to grow rapidly, many businesses have looked to relocate or expand their headquarters outside of pricey Silicon Valley.
Well on its way to becoming a major technology hub, Phoenix has assumed the moniker “Silicon Desert” thanks to its low cost, business friendly environment and talented, entrepreneurial workforce. In the past six years alone, Phoenix saw 25% growth in the technology sector. Job growth across all sectors is expected to continue in Phoenix, as the city will likely add nearly 125,000 jobs in total in 2017 and 2018, with a forecasted annual growth rate of 3.1% for the next three years.
Coinciding with the growing labor force, Phoenix has seen an increasing demand for housing. Throughout the first half of this year, apartment rental rates spiked by nearly 5% and Colliers International expects that the average asking rental rate will exceed $1,000 per month by the end of 2017.
We believe that strong employment trends will continue to support robust rent growth and rising property valuations in the Phoenix area.
