Sterling American Buys $85M Phoenix Apartment Complex

SCI Real Estate Investments has sold Deer Valley Village, a 832-unit, gated, garden-style apartment complex in Phoenix, to Sterling American Property Inc. for $85.2 million.  In a joint venture with Sterling, Thompson Michie Communities will manage the community. Amenities include two fitness centers, three heated pools and a clubhouse.  Jeff Smith, senior vice president of acquisitions for Sterling, told CPN that even in current market conditions, Phoenix is “a solid market, because of the employer base.” Built in two phases completed in 1996 and 2000, Deer Valley Village is in the Loop 101 and I-17 Deer Valley employment corridor, with an American Express information technology center and a regional hospital across the street.  Smith characterized the community’s first phase as “a solid B-plus” in terms of appeal and said that the second phase “can compete with any new product coming on line.” Sterling plans to invest nearly $2 million in both exterior and interior upgrades, including a complete renovation of the community clubhouse. He also said that the complex’s larger-than-typical apartments (there is a mix of one-, two- and three-bedroom units), along with the gated aspect, increase its appeal to tenants. Deer Valley Village’s vacancy rate, he told CPN, is currently 8 to 9 percent  Although Sterling American has previously invested in the Phoenix metro area, Deer Valley Village is its first residential acquisition there. The purchase was made through Sterling’s $610 million SAP V fund, which is now more than 50 percent deployed.  Walter Winius, managing director of Integra Winius Realty Analysts in Phoenix, told CPN that the metro Phoenix apartment market has recently been experiencing “a more-than-gradual increase in vacancies,” especially in lower-end units.  Factors in this include an estimated 20,000 to 25,000 single-family homes and condo units that are on the rental market as a result of the subprime mortgage crisis. Winius also noted, as did Smith, that a tough new Arizona law cracking down on undocumented workers has hit the lower end of the apartment market hard. Winius estimated vacancies in the Class C apartment market at 25–30 percent.  He described the high end of the market as adequately supplied, but not overly so.  Sterling American Property Inc is a real estate investment affiliate of Sterling Equities and American Securities L.P. Since 1991, SAP’s four consecutive real estate funds have invested in more than $3 billion of assets in 43 states.