In the past few months, the company has spent roughly $160 million on properties in the Tempe area, with plans to acquire more.
One of the recent purchases was Broadstone Rio Salado, a newly developed apartment complex, completed in 2020, that Decron acquired for $96.2 million.
The other is 1221 Broadway, a 194-unit apartment property built in 2015 that Decron bought for $64.8 million.
California is home to 85% of Decron’s portfolio, Southern California comprising the vast majority of it. The newly acquired Arizona buildings are a lot newer than Decron’s properties in L.A.
“Typically, we’re buying older properties where we need to manufacture the rent growth through value-add improvements,” Decron Chief Executive David Nagel said.
The company then renovates them. Nagel said there’s so much potential to increase rents over time in the greater Phoenix area now that “we don’t need to do anything to actually manufacture the rent growth. The rent growth is still coming.”
“We can buy newer product and still get the rent growth we were trying to achieve in California, which could only be achieved with improvements,” he added.
Decron began to grow outside of California for the first time in 2018. Nagel s
“It’s a move to be more geographically diversified, while at the same time it’s a move to go into markets where we see a greater potential rent growth than what we have currently in California,” Nagel said.
He added that in places like Arizona, specifically Phoenix, there has been population and job growth, coupled with affordable rents, while in California there has been a net loss in population over the past few years.
“People are moving there (to Phoenix) because jobs are moving there … and the affordability. That is what’s driving it. And with affordability comes the opportunity to grow rents,” Nagel said.
But despite the company’s push into other markets, Nagel said the company is still interested in California, but not necessarily L.A.
“There’s no such thing as a good opportunity in L.A. anymore, and that’s the problem,” he said.
He said the Inland Empire, Orange County and north San Diego were areas of interest.
“In locations where the rents are more affordable to the general geographic location, those locations we are still interested in,” he said.
Part of the issue with investing in the Golden State, Nagel said, are regulations that limit the company’s ability to charge more for rent.
“Our problem with affordability and with legislation, whether it be citywide rent control in L.A. or statewide rent control, … we’re very concerned about legislation and the potential of additional legislation that could make the picture even worse. We’d rather go to states where it’s less likely that we will have legislation that will limit our growth,” Nagel said.
He added that possible changes to rent control in the city of L.A. were especially concerning. He said “the buildings will suffer and ultimately the tenants will suffer” if rent control drops below a Consumer Price Index increase.
“You can buy new product, and that’s not going to be subject to rent control for 15 years … but it’s completely unaffordable. You can buy older product, and it’s affordable, but the problem with that is what’s going to be the changes in the law with rent control,” Nagel said of what makes it difficult to invest in L.A. now.
He sees a brighter future for investing elsewhere.
“We’re not done investing in Arizona. We have additional interest in investing potentially in other cities in the Southwest, including potentially Las Vegas and potentially growing to other affordable markets out West, including Salt Lake City and Austin, Texas.”
