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COLORADO REAL ESTATE JOURNAL
— November 5-November 18, 2014
apartment communities under
contract and another $363 mil-
lion in active listings.
“Rents haven’t faltered and
are at their highest levels ever.
If everything goes as planned,
ARA will reach $1.5 billion in
sales by year-end,” Hawks said.
It is not just ARA that is shoot-
ing the lights out as far as sales
this year.
“Our competitors are having a
good year also,” Hawks said.
“It’s a good time to be an apart-
ment broker in Colorado.”
It certainly has been good for
Anna Perry Stevens, who joined
ARA in Colorado after leaving
the ARA team in Washington,
D.C.
In Denver, the ARA team is
doing about three times as much
in sales than when she left Wash-
ington, D.C.
“We closed over $350 million
in multifamily sales for the year
in Washington, D.C., and we
were pretty proud of that vol-
ume,” Stevens said.
In Denver, the ARA team has
been averaging $82 million per
month in transactions.
Apartment sales in metro Den-
ver have skyrocketed over the
past 10 years, according toARA’s
research.
In the 1990s, the total metrow-
ide sales volume topped at $3.78
billion.
From 2005 to 2007, a total of
$5.8 billion in apartments closed,
and record prices were achieved.
“Developers are building at a
pace that has been unable to fully
satiate the demand from natural
population growth and the ever-
growing transplant population,”
Hawks said.
Bruteig put the construction
boom into perspective.
“Apartment construction is at
a 40-year high, according to my
projections,” Bruteig said at the
CREJ conference at the Inverness
Hotel and Conference Center.
He said there are about 20,000
units under construction and an
equal amount of units are in the
pipeline.
Over the past four decades, the
market has delivered an average
of 5,000 units per year, he said.
However, given that absorp-
tion is also stronger than normal,
Bruteig is not as worried about
overbuilding as he would other-
wise be, given that the market is
delivering twice as many units
than the historical average.
One reason that demand is so
strong is because there are few
entry-level condominiums being
built, because of fear of construc-
tion defect litigation, Bruteig and
others said at the conference.
While 11 percent of the total
permits are for towhomes and
condos, Bruteig said he suspects
most of them are for townhomes
and they are scattered through-
out the metropolitan area.
It is part of the “natural cycle”
for apartment dwellers to try to
start building equity by purchas-
ing a lower-priced home, such as
a condo, he said.
Hawks said he hasn't sold an
apartment building to a condo
converter since 2002.
And he said that almost all
developers when they sell an
apartment community have
deed restrictions that require it
not be converted into a condo for
10 years, in some cases longer.
That way, the original develop-
er is protected from construction
defect litigation.
Hawks said without the threat
of being sued, a great number of
the luxury apartment buildings
under construction in down-
town Denver and trendy neigh-
borhoods such as Lower High-
land would be condos.
Even though condos provide
competition for apartment devel-
opers, panelists agreed that con-
struction defect litigation reform
is needed to bring more condos
to the market.
“This is not right,” said W. Jeff
Booth, executive vice president
of development for Embrey Part-
ners Ltd., based in San Antonio,
Texas.
Booth, a panel member at the
conference, said construction
defect litigation was meant to
prevent homeowners from shod-
dy construction, but instead it
has primarily made a handful of
lawyers rich who are exploiting
the system.
Embrey has developed and
sold thousands of apartment
units in the Denver area during
the past 16 years.
Booth said he objects to the
artificial constraints on condo
construction, even though they
have provided a boost to the
apartment industry.
Rents are so high, vacancies are
so low and demand from inves-
tors is so strong, that apartments
are selling for more per door and
more per square foot than they
ever have, Bruteig said.
In 2014, that has resulted in
record profits, by a wide margin,
for developers. At the confer-
ence, Bruteig displayed a Pow-
erPoint slide showing a profit
of $18 million on a fairly typical
sale of an apartment community
in the Denver area this year.
That has not always been
the case, Bruteig pointed out.
He recently was talking to one
developer, for example, who per-
sonally lost more than $1 million
on a deal during the Great Reces-
sion, when financing fell through
for his apartment project.
There are other factors in play
driving the record sales.
“It’s not only the price, but also
the trend to build larger, more
expansive and amenity-loaded
properties that has pushed the
sales prices to record levels,” said
Doug Andrews, a principal at
ARA.
In other words, developers are
not building your father’s apart-
ment communities.
“The millennials are driving
development expectations, and
developers are delivering,” he
said.
“We’re seeing communities
decking out their properties with
lazy rivers, yoga studios, electric
car charging stations, and beer
taps in their community rooms,”
Ozment said. “Developers are
delivering.”
Still, it is incredible how much
prices have appreciated, Hawks
said.
“In 2000, we sold an apartment
property for $117,000 per unit,”
Hawks.
“The market could not believe
how high a price we got. That
was the first sale above $100,000
per unit,” he said.
Adjusted for inflation, the
$117,000 price would be the
equivalent of $161,728 in today’s
dollars.
Prices today are far higher,
even when adjusted for inflation.
“In 2014, we have seen three
sales already over $300,000 per
unit, and one much closer to
$400,000,” Hawks said.
“We have one property cur-
rently under contract above
$300,000 and three over $240,000
per unit,” Hawks added.
Indeed, there have been a
handful of multifamily proper-
ties in Denver that have sold for
north of $400,000 per door this
year.
Since 1999, the average size of
a new, nonsubsidized apartment
community has been 262 units,
according to ARA.
“The average apartment size
has been increasing each decade
since the 1960s,” according to
Terrance Hunt, a principal and
team member with Hawks,
Ozment and Andrews.
Bruteig, however, said there
has been a recent trend of devel-
opers bringing smaller units to
the market, although he said
no one is really building true
“micro-units” in Denver that
often have less than 500 sf.
As the Denver-area grew, so
did suburban apartment com-
munities.
“In the 1960s, most proper-
ties were less than 100 units.
Starting in the 1970s, we saw
the emergence of 200-plus unit
properties, but the average size
still remained below 200 units,”
Hunt said.
“Almost everything built since
1980 exceeded the 200-unit mark
and the real large communities,
including three of the largest
apartment communities in the
United States, were built in the
1990s: The Breakers, Palomino
Park and the Horizons at Rock
Creek apartment communities,
which average 1,304 units per
property,” Hunt said.
Not only have size and ameni-
ties affected the total sales vol-
ume, but also the price per unit
Graph showing historical sales volume. Source: ARA Colorado.
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