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Page 22 — COLORADO REAL ESTATE JOURNAL — April 1-April 14, 2015
developer could be one of the
first signs in Denver that the
“apartment construction is near-
ing the tail end of the apartment
building frenzy,” according to
Winslow.
There is no denying that Den-
ver is in the midst of an apart-
ment building boom.
At the end of last year, there
were 20,477 apartment units
under construction in the Den-
ver area, and 20,060 apartment
units in the pipeline, reported
appraiser Cary Bruteig, princi-
pal of Apartment Appraisers &
Consultants.
Of those units under con-
struction, 3,592, or 17.5 percent,
were in and around downtown
(including Berkeley and West
Highland neighborhoods),
according to Bruteig’s research.
And of those on the drawing
board, 5,059, or 25.2 percent, are
in downtown and surrounding
neighborhoods.
Winslow said a Natural Gro-
cers, andnot an apartment build-
ing, being built on that highly
visible parcel is the first sign of a
multifamily slowdown in Den-
ver’s urban neighborhoods.
“We will not see as many new
urban-type, high-density apart-
ments constructed in the next
two years as we did in 2013 and
2014,” Winslow said.
Despite the apartment build-
ing boom, existing apartments
are experiencing record-break-
ing rents and higher-than-aver-
age occupancy levels, indicat-
ing that demand is outstripping
supply.
The Denver area has one of
the lowest unemployment rates
in the country and is one of
the most attractive areas in the
country for millennials, noted
several apartment developers at
the Colorado Real Estate Jour-
nal’s Multifamily Development
& Investment Conference &
Expo, which was sponsored by
ARA Newmark in association
with Apartment Appraisers &
Consultants.
Also, many young profession-
als are burdened with onerous
student debt, making it diffi-
cult for them to buy a home, so
instead they rent.
Millennials also are getting
married and having children
later, making them more likely
to rent than buy.
Finally, a lot of millennials
who saw their parents suffer
through the collapse of housing
prices during the Great Reces-
sion are in no hurry to buy a
house, especially if they think
they might have to relocate in
the near future for a job.
Despite the strong local econ-
omy, Winslow said that apart-
ment developers and lenders are
starting to worry about where
future renters will be coming
from, at least in the short term.
The 50 percent drop in the
price of oil, for example, will
eliminate some high-paying jobs
in Colorado, he said, although
many of those may be more in
Weld County than in the Denver
area.
Jordan Robbins, of the Denver
office of HFF, while not speak-
ing directly about the West 38th
Avenue and Tennyson Street
site, said that one thing that
could slow the construction bus
in Denver is raising equity.
“We raise a ton of equity from
our office and it is getting hard-
er,” Robbins said.
Investors, he said, “only want
to invest equity if it is at Main
andMain. The good sites are still
being sold to apartment devel-
opers. Right now, we have a site
in Riverfront Park and there is a
huge amount of interest in it.”
Meanwhile, the supply of
new apartments is growing at a
time when land prices and con-
struction costs are rising, which
means that developers will need
to get higher rent prices to justify
new construction, David Potarf
of CBRE pointed out.
In other words, rental rates
would need to continue to soar
to justify new construction.
“I think we might see less
come out of the ground in the
next year or two than we have
seen in the past two years,”
Potarf said.
While not addressing the Ten-
nyson and 38th site specifically,
he said when apartment devel-
opers start to pass on sites that
might have been seen as ideal
for new development a year or
two ago, “at a micro level that
might signal a little bit of a pull-
back,” on construction.
“It really all is site specific,”
he said.
However, Bush, founder and
senior partner of Littleton Capi-
tal Real Estate, cautioned not to
read too much into selling the
site for a Natural Grocers instead
of to an apartment developer.
When his group first bought
the site, its intention ultimately
was to develop the parcel itself,
but it decided to sell it, given
the strength of the local market,
he said.
“I’m not sure it is given that
we would have received a better
return if we sold it to a multi-
family developer or developed
it ourselves,” said Bush.
Steve O’Dell, a land brokerage
expert at ARA Newmark, said
Bush’s assessment has a lot of
merit.
The Natural Grocers develop-
er paid cash and closed the deal
much more quickly than a typi-
cal apartment developer would
have, O’Dell said.
Typically, an apartment devel-
oper won’t close on the land
until the site plan is in place, he
said.
“And that is when they usu-
ally start to raise the capital,”
O’Dell said, so the process is
much longer for an apartment
developer than for a retail devel-
oper.
Also, the bowling alley site is
irregularly shaped and “I don’t
think it includes the hard cor-
ner,” O’Dell said.
“That would make it difficult
to maximize the density,” he
said.
O’Dell anticipates given the
shape of the property, an apart-
ment developer could only build
about 100 units on the site.
“That would mean the cost
would be about $42,000 or
$43,000 per unit, which is a high
price,” O’Dell said.
“It is worth it, because it is
such a great area,” he said. “But
I don’t think Jonathan left much
on the table by selling it for a
Natural Grocers instead of an
apartment developer.”
And, Bush wanted to be a
good neighbor. He has devel-
oped other retail developments
along that 38th corridor and is
developing the retail town cen-
ter at the former St. Anthony
hospital campus at Sloan’s Lake,
which is only a few minutes’
drive from the bowling alley site.
“We were trying to be thought-
ful,” Bush said. “We liked how
the building will be re-used and
repurposed by Natural Grocers.
We think Natural Grocers is
going to be an excellent addi-
tion to Tennyson and that entire
neighborhood.”
Potarf agreed that a Natural
Grocers would be a wonderful
addition to the neighborhood.
“Neighborhoods do need gro-
cery stores and retailers; you
can’t have just new apartments,”
he said.
Terrance Hunt, a broker with
ARA, said even if strictly from
a financial viewpoint “retail was
not the highest and best use for
that site,” there can be other fac-
tors in play.
Despite the perception of
some, developers do not always
seek to maximize their profits at
the expense of a neighborhood,
Hunt said.
While he did not discuss the
sale with Bush, he said by sell-
ing the site for a Natural Grocers
instead of an apartment devel-
opment, “He avoided the type of
protests that RedPeak received
when it was going to develop
the site at 32nd and Lowell,”
Hunt said.
Creating goodwill with neigh-
bors can pay future dividends
for developers when having to
deal with the city, he said.
Although it was not a factor in
this case, sometimes a developer
will voluntarily build less den-
sity on a portion of a site to get
smooth sailing on the rest of the
development, he said.
That said, if an apartment
developer wanted that site, he
would have had no problems
getting it off the ground, Hunt
said.
“If an apartment developer
came to us, I guarantee you we
would have had no problem
raising equity for that property,”
Hunt said.s