CREJ - Multifamily Properties

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Page 6 — Multifamily Properties Quarterly — January 2015
R esidential multifamily proper-
ties have become a favorite
among investors, making the
real estate category one of the
most popular in the region.
In 2014, Boulder County continued to
see unprecedented
activity through new
construction as well
as existing sales
in the multifamily
market. So what will
the market look like
this year? I expect
to see construction
slow down, vacancy
rates increase and
rents level off. Let’s
discuss what factors
are driving the mar-
ket locally.
Demographics.
A variety of fac-
tors contributed to the multifamily
Boulder boom. One of them hinges
on investors banking on widespread
news about shifting views around
home ownership. The MacArthur
Foundation, for example, found that
57 percent of all Americans believe
that renting a home is more appealing
than owning.While the generational
attitudes toward home ownership
may very well be feeding the demand
for apartments in Boulder, there are
a few more local economic factors to
consider.
Boulder County has continually
been named one of the top 10 desir-
able regions in the country to build a
business, according to Businessweek.
Couple that with the strong local
economy and a high barrier to entry
for purchasing a home in the county,
and the output has been a strong
demand for apartments, making
them a safe investment. Increasingly,
housing inventories are tightening
and we are seeing a dramatic increase
of families migrating to Colorado. For
example, between 2000 and 2013, Col-
orado's population increased by more
than 22 percent, a pace that beat the
nation's rate of growth by 12 percent.
Economics. Real Estate Investment
Services reported that the Denver
metro multifamily market reached
a low vacancy rate of 3.6 percent in
2014, and the Apartment Association
of Metro Denver reports that Broom-
field and Boulder are at 3.3 percent
vacancy. Look at both measurements
compared with other investment
classes, such as office or industrial
property vacancies, which are cur-
rently two to three times higher,
ranging from 6 percent to 9 percent.
Even as the vacancy rate remains low,
rents have continued to rise. Accord-
ing to the Apartment Association of
Metro Denver, the average rent rose
7.4 percent during 2014. The rental
price for third-quarter 2014 in Boulder
and Broomfield was approximately
$1.50 per square foot, with many new
projects marketing rents exceeding
$2 per sf. Nationally, we see a similar
trend. Axiometrics reports that the
national annual effective rent growth
in November 2014 reached 4.7 per-
cent, the strongest result of the year,
as well as since the crippling reces-
sion of 2008.
So what does this mean for your
Boulder County multiunit property
in 2015? There continues to be strong
interest from investors seeking mul-
tiunit income properties. This is due
in part to an environment provid-
ing a low risk (with unprecedented
low vacancy and increasing rents)
and also due to speculation that the
demographic change in attitudes
away from home ownership will con-
tinue to increase demand for rentals.
Currently, there is a gap between
supply and demand with demand for
housing outpacing supply.With the
number of new units coming on line
in the next few years, as well as the
rents for some of these new projects
passing $2 per sf, one has to wonder
if demand for rentals will taper as
the cost to own a home becomes as
affordable or, in some instances, more
affordable than renting. Consider
this: A one bedroom 600-sf apart-
ment in Boulder can cost as much
as $1,200 per month, whereas that
same monthly payment is enough for
someone to be able to afford to pur-
chase a $250,000 to $275,000 home or
condo.
This year, I believe we will see an
increase in multifamily sale transac-
tions as the conditions are prime to
consider selling and the demand from
investors continues. Vacancies likely
will increase as new projects provid-
ing amenities like clubhouses, work-
out facilities and pools compete with
older properties absent of such ame-
nities. Rents will level off, as renters
will have more options to consider.
All in all, 2015 will be another exciting
year for the multifamily market.s
Boulder Update
Todd Walsh,
CCIM
Commercial broker
associate, The
Colorado Group,
Boulder A look at multifamily properties sold compared to the gross rent multiplier