Page 8
— Multifamily Properties Quarterly — March 2016
M
ultifamily properties are
trading at a record pace
and at record pricing
across the nation. In fact,
the fourth-quarter 2015
ended as the strongest quarter for
multifamily investment sales on
record, and 2015 total sales increased
by 23.5 percent year over year.
With ideal market conditions,
it’s no surprise that investors are
flocking to the asset class. While
Colorado Springs certainly benefited
from these national trends, the city
exceeded expectations and produced
back-to-back record-setting years.
Over the past 24 months, Colorado
Springs generated just short of $1
billion in apartment transactions.
To put this in perspective, 2014 and
2015 produced more apartment sales
than the previous six years com-
bined.
The assumption would be that this
pace is not sustainable but, in fact,
Colorado Springs actually may be
establishing a new normal. When
examining production over the past
two years, along with recent trends,
Colorado Springs seems only to have
scratched the surface of its vast
potential and is poised for yet anoth-
er record-setting year in 2016.
During the fourth-quarter 2015,
Colorado Springs recorded sub-5 per-
cent vacancy (4.22 percent) and aver-
age rents of $1.08 per square foot.
This represents the lowest vacancy
and highest rents the market has
achieved in the last 15 years.
Effective rent growth was solid at
7.5 percent year over year, but still
has room for growth in comparison
to the rent growth in Denver. During
the third-quarter
2015, Denver expe-
rienced an aston-
ishing 12.5 percent
increase, bringing
average market
rents to $1.52 per sf.
Historically, there
has never been a
gap larger than 30
cents between the
averages of these
two markets, with
the spread usually
closer to 10 cents to 15 cents per sf.
This abnormal gap puts Colorado
Springs in excellent position to post
double-digit rent growth in 2016.
Perhaps the most significant factor
in ensuring Colorado Springs’ contin-
ued growth in the apartment market
is a minimal construction pipeline.
Colorado Springs had only a mod-
est number of apartments delivered
over the past 12 years. The last time
the market delivered over 1,000 units
was in 2003, and the pipeline does
not project to match this volume
again in 2016 or 2017. In addition,
in the last two quarters, Colorado
Springs absorbed nearly 600 units.
At this pace, absorption alone could
easily push Colorado Springs’ vacan-
cy in the 3 percent range – a level
that hasn’t occurred since the mid-
1990s.
With rents considerably lower
than Denver and only a few newly
constructed communities, Colorado
Springs is positioned as an afford-
able alternative for renters wishing
to live in the Rocky Mountain state.
While renters are beginning to see
the value of living in Southern Colo-
rado, investors quickly caught wind
of these investment opportunities. Of
the 47 sales (10+ units) that occurred
in 2015, 21 transactions sold to
groups making their first purchase
in Colorado Springs. Ten of those 20
were making their first purchase in
the state.
While there has been an increase
in activity, prices still are very attrac-
tive in comparison to Denver. Across
all asset classes, the average price
per unit in Colorado Springs was
$88,337. In the same time period,
Denver produced an average sales
price of $151,193 per unit. This 40
percent discount in price per unit
when investing in Colorado Springs
as opposed to Denver has been one
of the key factors that produced sev-
eral record-setting transactions in
Southern Colorado.
In the past 12 months, ARA New-
mark represented the seller in two
of the highest price per unit trans-
actions in Colorado Springs history.
The 1966-built Sunset Creek sold for
the highest price per unit for 1960s
product at $120,161 per unit – sur-
passing the previous record by over
$25,000 per unit. More importantly,
at the time of sale, Sunset Creek not
only achieved the highest price per
unit for 1960s product, but also sold
Saul Levy
Associate, ARA
Newmark, Denver
Market Update
Prudential Mortgage Capital Company combines one of the
industry’s most experienced teams with extensive lending
capabilities and consistent performance in the Colorado market.
We originated $7 billion* in multifamily loans in 2014 and
focused on a variety of specialized property types including:
market rate housing, affordable housing, student housing, senior
housing and health care senior living. Once again, the numbers
prove it: We have the talent and resources to get your deal done.
PRUDENTIAL MORTGAGE CAPITAL COMPANY
WE GET IT.
DONE.
WE GE T I T. DONE .
Andrew Dale at 720-356-6408
Prudential Mortgage Capital Company’s
loan programs include:
Fannie Mae DUS
TM
loans
Freddie Mac Program Plus
®
Specialized affordable housing programs
FHA
Conduit
Prudential’s life company portfolio and
proprietary balance sheet program
© 2015. Prudential, the Rock symbol, and the Prudential logo are service marks of Prudential Financial, Inc. and its related entities. *As of 12/31/2014.
T:10.25”
T:7.25”
AAGP Andrew_NPQ_10.25x7.25.indd 1
3/31/15 1:30 PM
