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— Multifamily Properties Quarterly — November 2016

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 nearly $6 billion* in multifamily loans in 2015

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.

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Andrew Dale at 720-356-6408

andrew.dale@prudential.com

Prudential Mortgage Capital Company’s

loan programs include:

Fannie Mae DUS

loans

Freddie Mac Program Plus

Specialized affordable housing programs

FHA

Conduit

Prudential’s life company portfolio and

proprietary balance sheet program

T:10.25”

T:7.25”

emand for rental housing is

not slowing and, for the next

several years, the industry

will continue to thrive, espe-

cially in Denver. I maintain

that there is more demand forth-

coming than the Mile High City has

previously experienced. The prosper-

ity of Denver’s apartment market

can be narrowed down to the main

indicators of population and popula-

tion growth. Denver experienced a

substantial amount of growth as of

late, yet the rental market has not

realized much of this growth.

Denver has been in the top-five

cities in the country for population

growth for a handful of years, help-

ing make Denver a top apartment

market. However, there is a portion

of Denver’s population that still

remains untapped. This yet-to-be

unleashed demand factor is living

with its parents currently.

The overall impact of the millen-

nial generation has been well docu-

mented. Many of these individuals

between the ages of 18 and 34 are

still – or back – living at home, and

there are a great deal of them. The

U.S. Census Bureau’s American Com-

munity Survey recently noted that

in Colorado, 24.6 percent of millen-

nials are living at home. With the

number of millennials in Colorado

approaching 1.3 million, this equates

to roughly 320,000 potential renters

in Colorado who have yet to enter

the market and most live in metro

Denver. To put this number into per-

spective, metro Denver’s apartment

inventory currently totals 320,000

units.

The millennial generation has

transformed traditional ideas of how

and where to live

and has overtaken

baby boomers in

total population

in metro Denver.

Millennials are not

looking to settle

down like previous

generations; the

average age of mar-

riage is 28, where it

was 21 in 1960, and

the average stu-

dent debt of a 2015

graduate is $37,172.

Apartments offer the freedom for

the desired lifestyle, including travel,

no home maintenance and no long-

term commitments to a specific

location. This is not another typi-

cal cycle. Instead, this is the begin-

ning of the reshaping of how young

Americans live.

Today, the average cost of a home

in metro Denver is $425,921, mak-

ing home purchase inaccessible for

many. The American dream no lon-

ger consists of the suburbs, two-plus

children, a golden retriever and a

white picket fence. For many, priori-

ties of how and where they live cen-

ters on convenience, socialization

and overall lifestyle. Generations

coming of age today are defining

the new American dream, and it is

constantly evolving. No other genre

of real estate is better prepared for

these adaptations than apartments.

The largest and, potentially, most-

influential generation, Gen Z, has

just begun to make its mark on soci-

ety. This group of after-millennials

(ranging in age from roughly 4 to 17)

is beginning to graduate from high

school and is more in touch with

technology than any group before it.

This generation will be more mobile,

more adaptive, more conscience of

lifestyle and will continue the evolu-

tion of the housing world that mil-

lennials started. In addition to new

requirements for future homes (net-

zero emission development, excel-

lent locations, built-in tech, etc.),

we will see an even more drastic

manipulation of the historical trends

that developers have used to help

determine what and when to build.

Historically, absorption in Den-

ver has been plus-or-minus 4,500

units per year in relation to roughly

the same number of units built per

annum, or a 1:1 ratio. This, how-

ever, is changing. We are now seeing

higher demand, more in line with

1.25 units absorbed for every one unit

built. This means that demand is

exceeding supply on a historical basis

by nearly 1,000 units per year. I argue

that this trend is both very real and is

working its way north of that number

with every year that passes.

The vacancy rate in metro Denver

was expected to increase to more

than 6 percent for two years now,

but this has yet to happen. Today,

we remain at a 5 percent average

vacancy rate. There are a number of

influences that contribute to this,

but what will remain at the core of

demand is population and popula-

tion growth. Denver is an amazing

place to live, it is an internation-

ally recognized destination and we

are experiencing unprecedented

growth.

Our city is adapting to the shifts

in culture and influences injected

from new and maturing genera-

tions. Organically, Denver has what

many cities are struggling to cre-

ate – quality of life. The amount

of construction in Denver today is

a necessity. From a historical per-

spective, the total number of units

under construction can appear star-

tling; however, in reality, housing is

being created for that silent popu-

lous waiting to rent.

Millennial-driven demand is still growing

Andy Hellman

Senior managing

director, ARA

Newmark, Denver

Market Update

ARA Newmark

Population in metro Denver has steadily increased in Denver since the early 1990s.