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Page 10 — Multifamily Properties Quarterly — August 2017
T he Class A market-rate
apartment market in North-
ern Colorado remains quite
strong, despite a number of
projects in lease-up and a
higher number of units under con-
struction and in the pipeline than
over the past several years. While
there are a significant number of
additional projects in the pipeline,
it is important to note that I don’t
believe all of the proposed projects
will be built, and I expect the tim-
ing of many of the deliveries to be
pushed further into the future than
some developers may be anticipat-
ing.
There are a variety of reasons for
this, including, but not limited to:
•Entitlement and permitting time-
lines taking longer than in the past,
•Development impact fees and
raw water costs increasing in some
municipalities,
•Geographical and political barri-
ers to entry,
•Equity requirements from many
lenders being approximately twice
what they have been in this cycle,
•Some lenders pulling back on
apartment construction lending due
to high portfolio concentrations,
•Potential for interest rate
increases,
•Construction costs (particularly
labor) continuing to escalate quick-
ly, and
•Construction delays due to labor
shortages.
With a watchful eye on apartment
trends, interest rates, construction
costs and feasibility of projects in
the region, we estimate that of the
nearly 4,000 units
proposed (within
institutional qual-
ity and scale
communities, not
including com-
munities under
construction), only
approximately
one-third or less
of those units will
break ground in
the coming year.
Presently, there
are approximately
1,300 units under
construction
(again, within institutional quality
and scale communities). I still view
Northern Colorado as a favorable
environment for apartment devel-
opment, and I continue to see posi-
tive unit absorption, strong occu-
pancies and rents, as well as a lack
of significant rent concessions in
the market, although nominal con-
cessions are being offered at some
communities.
• Apartment demand. I believe
demand for apartments will remain
strong for the foreseeable future
given that Northern Colorado con-
tinues to see solid population and
employment growth, as well as
rapidly rising home values, which
keeps many would-be homebuyers
in the rental market. Fort Collins/
Wellington/Timnath’s median home
price is projected to reach $395,000,
while Loveland/Berthoud’s median
home price is projected to reach
$338,000, and Greeley/Evan’s medi-
an home price is projected to reach
$265,000 in 2017, according to The
Group Inc.
Additional factors driving apart-
ment demand include living prefer-
ences of the millennial and baby-
boomer generations and the relative
nonexistence of condo develop-
ment, although there are a handful
of condo projects under develop-
ment now.
Many people within the millennial
and baby-boomer generations are
drawn to renting downtown, urban
or suburban apartments, which
offer close proximity to dining,
entertainment, culture and night
life, while also featuring the com-
munity and shared spaces within
the apartment buildings. Even if
millennials can afford to move to a
house in a more suburban neigh-
borhood, many will choose to live
in apartments instead, according
to Forbes Magazine. This is likely
due to their preference for flexibil-
ity, mobility, and little or no home
maintenance.
Fifty percent of millennials are
renters. Almost half of all adults
and 73 percent of millennials,
report they are “very” or “somewhat
likely” to move in the next five
years, according to the Urban Land
Institute. Apartment living allows
individuals to move with more ease,
rather than being tied to one place.
The number of millennials choosing
to rent rather than own results in a
decline in homeownership, leaving
a record-low percentage of Ameri-
can homeowners under the age
of 35 since 1982, according to U.S.
News & World Report.
When comparing year-over-year
statistics for institutional quality
and scale communities, which we
survey biannually, the occupancy
rate for the properties declined
slightly from 97.67 to 96.69 percent.
The average monthly rental rate, per
unit, decreased to approximately
$1,405 from a previous rate of $1,425.
This equates to an average monthly
rental rate decrease of 1.4 percent
year over year. On a per-square-foot-
per-month basis, the average asking
rental rate decreased from $1.53 to
$1.50, a decrease of 2.03 percent over
this same time period.
Of most importance, the average
gross rent per unit per month, at
the current occupancy and asking
rental rates, decreased from $1,389
to $1,357; a decrease of 2.31 per-
cent year over year. These figures
do not include concessions, which
are minimal in the present environ-
ment, nor do they include items
that would produce other income,
such as garage rent (averaging $88
per one-car-detached garage, per
month); pet fees, deposits and rent;
amenity fees; administration fees;
application fees; and vending and
laundry income.
It is important to note that I attri-
bute the slight decline in occupancy
and effective rents, year over year,
to 474 units being in lease-up at the
same time in the Loveland area. I
have seen this have a similar impact
in the past and the softness appears
to have some seasonality, as the
lease up impacts the market more
*As of 12/31/2016.
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