CREJ

Page 34

— Multifamily Properties Quarterly — August 2017

www.crej.com

Market Update

effects of the changes and subsequent

condo development will not impact

the area’s booming apartment market

in the near future.

Basing this discussion on an aver-

age condo sales price of approximately

$320,000, according to the June Denver

Metro Association of Realtor’s market

trends report, with the addition of

property taxes, insurance and home-

owner association dues, the final

monthly mortgage payment is $1,771,

on average (see chart for details). A

close look at the financial breakdown

indicates the delta between owner-

ship of entry-level product and renting

is approximately $200 per month in

the Denver metro area, based on the

Apartment Association of Metro Den-

ver’s second-quarter report.

This marginal price difference, how-

ever, is not the main financial hurdle

for first-time buyers. The 20 percent

down payment of $64,000, in this

scenario, is nearly impossible for first-

time condo buyers still in the early

stages of their professional careers and

often burdened with student debt and

other financial obligations. Most pro-

spective entry-level buyers simply do

not have the earning power to save the

amount of money it takes to pay that

initial down payment.

Lack of entry-level inventory and

financial hurdles aside, renting offers

additional benefits that outweigh the

potential upsides of condo ownership

for many consumers. Mobility options

are increased with renting, and the

millennial generation is known for

craving new experiences, whether in

entertainment, employment or living

arrangements. Owning requires a dif-

ferent mindset, one that is focused

more on stability and continuity. If

consumers decide to rent, the costs

associated with condo ownership

can be focused instead on travel and

transportation or on payment of stu-

dent loans. Renting allows millennials

to live close to downtown while also

taking advantage of the countless

amenities offered by Denver’s newest

multifamily projects – something that

is not feasible in the entry-level hous-

ing market.

What does all this mean for apart-

ment owners in the Denver market?

Vacancy rates are low, 5 percent

in the Denver metro area, despite

record-breaking multifamily con-

struction. This is especially remark-

able considering the historic levels

of in-migration. With metro Denver’s

population expected to increase

another 9.5 percent between 2015 and

2020, there will not be enough entry-

level housing inventory to keep up

with demand. Condo development

will increase as legislation is revised,

but this alone will not alleviate the

pressure on the market. The metro

Denver market will continue to blos-

som with new multifamily develop-

ments as all indicators point to a

future where entry-level housing is a

thing of the past.

Continued from Page 1

ARA Newmark

For an average condo, with a sales price of $320,000 and the addition of property taxes,

insurance and homeowner association dues, the final average monthly mortgage payment

is $1,771. This would be in addition to the $64,000 (20 percent) down payment.

lenders has exploded over the last

few years with several equity funds

shifting their focus to providing

senior debt to satisfy investor return

requirements. Short-term bridge

capital provides a compelling option

for value-add investors with flexible

terms, high leverage and generous

interest-only periods.

There is reason for optimism in

the Denver multifamily market.

Despite the continued noise around

overbuilding, slow absorption and

flattening rent growth, the market

fundamentals relative to population

growth and the local economy are

as strong as ever. Denver is a top

performer in wage growth (3 percent

per year since 2010), educational

attainment rate (top 10 in the coun-

try) and statewide unemployment

(2.3 percent, tied for the lowest in

the nation). A recent CBRE white

paper on the topic of multifamily

affordability showed that Denver is

still relatively affordable compared

to coastal markets. The average rent-

to-income ratio in Denver is approxi-

mately 23.2 percent, compared to

markets like New York at 56.2 per-

cent and the San Francisco at 40.9

percent. Even without wild rent-

growth projections, investors in Den-

ver’s multifamily market will enjoy

a long runway thanks to abundant

debt capital available with interest

rates still at an attractive spread to

cap rates.

Halsey

Continued from Page 4