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August 2017 — Multifamily Properties Quarterly — Page 35
in the fall than in the spring. Fol-
lowing a dip in occupancy and rents
in the past five years, I have seen a
strong rebound in occupancy and
rental rates immediately after.
While condo development may
begin to ramp up given the recent
construction defect reform legisla-
tion, which was passed in the state,
and the favorable ruling by the Colo-
rado Supreme Court in the Vallagio
case, I don’t expect this to have a
significant impact on the apartment
market for several years, if not much
longer, due to ongoing high insur-
ance costs and a lack of developers,
insurers, contractors and architects/
engineers willing to take the risk on
condo developments as well as the
high cost to develop this product.
Given the strong tenant demand
for apartments, driven by ongo-
ing population and employment
growth and the supply constraints
mentioned, I expect to see deliver-
ies remain relatively staggered and
the apartment market continue to
expand for at least the next two to
three years, barring any unforeseen
black swan event. V
in addition to employment and popula-
tion trends.There has been a clear shift
in the new construction pipeline over
the past few years, and its impact on
effective rent growth is clear.
We were tracking about 28,500 new
construction units in the planning phase
in 2015.That number slid to just over
12,000 in 2016 and was at 4,500 through
June. Projects under construction or
entering the early phase of lease-up
totaled about 21,000 units in 2015, about
28,000 units in 2016 and just over 30,000
units for 2017.The number of units in
full lease-up with construction com-
pleted has held steady at about 4,900 for
all three years.This all reflects a clear
movement from planning in 2015, to
construction and beginning of delivery
in 2016 and 2017. Looking ahead into
2018, the last remaining units of the
initial planning boom in 2015 will be
entering the market and will put addi-
tional pressure on the top asset tier that
already is showing some signs of rent
growth slowdown.
Multifamily overall in Colorado had
superior effective rent growth figures
in 2015 compared to both 2016 and
2017.This held true across all four asset
classes. However, the first half of 2017
saw the highest absorption overall and
across all classes, except D, for this
three-year timeframe. Colorado is a
growing market, and short of a prema-
ture increase in planned new construc-
tion, the outlook for the rest of 2017 and
the first half of 2018 is bright. V
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and fully renovating them or
adding significant upgrades.
For example, in Colorado
Springs, there have been
dozens of Class C properties
renovated over the past 36
months, resulting in dramati-
cally increased rent levels and
property values.
Unlike stock in many
other Front Range markets,
value-add opportunities still
are abundant throughout
Aurora and Colorado Springs.
In Aurora, over the past 12
months, 1980s built proper-
ties have averaged around
$168,000 per unit, compared
to 1960s era properties aver-
aging just under $90,000 per
unit. Comparatively, Colorado
Springs’ older Class B and
C categories have seen less
fluctuation in price per unit
and sales volume based on
the decade of construction.
In 2016, apartment build-
ings constructed in the 1960s
and 1970s traded at around
$80,000 per unit, while 1980s
built construction traded at
$108,000, on average. As of
late, there have been sev-
eral sales, and current for-
sale product, at well above
$100,000 per unit for upgrad-
ed or well-located 1970s prod-
uct in both markets, continu-
ing to state the increasing
strength of the markets.
Firm economic growth and
market fundamentals should
continue to propel investment
activity throughout Colorado
Springs and Aurora in 2017
and 2018, with value-add
opportunities remaining more
prevalent in these markets
than most other Front Range
submarkets. Barring substan-
tial interest rate movement,
both multifamily markets
should remain competitive,
with increasing tenant and
investor demand, creating a
further decline in going-in
cap rates. Further, Colorado
Springs and Aurora continue
to attract new out-of-market
buyer pools, boding well for
continued seller confidence
throughout the rest of the
year and into 2018.V
Price
ALN Apartment Data Inc.