CREJ

Page 2 — Multifamily Properties Quarterly — May 2018 www.crej.com Letter from the Editor M arket forces are keeping us in check.That was one of the messages I walked away with after our March multi- family conference and put- ting this issue together. Despite some eager plans that others fear could lead to over building, our development mar- ket is reacting to external forces that are helping maintain a healthy balance of new deliveries and strong absorp- tion. When examining charts frommarket guru Cary Bruteig, it’s interesting to note that while every year it seems the number of permits for multifamily proj- ects grows, but the number of actual completions has stayed relatively flat – right around 10,000 units. In other words, we’re starting more projects than we’re finishing each year. There are several factors as to why the list of permitted and undercon- struction projects is growing, while the total completed projects remains about the same.The majority revolve around costs and labor. Notably, it’s taking a lot longer to get projects done.This starts with the land entitlement pro- cess, which can take up to 20 months today; a few years ago, it took about 12 months, Steve O’Dell, with ARA New- mark, told the audience. Moving into the project phase, while a 24-month cycle was expected for projects five or six years ago, said Mat- thew Schildt with the Dinerstein Cos., 30 months is now the best you can do.You have to plan for the worst – in other words, plan for a 28- to 30-month cycle. “If you don’t, you’re just fooling yourself,” he said. This extended construction period is largely due to labor shortages, which haven’t improved and he doesn’t antic- ipate a change coming anytime soon. Timothy McEntee withWood Part- ners agreed. For a typical garden proj- ect, the common 10-month expecta- tion is now 18 to 20 months. McEntee predicted only a recession or some type of market reset will offer relief. What’s more, since 2010, project hard costs have doubled; and, in the last few years, they’ve increased 20 to 30 per- cent, he said. For example, there’s been dramatic lumber cost increases, and tariffs concerns are creating new com- modities issues. While all these factors could sound crippling, the Colorado multifamily market continues to hum along, defy- ing expectations. In fact, absorption has stayed strong, even though rents have gone up 60 percent in the last 10 years, according to Jeff Hawks with ARA. So, were panelists anticipating the 10,000 units a year rate to continue? Not necessarily.Taking into account all the above-mentioned challenges as well as lending getting tight, the number of planned projects will prob- ably start to decrease. But if 10,000 is the maximum number of units we can accomplish in a given year, these exter- nal market forces may help us stay healthy. Michelle Z. Askeland maskeland@crej.com 303-623-1148, Ext. 104 External market forces Contents 4 6 8 10 12 14 16 18 20 22 24 26 28 30 35-44 Almost all signs point to momentary equilibrium Bill Evans Investors continue to eye Denver favorably Greg Price Northern Colorado has even more room to grow Jake Hallauer Life companies aggressively seek multifamily Alex Riggs Fannie Mae, Freddie Mac generate lots of green Charlie Haggard and Michael C. May DST could be the answer to multifamily challenges Jeff Hertz 1st CO multifamily project capitalizes on C-PACE Eric V. Snyder Landmark case addresses special district financing Neil L. Arney and Mia K. Della Cava Developing affordable housing on challenging sites Tom Otteson Document gaps cause construction headaches Jonathan Price and Chad Stinnett Creating multigenerational multifamily communities John Yonushewski and Brian Milnick Creative financing paves way for social impact Ralph Lowen Condo development increases in Cherry Creek Liz McDonald Package lockers: The latest resident amenity craze Georgianna Oliver Affordable Housing Spotlight

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