CREJ

Page 4 — Multifamily Properties Quarterly — August 2020 www.crej.com Market Update TO ACCESS THE COLORADO MULTIFAMILY REAL ESTATE MARKET, CONTACT THE MARKET LEADER. CREATING INVESTOR VALUE THROUGH EXPERTISE Maximizing value starts with our unparalleled market expertise. By leveraging in-depth local market knowledge, we help each client design the right investment strategy. Our sales force of nearly 2,000 investment professionals provides access to the largest pool of qualified investors, including one of the most extensive databases of exchange buyers. At Marcus & Millichap, achieving optimal results for clients is not just a goal, it’s a 49-year tradition. Offices Throughout the U.S. and Canada www.MarcusMillichap.com BELOW IS A SAMPLING OF OUR RECENT ACTIVITY Multifamily Land Salida, CO AVAILABLE Real Estate Investment Sales » Financing » Research » Advisory Services SPECIALIZATION » EXPERTISE » RESULTS Greg Price Senior Vice President Investments Senior Director, National Multi Housing Group Denver Office (303) 328-2047 greg.price@marcusmillichap.com Jason Hornik - Senior Associate jason.hornik@marcusmillichap.com Greg Parker - Associate greg.parker@marcusmillichap.com JUST CLOSED JUST CLOSED JUST CLOSED Kent Guerin - Associate kent.guerin@marcusmillichap.com Xiomara Garcia - Associate xiomara.garcia@marcusmillichap.com 149-Unit Multifamily Aspen, CO 60-Unit Multifamily Grand Junction, CO 22-Unit Multifamily Denver, CO JUST CLOSED 10-Unit Multifamily Golden, CO Corey Anderson - Associate corey.anderson@marcusmillichap.com 58-Unit Senior Housing Lakewood, CO AVAILABLE C OVID-19 has disrupted the commercial real estate industry in more ways than we can count. Some of those changes have been positive, such as accelerating the industry’s embrace of virtual leasing. Others, however, threaten to create long- term impacts that will negatively affect our communities. Top among those is the effect of the pandemic on multifamily construction. The U.S. had a shortage of apart- ments before COVID-19. Accord- ing to research conducted by Hoyt Advisory Services, the U.S. needs to build at least 328,000 new apart- ment homes each year through 2030 to accommodate household growth and losses to the existing stock. We’ve only hit that mark three times since 1989. Prepandem- ic, 2020 was likely to be the fourth. We have been here before, sadly. In the Great Recession, apartment construction virtually shut down. Starts plummeted from 266,000 in 2008 to 97,300 in 2009, and it took several years for construction levels to rebound to prerecession levels. The end result of that contraction was a housing affordability crisis that spread beyond the coasts to middle America and beyond low- income households to middle- income families. In other words, beyond the immediate impact of construction slowdowns on the firms engaged in housing production, there are meaningful, long-term impacts to communities. For that reason, the National Multifamily Housing Coun- cil created a COVID-19 construction survey to help inform the industry and policymakers how the state of apartment con- struction is chang- ing during this health crisis. When the national state of emergency was declared, states took varying approaches to housing produc- tion. Some allowed work to continue, deeming it to be essential, while others shut down all job sites. In late March, NMHC successfully lobbied the Depart- ment of Homeland Cybersecurity and Infrastructure Security Agency to include residential property man- agement and residential construc- tion as “essential workers” under the CISA guidance that many juris- dictions were relying on to deter- mine what work should continue during the state of emergency. That, plus new job site practices to better protect worker health, helped convince more localities to allow construction to proceed, and by June, construction was allowed in all 50 states. Nevertheless, many construction projects have stalled. On July 20, NMHC released the results of the fourth iteration of its survey, which found that more than half (57%) of respondents said they currently are experiencing construction delays in jurisdictions where they operate. n Significant construction delays reported. Of this group, 83% reported experiencing delays in permitting, up from 76% in the first round of the survey. Fully 71% of those expe- riencing construction delays are experiencing delays in starts, up from 59% in round one. The causes for delays were numerous. Over half (56%) blamed permitting, entitlement and profes- sional services. Economic uncer- tainty was the second-most com- mon response at 52%, followed by availability of construction financ- ing (48%) and health and safety concerns (28%). Sixteen percent said projects were no longer economi- cally feasible. Firms also reported delays because of material shortag- es or crewmembers testing positive for the virus. How long do firms expect these delays to last? Half (52%) said less than six months, while 44% predict- ed six to 12 months. n Pauses outnumber cancellations. Two-thirds of respondents have paused at least one construction project since March 23. Just under a quarter (23%) expect to resume construction, but 18% are uncertain if they will resume work. Only 2% of respondents have cancelled projects entirely, and over one-third (36%) indicated they have not paused or canceled operation at this point. Moreover, over half (51%) of respon- dents indicated that the recent spike in coronavirus cases has affected their operations in some way. n COVID-19 impacting deal prices and financing. In addition to caus- ing delays, the pandemic also is impacting deal prices and financ- ing. Fifteen percent reported deals being priced down 5% or more, 11% are seeing deals priced down 3% to 4% and, 15% of respondents, down 1% to 2%. At the other end of the spectrum, 8% reported deals being priced up 1% to 2%, and 3% of respondents are seeing deals going for 3% to 4% higher. Survey respondents also reported widespread issues in obtaining financing or construction loans since mid-March. Nearly a quarter (21%) were unable to obtain financ- ing at their desired price point, and 2% were unable to obtain financing at all. n Material shortages and price increases materialize. Over a third (36%) of respondents reported materials shortages, the highest share recorded since the first survey was conducted. Specific shortages reported include appliances (41%), cabinets and countertops (36%), electrical components (23%), fix- tures (23%), tile/wall finishes (14%) and AC/condenser units (14%). While only a handful of respon- dents reported price increases in the first two iterations of this sur- vey (5% and 4%, respectively), that share has now jumped to 18%. Lum- ber and other structural materials, such as concrete, steel or trusses were the most commonly cited items as being more expensive. n Labor constraints growing. While the majority of respondents have not been impacted by availability of labor, the share of respondents who indicated they still are facing labor constraints increased 14 percentage points during this round of the sur- vey, from 25% to 39%. Developers report delays in permitting, starts Kim Duty Senior vice president, public affairs and industry initiatives, National Multifamily Housing Council Please see Duty, Page 26