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Page 32 — Multifamily Properties Quarterly — November 2021 www.crej.com Builders is upgrading the outdated kitchens with new cabinets, quartz countertops, tile backsplashes and new appliances, while also refinishing original hardwood floors and upgrad- ing bathrooms. Units are flagged for renovation when vacated by the pre- vious resident, ensuring a steady, but not overwhelming, approach to a full- building upgrade. The first round of revitalized units were immediately leased at a rate consistent with the owner’s goals. n Bring in the experts early. With unpredictable supply chains, labor shortages and cost increases in com- modities and materials of all kinds, undertaking a renovation right now is rife with challenges. Uncertainty can make budgeting difficult, and if you add in potential complications that can come with working on older buildings, it can feel nearly impossible to get an accurate estimate on project costs. That’s why it’s best to involve a trusted general contractor early in the process. Include the GC during the underwriting stage, so it can help esti- mate costs of materials and labor and give you a construction timeline that is informed by education and experience. A good general contractor also has the know-how to help you determine what kind of budgeting and scheduling contingencies you should build in to accommodate possible complications with plumbing, wiring or other poten- tially problematic elements that can be found in an older building. n Scale your efforts. We find that owners of smaller multifamily proper- ties regularly own or are interested in purchasing more than one asset. In this case, we recommend establish- ing a design standard and making choices that work for all the targeted properties. Coordinating these choices requires a little bit of planning to ensure that what you’re getting will work across multiple properties, but the investment in the planning stages pays off in saved effort during the reno- vation process. By applying the same design choices across multiple properties, you save time and money on your design budget and simplify the procurement process for your construction team. Addition- ally, using the same materials across more than one project increases oppor- tunities for economies of scale in your product purchases. Between the combined 34 units being renovated at bothThe Elaine andThe Ernest, a multifamily community built in 1957, there’s an estimated 14% vol- ume savings on materials. The owner also captured savings with the design teams by avoiding selection of new finishes. Down the road, keeping a consistent design scheme and appliance program for multiple properties can make over- all management easier, frommain- tenance to marketing, and can help establish a recognizable brand for your properties. n Keep the peace. As you’re in the process of upgrading your property to attract new residents, it is, of course, important to keep your existing resi- dents comfortable. An experienced construction partner can help you smoothly navigate a staged construc- tion schedule, keeping your current residents happy and getting work done as efficiently as possible. By completing the work in phases, you can minimize disruption to your cash flow as well. Right now, we are in the process of upgrading all 11 units and com- mon areas at The Ernest. Updates will include new kitchen cabinets, quartz countertops, tile backsplashes, new appliances and remodeled bathrooms with new tile and vanities. In order to minimize disruption to residents, work begins no earlier than 9 a.m., when most tenants have left the building. Higher noise level activities also are pushed to the middle of the day. Adaptability is the name of the game in real estate today, and owners of Denver’s iconic historic multifam- ily properties are smartly looking for ways to pivot to meet the demands of today’s renter.With a knowledgeable construction team, you can chart the best course forward to maximize the value of an older property. s davidellena@taurus-builders.com Continued from Page 1 Market Trends 2019 for every month since April 2020. However, the data we have is through August of this year. The original Centers for Disease Control and Prevention eviction moratorium ended Aug. 26, and the extension, which applied to areas of high trans- mission, expired Oct. 3. The unem- ployment payments established by the Coronavirus Aid, Relief and Eco- nomic Security Act expired Sept. 6. As of May of this year, the data show month-over-month increases in evic- tions. The latest foreclosure statistics, as reported by the Denver Office of the Clerk and Recorder, show that as of August of this year, new foreclosure starts were trending up month over month and down over year-to-date 2020. Releases of deeds of trust were trending down month over month and up year to date over year-to-date 2020. It remains to be seen if evic- tions and foreclosures will continue their upward trend. n Price pressures. In addition to increased demand and supply con- straints, transaction volume, rent growth, labor and material shortages, and economic uncertainty have all helped keep prices up. Denver’s multifamily sales volume was $3.1 billion for the first half of this year. That’s almost double the total for the same period last year, placing Denver in fourth place nationwide for transaction activity. The Mile High City bested Miami for the metric and followed Phoenix, Dallas and Atlanta. The price per unit, however, was the highest of the top five transaction volume markets in the country at $308,668. Multiple factors are contributing to the city’s high prices. Nationally, ask- ing and effective rents for multifam- ily properties reached historic levels in the third quarter. In Denver, rent growth registered at 8.11% year over year in June. This placed it in ninth place for the top Western markets for rent growth. This rent growth – coupled with historically low interest rates – has been a beacon for investors seeking a hedge against continued inflation. On top of that, labor and materi- als shortages have been all over the news. The lack of available workers is being reported across the vocational and professional spectrum. The labor shortage has prompted many employers to increase wages and benefits – a cost that eventually gets passed down to consumers or, in this case, renters and homebuyers. Meanwhile, raw materials prices have hit historic highs. During the COVID-19 era, lumber, plywood, No. 2 diesel fuel, steel, and copper wire and cable all expe- rienced price increases over 100%. Whether building from scratch or making renovations, these increases are being passed through to renters and homebuyers. A recent survey of homebuilders showed that 66% of respondents said that they were increasing their prices to cover the material increases. The increase in prices have pushed Denver’s market cap rates to historic lows and well below the national average. Not surprisingly, leading the cap rate compression trend are the city’s four- and five-star properties. Projections show that cap rates will increase slightly in 2022 and con- tinue a stable upward trend over the next few years as the market normal- izes, interest rates increase and sup- ply chain constraints ease. While we have no control over how long this market will last, investors do have control over their portfolios. Now is the time to analyze the shifts taking place in the market, consider evolving trends and take action to optimize their portfolios to thrive regardless of what comes down the multifamily pike. s ariddle@capstone-companies.com Riddle Continued from Page 12 to have more children and slightly older children, on average, than those apartment households that had children. The notion that households with children typically want more space is not new, but the larger number of SFR households with children compared to house owners was unexpected. One possible explana- tion is that a disproportionate share of single-parent households live in single-family rentals and are priced out of the ownership market given their single income. Not everyone who wants to live in a single-family home can afford to buy, which is one reason why home- owners tend to have higher incomes than renters. In 2019, the median single-family owner household had an income of $88,433, compared with $51,776 for the median single-family renter household and $41,420 for the median apartment household, adjusted to 2020 dollars. The growing disparity between rapidly rising house prices and rela- tively stagnant incomes is likely to continue to cause more households – particularly those with children – to seek out single-family rentals as an alternative. How big is the gap between income growth and house prices? For-sale single-family home prices rose an average of 3.6% over the past 20 years, 5.1% over the past 20 years and 6.4% over the past five years, accord- ing to the Federal Housing Finance Agency home price index. Mean- while, the median household income increased an average of 0.5% annu- ally over the past 20 years, 1.5% over the past 10 years and 3.4% over the past five years, according to the Cur- rent Population Survey. n Single-family built-for-rent gains attention. The shortage of single-fam- ily houses – whether to buy or to rent – has resulted in a growing subset of institutional investors creating build- to-rent communities that are operat- ed like investment-grade apartment communities, with consistent brand- ing, housing quality and vintage, only the units are single-family homes. While single-family BTRs represent a small fraction of all single-family homes built, the market share is growing. From 1974 to 2007, BTR homes were approximately 2% of all single-family starts. From 2008 to 2020, however, this average share rose noticeably to 5% per year. When looking at the universe of all hous- ing units built specifically for rent, an average of 7% of annual starts were single-family between 1974 and 2007; this share rose to 11% from 2008 to 2020. n There is enough room for everyone. The high costs of buying a single- family house are likely to increase the demand for single-family rent- als going forward. However, there is little reason to believe that this growth will come at the expense of apartments. There is a high degree of diversity among American house- holds – whether it be in terms of age, income, living arrangement or other unobserved preferences – which translates into demand for a wide variety of housing products. The apartment market’s post-COV- ID-19 rapid rent growth, for example, is testament to the strength of the underlying demand for apartments, as well as the market’s limited sup- ply. This tightness in the housing market illustrates that, after decades of underproduction, we need to build more housing of all types. s Claire Gray, NMHC research analyst, contributed to the article. kduty@nmhc.org Duty Continued from Page 24 units we do have are equipped to meet modern needs is vital. Here again, col- laboration with the right partners is essential to ensuring strategic, quality upgrades that will stand the test of time without breaking the budget. Engaging with Santulan Architec- ture and Milender White Construc- tion, Denver Metro Village was able to add a new 185-space parking structure, 8,123 square feet of com- mercial space and 19 additional residential units. The renovation also included significant upgrades to the 191 existing units and amenity spaces. And all work was completed without displacing the existing resi- dents. We have a similar partnership in place with Silver Key Senior Services, Golden West and Senior Housing Options to bring new affordable senior housing to Colorado, and overall these affiliations between for-profit and nonprofit organi- zations are increasingly common. Issues as big and complex as Colora- do’s housing challenge won’t be solved by one type of enterprise working alone. Providing accessible, quality housing to seniors and income-restricted people of all ages in metro Denver and across the state will require a joint effort with partners who are willing to lean on and learn from one another. s Glade Continued from Page 30

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