CREJ - Multifamily Properties Quarterly - April 2015
The multifamily market in Northern Colorado continued its strong performance through the end of 2014 and into 2015, experiencing eco- - nomic growth and development. Employment was a driver for this growth and the region expanded its workforce by nearly 5,000 workers in 2014. With regard to population, both Larimer and Weld counties were among the top 12 fastest growing metropolitan areas in the nation from 2013 to 2014, according to figures released by the U.S. Census Bureau. Greeley’s metropolitan statistical area (Weld County) came in eighth on the list with a growth rate of 2.6 percent. Fort Collins metropolitan statistical area (Larimer County, including Loveland) came in 12th with a growth rate of 2.2 percent. As the economy and market flourish, the influx of people is compressing vacancies to staggeringly low average rates of 1.4 percent across the whole Northern Colorado market. The Northern Colorado multifamily market recorded an incredibly strong 2014, with nearly $320 million in trades taking place throughout the year. This number is more than four times the amount of sales completed in 2013 of $78 million. Two of the three largest transactions occurred in Loveland, with the largest being the 303-unit sale of Lake Vista Apartments at 2235 Rocky Mountain Ave. for nearly $61 million, and the third largest was the 252-unit sale of the Greens at Van de Water at 2900 Mountain Lion Drive for almost $45 million. The second-largest transaction occurred in Fort Collins. The 460-unit Ram’s Crossing portfolio (three properties located around Colorado State University) sold for $58 million. The drastic upward trend of property values continued through 2014, as average sales price per unit was up to nearly $160,000 from $110,000 at year-end 2013. As seen in 2013, demand for property is extremely high, exemplified by historically low vacancy rates and rising rental rates. Concurrently, cap rates continue to compress, down below 7 percent on average with many transactions closing below 6 percent. The year began with a similar number of sales transactions, but a dramatically different sales volume and unit number total. This is due in part to the sale of the 66-unit Max Flats Apartments in Fort Collins at $14.2 million and the sale of the 24-unit Central Town Apartments in Fort Collins for $3.3 million. So far in 2015, the average unit price of nearly $162,000 has exceeded 2014’s record of nearly $160,000. Sales climbed as a result of the dramatic improvement in market conditions. Leading the way, rents experienced double-digit year-overyear percentage hikes. In Larimer County, rents rose to an average of nearly $1,200 per month per unit. In Weld County, rental rates climbed to nearly $870 per month per unit. Asking rents in Northern Colorado for multifamily units have been on an upward trend for the last five years and, while that trend continues, we are now experiencing a leveling off in rent hikes. Although recently there was steady rental rate increases across all markets, these increases are slowing down due to the substantial amount of development currently underway and the concern about the future of the energy industry and its effect on the overall economic marketplace. Another driver responsible for record sales (and development) is the extremely low vacancy rates, which were among the lowest in the state and country in 2014. These rates remain incredibly low across all property ages – Fort Collins at 1 percent, Loveland at 2 percent and Greeley at 0.6 percent. In Larimer County, properties built between 1970 and 1979 have the lowest vacancy rate of 0.7 percent. In Weld County, the lowest vacancy occurs in properties built between 1980 and 1989 at 0.4 percent. The demand for these older properties remains high, as they provide an alternative to the newer, more highly priced units currently being constructed or recently delivered. Lessees can occupy properties in desirable areas without having to pay new product prices. An expanding and diversified economy, along with favorable market conditions continue to harbor an environment of robust investment activity and a high level of new development in Northern Colorado. According to recent data from Apartment Insights, a database that tracks multifamily buildings, there are currently 1,851 units under construction, with another 3,102 planned, which are staggering numbers for this market. The number of new and planned units will drastically add to the supply of inventory available to potential renters, which may alleviate some stress on vacancy and rental rates. However, given the economic expansion in the Northern Colorado market, demand likely will remain very high. The largest project (currently) under construction is the 310-unit Crowne at Timberline-Fort Collins Apartments. Crowne Partners is the developer, and the building is expected to deliver in early 2016. Multiple 200-plus unit projects are also under construction across the region. Given the influx of people to the region, it is anticipated that rents will continue to increase but at a slower rate compared with 2014. Vacancies will loosen a little bit with all of the current and planned construction, but still will remain tight and difficult for low-income renters. As discussed when recapping year-end 2014, the market has yet to see how, and if, the energy industry will drag on the multifamily metrics.