Colorado Real Estate Journal - September 2, 2015

Northern Colorado market hits stride in the last few years

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For single-family lots and multifamily sites, the recovery from the Great Recession was swift and dramatic with prices increasing almost exponentially from recession lows. This also applies to retail land, but only for the most desirable locations where prices have reached or exceeded prerecession values.

Retail growth in second-tier submarkets has been limited.

The same scenarios apply to hospitality as well.

Prices for industrial land have been relatively stable.

In Weld County, demand for existing buildings having a 10-1 or, even better, a 12-1 land-to-building ratio was incredible when oil was $100 per barrel, but stalled at $50 per barrel.

Interestingly, land prices did not follow this boom-to-bust scenario.

Following are indications of Northern Colorado’s growth.

• Greeley was ranked the No.

8 fastest-growing metro area in 2014, with a 2.6 percent population increase from 2013, according to the U.S. Census Bureau.

• Fort Collins was ranked the No. 12 fastest-growing metro area in 2014, with a 2.4 percent population increase from 2013, according to the U.S. Census Bureau.

• Greeley has an apartment vacancy rate of 1.1 percent, Fort Collins is at 1.8 percent and Loveland is at 2.7 percent.

• The median home sale price for Greeley is $225,000, Fort Collins is $342,250 and Loveland is $301,000; compared with Boulder at $822,000.

• Colorado State University students living off campus is at 80 percent.

• The land price for 103 student apartment units in downtown Fort Collins is $100 per square foot.

• The asking price for Colorado-Big Thompson water is $52,000 per acre-foot (326,000 gallons), according to BizWest.

The Northern Front Range is the fastest-growing region in the state, according to the Colorado Department of Local Affairs. It is estimated that by 2040, Larimer and Weld counties will see a combined growth of almost 422,000 people. Assuming 2½ people per household, another 168,786 dwellings will need to be produced over the next 35 years, an average of over 4,800 per year. By comparison, just over 2,700 new residential units sold in 2014.

Activity Report By Category

Single-family. The Northern Front Range is in demand but has reached the “frenzy” stage in Fort Collins. Multiple offers at higher-than-the-asking price is the norm. Some report premiums of 10 percent or more, with days on market replaced by hours on market.

With such demand, the supply of finished lots has reached historic lows. So one would think there are several new residential developments under construction or being planned.

However, that is not the case.

Many new projects are on hold due to the price of water.

Traditionally, municipalities require 3 acre-feet of water for each acre of land. When raw water was $10,000 per acre-foot this was doable. But at over $50,000 per acre-foot, the numbers barely work for a $400,000 house and definitely don’t work for a starter home.

Entry-level homes of $250,000 are history. There are few home sites remaining for less than $60,000 in Northern Colorado.

Affordability is gaining much attention in both Larimer and Weld counties.

Apartments. In 2009, less than 50 units were permitted in the Fort Collins metro area.

But over the next three years, an average of 525 units were permitted. Then in 2013, nearly 1,000 units were permitted with an additional 925 units in final planning. Student housing for CSU has been the major focus. Newly completed projects adjacent to the university added over 1,900 beds with an additional 2,100 beds nearing completion. Currently, four planned projects could add another 1,400 beds. Pricing for land ranges from $12,000 to $15,000 per unit for the larger projects having densities of fewer than 20 units per acre.

Retail. Demand is strong for the “100 percent” locations. In these projects, land prices for 1-acre sites are approaching $20 per sf. Following are examples of retail anchors at “100 percent” shopping center locations.

• A 250,000-sf Scheels at Interstate 25 and U.S. Highway 34 in Loveland; • Target, Safeway and Kohl’s at Centerplace of Greeley in west Greeley; • Discount Tire, Kum & Go, general retail and restaurants at St. Michael’s Town Square in west Greeley; and • Walmart and Costco at I-25 and Harmony Road in Timnath near Fort Collins.

Outside of these developments, there has been little new retail. Asking prices for commercial sites have escalated but there have been few actual sales.

Industrial. In 2013 and 2014, oil and gas businesses servicing the exploration and production of the Niobrara shale formation were desperate for industrial properties, especially in or near the Highway 85 corridor.

Building rents quickly rose from $5 per sf to $15 or more per sf and the few developed industrial lots were quickly absorbed. But for the most part, price increases were muted, rising from the $2.50 to $3.50 per sf range.

Water. Prices have quadrupled over the last three years driven by the heightened post-recession growth in the Northern Front Range plus the expansion of the oil and gas industry. With limited new water storage facilities coming on line in the near term, prices will continue to rise. Right now the most important issue is water – for all of Colorado.

Colorado likely will add 1 million-plus people over the next 20 years with most locating in the Front Range. In terms of the demand for land, the prospects are nothing short of excellent, long term. There will be more booms and more busts but the trend line is strongly positive.