CREJ - Multifamily Properties Quarterly - October 2015
It was predicted that after the record sales volume experienced in 2014, the metro Denver apartment market would not encounter another year with that magnitude of sales for years to come. In 2014, apartment sales volume reached $3.6 billion, which exceeded the previous annual record set in 2012 by 30 percent. As impressive as the increase was, it becomes even more impressive when you consider that the sales volume for metro Denver from 2008 to 2011 averaged $888 million per year. Well, the projections for 2015 were wrong. All indications lead to yet another year of record-setting volume. The metro Denver apartment market is on fire with rent increases topping the nation and vacancy at historically low levels. These trends have attracted extensive national interest from institutional and private buyers, deepening the pool of investors interested in metro Denver multifamily properties. With these market fundamentals, low interest rates and buyer demand, cap rates have remained level and, in some cases, have even lowered. Another reason for record sales volume is the increase in price per unit for Colorado apartments. During 2014, the average price per unit for communities with 200 or more units was $169,519, which is 102 percent greater than the average price per unit in 2010. This increase is due to three factors. First, the metro Denver apartment market averaged over 8 percent rent increases every year for the last four years, and rents are still climbing. For the second quarter of 2015, rents in Denver increased 13.6 percent year over year. Second, the value-add strategy is popular with over 85 percent of potential buyers in metro Denver wanting to purchase, upgrade and sell buildings to meet their investment goals. These newly remodeled properties continuously achieve record sale prices for their vintage. Last, developers are building considerably more expensive apartment communities. The location – Lower Downtown, Highland or Cherry Creek; the type of construction – high-rise vs. garden style; and the world-class amenities – zero-entry pools, bowling alleys, rooftop gardens and concierge services – cost more, and Denver renters are willing to pay for the lifestyle that these properties provide. Oddly enough, through midyear, there have been very few Class AAA luxury apartments sold. One of the few was 2828 Zuni. This recently constructed, beautiful property may be one of the only sales this year over $300,000 per unit. Despite the lack of new core properties on the market, year-to-date sales volume is approaching $3 billion, which is on pace to exceed 2014 levels and could reach the $4 billion mark. ARA Newmark ended 2014 with over $1.45 billion in total sales volume, and, with one quarter still left in 2015, already has reached $1.36 billion. With the current pipeline, ARA Newmark most likely will exceed $2 billion in Colorado apartment sales this year. Many are wondering, when does this all stop? It may not stop for a while. The acclaimed Denver multifamily market shows no signs of slowing. During the next few years there will be an increase in recently completed apartment properties. These new properties will trade at per-unit levels in the high $300,000s, and Denver may see its first apartment sale above $500,000 per unit. The only slowdown in activity would be caused by increased interest rates, but even that should be temporary because the Denver market is poised to be driven by demand from the millennial generation for the next decade. Notable 2015 Denver transactions contributing to the record-setting pace include: • Horizons at Rock Creek, a 1,206-unit, resort-style community in the town of Superior that sold for approximately $255 million, which is the largest multihousing transaction in Colorado history. • The Denver/Cherry Creek ValueAdd Portfolio that included The Blake and The Allison, Brittania Heights and Asbury Plaza, which set the record for a 1970s price per unit with an average price per unit of $105,545. • 2828 Zuni, in the desired Lower Highlands neighborhood, sold for over $300,000 per unit. • The Stanley, a 43-unit renovated building in Capitol Hill, sold for $430.09 per square foot, which is the highest price per sf for a renovated property in the Denver metro area and only $14 less per sf than the record sales price for new construction. • The Cherry Creek Value-Add Portfolio, a five-property portfolio including Four Mile Flats, Park Point, Vantage Point, Infinity Flats and The Birch, consists of 537 units and sold for $69.5 million. • Hearthstone at City Center and Bella Terra at City Center sold for $37.6 million and $53.4 million, which is record pricing for 1980s product in Aurora. • 1600 Ironhorse at Mill Village sold for $50 million as the first Class A+ multihousing sale in Longmont in 15 years.