CREJ - Multifamily Properties Quarterly - March 2016
2015 was the year of big deals for metro Denver multifamily with record-setting sales across all aspects of the multifamily market in the seven-county area. The big-deal trend began in April, when ARA Newmark sold the 1,206-unit Horizons at Rock Creek for $255 million, the largest price ever paid for a single multifamily asset in metro Denver and the fourth largest price ever paid for any type of real estate in the history of Colorado – only bested by downtown Denver’s Wells Fargo Center (aka the Cash Register Building), the Flatiron Crossing Mall in Broomfield and Park Meadows Mall in Lone Tree. In October, Starwood Capital Group announced plans to purchase a nationwide portfolio of 23,262 apartments from Equity Residential for approximately $5.4 billion. These 72 communities are dispersed across south Florida, Seattle, Washington, D.C., Denver and California. The 18 properties located in metro Denver comprise 5,945 units and, with an average unit price of $230,634, represents a total Colorado sales volume of $1.37 billion. To round out the year, in mid-October, the Breakers Resort – a 1,523-unit, 1990's-vintage property composed of six unique villages and a 26,000-square-foot recreation center – came on the market. The year of the big deals also manifested in record-setting sales across multiple different asset classes. Retreat at the Flatirons, a 2014-built, Class A+ property adjacent to the Interlocken Business Corridor, sold in November for $94.5 million, a price per unit of $252,674. At the time, this was the largest price per unit for a noncore, garden-style asset ever paid in metro Denver. (Spoiler alert: 2016 is already setting its own records including a new high for a noncore garden asset.) A major record was set by Canterwood Apartments, a 1991-built, 216-unit, garden-style asset in Boulder. The property sold for $302,083 per unit – the highest price per unit ever paid for a 1990's asset and the highest price per unit ever paid for a garden-style asset (of any vintage) in Colorado. In June, Environs, a 314-unit, 1984-built asset in Westminster, traded for north of $200,000 per unit – a new record for 1980's Colorado vintage product. One more notable deal snuck in before the end of 2015. One Observatory Park, a concrete high-rise located in the Observatory Park neighborhood, closed on Dec. 30 for $387,324 per unit – the highest price ever paid per unit for a 50-plus unit multifamily asset in Denver. The $387,324 per unit pricing includes 23,366 sf of retail. However, even without including the retail, the value of the apartments still holds the record at approximately $345,000 per unit. Another 2015 event was a big deal because it was a first. Del’Arte Lofts and Flats, which sold in September, was the first fully completed valueadd property of this cycle. When all was said and done, 2015 was itself a big deal because it marked the biggest year for multifamily in Colorado’s history with a total sales volume of $4.4 billion, a 23.5 percent increase over the previous record set in 2014 ($3.6 billion). ARA Newmark also celebrated a big deal year, reaching its highest sales volume in the company’s Colorado history with over $2 billion in sales. Many investors speculated over the last five years that Denver was in a period of overbuilding. Due to construction delays in 2014, many were convinced that 2015 would be the year that the market came crashing down. Not only did metro Denver disprove the concept of overbuilding, the market is riding the wave of construction with minimal fluctuation in the occupancy levels that Denver has maintained over the last five years. Vacancy in metro Denver has remained below 6 percent since the third-quarter 2010. We are nearly through this wave of construction as 9,029 units were delivered in 2015, compared to 7,588 in 2014 and 3,743 in 2013. Looking forward, 2016 is expected to see 10,719 deliveries, and that number is expected to decline to 7,828 in 2017 – much less than what Denver just received … and absorbed. Absorption was strong with a total of 6,252 units absorbed, in line with 2014’s absorption of 7,071 units and more aggressive than 2013’s absorption of 4,461 units. With more people moving to Colorado, high demand for multifamily housing is expected to grow stronger, and the deliveries of 2016 and 2017 are projected to be absorbed quickly. A sizeable pool of longtime Denver owners were (mistakenly) convinced that Denver reached the peak of its growth in 2013 and stopped buying in 2014. However, cap rates remained competitive in 2015, and with the 9.5 percent annual market rent growth that metro Denver achieved in 2015, values have continued to climb. In fact, in 2015 we resold two properties that had traded not too long ago for significantly more than their recent sales prices – proving that the growth in the metro market truly is a big deal. Canyons at Saddle Rock traded in February 2014 at a price per unit of $172,243, and it closed in December for over $215,000 per unit – a 25 percent growth in just 22 months. Del’Arte Lofts and Flats sold in 2013 for $95,043 per unit and recently sold again for $148,860 per unit (57 percent growth in 27 months). Del’Arte is an example of the value that a fully completed renovation can achieve. The skepticism of some provided the opportunity for new buyers to enter the market, including Bell Partners, Steadfast and Braddock & Logan. These buyers, plus many more who were bridesmaid-bidders, believe that Denver still is in the midst of a strong growth period and continue to aggressively pursue assets. With absorption levels expected to remain strong and fundamentals continuing in the positive direction, 2016 is poised to be another strong year in multifamily. Other Notable Sales Activity • Oddly enough, there was a dearth of core downtown Denver sales this year. The Yards at Denargo Market and 2828 Zuni were the only two downtown assets to trade hands. • The Stanley is a 43-unit, fully renovated 1950's asset that traded in April 2015. It achieved the highest price per square foot paid for a fully renovated property in metro Denver – $430.09 per sf. • A very unique redevelopment site at 17th Avenue and Pearl Street in Uptown traded hands, shattering price per sf records for the neighborhood. The site was home to Uptown Tavern and will welcome a new Uptown Tavern as part of the new multifamily development by Southern Land Co.