Colorado Real Estate Journal - June 1, 2016
Mike Kboudi, a Cushman & Wakefield broker, kicked off the 2016 Residential Land Development Conference and Expo by saying this: “Denver is kicking tail.” More than 400 residential and commercial real estate experts attended the half-day conference May 6. “All market segments are in a growth mode,” Kboudi, a land broker, said at the conference sponsored by Colorado Real Estate Journal. “Office, apartments, senior housing, homebuilders – they are all looking for ground. That’s where we are in this part of the cycle,” he said. However, the panel members, including keynote speaker David Mandarich, president and chief operating officer of Denver-based MDC Holdings Inc., said the biggest challenge is constructing affordable, or what was frequently described as “attainable,” housing. Mandarich noted that the Denver area has the most expensive housing between the East and West coasts. At a macro level, the increasingly expensive housing in the Boulder-Denver area has a huge cost, said Heidi Majerik, a vice president of business development at Wonderland Homes. She said that Austin, Texas, is “starting to beat us” at attracting educated millennials, because Austin housing prices are so much less than those in the Denver area. At the root of the affordability problem is that land prices keep rising, as do fees placed on them by local municipalities. “Land costs are huge,” said Matthew Osborn, president of Colorado Tri Pointe Homes LLC. “You can throw down $120,000 for a finished lot,” said Osborn, who spoke on the homebuilder panel. He said five years ago, if someone had told him it would cost six figures to bring a finished lot to market, with all of its entitlements and tap fees, he would have laughed. Given the cost of land, it is very difficult to deliver new homes in the $200,000 to $300,000 range, said Brock Chapman, the regional manager for True Life Cos., a speaker on the developer panel. Richmond American Homes, which is owned by MDC, is doing it by offering a series of homes that are smaller and without basements, Mandarich said. An audience member asked Mandarich if Richmond is receiving any “push back” from consumers because the homes don’t have basements. None at all, he replied. “Remember, most homeowners in the country do not have basements,” Mandarich said. Also, the finishes in the homes are as nice as much more expensive homes, he said. Buying land is especially tough if you are not a national homebuilder like MDC, which can tap “ridiculously low rates” from Wall Street, something that nonpublicly traded companies cannot do, said Creig D. Veldhuizen, a managing director at Terra Causa Capital LLC. And the development costs continue to rise, said Veldhuizen, who also spoke on the development panel. “Fees never go down,” said Veldhuizen, whose company, among other things, is developing the sustainable Candelas community in Arvada. Demand for housing, both for sale and rental, is far outstripping the supply. The “attainable housing piece” is the biggest challenge facing everyone in the business, said John Norris, principal of Norris Design, who spoke on the product design/land planning panel. “Hundreds of thousands of people are moving to Denver,” Norris said. “All of this new business coming here is really exciting,” Norris said. “On the other hand, there is not enough supply to handle all of that demand. We see (that imbalance) reflected in the cost of housing, the cost of infrastructure.” Thomas Kopf, a principal of DTJ Design, said one way to make homes more affordable is to design and build “tall, thin and tiny” homes. David Clinger, president of David A. Clinger Associates, said one way to deliver more affordable homes in the suburbs is to “forget the grid” layout and build homes in clusters. Homes in clusters were something he was designing almost 40 years ago in the Denver area and in Boise, Idaho, and the concept is resurfacing, he said. Majerik, who sat on the homebuilder panel, said she prefers the term “attainable” to “affordable,” because affordable connotes deed restricted, government-subsidized housing for people meeting certain area median income requirements. Given that land costs continue to skyrocket, she said at Wonderland they work more closely than ever with trade partners to find cost-efficient ways to build homes. Osborn, who was disappointed that the state Legislature once again did not reform construction defect laws, said that local jurisdictions also must “look at their codes and accommodate higher density. “Our most dense development is six units to the acre and that is not dense at all,” Osborn said. Jeffrey D. Willis, president of Berkeley Homes, said it might be strange to hear a single-family homebuilder such as himself talk about the need for density. More homes per acre, however, would make housing more affordable, Willis said. He said many cities, though, have little desire for high-density development and neither do many builders, because of today’s “litigious environment.” Willis, alluding to the state Legislature’s decision to not pursue construction defect reform once again, noted that litigious environment “is not improving as we sit here right now.” For example, he said the “highest and best use” for a community Berkeley Homes is building in Westminster, which “is between Boulder and Denver, has access to U.S. 36, RTD and a neighborhood feel … should be attached product or townhomes, to get more units per acre.” Instead, they are building single-family, detached homes. The homes, with 1,655 square feet to 2,064 sf, are on 2,500- to 3,000-sf lots and have an “almost townhome layout,” he said. They are priced from the high $300,000s to $400,000s, which can be considered attainable in today’s market, he said. Douglas Elenowitz, principal of Trailbreak Partners, said one challenge is that the “zoning does not exist” for a high-density, walkable communities in many areas. But after some “vigorous” debate, that did happen at its Clear Creek Transit Village at Federal Boulevard and West 60th Avenue along RTD’s Gold Line. Clear Creek Transit Village in Adams County is shaping up to be “a look a little bit into the future,” he said. It represents a transit-oriented development, or TOD, that is denser than the nearby Midtown community. The tallest buildings will be along Federal Boulevard. The village, a mere seven minutes from downtown and just north of some of the trendiest neighborhoods, is across the street from a light-rail station; it demonstrates how an industrial use can be transitioned to a mixed-use community that will include housing, restaurants and retail. It also will be near a private ski lake. “It’s a bit of an urban village in an urban setting,” Elenowitz said. “It’s a bit of an oasis, if you will.” And because it is along Clear Creek, residents there will have access to hundred of miles of trails. It could have up to 1,120 units and 250,000 sf of commercial space when built out, he said. Meanwhile, some areas that used to be “drive until you qualify” markets increasingly are attracting homebuyers. “Erie is white-hot,” said Chad White, an associate for Real Estate Development at Hines. Windsor and Lochbuie also are hot markets, added White, a speaker on the land banking and private equity panel. Kboudi said that the Denver area is growing so fast that the demand is outstripping the supply for both rental and for-sale homes, driving up prices. “We delivered about 8,000 apartment units last year and we will probably deliver another 8,000 this year, and, as crazy as it sounds, that may not be enough,” Kboudi said. Kboudi explained why Denver is “kicking tail” this way. “People are genuinely happy here, want to be here, want to make it a better place,” Kboudi said.