CREJ - Multifamily Properties Quarterly - August 2016
Colorado is quickly becoming one of the most desirable places to live in the nation with an unrivaled booming economy, a blend of outdoor adventure and high cultural city aesthetic. Our state is growing by leaps and bounds, from the city to the suburbs to mountain towns. We can see and feel the dramatic population surge. For those of us who live here, we know why and, because of this, the constant question for most developers has become – how do we keep up? Everybody within the multifamily sector knows the stats from the State Demographer’s Office. Colorado had the second-fastest state population growth as a percentage for 2015 with the probability of overtaking North Dakota in 2016. Colorado’s population growth for 2015 reached 101,000 with the expectation of another increase of 100,000-plus in 2016. This growth was coupled with a multifamily construction sector running at peak rates, placing 9,000 to 11,000 units in 2015. As construction experts, we familiarize ourselves with the realities – land costs are continuing to rise, construction costs are increasing slightly, interest rates remain steady, vacancy rates are stabilized at 5 percent and rent growth maintains steady at 6 percent. This telling evidence suggests that some scheduled projects will not move forward and new inventory will stabilize between 8,000 to 10,000 units. Items for uncertainty on the horizon are Colorado’s construction defect legislation, impacts of the loss of primary jobs within the oil and gas sectors, especially at it relates to northern Colorado, and changes in the political climate with an upcoming general election. With guarded optimism, multifamily developers and builders, both regional and evermore national, continue to focus on Colorado as a strong and continually growing market. The construction market boasts an estimated 9,000 multifamily units in development. We’re confident that in our growth there is something for everyone. Downtown Denver and the great infill. Millennials continue to flock to Denver. With their immediate desire for an urban setting coupled with the city’s increasing focus on public transit, Denver is one of the nation’s leading cities in apartment growth. Because of this increasing growth, urban property is fetching an all-time high on the market. To bring down the land-cost basis associated with purchase prices and less-than-desirable remaining sites, projects are getting bigger and taller and units are getting smaller. Welcome to populous city living. Several new construction methods now are allowed by code and are pushing wood-framed buildings to five stories of Type 3 residential framing over two or three levels of Type 1 concrete podiums. In addition, engineered metal stud is making resurgence and pushing the limits of eight- to 10-story residential framing over concrete podiums. In 2014, more-than-100-unit projects consistent of four levels wood frame over a podium were the norm. Midrise projects now are consistently averaging above 175 units and are becoming the standard for 2017. This new project makeup costs more per unit and the expertise involved requires horsepower that only a select group of developers and multifamily general contractors can provide. Along with growth comes new opportunities for the most-educated and efficient builders to tackle city building with surefire expertise and talent. The northern territories. You can still walk up to your new apartment door without taking the elevator in Loveland, Broomfield, Longmont and Greeley. These northern cities and corresponding suburbs on or above the 470 beltway are friendly and welcoming of new development. With a cost of living scaled to the family and access to jobs in Denver, Boulder or Fort Collins, north of Denver continues to grow at a rapid rate. Expertise and long-standing relationships with the local authorities for developing and permitting remains critical in efficiently moving through the development process. In addition, those general contractors self-performing concrete and framing have added an advantage to keep costs down and maintain schedules. Despite the continued charm, Fort Collins in no longer the small town it was when it was rated as a top 10 place to live between 2006 and 2012. The Fort Collins metro area led the majority of Colorado and the U.S. in population growth last year, according to data from the U.S. Census Bureau. Fort Collins is seeing density levels equal to that of big-city Denver just 10 years ago. Housing crisis in the mountains. Colorado’s beautiful mountain towns are no longer the quaint, small-scale destinations for solitude. Read any ski town gazette and it’s apparent that at the forefront of the community is the demand for worker housing and rising rents. With companies like AirBnB and VRBO, short-term rentals have decimated an already-underserved housing need in the ski country. There are currently shortages of thousands of units, with below 2 percent vacancy in Summit County, Vail, Steamboat and the Roaring Fork. In addition, there is a flood of newcomers moving to the mountains to escape the bustling Front Range metropolis, making the drive ever worsening on the Interstate 70 corridor. It has been classically hard to provide inventory to these areas because of high land, development and construction costs. Only through partnerships of state government, local housing authorities and business has worker housing come to fruition. It takes developers and builders hardened by the cold weather to endure the regulation associated with tax credit programs and hardships of mountain building to bring housing to the masses in these mountain towns and resorts. Cold-weather builder knowledge and know-how sets a new standard in the industry at these high-level elevations. Young at heart. Approximately 10,000 baby boomers are turning 65 every day. A niche market for the continuum of care is continuing to grow. Age-restricted housings, independent living, assisted living and the remainder will continue to grow in years to come and is on everybody’s tongue. Developers and builders who understand the regulations, operations and associated costs will flourish in this now-establishing market. In short, Colorado maintains its appeal to folks of various ages and lifestyles, from the young adventurers to business professionals to growing families and retirees. The market in Colorado is ever expansive and in high demand. We know that in this beautiful Rocky Mountain region, we don’t need to build it first for them to come –they’ve already arrived, in full force, and we’re still trying to catch up. A growing market like Colorado with a diverse range of needs from cold-weather builds to small-city apartments, is what will continue to set the highest standards of knowledge and know-how in the construction industry.