CREJ - Multifamily Properties Quarterly - November 2017
During the Colorado Real Estate Journal’s multifamily fall conference, an interesting pattern emerged from speakers on the development and investment panels – the multifamily market in Denver is too competitive. Several said they are choosing to sit and be patient, rather than try to commit to something new right now. There was even discussion among panelist on whether value-add properties were worth the cost – with some saying they could justify new builds over valueadd projects in the current climate. This reaction seems reasonable when you consider that some valueadd properties are getting as many as 17 bids, making these older vintage sales prices escalate quickly. According to Cary Bruteig, 1970s product is now four times more expensive per square foot than it was in 2010, and it’s still going up – 1970s and 1980s buildings now average about $200 per sf. The good news about all this competition is we continue to see record-breaking sales in the Denver metro, and 2017 may be one of the best years yet. While there always will be demand for the downtown area, especially among out-of-town investors, many conference panelists and authors within this issue say the real opportunities now are outside of the downtown core. For example, Castle Rock has seen vacancy dip below 2 percent in five quarters since 2013, including this year’s second quarter. Likewise, Aurora North saw the largest increase in occupancy from 2006 to 2016 – it increased from 87.5 percent to 98 percent, according to ARA’s Jeff Hawks’ conference presentation. Meanwhile, Colorado Springs’ slower recovery from the Great Recession may have insulated the area from over-competition and overbuilding fears that we’re seeing in Denver, the article on Page 8 argues. Some investment panelists anticipate seeing increased demand in the suburbs of Denver. These properties ideally would feature larger units located within strong school districts. This prediction seems logical when you consider the facts about millennials in Denver: There are more than 850,000 millennials living in the metro area, they comprise more than 50 percent of our in-migration and the older millennials are coming into their mid-30s. Homeownership remains elusive for many – with the average price for a single-family home being close to $500,000. While some of these young families can support the mortgage, the original down payment leaves many in the lurch. All told, this prediction about a new kind of multifamily demand seems like safe bet in our hyperactive market. Michelle Z. Askeland maskeland@crej.com 303-623-1148, Ext. 104