CREJ

Page 8 — Multifamily Properties Quarterly — August 2021 www.crej.com Market Update W e didn’t think cities like Colorado Springs would see such tremendous market growth coming out of the pandemic, espe- cially after the exceptionally strong year it had in 2020. As COVID-19 restrictions have lifted in Colorado Springs, the market has rapidly seen a tremendous influx of more renters entering the city, which in turn has prompted investors to pur- chase multifamily assets and enjoy the steady stream of income. Not only do our local investors seem eager to buy and sell, but also we are seeing an abundance of out-of- state capital come to the table. It is no secret in our industry that when it comes to both on- and off-market properties, there are more buyers than sellers and those buyers are continuing to get more aggressive. Some of those considerable trans- actions include the sale of The Gardens at Hidden Creek, at 1111- 1123 Verde Drive, which is a unique 125-unit multifamily asset located in southern Colorado Springs that sold for a record price of $17.5 mil- lion. This property was one of the many that received several off- market offers, all with aggressive terms. Another example would be the Lookout at Broadmoor, which after trading for about $16 mil- lion in October 2019 traded for just over $25 million not even two years later. These transactions are prime examples of the positive trajectory that the Colorado Springs market has taken and still is projecting to go, especially with the increased price per door we have seen occur over the past six months. The price per unit on these transactions range from $140,000 to $299,00 per unit. Similar assets sold in 2020 ranged from $89,960 to $186,250 per unit, per CoStar Group. Due to the high demand from out- of-state capital, markets with high- er rent control also have seen com- pressed cap rates and that is forcing this pool of investors to shift focus to different submarkets. Cap rate compression generally indicates that prices are rising in the market and it is exactly the outcome we are seeing in value-add multifam- ily. Location desirability is another key factor that helps drive cap rate compression; especially with our market seeing near-zero interest rates, it helps to peak interest and competition from investors. Addi- tionally, Colorado Springs is ranked as the second most populous city in all of Colorado and, given the nature of the Colorado Springs rent- al affordability alternative to nearby Denver, new investors to the market are finding confidence in investing in the Springs market. A significant amount of new development also has occurred across the southern region of Colo- rado. In 2020, over 1,500 new build- ing permits were issued for new apartment complexes to be devel- oped, per the Pikes Peak Regional Building Department. From January to May, it already has issued 1,013 permits for new apartment units, which is 67% of what was issued the previous full year. Per CoStar, nearly 1,300 units were delivered in 2020, and another 2,100 units are currently underway. Most of the new development we are seeing is concentrated in northern Colorado Springs, but developers are slowly starting to see the demand of urban housing and transitioning their efforts closer to the downtown area. A great example of that shift is the new construction on Elan Pikes Peak Apartment complex, a 321-unit complex that, once completed, will be the largest apartment commu- nity in downtown Colorado Springs. We have seen this growth not only in the multifamily development side, but also in the abundance of new infrastructure and the reinvest- ment in existing neighborhoods. Colorado Springs has welcomed a variety of new growth, including the Weidner Field, the new home to the Switchbacks soccer team and now a great downtown venue for events, concerts and nightlife to blossom. The Robson Arena located on Colorado College’s campus is a 3,400-seat ice hockey arena sched- uled to open in October. The Mae on Cascade is a brand-new, upscale 177-unit apartment complex that is at the forefront of reenergizing the south end of downtown Colorado Springs. Additionally, the Ivywild redevelopment, part of the urban renewal project, is converting the historic school site to a multiuse facility offering the public more retail and eclectic dining options. These are just some of the strong economic drivers that are help- ing fuel this market and attracting more owners, organizations and investors to dive into these dynamic changes. Colorado Springs offers the acces- sibility to these new attractions, but also proximity to the breath- taking mountains and recreational opportunities. We have watched as diverse career opportunities have presented themselves, allow- ing employment growth to see its record best and outperform the national average (per CoStar). We continue to see growth in all facets of Colorado Springs. Per a CoStar market report, 2020 set a record best with a total sales volume of $685 million. This momentum has proven to continue into 2021 with $344 million already sold in the first five months. These numbers emphasize a great deal of the current market strength, and with the immense growth we have seen over these past two quar- ters, we are eager to see what lies ahead. ▲ pknowlton@capstone-companies.com What is keeping Colorado Springs’ market hot? Pat Knowlton Senior adviser, Capstone