Brokerage Outlook: Colorado

• Denver Multifamily

Denver Multifamily Sweeney Submitted by Chuck Sweeney, partner with the Denver office of Hendricks & Partners. Posted 11-22-06. Click to view images. What area is your expertise? • I specialize in the sale of multifamily rental communities and land. I have worked in Colorado since 1981, focusing most of my efforts on the Denver metro area. What trends do you see presently in multifamily development in your area? • The current trend in the Colorado multifamily market is the transit oriented development; many of the new developments are opening near the recently completed south Interstate 25 light rail corridor. Higher density multifamily development is taking place or is planned around redeveloped older retail mall sites, which are being converted to mixed-use life style outdoor centers/malls. With the metro apartment vacancy rate approaching 5 percent, activity for suburban garden style sites has increased. Who are the active multifamily developers in your area? • Fairfield Residential and Trammell Crow Residential are the most active developers in the region. Both have regional offices in the Denver metro service area and have actively developed new product since the mid-nineties and through the recent downturn. Both have taken advantage of sites that benefit from the properties' close proximity to light rail stops and nearby retail services, which will attract residents. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • Two significant recently completed projects are the 432-unit Trammell Crow Lincoln Station, which is located along the south end of the newly opened I-25 light rail corridor, and Pacific Properties' 291-unit The Hampden, which is nearing completion and located at the Hampden exit to I-25 south. Where is the majority of development taking place? Why is this area doing well? • The majority of development is occurring near our new light rail transit stations, which is where residents want to live. Another significant proportion of development is taking place in the midtown areas around downtown Denver. Both I-25 south and downtown are popular for residents desiring close proximity to major employment hubs and entertainment venues. The busy, young single professionals and baby boomers with active lifestyles are particularly attracted to these developments. What area do you expect to be the next big development market? Why? • Near the new lifestyle open air, mixed-use projects. These will be successful due to the nearby retail conveniences. Belmar Gallery Residences, built by Trammell Crow, is a good example. Belmar is on a site of a dying retail mall that was torn down and redeveloped. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • The I-25 southeast, I-25 suburban corridor and the Capitol Hill/midtown area submarkets near parks are leasing well due their proximity to CDB jobs and retail and entertainment amenities. The older product in suburban markets will struggle for the next 6 months to 1 year, especially those communities which have not been rehabilitated. Product that has not been rehabbed is competing with newer product offering concessions, older communities that have been upgraded under the popular government sponsored low income housing tax credit program and new entry level homes. Until the older product is brought up to industry standards, or there is a sharp influx of demand, the older classes will continue to struggle in the market. Please give a measure of apartment vacancy rates. • The Denver metro area vacancy rate is down to 6.5 percent from a high of 13.1 percent 3 year's ago because of increased renter demand and limited apartment construction. Demand has increased from echo boomers, 2 years of job growth and foreclosed homeowners returning to apartments. The newer communities, especially those located along the southeast I-25 suburban office corridor and near the downtown central business distinct, are experiencing the lowest vacancies. Please give a measure of condo sales activity in the area. • In the Denver metro area, condo sales are down 1.3 percent, or 1,104 units, during the year ended August 2006. What impact do current interest rates have on the apartment and condo markets? • Increasing interest rates have indirectly increased demand for apartments. As interest rates continue to remain high relative to 2004 and 2005 levels, renters are hesitant to move into the for-sale market. In addition the high foreclosure rate and decreasing affordability of single family homes also is contributing to a strengthening rental market. What predictions do you have for interest rates and their effect on the multifamily market? • Rates will remain in a narrow range of current levels, which will continue the current demand for apartments, which remains strong. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? • The job growth is 2.0 percent and the unemployment rate is 4.4 percent, which are both healthy relative to the other cities and states. These rates obviously improve the demand for apartments from people moving from the Midwest looking for jobs. Would you like to make any additional observations about the multifamily market in your area? • We are one of the last markets outside of the Midwest to recover and that has strong demand/supply fundamentals. Therefore institutional demand for product less than 20 years old is high, resulting in record low cap rates. Denver also always benefited as a lifestyle city and a relatively mild climate with an average of 300 days of sunshine.