July 2015 — Multifamily Properties Quarterly —
Page 35
actions took place in core Den-
ver submarkets; however, sub-
urban areas are seeing greater
buyer interest. Considering the
first half of the year, average
price per unit across all classes,
A through C, was $171,000,
with sale prices for some prop-
erties upwards of $250,000 per
unit. Best-in-class A product is
selling at over $300,000 per unit
at a high point and averaging
over $275,000 per door for prop-
erties built after 2010. Many
pre-1980s-built properties in
the North Lakewood/Wheat
Ridge area changed hands at
an average of $100,000 per door.
Overall, cap rates compressed
roughly 30 bps over the past
year to the low-6 percent range.
The attention that the North
Lakewood/Wheat Ridge sub-
market received from investors
last year pushed down cap
rates for 1980s and older assets
by 50 to 75 bps and into the
low- to mid-6 percent range.
Buyer demand for suburban
assets and high prices will
motivate owners who are sit-
ting on the fence to list prop-
erties, increasing transaction
velocity away from the urban
core.
s
To many, such leaks are irk-
some. They are persistent,
come at all hours of the
night, cause property damage
and often there is no per-
ceived rhyme or reason as to
why or where they appear. As
a result, they are commonly
treated as isolated annoy-
ances that should be punch-
listed or repaired on a case-
by-case basis at the property
owner’s cost. For this reason,
fire sprinkler leaks are rarely
attributed to a construction
or design defect, especially
early on in a building’s lifecy-
cle. Therein lies the problem.
With very few exceptions, a
construction defect claim in
Colorado must be filed within
two years after a property
owner discovered (or reason-
ably should have discovered)
the physical manifestation
of the defect (C.R.S. § 13-80-
104 and C.R.S. § 13-80-102). In
this case, the “physical mani-
festation” of fire-suppression
system defects can be those
annoying little leaks or rust,
which appear during the first
few years after the system is
turned on. In the event of a
later defect claim on behalf
of the whole building, Colora-
do law may view those same
leaks that were repaired on
and off over the past couple
years as evidence of sprin-
kler system defects that the
owner knew about. Property
owners may not be able to
include their fire suppression
system in the construction
defect claim if more than
two years has passed since
first noticing those leaks.
This may be true even if the
property owner did not learn
of systemwide defects until
years later, which is often the
case.
While not always the case,
fire sprinkler leaks can be
symptoms of a construction
or design defect. Unfortu-
nately, even when sprin-
kler leaks are symptoms
of a defect, they are rarely
recognized as such in the
beginning. These symptoms
should not be taken lightly
and should be addressed
proactively and in a timely
fashion. Otherwise, your fire
sprinkler problems could
miss the construction defect
boat. Simply stated, don’t
ignore those annoying fire
sprinkler leaks or you may
end up paying for someone
else’s mistake.
s
Investor
