Page 12
— Multifamily Properties Quarterly — October 2015
P
urchasing an apartment build-
ing in Colorado has proven to
be challenging due to the grow-
ing number of buyers lining up
to acquire a limited number
of available properties. For certain
assets, it is not uncommon to receive
upward of 20 offers.
It’s not just local investors clamor-
ing to purchase apartments; inves-
tors from outside Colorado represent-
ed 70 percent of purchases through
August and 78 percent of purchases
over the same period of 2014.
Using data from CoStar, we
reviewed apartment sales through
the end of August for 2014 and 2015.
We looked at transactions of $10 mil-
lion and larger in Denver, Colorado
Springs and Fort Collins, and the
analysis revealed where buyers are
coming from. This article explains
the ripple effect created by the
increase in buyers from across the
country for Colorado properties.
n
California investors lead the way.
For the last two years, the award for
the state with the most aggressive
buyers goes to Cali-
fornia, putting local
investors in second
place. Cap rates
(rates of return on a
buyer’s investment)
tend to be lower in
coastal markets and
major Californian
cities.
Colorado is one
of the preferred
markets for Cali-
fornia investors
to deploy capital
at slightly higher
rates of return in,
what many view, as
a safe and growing
market. The result
of the increased
competition from
out-of-state buyers
accustomed to buy-
ing and owning in
lower cap rate envi-
ronments leads to
further competition
and compressed
cap rates (higher
prices) in our local
markets.
n
First-tier market
status.
Demand from out-of-state
buyers for property in Colorado likely
will continue to remain strong and
increase. Denver, once considered
a secondary market to gateway cit-
ies like San Francisco or NewYork,
has upgraded to a primary market
for many institutional investors and
advisers. The term “institutional
investors” often refers to pension
funds, real estate investment trusts,
insurance companies and large
wealth advisers.
Primary markets are
considered the safest
and most attractive
locations to invest
in real estate across
the country. As Den-
ver’s population and
economy continue to
grow, this viewpoint
of a tier-one market
will become more
widespread, paving
the way for additional
investment demand
for our market. While
Denver is experienc-
ing historic low cap
rates due to the lim-
ited opportunities and
increasing demand,
private and institu-
tional investors have
expanded their invest-
ment horizon outside
of Denver to suburban
and secondary mar-
kets, which increases
prices across the state.
n
Secondary and
tertiary markets gain
momentum.
Histori-
cally, smaller cities,
often defined as sec-
ondary or tertiary
markets, were the
preferred opportunity
for local investors or a small hand-
ful of opportunistic regional buyers
who crafted a niche of investing in
secondary markets to achieve better
returns. In recent years, this trend of
investing in secondary markets has
exploded with buyers ranging from
private capital to institutional buyers,
all of whom are uncovering oppor-
tunities in these smaller markets.
Recently several Class A communi-
ties sold to institutional investors in
secondary markets such as Loveland
and Fort Collins. In our recent experi-
ence, marketing a Class C building in
Craig Stack
Colliers
Multifamily
Group, Colliers
International,
Denver
Bill Morkes
Colliers
Multifamily
Group, Colliers
International,
Denver
Investment Market
Images courtesy Colliers International Multifamily Group
Out-of-state buyers’ locations for purchases of $10 million
or larger
