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Page 28 — Multifamily Properties Quarterly — November 2016
Your Local Fitness Design Consultant:
Jody Huddleson | 720.935.5059 |
Beyond “State-of-the-Art”
aware of the issue and is attempt-
ing to address it, at least in part,
with a recent linkage fee. While
money from the fee will go toward
affordable housing initiatives, it also
will increase the cost of apartment
construction by $1.50 per square
foot. City officials say this revenue
stream will subsidize the building of
about 6,000 housing units over the
next 10 years.
• Tightening lending industry and
rising costs. Which brings us to the
pipeline. A tightening in the lending
industry and the lack of available
construction debt for the multifam-
ily industry indicates that of the
25,717 units currently in planning
phases, we will see significantly less
come to fruition.
After several years where multi-
family loans were cheaper and eas-
ier to come by, the lending industry
now is more closely monitoring its
exposure to the multifamily market.
Developers have to put more equi-
ty down at higher rates with less
favorable terms, so deals are becom-
ing less financially viable. Combine
that with the increased cost to build
right now, and it becomes difficult
to see all of those 25,717 units get-
ting built.
The multifamily industry is doing
its part, but the coming slowdown
in the apartment pipeline, the lack
of attainable options coming on line
and the growing population has the
potential to create a housing short-
age in the city.
• Putting everything in perspective.
All that said, Denver still is techni-
cally affordable. Stay with me here.
The generally accepted federal
measurement of housing afford-
ability looks at the ratio of rent to
income. No more than a third of
median family income should go to
housing.
Right now in the seven county
Denver metro area, the average
apartment rent to median family
income ratio is 20.5 percent, accord-
ing to Apartment Insights. So while
rents have certainly gone up in
recent years, Denver is still afford-
able compared to other major cities.
And that’s something else we’ve
become – a major city. Denver used
to be considered a secondary or
tertiary market, but we’ve moved
up. We’re now compared to some of
the bigger markets and, when com-
pared to those, we’re still relatively
affordable.
Over the next year or two, we may
deliver more units than we can
immediately absorb, but the under-
lying fundamentals in Denver – lots
of young in-migration and great
job growth – point toward a need
for more and a greater diversity of
housing options if we’re going to
keep pace with our growth in the
not-too-distant future.s
In response to recent and pro-
jected growth, the region already is
investing billions into infrastructure
improvements designed to make
public transportation more widely
available. The recently completed
FasTracks light and commuter rail
has streamlined travel between Den-
ver and adjacent submarkets. Like-
wise, ongoing highway improvement
initiatives and upgrades to Denver
International Airport are expected
to enhance accessibility across the
region as local populations continue
to skyrocket.
Investors looking forward to 2017
have reason to remain optimistic.
While fluctuations in interest rates
and development costs may influ-
ence construction in the short term,
a bevy of positive factors like strong
population growth, high quality of
life and a young, highly educated
workforce suggest that opportuni-
ties for multifamily development in
the Denver metro area will remain
plentiful. Despite surface impres-
sions, multifamily experts are not
concerned about overbuilding. As
the short-term construction pipeline
becomes exhausted and construc-
tion lending tightens, development
will slow to a steady – rather than
breakneck – pace that will match the
demands from current and future
renter pools.
Keep an eye out for investors,
domestic and foreign, looking to tran-
sition away from well-established,
coastal markets and reinvest capital
in more cost-effective markets like
Denver. A large workforce comprised
of highly desirable talent and a loca-
tion central to both the East andWest
coasts has turned the Denver metro
area and surrounding markets into
hotspots for investors in search of
strategic, high-yield assets.s
White
Young
CBRE