Insights

2018_Outlook-Investing_in_Apartments_Buildings_in_Denver

Denver is becoming a complex investing environment. Market saturation, labor shortages, and changing demographics exist. The market should weather these changes with a minimal slowdown, as the city’s economy remains on track and its population grows.

 

2018 Outlook: Investing in Apartment Buildings in Denver

May 10, 2018

The multifamily development market is slowing down in Denver, as it is throughout the country, but there are good reasons to expect that the city will weather the market recovery period well. Denver is continuing to grow and, even though population growth has slowed to 1.4 percent annually,[1] it is still twice the national rate. The city’s economy is stable and real estate research service CoStar Group recently described Denver as “a premier destination for educated millennials.”[2] A shortage of single-family houses and the presence of a business-friendly development policy should contribute to good market health as well. Those factors and a booming acquisitions market means that investing in apartment buildings in Denver should remain high on investors’ wish lists.

Development of Apartment Buildings In Denver Is Refocusing, Not Stopping

Denver is expected to see 15,661 apartment units completed in 2018, an increase of 6.4 percent over last year, representing the peak of the current market cycle. That is the third-largest number of new apartments in the country.[3] In the middle of 2017, nearly a quarter of the multifamily housing construction in Denver was concentrated in three neighborhoods in the center of the city, and much of that construction is what will be coming onto the market in 2018.

Luxury multifamily housing was offered with concessions, such as a free rental period or a permanent rent discount, at nearly 20 percent of complexes in the city center as of December 2017,[4] and it was already clear then that the focus of construction activity was moving toward more affordable housing in the city’s suburbs.[5] Much of the new multifamily housing development in the city’s suburbs is within a mile and a half of light rail lines. Thus, development is continuing in the greater metropolitan area, predominantly in and toward the north of the city.[6] A tight construction labor market is threatening to become a complication for developers’ plans.

One outer Denver neighborhood that will see major construction is the River North Art District (RiNo), where two investment firms announced a $200 million project in late March 2018 to repurpose a 64,000-square-foot property and build 522,000 square feet of new space, including 480 apartments.[7] This will undoubtedly spur more development activity in surrounding areas. The Denver City Council approved incentives to include affordable housing and “community-serving” uses in advance of the announcement.[8]

The RiNo development is an example of planned unit development (PUD), often described as “custom zoning.”[9] PUD is the creation of regulatory conditions (often zoning variances) on an individual basis, with the city, developer, and surrounding property owners involved in reaching an agreement. This practice encourages the creation of affordable housing since the city can use variances as a bargaining chip for its inclusion in a project. This goes hand-in-hand with a two-year-old program that depends on a development fee and tax money to raise $150 million for affordable housing in the course of a decade, as well as other local efforts to assure a broadly affordable base of housing stock. These efforts have received some criticism for excessively favoring developers.[10]

The Secondary Market is Brisk

The acquisitions market in Denver is highly active and remains well-supplied for now. Several deals are reported weekly, some with plans for repositioning. The city stands out in this respect. As the acquisitions market gets more competitive around the country, more investors will be drawn to Denver. So, investors planning to enter the city or expand their holdings there should act as soon as possible.

Like all American cities, Denver is becoming a more complex investing environment. Market saturation, labor shortages, and changing demographics are felt everywhere. The Denver development market looks set to weather these changes with only a minimal slowdown, as its economy remains on track and population growth continues. It would be a mistake to expect the acquisitions market to remain as vibrant as it is now, but compelling investment opportunities should still be available. In these circumstances, professional advice and investment services can be invaluable for an individual investor.

CWS Capital Partners specializes in assisting clients with acquisitions, development, repositioning, and 1031 exchanges. It has six properties in Denver. To learn more about investment options in the city, or to begin investing, please contact us, or view our current offerings by completing our self-certification form for accredited or qualified investors.

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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.

 

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