APART­MENT BUILD­ING FRENZY COULD SLOW

The Denver Post - - FRONT PAGE - By Erin Douglas

Economists and in­dus­try lead­ers be­lieve the Denver area’s apart­ment frenzy could be­gin to slow down by early next sum­mer as de­mand for new high-end de­vel­op­ments wanes and fi­nanc­ing gets tighter.

The Denver area’s apart­ment build­ing frenzy will slow next year as de­mand for new high-end de­vel­op­ments wanes and fi­nanc­ing for new projects gets tighter, say economists and in­dus­try lead­ers.

As renters’ pock­et­books re­spond to ris­ing prices and banks look to other in­vest­ment projects, mul­ti­fam­ily-unit con­struc­tion will slow in the Denver-Boul­der area, ac­cord­ing to a midyear eco­nomic up­date in the Uni­ver­sity of Colorado’s Colorado Busi­ness Re­view.

Fewer units are planned for con­struc­tion than are cur­rently in pro­duc­tion, the re­port states, predicting that a slow­down could be­gin early next sum­mer.

The group of in­dus­try ex­perts and economists who au­thored the re­port at­trib­uted the slow­down to de­creas­ing prop­erty val­ues as com­plexes move to­ward the out­skirts of the city. Denver no longer has the de­mand for more luxury apart­ments. The re­port also notes a cul­tural shift: Mil­len­ni­als are start­ing to move out of rentals in or near down­town to pur­chase prop­erty far­ther from the city cen­ter.

Nearly 25 per­cent of units un­der con­struc­tion in June were down­town — con­cen­trated in neigh­bor­hoods such as Union Sta­tion, Golden Tri­an­gle and High­land — ac­cord­ing to a re­port that month by RealPage, a na­tional real es­tate data an­a­lyt­ics firm. Those in the in­dus­try agree that Denver’s high-end apart­ment mar­ket is over­sat­u­rated.

“The re­al­ity is that (the in­dus­try is) build­ing high-end apart­ments, and that is not where the ma­jor­ity of peo­ple mov­ing to Denver can af­ford to move,” said Tim

Walsh, CEO and founder of Con­flu­ence Com­pa­nies, a real es­tate de­vel­op­ment com­pany fo­cused on build­ing af­ford­able apart­ments in sub­ur­ban Denver. “We’re build­ing for the top of the in­come pyra­mid, we’re not build­ing work­force hous­ing.”

Res­i­den­tial con­struc­tion ac­tiv­ity this year is down 8 per­cent from last year, ac­cord­ing to Dodge Data & An­a­lyt­ics, an an­a­lyt­ics provider for the con­struc­tion in­dus­try.

Walsh and oth­ers said that in the past year builders have shifted to­ward the sub­urbs of Denver for a va­ri­ety of rea­sons — top­ping out of de­mand in the city, cheaper land, less fi­nanc­ing and the ris­ing cost of con­struc­tion.

“I think, in gen­eral, we’re plateau­ing,” Walsh said of the apart­ment mar­ket in Denver. “I think we’re close to that ceiling. … We pushed them as high as peo­ple are will­ing to pay.”

Walsh said he ex­pects some projects be­ing planned in Denver right now to even­tu­ally fall through as he doesn’t think the fi­nanc­ing or the de­mand will be there. CU’s study also re­ported that lend­ing for mul­ti­fam­ily homes is tight­en­ing. Lenders have be­gun to shift their fo­cus on sub­ur­ban projects, which were once over­looked in fa­vor of the city, Walsh said.

While the de­mand for res­i­den­tial units is strong, the con­straints on firms might be too great to keep up with the boom that has taken over Denver in re­cent years. Now, the dol­lar value of con­struc­tion ac­tiv­ity won’t in­crease in the next few years, ac­cord­ing to CU’s re­port.

“Most builders have very lit­tle in­ven­tory, if any,” said Jeff Whi­ton, CEO and ex­ec­u­tive vice pres­i­dent for the Home Builders As­so­ci­a­tion of Metro Denver. “In­ter­est rates are rel­a­tively low, in­comes are at an all-time high and pop­u­la­tion growth is at an all-time high.”

The con­struc­tion in­dus­try still faces a la­bor short­age — em­ploy­ment was down 10.5 per­cent from July 2007, ac­cord­ing to the CU re­port — caus­ing lags in res­i­den­tial build times and tight bud­gets.

“The cost of con­struc­tion has got­ten so high, mainly be­cause of a short­age of la­bor,” Walsh said. “What you can still build rel­a­tively af­ford­ably are the three-story, gar­den­style apart­ment build­ings. I think you’ll see more of those in the sub­urbs.”

Mean­while, Whi­ton said for-sale dwelling con­struc­tion — such as town­homes, du­plexes, sin­gle­fam­ily homes and con­dos — is see­ing im­pres­sive growth. CU’s study re­ports that the over­all in­dus­try re­mains healthy and con­tin­ues to grow.

Denver’s home­builders as­so­ci­a­tion saw an 18.7 per­cent in­crease in per­mits is­sued from June 2016 to last June, Whi­ton said. But, he would ac­tu­ally ex­pect it to be higher if the la­bor short­age and mu­nic­i­pal­ity per­mit­ting wasn’t slow­ing it down.

Walsh said he does not see an over­all slow­down com­ing but a shift as builders fo­cus out­side the city.

“No one here is pro­ject­ing that the rate of peo­ple mi­grat­ing to Colorado is go­ing to slow down,” Walsh said. “They’re go­ing to need to live some­where.”

He­len H. Richard­son, The Denver Post

Denny Hil­ton, with MDA Con­struc­tion, works Wed­nes­day on the ninth floor of the new Ly­dian apart­ment com­plex at 2560 Wel­ton St. in Denver. It has 129 apart­ments, 15,000 square feet of of­fice space and close to 10,000 square feet of re­tail space.

He­len H. Richard­son, The Denver Post

Large cranes can be seen all over down­town Denver on Wed­nes­day, but new projects may slow down next year.

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