Hornstein Fetter October 2018 Market Insight
Multifamily Conference Digest
by Scott Fetter
The annual Denver Multifamily Development and Investment Conference is probably the most informative conference we attend each year and it was held last week. Unfortunately, this year’s panels tended to focus more on development and Class A multifamily investment whereas last year had a deeper focus on infill and Class C. Nevertheless, there was good insight shared that could benefit our investor clients. Here are a few takeaways from this year’s conference:
- This Market Is Shockingly Resilient: Cary Bruteig publishes “Apartment Insights” and is one of Denver’s leading statisticians and economists regarding multifamily analysis in the Front Range. He’s known for skewing to a conservative (read: negative) outlook, but he shared a surprisingly bullish view of the market, highlighted by Denver overcoming what he thought was “the peak of the cycle” in the past year as he was seeing decreasing absorption, rising vacancy and flat rent growth. However, this year has shown a once again positive absorption rate, continued rent growth and stable (though not rising) vacancy rates. The direction of the market is again headed up, and Mr. Bruteig didn’t share much reason to believe that was going to change in the near future.
- Colorado Springs Is An Intriguing Submarket. Anyone who has either invested, or perhaps dabbled with the idea of investing, in Colorado Springs would surely have been rebuffed by Newmark’s assessment of the Springs Market. A number of high dollar new construction projects are underway in a revitalized downtown, and anchored by relative affordability and high quality of life, Colorado Springs is showing high rent growth and low vacancy. The appreciation we see in the deals trading in that market support the assessment. However, a recent Denver Post article called into question whether or not the rent growth in the Springs is actually affordable and therefore sustainable long term?
- Construction is Expensive! There’s thousands of new units in the pipeline for delivery. Everyone who drives anywhere around Denver knows that. But a lot of those projects are stalling because labor is in short supply, the labor that’s available is increasingly more expensive, and rent growth for Class A product is flat. In other words, developer’s profits are decreasing and new projects are stalling as a result
Where Are We In The Cycle? A panel of investors was asked this question. Four of the Five panelists gave a baseball analogy answer and agreed that we’re probably in the 7th inning, likely the 7th inning stretch. But it was John Jordan of UBS Asset Management that had the answer that stuck with me. He argued that cycles are not dependent on time. They are event driven. In his analysis, we’re not in “the 7th Inning”. We’re in extra innings baseball and we are just waiting for that event to trigger the turn of the cycle. What is that event? Who knows? But the cycle we are in will continue until some event triggers a change, and that could be tomorrow, or it could be in 10 more years!
Scott Fetter | 303.962.9564 | SFetter@PinnacleREA.com