Boulder Multifamily Investment Property Update
Year to date multifamily investments have been an exciting asset class to watch. They are steady and reliable income and expense operations that provide the a high value-added opportunity with limited risk. If you’re interested in exploring a multifamily investment, here is a look at the current market on a national and local level.
In his article summarizing the national 2014 multifamily market in the January issue of Commercial Investment Real Estate magazine, Kenneth P Riggs Jr. CCIM, CRE, MAI, FRICS quoted several statistics from various real estate data research companies which are worth noting. According to REIS the nation’s apartment vacancy rate ended the 4th quarter of 2014 at 4.3%, and the annual effective rent increased 3.9% to a monthly apartment rental rate of $1,117. Reports from RCA indicate the price per apartment increased 21.5% to $128,259. And ERCC reported the initial cap rate required by investors across the nation declined to 5.0%. This same group also predicted that the effective rent growth rate would be 3.1% in 2015 and 2.6% in 2016.
The Denver metro market has reportedly been one of the top MF markets in the country outside of the coastal cities. There was a record $3.25 billion in apartment sales in the Denver area in 2014 according to Cary Bruteig, principal of Apartment Appraisers and Consultants. His statistics indicated the sales volume of apartment buildings with 50 units and higher was up 78% from 2013. The overall apartment vacancy rate increased slightly from 3.7% to 4.1%, but remained the lowest 4th quarter vacancy rate in 11 years. Bill James, MAI, CCIM and others have reported Denver’s nearly 100 apartment construction projects have over 19,00 apartments under construction. Approximately 10,000 units were completed in 2014.There is much debate and some concern about overbuilding. New class A apartments are now receiving as much as $2.20 per square foot per month, and sales prices of over $400 per sq. ft.
Someone once said that all a person had to do to determine a city’s economic condition and vitality was to count the number of construction cranes in the area. Never in the past years has Boulder seen so many cranes and so much construction activity. Downtown Boulder, CU’s Main and East Campus locations, North and South 28th Street, Northwest Boulder and South Boulder have all had very visible cranes this past year. The Daily Camera’s October 12th informative review of Boulder’s growth and development focused on 12 major construction projects in process. In that article 12 major developments were highlighted, and many of these are new apartment projects.
Certainly, from the multifamily real estate perspective, the landscape has changed considerably in the last few years. Up until the development of 29 North at 1955 30th St. new market- rate apartments of any size had been conspicuously absent for decades. With the exception of an occasional new dorm for CU students, most new multifamily housing units were sold as individual condos or townhomes. In addition, Colorado’s growth in jobs and population, and the trend towards an urban life style have created a strong demand for apartment living.
Throughout 2014 the MF resale market has been exceptionally strong! Due to continued low interest rates, high occupancy rates, strong rates of annual rent growth, and in-migration of 18 to 35 year olds known as millennials, Boulder MF investments have been in great demand. The supply of residential income properties for sale hasn’t begun to keep pace with demand. At one point during the 4th quarter of 2014 there were only three MF properties for sale in Boulder. This imbalance of supply and demand has created an exceptionally strong Sellers’ market, which has further increased prices and compressed cap rates. There is probably no better example of this than the last 3 sales of the 161 unit apartment complex at 2850-2890 Kalmia Ave. in North Boulder. In February of 2009 the property, previously known as The Boulders, sold for $20,900,000. In May of 2011 it sold for $33,500,000. Last October it sold again. This time the sales price was $44,200,000. Certainly, some improvements were made by the past owners, but this is a 111% price increase in 5 ½ years.
From January 1st of 2014 through December 31, 2014 there were 36 MF sales in Boulder. Several of these were “off market sales” or placed under contract before they became public knowledge. Prices ranged from $452,500 for a duplex up to $93,500,000 for the 238 apartments at 29th Street North. The un-weighted average metrics for these 36 sales are as follows:
*Our office tracks all of the past MF sales as well as current active listings based upon 6 different financial and property metrics. Each listing and sales transaction is then grouped with other income properties in similar geographic locations.
Please contact Todd Walsh for additional detailed information, including cap rates in each of the 11 geographic sub areas of Boulder, or for a market evaluation of your MF investment property.
