Rental Housing Journal Colorado
February 2014 - Vol. 6 Issue 2
www.rentalhousingjournal.com • Professional Publishing, Inc
DENVER • COLORADO SPRINGS • BOULDER
Monthly Circulation To More Than 7,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel
Market Overview Denver
Multifamily Housing Update 4Q13 February 2014 By Red Capital Group® 4Q13 Payroll Trends and Forecast Brisk job creation persisted in the fourth quarter as Denver establishments added workers at a 32,300-job, 2.6% year-on-year pace, down moderately from 3Q’s 13-year high 35,900-job rate. High skilled professional service concerns were the principal drivers, adding to headcount at a 5,800-job, 5.3% annual pace, up from 4.1% during 3Q. Wholesale trade, construction and government employers also hired liberally, adding an aggregate of 13,300 (4.2%) workers relative to 2012, up from 10,400 during the prior quarter. Payroll Job Summary Total Payrolls Annual Change 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast Unemployment 5.8%
1,297.3m 32.3m(2.6%) 29.6m 27.2m 28.0m 25.1m (Dec.)
Seasonally-adjusted data were constructive, but suggested a degree of late-year slowing. This series indicates that Denver added only 200 jobs over the year’s final four months, comparing unfavorably to 10,100 in the same period of 2012, and 24,800 from January-to-June 2013. The RCR Denver payroll model is statistically robust, reaching the 99% adjusted R2 level. Highly influenced by the model’s underlying assumption of steady 1.0% to 1.7% U.S. payroll growth, the model produces consistent projections between 25,000 (1.8%) and 30,000 (2.3%) jobs annually through 2017; in line with the 2013 experience. 4Q13 Absorption and Occupancy Rate Trends Apartment demand was exceptional during the typically slower fall season. Denver renters tenanted a net of 1,071 vacant units during 4Q13 (Reis), up from the seasonally stronger third quarter (884) and 77% above the 607-unit 13-year fourth quarter average. Additions to supply (806 units by Reis’s count) offset
most of the absorption gains, holding the sequential quarter occupancy gain to 10 basis points (to 96.4%). Axiometrics surveys of 453 larger properties found a 95.3% average occupancy rate among stabilized assets, up 140 bps year-on-year but down 40 bps quarter-to-quarter. Assets completed or rehabbed in 2012 and 2013 were 94.8% occupied after absorbing an average of 10—12 units per month. Effective Rent Summary Mean Rent (Reis) $912 Annual Change 4.7% RED 50 Rank 6th RCR YE14 Forecast 5.3% RCR YE15 Forecast 4.2% RCR YE16 Forecast 3.0% RCR YE17 Forecast 2.5% Supply pressures are set to increase in 2014, reaching a crescendo in 1Q15. RCR models forecast that the wave will persist through 2017. Reis expect the crest to break a year earlier. Our models forecast an approximate 300 bps occupancy rate
decline by 2018, while Reis predict that the damage will be limited to about 160 bps. 4Q13 Effective Rent Trends Denver rent trends remained among the strongest in the country, rising $9 (1.0%) sequentially to $912, according to Reis. Although sequential gains were considerably slower than 3Q’s incredible $17 (2.0%) surge, the 4Q advance elevated the year-onyear comparison to 4.7%, an 11-year high. By contrast, Axiometrics surveys found that stabilized property sequential rent trends declined slightly (-0.2%), but the drop hardly affected the yo- y comparison, which was posted at a 7.5% gain. Trade & Return Summary $5mm+ Sales 17 Approx. Proceeds $620mm Avg. Cap Rate (FNM) 6.5% Avg. Price/Unit $147,927 Expected Total Return 6.8% RED 46 ETR Rank 39th Risk-adjusted Index 1.99 RED 46 RAI Rank 29th Continued on page 2
Social Media and Marketing By Pam McKenna, Multifamily NW President Why is social media important to your business and how does it play a role in marketing? Social media is a low cost way to communicate with your customers, both current and future. The number one goal of social media is to build relationships and connections. Brian Solis, social media expert states, “Welcome to a new era of marketing and service in which your brand is defined by those who experience it.” Your connections and relationships help to build exposure
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to your community. The last time I was out of town, we were looking for a good place for dinner. I turned to Monocle on Yelp to help with my search and found ratings from other customers as well as comments on their dining experi-
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ence. I was able to pull up the menus, find pricing and even read comments on what attire would be appropriate for the restaurant. We were pleased with the results and truly enjoyed our dinner, posting our experience on Yelp’s site.
Statistics on social media reveal how much this has integrated with our lives which includes the apartment industry: Facebook has over 1.19 billion active users monthly; 72% of online adults use social networking sites; 9 billion photos are uploaded to Facebook monthly; You Tube reaches more US adults ages 18-34 than any cable network; 60% of American adults own a smart phone; Linked In experienced 105% growth Continued on page 4 Get Social With Rental Housing Journals
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Market Denver ..continued from front page Class-B properties recorded the only sequential gain ($3), and delivered the fastest y-o-y growth (8.3%). Class-A assets fell -$3 sequentially, but notched a solid $74 (7.1%) y-o-y advance. Class-C rents dipped -$5 sequentially but rose 2.6% y-o-y. RCR models forecast continuing vigorous rent growth through 2014, with 1H14 gains in the high- 5% area, followed by mid-5% advances
in 2H14. But supply pressures and moderating employment gains will exert downward force in 2015 and will remain a headwind through the end of the forecast period, holding trends near the national average in 2017-2018. Compound annual growth of 3.4% is anticipated for the 5-year forecast period.imate 300 bps occupancy rate decline by 2018, while Reis predict that the damage
will be limited to about 160 bps. 4Q13 Property Markets and Total Returns A flurry of transactions near year end propelled the fourth quarter $5mm+ trade count to 17, up from 13 during 3Q13. Proceeds of sales for which price information was available totaled $574 million. RCR estimate that proceeds from all transac-
tions approached $620mm. Units exchanged hands at an average price of $147,927, up from $111,561 during the prior quarter and $92,560 during the first half of 2013. Occupancy Rate Summary Occupancy Rate (Reis) 96.4% RED 50 Rank 18th Annual Chg. (Reis) 0.2% RCR YE14 Forecast 95.7% RCR YE15 Forecast 94.4% RCR YE16 Forecast 93.6% RCR YE17 Forecast 93.2% Cap rates for class-B garden projects ranged from the mid-5s to low6s. Recent construction trophy properties appeared to trade within the mid– to high-4% range. Rapid NOI growth and cap rate compression produced significant value creation for investors. For example, a class-B– Littleton property traded 86% above its 2009 sales price. Employing a 5.3% generic purchase cap rate; a 5.9% exit cap rate and our econometrically-derived occupancy and rent forecasts, RCR derive a 6.8% 5-year holding period rate of return for Denver assets, ranking 39th among 46 markets. Returns are hampered by the projected occupancy decline. Continued on page 3
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Rental Housing journal Colorado • February 2014
RENTAL HOUSING JOURNAL COLORADO
Market Denver ..continued from page 3
Submarket Trends Submarket
Effective Rent
Physical Vacancy
4Q12
4Q13
Change
4Q12
4Q13
Change
Arapahoe County
$1,104
$1,185
7.3%
5.0%
3.2%
-180 bps
Arvada/Broomfield
$794
$860
8.3%
3.1%
4.2%
110 bps
Aurora-Central-Southeast
$717
$759
6.0%
4.5%
3.1%
-140 bps
Aurora-Central-Southwest
$718
$750
4.5%
5.9%
4.3%
-160 bps
Aurora-North
$653
$700
7.2%
3.0%
2.8%
-20 bps
Aurora-South
$990
$1,023
3.4%
4.5%
3.6%
-90 bps
Denver-Central
$958
$999
4.4%
3.9%
4.2%
30 bps
Denver-Downtown
$1,090
$1,148
5.3%
2.6%
8.4%
580 bps
Denver-Far Southeast
$747
$805
7.7%
3.9%
3.2%
-70 bps
Denver-North
$1,458
$1,481
1.6%
7.0%
7.7%
70 bps
Denver-Northeast
$889
$925
4.0%
5.3%
4.3%
-100 bps
Denver-South
$791
$830
5.0%
4.7%
4.0%
-70 bps
Denver-Southeast
$776
$820
5.7%
3.1%
1.9%
-120 bps
Douglas County
$1,061
$1,103
3.9%
2.7%
3.7%
100 bps
Englewood/Sheridan
$743
$777
4.6%
4.1%
3.7%
-40 bps
Golden/Wheat Ridge
$804
$858
6.7%
2.6%
1.8%
-80 bps
Lakewood-North
$771
$790
2.5%
4.0%
3.4%
-60 bps
Lakewood-South
$923
$958
3.7%
2.1%
2.1%
0 bps
Littleton
$846
$877
3.7%
5.8%
4.2%
-160 bps
North Glenn/Thornton
$814
$861
5.8%
4.3%
4.1%
-20 bps
Westminster
$788
$844
7.1%
3.9%
3.2%
-70 bps
Metro
$871
$912
4.7%
4.0%
3.6%
-40 bps
Notable Transactions Property Name (Submarket)
Arvada Station (Arvada / Broomfield) JRK Westcliff (Arvada / Broomfield) Encore Highpointe Pk (NGlenn/Thornton)
Property Class Type (Constr.)
Approx. Date of
B+ GLR (2012) B+ GLR (2002) B+ GLR (2013) C GLR (1986) BGLR (1984)
1-Nov2013
Total Price Appr. Value in millions $78.3
Price Appr. Value per unit
12-Nov2013
$67.3
$180,914
20-Dec2013
$40.8
$185,227
Estimated Underwritten Cap Rate
5.5% Salsbury Indu
Jan, Mar, May, Jul, Sep, Nov,
Mountain Vista (Lakewood-South)
Tierra Vista at the Park (Littleton)
ON
VALLEY, METRO, ARIZONA APT $207,143
5.2% p.f.
4.7% p.f.
8-Jan-2014 $18.4
$71,595
6.5%
27-Jan2014
$120,774
5.7%
$39.1
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RENTAL HOUSING JOURNAL COLORADO
Social Media ..continued from front page between 2011 and 2013. Social media takes time and careful strategic thought, it does not happen by accident. You will need to purposefully integrate social media
into all marketing and branding efforts creating a consistent and relevant experience for your customers.
A few tips from experts: • Make sure your content is viewable on mobile devices including images and videos. • Plan ahead and map out how often you will connect with your customers by posting fresh content. • Create content that resonates with customers keeping it relevant. • Monitor and listen to comments social media is just people talking
to people and sharing their perspective. This can have a big impact on loyalty and purchasing decisions. If you treat your customers well they will talk about it. Don’t view negative comments as a crisis but an opportunity to respond and improve. • Engage with your customers and let them know you value their input. • Have fun! Create games online or
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a community challenge that will engage your residents. An example one community implemented included a property scavenger hunt to find a special yellow rubber ducky. The first resident to find the hidden duck won a $50 gift card and had their photo posted on the community Facebook page. • Cross-promote with local businesses suggesting ideas of places to shop, dine and play. By partnering with your local businesses you can offer a deal of the week adding value for the residents to live at your community. The real value of social media is in its ability to help you cultivate relationships and build trust with your customers. Using social media to connect and engage with people is the most effective tool when you focus on adding value as opposed to self-promoting. Through this process you create a picture of the lifestyle and experience you can expect to have living at your community. David Butler from Social Media Made Easy sums it up, “Ultimately, a positive social media presence will draw in more prospective residents to visit and tour the community.” How important is social media in our business today? What we do know is that people are connected and talking on social media in growing numbers. They are sharing their experiences. The question is… are they talking about your community? If so, what are they saying? Some choose to avoid social media personally, but in business you need to be proactive. Third party companies can help you manage your social media and more organizations are hiring these firms to stay on top of their community’s social media presence. This can be an effective way to manage the process, maintain consistency and improve your customer’s experience.
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Rental Housing journal Colorado • February 2014