Professional Publishing, Inc
Vol. 5 Issue 10
www.TheLandlordTimes.com
October 2013
COLORADO
DENVER METRO • COLORADO SPRINGS • BOULDER
Monthly Circulation To More Than 7,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel
Denver Colorado Market Overview Multifamily Housing Update 2Q13 September 2013 by RED CAPITAL GROUP® 2Q13 Payroll Trends and Forecast The Denver labor market exhibited strong momentum during the second quarter as establishments added workers at a robust 33,200job, 2.7% yearover- year pace, representing the sixth consecutive quarter of 2.5% annual growth or faster. The 2Q13 result was on par with 1Q13’s 32,700-job advance, paced by rapid hiring among construction, energy and professional and technical service firms as well as food service and lodging concerns. Seasonallyadjusted data suggest that year-overyear comparisons may understate the strength of the labor market. This series indicates that Denver employers created 16,600 jobs during 2Q13, the largest one-quarter add recorded since 1999. RCR found that home prices as well as the usual national income and payroll variables strongly effect Denver payroll growth, and in this case in a very positive way as metro home prices are expected to grow at 5.7% to 7.5% annual rates through 2017. Consequently, the forecast calls for sustained annual employment gains in the mid– to high-30,000-job range for the next several years. Payroll Job Summary Total Payrolls Annual Change 2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast Unemployment
1,281.1m 33.2(2.7%) 32.8m 36.9m 38.8m 39.0m 6.8% (Aug.)
2Q13 Absorption and Occupancy Rate Trends Robust space demand persisted in the second quarter as tenants net leased 1,134 units, according to Reis, in line with 1Q13’s exceptional 1,154unit absorption performance and more than three times the 2Q12 net total. Supply was largely offsetting, however, as developers completed 991 units, limiting sequential and
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occupancy growth to 10 basis points to 96.2%. Axiometrics same-store surveys of larger properties uncovered a 95.6% 2Q13 average occupancy rate, up 50 bps sequentially and 50 bps year-on-year. Every Reis submarket posted positive absorption with the exceptions of Aurora-South and Englewood, where total leased units were flat. Two submarkets posted occupancy rate declines (Denver-South and -North) entirely due to supply. Reis project that heavy supply will trim occupancy 110 bps by 2017. Our absorption model is considerably more optimistic, forecasting that strong payroll growth and home price increases will drive further heavy apartment demand, contributing to a 170 bps tightening to 97.9% by YE2016. Effective Rent Summary Mean Rent (Reis) Annual Change RED 50 Rank RCR YE13 Forecast RCR YE14 Forecast RCR YE15 Forecast RCR YE16 Forecast
$885 3.5% 8th 4.9% 5.7% 4.0% 3.9%
2Q13 Effective Rent Trends Reis report that effective rents increased $9 (1.1%) sequentially in 2Q13, representing the fastest growth recorded in a year. Expressed on a year-over-year basis, rents were higher by 3.5%, ranking Denver 8th among the RED 50 markets. Axiometrics surveys unearthed evidence of still faster growth in the large, professionally-managed strata. This service found that samestore properties achieved a $71, 7.0% year-over-year advance to an average of $1,085, up from a 6.3% 1Q13 metric. Properties constructed since 2012 recorded 2.0% sequential and 5.9% y-o-y advances, reaching a 2Q13 average rent of $1,444. Reis rent forecasts also are relatively conservative, foreseeing peak gains of 4.6% in 2014, followed by gradual cooling to the low-2% range in 2017.
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RCR models are considerably more optimistic again. The models suggest that strong absorption and supply trends and rapid home price appreciation will drive rents sharply higher in 2H3 and 2014. Gains in the mid-4% range are possible in 2H13, accelerating to the 5%-6% area in 2014. Occupancy Rate Summary Occupancy Rate (Reis) 96.2% RED 50 Rank 5th 21st Annual Chg. (Reis) 0.4% RCR YE13 Forecast 96.5% RCR YE14 Forecast 96.8% RCR YE15 Forecast 97.3% RCR YE16 Forecast 97.9% 2Q13 Property Markets and Total Returns Sales velocity decelerated during the spring quarter as buyers and sellers regrouped following an extraordinary six-month period in which more than 50 investment quality assets exchanged hands for total proceeds of approximately $1.7 billion. Thirteen transactions valued at $5 million or more closed during 2Q13 for total proceeds of about $322mm. The average price of units sold was $116,978, up from $90,892 during 1Q13. Trade picked-up over the summer as 17 properties exchanged hands during 3Q13 for over $475mm of proceeds and average price of $109,764/unit. Recent trade was heavily weighted toward suburban garden properties. B– and B+ class properties were valued at cap rates in the low– to mid- 5% range. Infill trophies are likely to continue to trade in the mid-4% area. To reflect the strong demand for Denver assets, RCR elected to edge the generic B+ cap rate down 15 bps to 5.0%. Applying this level and model derived occupancy, rent and terminal cap rate forecasts, we estimate that a Denver investor would expect to earn an 8.6% 5-year unlevered IRR, 4th highest among the RED 46 markets. Continued on page 2
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Dear Maintenance Men: By Jerry L'Ecuyer & Frank Alvarez
Dear Maintenance Men: We are thinking of offering free WiFi at our 25 unit apartment building. What are the steps involved and what are your recommendations? Ryan Dear Ryan: Very interesting question! The short answer is hire a professional IT company who has experience in large wireless Internet installations. For the long answer, we contacted Paul at Acutech Network Services, Inc. www.Acutech.net . We have worked with Paul’s IT company for over ten years knew he would have a good answer: Today, consumer-grade wireless routers and access points are fairly easy to install and work well in most single family homes or small businesses and they will provide good coverage over a 100-150’ area and marginal coverage up to 200’. In a 25 unit building, one access point will not provide the coverage you will need. Without seeing the building, my educated guess is you will need about 6 access points. Now if you use consumer grade products, 6 access points will give you 6 totally independent SSID’s. (The SSID is what you see on your laptop or smart phone and connect to. Essentially, it is the connection point to the wireless network.) This will mean your residents will have to pick from one of 6 devices to connect to. For you, it will mean you will have 6 devices to manage, including managing passwords. And worse yet, because all these are independent devices, you may end up with “channel conflicts” where two or more devices compete for the same channel and knock each other off. When this happens, your residents will experience lots of dropped connections. In situations like this, the proper way to setup wireless is to use a centrally managed, commercial grade system with multiple access points. The access points on these systems each give better coverage than a consumer grade product designed for single family homes. They also function more like a cell phone network. In other words, there is a single connection point (or SSID) for the entire network. You can initially establish a connection at one end of the building
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