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
Please note any problems below and notify us at:
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
Continued on page 3
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COLORADO
MARKET OVERVIEW 2Q13 | DENVER, COLORADO
Market Overview ...continued from front page
Metro Occupancy Rate Trends
Trade & Return Summary $5mm+ Sales Approx. Proceeds Avg. Cap Rate (FNM) Avg. Price/Unit Expected Total Return RED 46 ETR Rank Risk-adjusted Index RED RAI Rank
Average Occupancy Rate
Source: Reis History, RCR Forecasts
13 $322mm 6.5% $116,878 8.6% 4th 3.61 21st
6% 4%
YoY Rent Trend
5.8%
96.8%
97.8%
97.0%
98.1%
94% 92% 90% 88% 86% 2Q 08
2Q 09
2Q 10
2Q 11
2Q 12
2Q 13
2Q 14
2Q 15
2Q 16
2Q 17
Source: Reis History, RCR Forecasts
8,000 Units (T12 Months)
4.5%
3.5%
96.2%
DENVER
Metro Absorption and Supply Trends
Metro Effective Rent Trends 8%
RED 46 AVERAGE
96%
2Q 07
MARKET OVERVIEW 2Q13 | DENVER, COLORADO
Sources: Reis, Inc., Axiometrics, RCR Forecast
98%
ABSORPTIONS
COMPLETIONS
6,000 4,000 2,000 0 -2,000
4.3%
3.8%
2Q 07
2Q 08
2Q 09
2Q 10
2Q 11
2Q 12
2Q 13
2Q 14
2Q 15
2Q 16
2Q 17
2% 0%
Metro Cap Rate Trends
-2% RED 46 AVERAGE DENVER AXIOMETRICS SAME-STORE DENVER (REIS/RCR)
-6% -8% 2Q 07
2Q 08
2Q 09
2Q 10
2Q 11
2Q 12
2Q 13
2Q 14
2Q 15
2Q 16
2Q 17
Metro Home Price Trends Source: FHFA Home Price Indices and RCR Forecasts
15% Y-o-Y % Change
9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0%
8.5% MOUNTAIN REGION 6.4%
1Q11
8. 9%
12%
6.5%
2Q11
6.6%
DENVER 5.6%
3Q11
7.7% 6.4%
5.8%
4Q11
1Q12
6.5%
6.3%
2Q12
5.9%
3Q12
4Q12
1Q13
2Q13
3Q13
9% 7. 5%
6%
NOTABLE TRANSACTIONS
3% 0%
Property Name (Submarket)
Property Class/ Type (Constr.)
Date of Transaction
Total Price / <Appr. Value> (in millions)
Price / <Appr. Value> per unit
Estimated Cap Rate
Legends at Lowry (Glendale) Broadstone Cornerstar (Aurora-South) Belmar Villas (Lakewood-South) Arabella (Aurora-South) Avena Apartments (Northglenn/Thornton)
A-/GLR (2012) B+/GLR (2009) B / GLR (1970) B-/GLR (1980) B / GLR (2008)
30-Apr-2013 22-Jul-2013 28-Jul-2013 31-Aug-2013 25-Sep-2013
$27.8 $68.1 $40.6 $20.2 $61.3
$185,000 $170,282 $127,516 $129,167 $159,091
5.8% 5.1% 5.4% 5.3% 5.1%
SUBMARKET TRENDS
RED CAPITAL Research | October 2013
-3% U.S.A.
-6%
DENVER
MOUNTAIN REGION
-9% 2011
2012
2013f
2014f
2015f
2016f
2017f
Metro Payroll Employment Trends Source: BLS, Institute for Economic Competitiveness at UCF & RCR
3.5% 3.0% Y-o-Y % Change
Average Cap Rate
-4%
Source: eFannie.com, RCR Calculations
2.5%
U.S.A.
DENVER
2.0% 1.5%
0.5%
Arapahoe County
0.0% 2011
Effective Rent
Submarket
1.0%
2012
2013f
2014f
2015f
2016f
2017f
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
To contribute an article call 503-221-1260 or email info@propubinc.com
2Q12
2Q13
Change
2Q12
2Q13
Change
$1,094
$1,138
4.0%
5.2%
4.0%
-120 bps
Arvada / Broomfield
$786
$824
4.8%
3.9%
4.8%
90 bps
Aurora-Central-Southeast
$711
$722
1.6%
5.0%
3.2%
-180 bps -180 bps
Aurora-Central-Southwest
$709
$737
3.9%
6.8%
5.0%
Aurora-North
$643
$670
4.3%
2.8%
3.2%
40 bps
Aurora-South
$986
$1,016
3.0%
4.6%
4.1%
-50 bps
$943
$968
2.7%
4.0%
3.5%
-50 bps
$1,075
$1,118
4.0%
1.8%
7.9%
610 bps
$740
$757
2.2%
4.3%
3.6%
-70 bps
$1,440
$1,452
0.8%
8.4%
10.6%
220 bps
Denver-Central Denver-Downtown Denver-Far Southeast Denver-North Denver-Northeast
$878
$908
3.5%
4.0%
4.7%
70 bps
Denver-South
$782
$819
4.7%
5.0%
4.2%
-80 bps
Denver-Southeast RED CAPITAL Research | October 2013
Physical Vacancy
$767
$799
4.1%
3.8%
2.3%
-150 bps
$1,058
$1,088
2.9%
3.5%
3.2%
-30 bps
Englewood / Sheridan
$741
$754
1.7%
4.4%
4.4%
0 bps
Golden / Wheat Ridge
$805
$829
3.1%
3.0%
2.0%
-100 bps -150 bps
Douglas County
Lakewood-North
$760
$776
2.2%
4.8%
3.3%
Lakewood-South
$918
$944
2.9%
2.5%
2.0%
-50 bps
Littleton
$829
$851
2.7%
7.1%
4.5%
-260 bps
North Glenn / Thornton
$801
$835
4.3%
4.6%
3.8%
-80 bps
Westminster
$782
$807
3.2%
4.3%
3.2%
-110 bps
$855
$876
2.5%
3.9%
3.8%
-10 bps
Metro
COLORA RED CAPITAL GROUP For more information about RED’s research capabilities contact:
Daniel J. Hogan, Director of Research djhogan@redcapitalgroup.com 614-857-1416
2
James P. Hensley, Senior Managing Director Head of Mortgage Originations jphensley@redcapitalgroup.com 800-837-5100
The Landlord Times - Colorado • October 2013
COLORADO By Katie Poole
P
utting yourself in the tenants shoes may not be something you’ve done often, if ever. As our clients, it’s very important to know what tenants want and what will make your best residents rent long-term. High tenant satisfaction can not only enhance retention and occupancy rates, but also lower expenses and improve your bottom line. With so much riding on the satisfaction of your tenants, it is critically important to stay close to their priorities, perceptions and concerns. To be heard is a universal human need, and our tenants are no exception. Treat an existing tenant the way
What Renters Want you’d treat a new one. From the first meeting through the end of the tenancy, practice active listening. This means don’t interrupt them, maintain eye contact when in person, acknowledge what they’ve said and repeat back what you’ve heard to make sure they feel understood. Take an interest in each resident’s business and stay in touch with them regularly, not just when they complain or it’s time for a renewal. When a tenant calls to complain, you should listen, empathize, and solve the problem. Don’t make excuses. Most often tenants just want someone to listen to their stories or concerns. Keep all lines of communication
open with your residents. Don’t be a stranger. It’s not enough simply to provide a lot of services to tenants. Being available in person can sway that renewal decision. Be timely in your responses to requests or questions your tenants will have. Not only are we bound by laws in our response times to some repair requests, but it is also a good business practice to respond within a reasonable time. Recap conversations in writing to maintain a paper trail of important communications. If you’re going to be unreachable at any time, be courteous and let them know how to handle any emergencies in your absence as you would expect this of them contractually.
While it’s important to stay in touch and build a good working relationship with your residents, you also need to respect their need for privacy. Don’t make up excuses to “stop by” or leave notes for your tenants at the property unless absolutely necessary. Not only could this be construed as harassment but it can also be annoying. The rental is their home. By law, you must give tenants plenty of proper notice before paying any visits to the property. Make clear your inspection policies and practices at move-in so that it is clear when they can regularly expect you. Lastly, would you live in your rental comfortably if you had to? Is Continued on page 4
where you simply put a pin in the front of them. Do you have any ideas how to manage this? Brian Dear Brian: As you are aware, you should always change locks on a unit turnover. You never know who might have keys to that unit. I think we can find a simple solution to your problem. Since your units are spread out and not all in the same building, a swap system can be put into place. Supply yourself or your maintenance team with two or three lock sets and when you get a vacancy, swap out the existing lock set with the spare set. The unit now has a new or different lock set and the old lock set can now be swapped into another unit the next time you have a vacancy. This system only works safely if your units are spread out geographically. Another system that works very well with all rental units is the Kwikset Key Control Deadbolt system. This system allows the owner or management company to have one master key and the ability to rekey the lock without removal. It only takes a few moments to rekey a deadbolt. With this system, a temporary vendor key can be setup while the unit is being made rent ready. When the unit is rented, simply rekey and hand the new
resident their new apartment key. http://www.kwikset.com/SmartSecurity/Key-Control.aspx
Dear Maintenance Men ...continued from front page (let’s say through access point #1) and then walk to the far end of the building without dropping a connection. As you move away from access point #1 and your signal becomes weaker, the central management device tries to find you another access point to connect to with a stronger signal and manages the handoff in such a way that the connection does not drop … essentially the way a cell phone network works. Given these systems work with a single router & firewall, you will only need one connection to the Internet, you will only have one SSID for your entire network, and you only have one central place to manage passwords.
The downside of these systems is they are more expensive than consumer grade products and are much more complicated to program which is why I recommend the use of someone who specializes in this technology. Dear Maintenance Men: I have 25 or so units (condos/ houses) all spread out and I am not sure how to handle keys. I hate to think that a previous resident will come and access the unit after they have moved out, but the $50 replacement of the lock has prevented me from replacing it every turn. I have heard about those easy to rekey locks
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Dear Maintenance Men: What is a pre-hung door and why would I want to buy one over a regular door? Matt Dear Matt: Pre-hung doors come already installed in the door frame. The components include the door, outside frame and the hinges. Before the advent of “Pre-Hung Doors”, hanging a door required a skilled installer. Now a door can come already in its frame with the hinges in place. You must start with a rough opening, which means the old doorframe must be removed. The skill required is minimal and you can often do a professional looking job the first time.
COLORA QUESTIONS? QUESTIONS? QUESTIONS? We need more Maintenance Questions!!! To see your maintenance question in the “Dear Maintenance Men:” column, please send submission to: Questions@BuffaloMaintenance.com Please “Like” us on Facebook.com/ BuffaloMaintenance
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The Landlord Times - Colorado • October 2013
3
COLORADO Landlady Katie ...continued from page 3
SHELTON ENTERPRISES
the yard manageable? Do the appli- for a desired project while the tenances work consistently and to their ants pay a contractors labor, or splitpotential? Is the unit weatherized to ting the costs with your renters to help keep the energy bills reason- add new internet jacks to a back able? Your rental should be a place bedroom. Spending on upgrades that you can be proud of and that may hurt the bottom line over the tenants will maintain with integrity. short term, but improvements will VALLEY, METRO, ARIZONA APT. NEWS If you make sure that your property pay dividends in long-term tenants. stands out as well-kept, then you Offer a fair deal, use comps to can ask for slightly higher rent rates explain your offer, and communithan those that don’t. Be flexible in cate your position clearly. If a propyour concessions. If tenants are erty is well-maintained, it gives tenoffering to make improvements and ants a reason to stay. they won’t be able to take withJun, them Aug, Oct, Dec Feb, Apr, at move-out, help them out. Help COLORADO can mean purchasing the materials
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The Landlord Times - Colorado • October 2013