Rental Housing Journal Colorado
September 2014 - Vol. 6 Issue 9
2. Help Your Process Server to Save Time in Your Eviction
4. The Coach: Three Important Steps for Building Property Management Compensation Plans
3. Dear Maintenance Men:
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Market Overview & Multifamily Housing Update 2Q14 Denver, Colorado
By Red Capital Group 2Q14 Payroll Trends and Forecast The pace of job creation remained brisk during the spring quarter as Denver payrolls increased at a 35,700-job, 2.8% year-on-year rate, representing the tenth consecutive quarter of 2.5% or faster annual job growth. Gains were well balanced across sectors: goods producing industries expanded at a 5,200-job, 3.7% rate, while skilled services employers hired workers at a combined 17,600-job, 4.5% pace, incorporating a 5,500-job, 4.8% surge in the techand energy-driven professional, technical and scientific services subsector. Growth in consumer-driven industries also was robust as retail trade and leisure services employers increased headcount at a combined 8,300-job, 3.1% rate. Seasonally-adjusted data recorded a moderate slowing trend, with net gains of 8,800 jobs during the Aprilto-June period, down from 11,200 and 9,800 job adds in the previous and year earlier quarters, respectively. Preliminary July reports suggest that a vigorous mid-summer rebound may be underway, however, as establishments added a net of continued on page 6
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Fund your Retirement with Seller Carry Back Financing By Jade Bossert
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ulti-family property owners have several options, to generate passive income in retirement, that are unique to owners of income property. They include placing your residential income property under professional management and forgoing the day to day management duties, effecting a IRC 1031 exchange into a commercial triple net leased property, or taking on the role of a lender by providing seller financing, to the buyers of your income property. Seller carry back financing is the
most popular vehicle active owner/ managers of multi-family properties use to fund their retirement. The major benefit is“mailbox money”, which is a monthly check sent electronically or by mail to the seller every month, for a set period of time. The current market interest rate for seller financing is 5.5% to 6.5% interest. A strong down payment, of 20% to 30% of the sale price, is recommended when financing a buyer. Property tax, insurance and the monthly payment should be collected by a title company or bank and disbursed to the seller. The property should be collateralized by a note and deed of
trust that detail the terms of the carry back. The terms should include a late fee. In the event the seller is concerned about being paid off, a steep prepayment fee of 12% to 20% of the principle balance should be detailed in the note. If the property is 5 units or larger, it is considered a non-consumer transaction and not governed by federal Dodd Frank Laws. Sellers are often able to get a sale price premium, when offering seller carry back financing. The loan can have a balloon payment or can be fully amortized. Fifteen year fully amortized loans are a great option continued on page 6
Benefits of Hiring a Property Manager to Manager Your Single-Family Investment By Cliff Hockely
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uying real estate as an investment has been a well-established investment strategy for thousands of years. You purchased or inherited a home or condominium and now you have to figure out how to get your arms around it. Perhaps you were transferred and don’t think it is time to sell the home yet, you want its value to appreciate more. From a management standpoint, you have two choices, manage the property yourself or hire a property manager to take care of it. This article will help you make a decision on which way to go. Setting investment goals First of all, realize that you need to set investment goals. In other words, ask yourself what you intend to do with the property. If it is free and
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clear you could save the money you earn and invest in more real estate… or pay for college tuition for your children. When they are done with college you could use the cash flow to prepare for or amend your retirement plans. If you have a mortgage you have less cash flow to meet your needs which will affect your decisions. A few investments goals to consider: • Hold the property until it is paid off and use the income for retirement • Hold the property until the marketplace appreciates – then sell the property and: • Reinvest in another property/ properties (maybe in better locations)
• Spend the money you made. • Sell the property and use it to: • Buy another home in another part of the country. • Refinance the property after some of the equity has grown and buy an additional home. Making the decision If you have time and are a handson investor, you will want to screen the tenants, make the repairs, complete the tenant turns and do the accounting yourself. More often than not, you get busy with life and don’t want to deal with the investment yourself. If you hire a property manager they deal with the myriad issues involved with property management for you.
• Take the money to the bank. ...continued on page2
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RENTAL HOUSING JOURNAL COLORADO
Help Your Process Server to Save Time in Your Eviction By Ted Kimball
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ne of the longest delays in processing evictions occurs when not all occupants are served personally (hand to hand) with the unlawful detainer summons and complaint. More often than not, the occupants know they must be le-
gally served in order for the court to award a judgment for possession of the subject property. If they are sophisticated, they know that they can delay the time for the eviction by two to three weeks if they successfully avoid the process server. If the unlawful detainer is not served in person, it can be served on
another person who resides at the property or on the person in charge of the place of employment of the occupant, so long as they are of sound mind and at least 18 years of age. If no one can be found to substitute serve, then the court will allow the process server to post the unlawful detainer on the front door of the
subject property and mail a copy by certified mail, but only after the court has signed an order allowing for this method of service. Most courts also require process servers to attempt to serve the unlawful detainer personally for three consecutive days, with both morncontinued on page 3
Property Manager ..continued from front page Property managers handle: Rent collection: They know what it takes to get the monthly rent collected from tenants. They deal with the tenants that won’t pay/ can’t pay, up to and including tenant evictions, something most landlords are unfamiliar with and very nervous about. Tenant selection: More often than not they have screened the tenants before move in, evaluated their rental history and their credit history and established their ability to pay. Property managers are like you, the fewer tenant turns they have the better, and the more money you make. Dealing with problem tenants: Sometimes a tenant goes through a divorce, a loss of a job, or some oth-
er crisis that turns them from being a cooperative tenant to an uncooperative tenant. Property managers know how to handle those situations and can typically solve problems related to difficult tenants. Maintenance: Most property management companies handle property management emergencies 24 hours a day. They either have their own maintenance department to take care of your property or they have a vast pool of vendors that are prequalified to take care of your property issues. These vendors deal with many property issues from basic carpentry to plumbing, electrical, roofing and mold remediation. Vendor selection: Property management companies have an extensive list of vendors they
have good experiences with. Prop- do not discriminate on the basis of erty managers need good results for race, national origin, color, religion, their clients and take time choosing sex, familial status, handicap, source the vendors they work with. In ad- of income or sexual orientation. This dition, property managers are sensi- protects the landlord from federal, tive to property maintenance costs state, county and city fair housing and look hard to find cost effective investigations and litigation. Watching Your Property: vendors. Property managers have local ofBill paying – financial reporting: Not only are property managers fices so they can take care of your required by licensing laws to submit property and your interests when monthly financial reports to their cli- you are not available. Compliance with laws: Property ents, it just makes practical sense to know how your property is perform- managers work hard to comply with the many federal and state laws. In ing on a monthly basis. that vein they have hundreds of Marketing of vacant units: Property managers have a deeper forms that meet current regulations pool of tenants looking for rentals, that are used in the day to day operaenabling them to rent units faster tions of managing properties. Value: than an individual owner can. It is Property managers deliver a huge good to find a company that invests in its website and search engine op- value for the small amount they timization (SEO) to find as many charge. They pay for themselves evtenants as quickly as possible for ery day the investor owns the proptheir clients. However it is good to erty. diversify your presence with a wide Choosing the right property variety of digital and traditional advertising including our website manager Making the decision to manage a which easily guides prospects to our available units. vFlyer pushes single family property is not easy. If you have theMETRO, time and skills it clearly out gorgeous digital flyers to many VALLEY, ARIZONA well-trafficked rental websites such makes sense to manage your own as Craigslist, Hotpads, Zillow, Trulia property, but it is challenging and and more. We also upload flyers to you would want to become a memPostlets, Rent.com, etc. Good prop- ber of a local landlord association to erty signage draws many inquiries stay on top of the ongoing business changes. If you don’t have the skills, as well. consider hiring a property manager. Tenant discrimination: Feb, Apr, Jun, Aug, Oct, Dec Property managers are focused p on equal housing opportunity. They
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Rental Housing journal Colorado • September 2014
The Industry Leader in Quality
RENTAL HOUSING JOURNAL COLORADO
Dear Maintenance Men: By Jerry L'Ecuyer & Frank Alvarez
Dear Maintenance Men: Can graffiti scratched windows be repaired? I have a number of windows that have been scratched or etched by graffiti vandals. Replacing the window is very expensive. Do you have any recommendations? Jessie Dear Jessie: Yes, graffiti damaged windows can be repaired. It is often a two step process involving removing the scratches or etching with a buffing compound and using anti-graffiti film over the glass. Cerium Oxide rubbing compound is typically used with an electric buffing wheel for getting the scratches or etching out of the glass. Cerium Oxide can be found on the internet, glass & stone shops or good hardware stores. 3-M makes a very good anti-graffiti film that can
be used as preventive protection or as a sacrificial layer. If you decide to do the work yourself, be careful with the electric buffing wheel. Keep the buffing wheel moving over the scratches and never concentrate on one spot for long as it will burn the glass. Removing scratches from glass is a bit of an art and we recommend contacting a repair firm specializing in glass graffiti removal. Dear Maintenance Men: While getting a unit ready for rent, I painted the concrete patio with flat concrete paint. The patio looks much better; however I am worried the surface may be slick when wet. Should I be concerned and what can I do about it now? Kristina Dear Kristina: Concrete patios can be slick when wet and more so after they have been painted. A simple solution is to use grit mixed in with the paint to give
the concrete surface a bit of grip when walked on. Look for a clear non-slip polymer grip additive. The additive is mixed in with the paint or sealer and applied to the concrete with a roller. The polymer grit can be found at any hardware store in either the concrete or paint departments. Polymer grit infused paint can also be purchased if you do not want to mix in the grit. Avoid using silica sand or aluminum oxide; they both work, however they may change the appearance of the surface. Our recommendation for peace of mind would be to repaint the patio floors using the above information as a guide. Dear Maintenance Men: I have a number of patio decks coved in artificial turf. Because of the sun and use, the “turf” is looking worn and tattered. What can I do to make it look better? Do I need to remove the old turf before putting down new artificial turf or can I glue
down over the old? How do I remove the old turf and is it difficult? If I want to go back to a natural surface, how do I remove the adhesive? KC Dear KC: Sounds like you have your work cut out for you! In order to get the new turf/carpet to look good on the deck, the old must be removed. The new turf/carpet will not stick to the old carpet and the old glue will need to be removed as well. If you have a small area of glued down turf/carpet to remove, use a hand scraper to pry the carpet off the surface. If you have a large area; use a roofing scrapper to quickly remove the carpet. The old glue can be removed using a scraper and applying an adhesive removal solvent or a heat gun. Never combine the heat gun and the solvent as the solvent is flammable. The solvent can be found at any hardware store and should be used in a well venticontinued on back cover
Process Server ..continued from page 2 ing and afternoon/evening attempts before the suit can be served by substituted service. Once served by substitution, the occupant has a total of 15 days to file responsive papers in court instead of the normal five days following a personal service. Therefore it is crucial that the process server is able to serve each occupant personally (hand to hand) to avoid a two to three week delay in your case. The more information provided to the process server, the more likely he/she will be able to quickly serve all occupants personally with the unlawful detainer action. We recently polled our process servers to find out what is most helpful to them in serving all occupants personally with the unlawful detainer. Below are some of the most helpful ways you can assist your process server in achieving a personal serve on all occupants. Places of Employment It is much easier to avoid a process server at home, rather at the occupant’s place of employment. To avoid the process server at home, they simply don’t answer the door. Therefore, it is important to include the occupant’s verified place of employment to improve your chances of a personal serve. Description of Occupant’s Vehicle and Parking Space Number It is easy for the process server to tell if the occupants are home by checking their parking space and/or description of their car with license plate. If a stake out is necessary, it is also a good place to wait until the occupant wants to leave in their vehicle. Best Time to Find Home
Rental Housing journal Colorado • September 2014
It is helpful to know the best time to find the occupant at home. Occupants who work a late shift versus someone who is unemployed makes a big difference as to the best time the process server can expect to find the occupants at home. Security Codes or Keys Many times our process servers have to wait for someone to enter or exit the property before they can even get to the occupant’s door. It is very helpful to give the process server the gate code or keys so they can gain entry. Every process server we use is licensed and bonded.
Dangerous Animals or Conditions It is important to keep the process servers aware of any dangerous conditions or animals on the property so they can take necessary precautions. Additional Descriptions of the Subject Property It is very helpful to identify the name of the apartment community in addition to the street address and unit number. If there are several buildings, describe the building where the subject property is located so the correct unit is easy to identify. An important part of our unlawful detainer practice is to ensure the
process server assigned to your case has all of the information necessary to serve each occupant in person. If your process server has all of this information, you too could save valuable time in the unlawful detainer process. PropertyManager.com a Service of AppFolio
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RENTAL HOUSING JOURNAL COLORADO
Three Important Steps for Building Property Management Compensation Plans ©
by Ernest F. Oriente, The Coach {Article #221…since 1995} During the course of your professional career as a property management executive, building new compensation plans will be one of the most important projects you ever undertake. In fact, this project has the potential to be an explosive issue for your team of SuperStars and must be designed with great care. The information in this article will outline three important steps for building powerful compensation plans and will share many secrets for your success. When a compensation plan is built right, your team will love you and your company success will soar! Gathering information and setting objectives: Start by evaluating your current compensation plans to see how closely it aligns with the critical success factors for your property management company and your historical financial performance. Next, review what percentage of each person’s compensation is salary versus commission/bonus and compare this to competitive positions within the geographical locations you manage. Lastly, develop specific compensation objectives, such as: perfor-
mance to budget or goals, occupancy for each apartment community, fiscal performance of this quarter compared to the same quarter last year, resident retention and/or resident satisfaction surveys. Tip From The Coach: Remember, each person on your property management team must see a direct connection between their efforts and their compensation plan. In addition, how you define the objectives for your compensation plans will be a direct reflection of the exact individual or team performance you will receive. Developing performance measurements and plan options: Once you have defined your compensation objectives, the next step is to determine how you will measure performance. For instance, will your new compensation plan reward individual performance, team performance or a blend of both? In addition, your compensation plans should also consider how often commissions/bonuses will be paid and what will be the impact if an individual or your
team does not meet or exceed their compensation objectives. Next, design several compensation models on a spreadsheet so you can see how annual compensation will vary as you change or modify the performance/ pay variables. In addition, calculate the range of income your SuperStars will be able to earn over the next 12 to 60 months. Lastly, test and run your historical results through your new compensation plans to verify performance levels and income expectations. Tip From The Coach: Some of our property management clients like to confidentially share preliminary compensation models with just a few SuperStars in their company to gather some additional insight before finalizing their new compensation plans. In addition, some of our clients will grandfather the compensation for their current team but all newly hired team members will be paid based on the new compensation plan. Remember, there is no such thing as a perfect compensation plan, but there is a compensa-
tion plan that is well-suited for your property management company. Lastly, just because a compensation plan has worked in the past, does not mean it will work in the future as the property management profession is changing and evolving rapidly. Selecting and evaluating your options: Once you have tested your compensation plans for accuracy and performance expectations, select the plan that most closely aligns with your company objectives. Sometimes it can be helpful at this point to have another set of eyes, outside of your property management company, review your new compensation plan to ensure it’s clear and reasonable. Next, consult with your internal resources to be certain they can design and produce the information required by your new compensation plan. In addition, your team will need a written description of their new compensation plans and a financial spreadsheet detailing exactly how this compensation will impact them over the next 12 and 24 months. continued on page 5
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Rental Housing journal Colorado • September 2014
RENTAL HOUSING JOURNAL COLORADO
Retirement ..continued from front page for owners liquidating in their mid sixties. The monthly payments to the owners would probably be between 40% and 50% of the current gross rents. The first ten years of retirement are considered the go-go years, with retirees traveling, golfing and pursuing activities that are relatively expensive. Usually, by their late seventies retirees slow down. A fully amortized fifteen year loan could provide the income for active retirees to pursue many of their dreams worry free.
Just as you pay mostly interest in the beginning of paying on a mortgage, when financing a buyer, you collect mostly interest. Therefore, the principle of the loan is preserved for an extended period of time. It is important to review a buyer's credit report and financial strength, just as would any prudent banker. Once you sell the property, you don't want to foreclose and revert back to being a landlord. Put yourself in the buyers' shoes and structure the deal so it is a win-win. If you
know the property will need a new roof in the next couple of years, put it on before offering it for sale, Likewise, if a few units are ready for new air conditioners, replace them before selling. You can recapture the cost in your sale price. For generations, many people have funded their retirement and enjoyed their golden years by benefiting from seller carry back financing. It is one of the unique“ exit strategies” of real estate ownership.
Jade Bossert has sold real estate in Arizona since 1979. She is an Associate Broker with Tierra Antigua Realty in Tucson and specializes in the sale of apartment complexes. Contact her at 520-797-6900 or tucsonrealestate@ mindspring.com
real estate and apartment building insurance, SEO/SEM web strategies, national WiFi solutions [ www.powerhour.com/propertymanagement/ nationalwifi.html ], powerful tools for hiring property management SuperStars and building dynamic teams, employee policy manuals [ www. powerhour.com/propertymanagement/employeepolicymanuals.html ] and social media strategic solutions [ http://www.powerhour.com/ propertymanagement/socialmedialeadership.html ]. Ernest worked for Motorola, Primedia and is certified in the Xerox sales methodologies. Recent interviews and articles have appeared more than 8000+ times in business and trade publications and in a wide variety of leading magazines and newspapers, including Smart Money, Inc., Business 2.0, The
New York Times, Fast Company, The LA Times, Fortune, Business Week, Self Employed America and The Financial Times. Since 1995, Ernest has written 225+ articles for the property management industry and created 400+ property management forms, business and marketing checklists, sales letters and presentation tools. To subscribe to his free property management newsletter go to: www. powerhour.com. PowerHour® is based in Olympic-town…Park City, Utah, at 435-615-8486, by E-mail ernest@powerhour.com or visit their website: www.powerhour.com
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The Coach ...continued from page 4 Tip From The Coach: Once you have presented your new compensation plan to your property management team schedule a monthly appointment over the next six months to vigorously review and evaluate the results. In addition, ask for feedback on your new compensation plan and swiftly address any problems you or your teams discover. Want to hear more about this important topic or ask some additional questions about how to build powerful compensation plans? Send an E-mail to ernest@powerhour.com and The Coach will E-mail you a free PowerHour invitation. Ernest F. Oriente, a business coach/trainer since 1995 [31,500 hours], serving property management industry professional since
1988--the author of SmartMatch Alliances™, the founder of PowerHour® [ www.powerhour.com ], the founder of PowerHour SEO [ www.powerhourseo.com ], the live weekly PowerHour Leadership Academy [ www. powerhourleadershipacademy.com/ pm ] and Power Insurance & Risk Management Group [ www.pirmg. com ], has a passion for coaching his clients on executive leadership, hiring and motivating property management SuperStars, traditional and Internet SEO/SEM marketing, competitive sales strategies, and high leverage alliances for property management teams and their leaders. He provides private and group coaching for property management companies around North America, executive recruiting, investment banking, national utility bill auditing, national
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RENTAL HOUSING JOURNAL COLORADO
Market Overview ...continued from front page 8,400 workers during the month. RED Research specified a 99.0% adjusted-R2 payroll growth model using two lags of the dependent variable and U.S. payroll and metro personal income and home price variables. The model forecasts faster y-o-y expansion in 2H14 and 2015 averaging about 3.3%. The pace of growth is likely to decelerate gradually during the backend of the forecast, falling below 2% in 2017 and 2018 as the U.S. recovery enters its late innings. PAYROLL JOB SUMMARY Total Payrolls 1,329.9m Annual Change 35.7m (2.8%) 2014 Forecast 38.7m 2015 Forecast 44.0m 2016 Forecast 34.1m 2017 Forecast 30.3m Unemployment 5.2% (July) 2Q14 Absorption and Occupancy Rate Trends Tenant demand was moderately softer across the Denver area during the second quarter as renters net leased 804 vacant units, down from 1,282 and 1,352 in the prior and yearearlier quarters, respectively, according to Reis. A decrease in new supply delivered to market was partially responsible, as households were offered 1,093 units of coveted new
space in 2Q14, down from 1,549 during the first quarter. Still, occupancy declined sequentially for the second consecutive quarter, dropping 20 basis points to 96.2%. Axiometrics surveys of larger, stabilized same-store properties found that average 2Q14 occupancy was about 95.8%, reflecting a 70 bps sequential and 30bps year-on-year advance. Class-C assets posted the highest average occupancy (96.6%), followed by class-B (95.7%) and classA (95.3%). Lower occupancy was observed in core urban infill submarkets feeling the greatest amount of supply pressure: units in stabilized Central and Downtown submarket buildings were 92.7% and 94.9% occupied in 2Q14. Nevertheless, absorption of space in new properties was strong, averaging about 15 units per month, in line with recent market norms. RCR’s absorption model foresees further strong Denver apartment demand, filling an average of nearly 5,000 units annually over the forecast. But supply is likely to be heavier (over 6,000 units/year), pushing metro occupancy down to the mid94% range by 2018.
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OCCUPANCY RATE SUMMARY Occupancy Rate (Reis) 96.2% RED 50 Rent Chg. Rank 23rd Annual Chg. (Reis) Unch’d RCR YE14 Forecast 95.2% RCR YE15 Forecast 95.3% RCR YE16 Forecast 95.1% RCR YE17 Forecast 94.3% 2Q14 Effective Rent Trends Reis report that rent trends among the 182,000 units it surveys reaccelerated during the second quarter, rising $10 (1.1%) sequentially, up from 1Q’s $6 (0.7%) advance. Expressed on a year-onyear basis, rents increased 4.7%, ranking 7th among the RED 50 peer group, down from 6th during the previous quarter. Axiometrics report considerably stronger rent growth. Among the 87,600 units it has surveyed consistently since 2006, effective rent averaged $1,153 during 2Q, up 5.3% sequentially and 9.3% year-onyear. Each metric was the fastest recorded in the past eight years. Class-B properties notched the most robust overall results, rising 5.8% sequentially and 9.7% y-o-y. Class-C assets increased only 3.4% sequentially, but still managed to post a class-leading 9.9% yo- y gain. Class-A properties trailed but showed late speed, advancing 5.6% sequentially and 7.0% y-o-y. Double-digit increases were recorded in Aurora, Littleton and Lakewood neighborhoods, but supply burdened Downtown failed to achieve a 1% annual advance. Using the Reis series as foundation data, RCR specified a 96.5% AR2 rent forecast model using metro and U.S. home prices, metro personal income growth and vacancy rates and six lags of the dependent variable. Denver home values are projected to rise at an 8.1% average annual rate. Rents are likely to follow with gains ranging from 3.5% - 5.0% in 2014—16 and 3.3% - 3.7% in 2017-18.
2Q14 Property Markets and Total Returns Sales velocity accelerated during the second quarter, rising from eight trades valued at $5 million or more during the first quarter to sixteen transactions. Total proceeds reached about $670mm, largest since 4Q12 (when properties valued at more than $1 billion exchanged hands). The unit average price of 2Q14 trades was $134,883, immaterially different to 1Q14’s $133,486 metric. Approximately one-half of transactions closed during 2Q14 involved class-B– or C assets built prior to 1980. Buyers were primarily local and regional owner/managers. Prices for these properties ranged from the equivalent of $100 to $150 per square foot. Institutional and private equity investors focused on class-B+ and A assets completed after 2003 at values topping $200/sf. Going-in yields among the older assets ranged from the mid-5s for properties in infill and Lakewood locations to the mid-7s for second -tier suburban sites. Newer assets mostly traded in the 4.5% to 5.5% range, with infill mid-rises commanding the lowest cap rates. In view of the B+ institutional quality trades observed at cap rates in the low– to mid-5s, we chose to back the generic cap rate assumption back to the 5.25% level used in 4Q13. Employing model derived occupancy, rent and terminal cap rate (6.0%) assumptions, RCR concludes that an investor in a generic Denver asset would expect to achieve a 6.6% unlevered 5-year total return, ranking 21st among the R46 peer group. Below average forecast model standard error boosts the risk-adjusted index to R46 19th rank.
EFFECTIVE RENT SUMMARY Mean Rent (Reis) $928 Annual Change 4.7% RED 50 Rank 7th RCR YE14 Forecast 3.6% RCR YE15 Forecast 5.0% RCR YE16 Forecast 3.7% RCR YE17 Forecast 3.6%
TRADE & RETURN SUMMARY $5mm+ Sales 16 Approx. Proceeds $670mm Avg. Cap Rate (FNM) 4.8% Avg. Price/Unit $134,883 Expected Total Return 6.6% RED 46 ETR Rank 21st RED 46 RAI Rank 19th
continued on page 7
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Rental Housing journal Colorado • September 2014
RENTAL HOUSING JOURNAL COLORADO
Market Overview
MARKET OVERVIEW | 2Q14 | DENVER, COLORADO MARKET OVERVIEW | 2Q14 | DENVER, COLORADO MARKET OVERVIEW | 2Q14 | DENVER, COLORADO...continued
from page 6
Denver Occupancy Rate Trends Source: Reis History,Rate RCRTrends Forecasts Denver Occupancy
97% 97% 96% 97% 96% 95% 96% 95% 94% 95% 94% 93%
Source: History, Forecasts Denver Reis Occupancy RateRCR Trends
YoY Rent Trend YoY Rent Trend YoY Rent Trend
Source: Reis History, RCR Forecasts 9 6 .4 %
9 5 .6 %
9 5 .2 %
9 6 .4 %
9 5 .6 %
9 5 .2 %
9 6 .4 %
9 5 .6 %
9 5 .2 %
94% 93% 92% 93% 92% 91% 92% 91% 90% 91% 90%4Q09
4Q10 4Q10 4Q10
90% 4Q09 4Q09
4Q11 4Q11 4Q11
4Q12 4Q12 4Q12
9 5 .1%
9 5 .1%
RED 46 AVERAGE 9 5 .1%
9 4 .2 %
9 4 .2 %
9 4 .2 % RED 46 (REIS/RCR) AVERAGE DENVER RED 46 AVERAGE DENVER (REIS/RCR) DENVER (REIS/RCR)
4Q13 4Q13 4Q13
4Q14f 4Q15f 4Q16f 4Q14f 4Q15f 4Q16f 4Q14f 4Q15f 4Q16f
Denver Absorption and Supply Trends
4Q17f 4Q17f 4Q17f
9 3 .6 %
9 3 .6 %
9 3 .6 %
4Q18f 4Q18f 4Q18f
Source: History, Denver Reis Absorption and RCR SupplyForecasts Trends
Units (T12 Months) Units (T12 Months) Units (T12 Months)
9,000 8,000 9,000 7,000 8,000 9,000 6,000 7,000 8,000 5,000 6,000 7,000 4,000 5,000 6,000 3,000 4,000 5,000 2,000 3,000 4,000 1,000 2,000 3,000 0 1,000 2,000 -1,000 1,000 0 -1,000 0 4Q09 -1,000 4Q09 4Q09
Source: Reis History, RCRTrends Forecasts Denver Absorption and Supply
ABSORPTIONS
Source: Reis History, RCR Forecasts COMPLETIONS
ABSORPTIONS
COMPLETIONS
ABSORPTIONS
4Q10 4Q10 4Q10
COMPLETIONS
4Q11 4Q11 4Q11
4Q12 4Q12 4Q12
4Q13 4Q13 4Q13
4Q14f 4Q15f 4Q16f 4Q17f 4Q18f 4Q14f 4Q15f 4Q16f 4Q17f 4Q18f 4Q14f 4Q15f 4Q16f 4Q17f 4Q18f
Denver Cap Rate Trends Source: eFannie.com, RCRTrends Calculations Denver Cap Rate
Average Cap Rate Average CapCap Rate Average Rate
8.5% 8.0% 8.5% 7.5% 8.0% 8.5% 7.0% 7.5% 8.0% 6.5% 7.0% 7.5% 6.0% 6.5% 7.0% 5.5% 6.0% 6.5% 5.0% 5.5% 6.0% 4.5% 5.0% 5.5% 4.5% 5.0% 4.5%
Source: RCR Calculations DenvereFannie.com, Cap Rate Trends
8.1%
Source: eFannie.com, RCR Calculations
8.1%
6.4% 6.5%
6.6%
6.4% 6.5%
6.6%
6.4% 6.5%
6.6%
5.5%
8.1% 6.4% 5.9% 6.4% 5.9%6.4%
5.5% 5.9%
5.5%
M OU NTA I N R EGI ON
DENVER
M OU NTA I N R EGI ON DENVER 7.2% M OU NTA I N R EGI ON DENVER 6.5% 7.2% 6.5% 6.0% 6.1% 7.2% 6.5% 6.5% 6.0% 5.9% 4.8% 6.1% 5.2% 6.5% 6.5% 6.0% 5.9% 4.8% 6.1% 5.2% 5.9% 4.8% 5.2%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
NOTABLE TRANSACTIONS NOTABLE TRANSACTIONS NOTABLE TRANSACTIONS Property Class/Type
Approx. Date of Transaction Approx. Date of
Total Price / <Appr. Value>/ Total Price (in millions) <Appr. Total PriceValue> / (in$52.1 millions) <Appr. Value> $40.8 $52.1 (in millions)
Price / <Appr. PriceValue> / per unit <Appr. Price /Value> $216,183 per unit <Appr. Value> $141,493 $216,183 per unit
Estimated <Underwritten> Estimated Cap Rate <Underwritten> Estimated 4.7% Cap Rate <Underwritten> 4.7% Cap 6.1% Rate
The Name information contained in this tions or warranties as to the accuracy Property (Submarket) (Constr.) Property Class/Type City Gate Apartments (Downtown/Five Points) B+ /(Constr.) MR (2004) 18-Apr-2014 Property Name (Submarket) Transaction orDatecompleteness of the information, report was prepared for general Property Class/Typein- Approx. of Griffis Fitzsimons South (Aurora—North) B / GLR (2008) 1-May-2014 City Gate B+ / MR (2004) 18-Apr-2014 Property NameApartments (Submarket) (Downtown/Five Points) (Constr.) Transaction The Wellshire (Denver—South / Glendale) A / HRis (1962) 8-May-2014 $20.7analyses $193,458 5.1% assumptions, or conclusions formation purposes only and not Griffis (Aurora—North) / GLR (2008) 1-May-2014 $40.8 $141,493 6.1% City Gate Fitzsimons ApartmentsSouth (Downtown/Five Points) B+ B/ MR (2004) 18-Apr-2014 $52.1 $216,183 4.7% Verve (Downtown / LoDo) A+ / HR MR(1962) (2014) 23-Jul-2014 $94.8 $322,456 NA / 5.1% 5.5% p.f. The Wellshire (Denver—South / Glendale) A / 8-May-2014 $20.7 $193,458 Griffis Fitzsimonsas Southlegal, (Aurora—North) B / GLR (2008) or 1-May-2014 $40.8 $141,493 RED cannot 6.1% presented in the report. intended tax, accounting (2008) 9-Aug-2014 $115.3$94.8 (MF only) $269,349 4.3% 21 Fitzsimons (Aurora-No./ Fitzsimons Village) B+/MR+RET Verve (Downtown / LoDo) A+ / MR (2014) 23-Jul-2014 $322,456 NA / 5.5% p.f. The Wellshire (Denver—South / Glendale) A / HR (1962) 8-May-2014 $20.7 $193,458 5.1% be held responsible for any NA errors or financial advice, or /Village) recommendaWaterfield Court Apts. (Aurora-South Knolls) B/ GLR (1987) 23-Aug-2014 $57.5 $119,295 6.2% B+/MR+RET (2008) 9-Aug-2014 $115.3 (MF only) $269,349 4.3% 21 Fitzsimons (Aurora-No./ Fitzsimons Verve (Downtown / LoDo) A+ / MR (2014) 23-Jul-2014 $94.8 $322,456 / 5.5% p.f. Waterfield Apts. (Aurora-South / Knolls) B+/MR+RET B- / GLR (1987) 23-Aug-2014 $57.5 $119,295 6.2%the (2008) $115.3 (MF only) $269,349 4.3% 21 Fitzsimons (Aurora-No./ Fitzsimons Village) misrepresentations contained in tions to Court buy or sell currencies or se- 9-Aug-2014 Waterfield Court Apts. (Aurora-South / Knolls) B- RED / GLR (1987)Research 23-Aug-2014 $119,295 6.2% Capital | September 2014 report or $57.5 in the information gathcurities or to engage in any specific RED Capital Research | September 2014 transactions. Information RED has been Capital Research | September 2014 gathered from third party sources and has not been independently verified or accepted by RED Capital Group. RED makes no representa-
Notable Transactions Property Property Name Class/ Type (Constr.) City Gate B+ / MR (2004) Griffis B / GLR Fitzsimons (2008) South (Aurora— North) The A / HR Wellshire (1962) (Denver— South / Glendale) Verve A+ / MR (2014) 21 B+/ Fitzsimons MR+RET (Aurora(2008) No./ Fitzsimons Village) Waterfield B- / GLR Court (1987) Apts. (AuroraSouth / Knolls)
Approx. Date of
Total Price / <Appr. Value> (in millions) $52.1
Price / <Appr. Value> per unit $216,183
Estimated
$40.8
$141,493
6.1%
8-May2014
$20.7
$193,458
5.1%
23-Jul-2014
$94.8
$322,456
9-Aug2014
$115.3 (MF only)
$269,349
NA / 5.5% p.f. 4.3%
23-Aug2014
$57.5
$119,295
6.2%
18-Apr2014 1-May2014
ered 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
4.7%
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 continued on back cover
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7
12 .2 % 10 .3 %
8 .5 %
9 .1%
9 .1%
10 .5 % 9 .2 % 6 .5 %
4 .8 %
RENTAL HOUSING JOURNAL COLORADO
Market Overview ...continued from page 7 U.S.A.
2015f MARKET 2016f 2017f 2018f COLORADO OVERVIEW | 2Q14 | DENVER,
4 .7 %
3 .6 %
2 .7 %
2 .9 %
3 .6 %
3 .7 %
2 .6 %
1.8 %
2 .9 % 1.7 %
1% 0% RED 46 AVERAGE
4Q11
4Q12
2015f
4Q13
2016f
4Q14f
7.8%
3.2%
2.7%
-50 bps
2.2%
5.0%
3.9%
5.8% 1.5%
3.2% 4.1%
2.4% 3.1%
MARKET OVERVIEW | 2Q14 Denver-Central $968 || DENVER, $1,016COLORADO 4.9% 3.5% MARKET OVERVIEW | 2Q14 DENVER, COLORADO Denver$1,118 $1,172 4.9% 7.9% Downtown
5.6% 7.4%
-110 bps -80 bps -100 bps 210 bps -50 bps
5.0%
140 bps
DENVER (REIS/RCR)
2017f
4Q15f
2018f
4Q16f
4Q17f
4Q18f
Y-o-Y % Change
Denverpurposes Home Price The information contained in this report was prepared for general information onlyTrends and is not intended as legal, tax, accounting or financial advice, or recomSource: FHFA Homespecific Price Indices, S&P Case-Shiller HPI and RCRhas Forecasts mendations to buy or sell currencies or securities or to engage in any transactions. Information been gathered from third party sources and has not been 13 .1% 15% independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accuracy or completeness of the information, assump12 .3 % 12 .2 % tions, 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 13% 10 .2 % 10 .3 %of an offer to gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation 9 .1% 10% participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively 10 .5 % at your own risk. Please consult your own counsel, ac8 .5 % 8% or other advisor regarding your specific situation. Any views expressed 9 .1% herein are subject to change without notice due 9to.2market countant conditions and other factors. % 6 .5 %
RED Capital Research | September U.S.A. DENVER 2014 (FHFA)
2013
DENVER (CASE-SHILLER)
SUBMARKET TRENDS SUBMARKET$757 TRENDS $819
2015f MARKET 2016f 2017f 2018f COLORADODenver-Far OVERVIEW | 2Q14 | DENVER,
2014f
Denver Effective Rent Trends
U.S.A.
Sources: Reis, Inc., History, RCR Forecasts
3%6%
4 .7 3 .4 %%
4 .7 %
3 .6 % 2 .9 %
2 .7 %
3 .6 %
3 .7 %
2 .6 %
MARKET OVERVIEW | 2Q14 | DENVER, COLORADO 1.8 %
DENVER (REIS/RCR)
4Q11
4Q12
4Q13
4Q14f
4Q15f
4Q16f
4Q17f
Effective Rent
Submarket
4Q18f
2Q13tax, accounting or financial advice, 2Q14 or recomDenverpurposes Home Price The information contained in this report was prepared for general information onlyTrends and is not intended as legal, Source: FHFA Homespecific Price Indices, S&P Case-Shiller HPI and RCRhas Forecasts mendations to buy or sell currencies or securitiesArapahoe or to engage inCounty any transactions. Information been gathered from third party sources and has not been $1,138 $1,181 13 .1% 15% independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accuracy or completeness of the information, assump12 .3 % 12 .2 % tions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations in the information Arvada / Broomfield 13% 10 .2 % $824contained in the report or$872 10 .3 %of an offer to gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation 9 .1% 10% Aurora-Central-Southeast participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively own risk. Please consult your$778 own counsel, ac$722 10 .5 % at your 8 .5 % 8% or other advisor regarding your specific situation. Any views expressed countant conditions and other factors. 9 .1% herein are subject to change without notice due 9to.2market %
Aurora-South RED Capital Research | September U.S.A. DENVER 2014 (FHFA)
Denver-Central
2013 2014f Denver-Downtown
2015f
$1,031
$968
$1,016
DENVER (CASE-SHILLER)
2016f $1,118 2017f
2018f $1,172
Apartment Signs Denver-Far Southeast
$757
$819
Denver Payroll Employment Trends
$1,518
Denver-Northeast
$908
$958
Denver-South
$819
U.S.A.
DENVER
$829
2.7% Metro Metro 3.8%
$1,115
by RENTAL HOUSING JOURNAL 3 .4 %
Denver-Southeast
$799
2 .7 %
2 .9 %
Douglas County
0%
2011
Englewood / Sheridan
$754
Golden / Wheat Ridge
$829
Lakewood-North 2013 2014 Lakewood-South
2012
2015f
2016f
2.7% 5.1%
$835 13.3% $835 $848 5.2% 3.8% $807 $807 $928 4.7%
4.2%
3.2%
3.7%
50 bps
4.4%
3.2%
-120 bps
$858
3.4%
2.0%
1.8%
3.3%
3.9%
RED46 µ µ= =6.7% 3.2% RED46 6.7%
4.3%
2.0%
2.7%
70 bps
2.7%
4.5%
3.8%
-70 bps
North Glenn / Thornton
$835
$877
5.1%
3.8%
3.7%
-10 bps
5.2%
3.2%
2.1%
-110 bps
2.8%
4.4% 4.4%
3.4% 3.4%
2.0% 2.0%
2.7%2.8% 70 bps 3.8%3.2% -70 3.2% 3.7%4.3% 4.3% -10 bps
5.5%
5.0%
4.5%
4.0%
3.5%
2.0% 2.0% 4.5% 4.5% 3.8% 3.8%
2.1% -110 5.2% 3.8%5.2% Unch’d
3.2% 3.2%
4.7% 4.7%
3.8% 3.8%
Reces Recess
Unch’d
Recession Probability
3.0%
2.5%
2.0%
1.5%
3.3% 3.3%
2.7% 2.7% 5.1% 5.1%
Probability of Longterm avg. Growth or Faster
James
Director Director of of Research Research djhogan@redcapitalgroup.com djhogan@redcapitalgroup.com +1.614.857.1416 +1.614.857.1416 office office +1.800.837.5100 toll toll free free +1.800.837.5100 10%
9%
8%
7%
6%
5%
4%
3.8%
Daniel Daniel J. J. Hogan Hogan
RED46 µ = 3.4% RED Capital Research | September 2014
3%
2.3% 2.3% 3.2% 3.2%
FOR FOR MORE MORE INFORMATION INFORMATION ABOUT RED’S RESEARCH CAPAB
RED46 µ = 6.7%
2%
3.8% 2.4% 2.4%
60 bps
$874
3.8%
4.7% 4.7% 4.2% 4.2%
-20 bps
$851
4.7%
50 bps -120 bps -20 bps
RED46 RED46µµ==3.4% 3.4%
Littleton
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial $848 advice, or recomWestminster $807 mendations 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 Metro independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accuracy or completeness of the information, $886 $928 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.
-110 bps -20 bps
-20 bps
2.8%
$801 2018f $984
4.0% 4.0% 4.8% 4.8% 3.2% 3.2% 5.0% 5.0% 3.2% 3.2% 4.1% 4.1% 3.5% 3.5% 7.9% 7.9% 3.6% 3.6% 10.6% 10.6%
3.9%3.8% 60 bps
-90 bps $848 $848 3.8% -110 bps $928 $928
2.4%
1.7 %
5.5% 5.5% 2.7% 2.7%
$877 270 bps $877 3.2%
3.1% $886 $886 2.1%
2.3%
1.8%
2.0% -80 bps $775 $775 -100 bps $858 $858 4.5% 210 bps $801 $801 -50 bps $984 3.8% $984 140 bps $874 $874
$775
1.8 %
$776 2017f $944
3.2%
3.0% 3.0%
1%
2 .6 %
$1,088
2.0%
$984 2.4% 4.3% $754
$754 3.1% $829 $829 $874 5.6% $776 $776 7.4% $944 $877 $944 5.0% $851 $851
3.7% 5.8% 5.8% 3.1%7.8% 7.8% 2.2% 2.2% 2.1%5.8% 5.8% 1.5% 1.5% 4.9% 3.7%4.9% 4.9% 3.2%4.9% 8.2% 8.2% 4.5% 4.5%
-50 bps $958 $958 -10 bps $841 $841 3.3% -50 bps $829 $829 -110 bps $1,115 $1,115
2.5% 2.5%
2%
3.4%
3.8%3.7% -90 bps
6%
3%
$841
2% 2%
Y-o-Y % Change
4%
Denver-North $1,452 Source: BLS, Institute for Economic Competitiveness at UCF & RCR
3.5% $908 $908 4.7% $819 $819 $801 2.7% $799 $799 3.9% $1,088 $1,088
2.0% 2.0%
2012
$1,016
$858
5%
0% -3% -5% 2011
Golden /Wheat $829 3.7% 4.0% Denver-Northeast Denver-Northeast Ridge 5.8% 4.8% Denver-South Denver-South Lakewood$776 Denver-Southeast 7.8% 3.2% Denver-Southeast North Douglas 2.2% County 5.0% Douglas County Lakewood$944 Englewood //Sheridan 5.8% Englewood Sheridan 3.2% South 1.5% //Wheat Golden Golden WheatRidge Ridge 4.1% Littleton $851 4.9% 3.5% Lakewood-North Lakewood-North 4.9% Glenn/ 7.9% Lakewood-South North $835 Lakewood-South 8.2% 3.6% Littleton Thornton Littleton North 4.5% Glenn 10.6% North Glenn//Thornton Thornton Westminster $807 Westminster 5.5% 4.7% Westminster Metro $886
1.5% 1.5%
Y-o-Y % Change
For more information about Managing Director Head of RED'’s research capabilities contact: Multifamily Originations jphensley@ Daniel J. Hogan Director of Research redcapitalgroup.com +1.770.753.6472 d j h o g a n @ re d c a p i t a l g ro u p . c o m office +1.800.837.5100 toll free © 2014 Aurora-Central-Southwest $737 $753 +1.614.857.1416 office +1.800.837.5100 RED Capital Group, 5% 6 .5 % 4 .8 % 3% Aurora-North $670 $709 toll free James P. Hensley Senior
Physical Vacancy Physical Vacancy 13.3% Change 270 bps 2Q13 Change 2Q13
10.6% 2Q14 2Q14
4%
4Q10
2018f
3%
4Q09
RED 46 AVERAGE
2013 2014 2015f 2016f 2017f SUBMARKET TRENDS
3.6%
4.7% $1,181 $1,181 $872 $872 4.2% $778 $778 $753 $753 $709 3.8% 2.3% $709 $1,031 $1,031 2.4% $1,016 3.2% $1,016 $1,172 2.8% $1,172 4.4% $819 $819 Change $1,518 $1,518
2%
2012
$737 $737 $670 $829$670 $1,016 $1,016 $968 $1,115 $968 $1,118 $1,118 $775 $757 $757 2Q14 $1,452 $1,452
1%
0% -2% 2011 -4%
Aurora-Central-Southwest Aurora-Central-Southwest Aurora-North Denver$799 Aurora-North Aurora-South Southeast Aurora-South Denver-Central Douglas County $1,088 Denver-Central Denver-Downtown Denver-Downtown Englewood/Physical $754 Vacancy Denver-Far Southeast Denver-Far Southeast Sheridan Change 2Q13 Denver-North Denver-North
1.7 %
10% 10%
1% 0%
2 .9 %
0%
4% 2% 2%
DENVER
-1%
YoY Rent Y-o-YTrend % Change
4%
8.2%
Southeast Effective Rent Effective Rent Submarket Submarket Denver-North $1,452 $1,518 4.5% 2Q13 2Q13 Denver$908 $958 5.5% Arapahoe County $1,138 Arapahoe County $1,138 Northeast Arvada / Broomfield $824 Arvada / Broomfield $824 Aurora-Central-Southeast Denver-South $819 $841 2.7% $722 Aurora-Central-Southeast $722
Denver Payroll Employment Trends Source: BLS, Institute for Economic Competitiveness at UCF & RCR
9% 9%
2012
4 .8 %
-2%
5% 3% 0% -3% -5% 2011
8% 8%
4Q10
2014
-10 bps
-3%
4Q09
2013
4.7%
7% 7%
2012
4.8%
-4%
2011 -4%
5.8%
6% 6%
-2% 0%
Physical Vacancy Change 2Q13 2Q14 Change 3.7% 4.0% 3.5% -50 bps
-4% -4%
4% 2% 2%
DENVER
5.5% 5.5%
4 .7 3 .4 %%
5% 5%
YoY Y-o-Y Rent Trend % Change
U.S.A.
Sources: Reis, Inc., History, RCR Forecasts
3%6%
5.0% 5.0%
Denver Effective Rent Trends
4%
-3% -3%
Submarket Trends Submarket Effective Rent 2Q13 2Q14 Arapahoe $1,138 $1,181 County Arvada/ $824 $872 Broomfield Aurora-Central- $722 $778 Southeast Aurora-Central- $737 $753 Southwest Aurora-North $670 $709 Aurora-South $1,016 $1,031
Denver Payroll Employment Trends Source: BLS, Institute for Economic Competitiveness at UCF & RCR
4.5% 4.5%
2014f
4.0% 4.0%
2013
DENVER (CASE-SHILLER)
4% 4%
2012
DENVER (FHFA)
3.5% 3.5%
Y-o-Y % Change
13 .1%
12 .3 %
10 .2 %
3% 3%
15% 13% 10% 8% 5% 3% 0% -3% -5% 2011
p
Senior M Head of M jphensley +1.770.75 +1.800.8
FOR MORE INFORMATION ABOUT RED’S RESEARCH CAPABILITIES CONTACT: ING AT START
$
00
17
18” x 24” signs in your choice of designs at affordable prices Daniel J. Hogan
Director of Research djhogan@redcapitalgroup.com +1.614.857.1416 office +1.800.837.5100 toll free
503-221-1260 signs@propubinc.com
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