January 9, 2019
Real estate is a highly geographical business; this is especially true in the multifamily industry. To that end, Terrance Hunt, vice chairman with ARA Newmark, recently shared his thoughts about what 2019 will mean to Denver’s apartment sector.
Q. What challenges will your market face in 2019?
A. A low unemployment rate is typically a good thing; however, it has become so low in Denver that in some sectors it is having a negative impact. Large corporations shortlisting Denver have a concern that there is a lack of available labor to fill positions. Particularly in the construction industry, the shortage has led to an increase in labor costs, which directly impact the rising cost to build multifamily assets. Further, developers’ attempts to decrease costs overall has fueled the use of innovative solutions like light-gauge steel framing systems and pre-fabricated construction.
Q. Which submarkets will surprise people in 2019?
A. The downtown submarket has surprised, and will continue to surprise, the market with its resiliency and ability to absorb new product. Recently, downtown experienced an influx in multifamily development, yet rents and lease-up velocity have remained strong and vacancy has remained relatively low. Now, new office developments are outpacing multifamily construction starts in key downtown neighborhoods, and the downtown multifamily submarket will continue to exceed expectations.
Q. What market shifts are you noticing that others haven’t?
A. The line between multifamily and hospitality is beginning to blur. Some properties are experimenting with short-term rentals and corporate rentals in conjunction with traditional apartments. Groups who can execute on this strategy will be able to maximize occupancy and income and outperform competitors. There is an added risk if a master lease on these blocks of short-term rental units vacates, and there is still some apprehension from institutional investors and capital markets. However, to-date, this strategy has had accretive affects.
Q. Which investors are showing interest that haven’t before?
A. REITs and international buyers from other large markets are becoming more active in Denver. Specifically, Avalon Bay (Washington D.C.) and Equity Residential (Chicago) both made significant investments in the market in 2018. It is worth noting that Equity Residential sold all its Denver assets in 2016, and has now re-entered the market due to the city’s strong fundamentals.
Q. How will deal structures and financing change in 2019?
A. Groups trying to understand the logistics and long-term implications of investment in opportunity zones will be a hot topic in 2019. Additionally, the agencies are pushing to preserve affordable workforce housing with aggressive and favorable products for properties with voluntary income restrictions. Finally, more and more groups will move towards long-term, fixed-rate financing; debt funds and life companies will maintain an aggressive approach. Delaware Statutory Trust (DST) buyers will continue to influence and occupy more of the market.
For comments, questions or concerns, please contact Amy Sorter
Tags: Apartments & Multifamily