On March 13, the Colorado Real Estate Journal hosted its annual Multifamily Owners and Managers Conference and Expo.  The Conference assessed the present and future of Colorado’s multifamily housing market with an emphasis on the Denver metro area.  Speakers included economists, consultants, property managers, lenders, investors, and developers. They canvassed topics ranging from the demographic, political, and sociological forces driving Colorado’s multifamily market, to current market lending terms and expected investor returns and grappling with the diminished supply and rising costs of construction labor. The presenters’ general consensus is to approach the multifamily housing market in the Denver metro area with caution.  Factors supporting development include projected population and job growth, the costs of buying and owning a home in the area, Colorado’s quality of life, the redevelopment of Union Station, and Denver’s national status as a burgeoning metropolitan city.  Countervailing considerations include overbuilding, rising construction costs, tightening regulations on lending, and tapering rent increases.

A few other highlights from the conference are below:

  • Based on the numbers of building permits issued, there are roughly 20,000 new apartment units in the Denver metro pipeline. Based on a number of factors, including construction delays resulting from labor shortages, however, the number of units delivered in 2014 is expected to  fall far short of that number.
  • Prospective tenants are showing an increasing demand for distinctive amenities and community elements.  Two of the most popular are amenities for pets and bicycles, including dog parks, dog-bath stations, secured bicycle storage, and bicycle mechanic areas equipped with work stands, tools, and, in some apartment communities, a mechanic. Tenants are seeking apartments with community areas that have all the trappings of their units to augment their living spaces, be it a community lounge with multiple large flat-screen LCD televisions or a communal wine cellar.
  • While the Denver metro area garners the most attention with respect to multifamily housing, other markets in the state are also performing well and may present opportunities for development and investment. Based on rent growth and vacancy rates, the Greeley market was strong in 2013, and the average apartment rent in the Fort Collins-Loveland market rivals the Denver metro area’s average rent.
  • Developers are seeing marked increases in the cost of construction labor. Multiple developers stated that over the past 24 months, these costs have grown anywhere from 20% to 30%.

The origins of the “three rules” of real estate call into question whether location should be viewed as the most important characteristic when evaluating real estate.  At the 17th Annual CU Real Estate Forum, Gunnar Branson highlighted William Safire’s research on the origins of the phrase “location, location, location.”  According to Safire’s research, the earliest record of the phrase was in a 1926 real estate classified ad in the Chicago Tribune: “Attention salesmen, sales managers: location, location, location, close to Rogers Park.”.  As Branson points out, the irony of this link between location and Rogers Park is that property values in Rogers Park are significantly lower than the surrounding neighborhoods despite its proximity to Lake Michigan and downtown Chicago.

Branson argues that the phrase “location, location, location” does not provide the complete picture and is too simple as a framework for evaluating real estate.  According to Branson, the three new rules of real estate are density, diversity and shared ownership.  This analysis certainly seems to hold true as we continue to see more and more mixed use, dense development in our cities.

 

Last November, Otten Johnson sent out a client alert stemming from a jury verdict in Rogers v. Forest City Stapleton, Inc. and FC Stapleton II, where a Colorado homeowner won a judgment of over $700,000 from the master developer under an implied warranty of habitability claim.  This was the first time a Colorado court had allowed liability to flow back to a master developer when the developer sold a lot to a professional homebuilder.  In our alert, we mentioned that an appeal was possible.

Forest City filed an appeal in the Rogers case on January 13, 2014, raising three questions:

  1. Did the trial court err in ruling that the Plaintiff could assert a claim for breach of implied warranties against Forest City?
  2. Did the trial court err in instructing the jury that the Plaintiff could recover on a claim for breach of implied warranties against Forest City?
  3. Did the trial court err in finding that the Plaintiff presented sufficient evidence from which the jury could infer (1) that Forest City “placed” recycled aggregate base course in the roads around Plaintiffs’ house, or (2) that doing so was unreasonable—both of which are necessary to support Plaintiffs’ nuisance claim?

The first two questions address the same issue:  whether a master developer can be held liable to a downstream purchaser for breach of implied warranties.  While the Rogers jury said “yes,” a Colorado judge in a 2011 case sitting on virtually the same facts said “no,” setting the stage for this appeal.  The outcome of Rogers will be important to developers, homebuilders, and homeowners, as it could redraw the lines of liability between these parties for implied warranties.

Brad Schacht and Amy Hansen contributed to this blog post.

DenverInfill Map

Downtown Denver residents are getting new neighbors—lots of them.  The DenverInfill Blog has released an updated map of the multi-family residential projects that are recently completed, under construction or proposed within a 1.5-mile radius of 17th and Arapahoe.  By DenverInfill’s count, almost 3,000 units have been completed since January 2012, more than 4,400 units are currently under construction and almost 3,000 additional units are proposed.  If all of these projects are completed as planned, this translates to over 10,000 new residential units and $1.5 billion of residential investment in Downtown Denver.  Cup of sugar anyone?

For more information, click here.

National Public Radio recently broadcast a story about a developing trend in suburban residential communities called “development-supported agriculture.”   The story highlighted two communities, one located in Fort Collins here in Colorado, Bucking Horse, and a second located outside of Atlanta, Georgia, Serenbe Farms.  These communities and approximately 200 others like them across the country focus on the demand for local agricultural products by replacing traditional community amenities such as pools and golf courses with farmland, livestock facilities and related infrastructure.  One of Otten Johnson’s clients, The Canyons, is planning to include a farm amenity in its development.  Located just south of Denver in the northern Douglas County community of Castle Pines, the Canyons’ “active, life-enriching experience” will include farming.