This article was published in the January 21 – February 3, 2015 Colorado Real Estate Journal.
Record breaking. That’s how 2014 will be remembered in the Northern Colorado multifamily industry. All three cities: Fort Collins, Greeley and Loveland, posted record rents, vacancies and sales numbers. As a tertiary market, the numbers for Northern Colorado don’t have the overall impact or attention that a Denver or other major metropolitan market attracts. However, on a scaled down view, comparisons of data show Northern Colorado as one of the strongest markets, operationally, in the state, if not nation.
“Steady and strong.” That was the message delivered at the Northern Colorado Business Report’s 2014 Economic Forecast at the beginning of the year. Through the first 3 quarters of the year, you might say this was an understatement. Leading the way, Weld County’s foothold in the energy realm exploded and attracted job seekers to major oil and gas companies, while opportunistic entrepreneurs started up companies looking to support the major energy activities in the region. Not far behind energy, Weld County’s agriculture industry had facets that enjoyed a prosperous 2014.
With a foundation in a more diversified economic base, Larimer County enjoyed growth in 2014 through innovation fostered by incubators like Innosphere (formerly Rocky Mountain Innosphere). It also saw growth in healthcare, professional services and manufacturing.
All areas in Northern Colorado experienced a spike in the construction industry, with multifamily being a large contributor. Apartment construction in the region over the past few years is unlike anything we’ve seen since the 1990’s and early 2000’s. Construction did not miss any of the local municipalities, Fort Collins, Greeley and Loveland. Developers made the leap to develop in areas considered more speculative, trying to capitalize on lower land values and aggressive growth in the region.
The unemployment rate in Weld County was at 3.9 percent in November while Larimer County came in at 3.2 percent. Compare this with the state’s unemployment rate which decreased two tenths of a percentage to 4.1 percent.
With oil prices plummeting in the fourth quarter of 2014, many are cautiously watching and waiting to see if prices stay low and what effect that may have on the overall economy, not only in Weld County, but across the state of Colorado.
Apartment rents appreciated more than most anticipated in 2014, with upward pressure as a result of increasing home prices and lack of affordable choices. Driven, seemingly, from the scarcity of condominiums and townhomes due to concerns around the condo defect law, combined with increased land and construction costs.
In 2014, Larimer County saw average rents increase nearly 10% over 2013, while Weld County saw increases around 12%. Average rents in Fort Collins hovered around $1,150 per month in the 4th quarter and Weld County rents hovered around $830 per month.
Vacancy rates in Larimer and Weld Counties have remained below 5 percent since 2011. Some areas of the region have spent most of this time below 3 percent. Fort Collins averaged an annual vacancy rate of 3.5 percent for stabilized properties in 2014, with most of the vacancy due to a few larger remodel efforts. Loveland is experiencing the lowest vacancies in the region at 2.5 percent, while Greeley has hovered around an average of 3 percent for the past year.
Vacancies and rents like these are sure to attract developers who wait for all of the market indicators to align. In the last couple of years the indicators were all positive – climbing rents, extremely low vacancies, difficult barriers to competitive entry, etc. This not only attracted regional developers, but national players in the market-rate and student-housing development worlds. Major projects from developers like Spanos Corp., McWhinney, Crowne Partners, Scott Ehrlich and Milestone have added units, or are planned to add units to all markets in Northern Colorado.
The high water mark for sales volume in Northern Colorado was set in 2014. At the time this article was written, sales volume for 2014 was set to crest over $260 million. The previous high, set in 2008 when AIMCO sold five Northern Colorado properties as part of a portfolio sale, was less than half 2014’s total. The per-unit average also increased a staggering 167% from $54,670 in 2008 to $145,882 in 2014. All of this on smaller number of units transferring ownership – 2,003 units in 2008 versus 1,777 units in 2014. Midway through 2014 the sales volume was sitting at $47.7 million, mainly due to a lack of opportunities in the marketplace. The majority of the $200 million trading hands in the second half of the year came through two portfolio sales: McWhinney’s sale of three properties (2 in Loveland and 1 in Westminster) and three student housing properties sold in Fort Collins by Walnut & Main.
Top sales in the region included:
- 303 unit Lake Vista in Loveland which traded hands for $60.75 million
- 252 unit Greens at Van De Water in Loveland selling for $44.5 million
- 240 unit Terra Vida in Fort Collins selling for $39 million
The average cap rate across all property sizes, ages and regions ranged from 5.8% – 7.2%. This is a 50 to 100 basis point drop over 2013 rates.
Overall, 2014 was a fantastic year for the multifamily market in Northern Colorado. Owners and managers were able to fill their properties with eager tenants. Rents continued their climb while vacancies continued to be minimal. Sellers were able to maximize the values in their properties through extremely low cap rates and never seen before demand.
With rental rate increases far exceeding inflation, we will watch activity in 2015 cautiously and anticipate pricing and vacancy to level off. With inflation meekly increasing somewhere between 1.6 percent and 2 percent, combined with very high housing prices, I expect to continue to see excellent performance on the operational side of the multifamily market along with stabilized rents and moderate vacancy.