An Insider’s View on Denver’s Multifamily Market
- Aug 01, 2019
Demand for multifamily housing in Denver continues to be high, as absorption of new units coming online—roughly 14,000 last year—is strong. One of the latest trends in the metro for combating affordability issues is building properties made up exclusively or featuring a high percentage of studios—micro-apartments. One such example is McWhinney’s Ride at RiNo, an 84-unit community that opened recently.
In an interview with Multi-Housing News, David Jaudes, vice president of multifamily development for McWhinney, shares his views on Denver’s multifamily market: overall trends, opportunities for growth, as well as his predictions for the future.
Tell us how you view the multifamily market in general. What are the main trends? How have they changed in the past years?
Jaudes: A lot is happening in the multifamily space at the moment. Affordability is obviously at the top of the conversation, with cities and developers approaching it from many different angles—designing smaller units, density overlays, public facilities corporations and the like. The other hot topic, which is a direct headwind for affordability, is the escalation of hard costs. Washington’s tariff discussions aren’t helping at the moment. Depending on who you speak with and what product type you’re discussing, hard costs are up nearly 30 percent over the past four years, which is getting passed along to the renters.
READ ALSO: In Search of Affordability Solutions
Name three strategies that you found to be efficient in attracting and retaining residents?
- It sounds simple but it starts with attracting and retaining the best property managers.
- Property cleanliness. Again, it sounds simple, but you’d be surprised how filthy some properties can get.
- Reliable Wi-Fi. You have to have good Wi-Fi in our streaming universe. We have a growing number of residents who no longer purchase cable TV. Rumors about Netflix and Amazon TV dominating the world might be true.
What role does sustainability play in your projects?
Jaudes: We’ve developed several properties that obtained LEED Silver certification and you always aim to do it on every project, but inevitably with today’s hard cost environment, you’ll face a decision of how critical it is. What’s nice is with today’s building code, almost every project we do, meets LEED Silver certification guidelines, then it becomes a question of whether you pay the extra money for the actual certification. We anticipate more stringent energy standards will become the norm, so each week we’re getting in front of those discussions with our consultant teams.
According to Yardi Matrix data, more than 14,400 units came online in Denver last year. What factors stand behind this increase in supply?
Jaudes: That number is higher than what’s been reported by other sources we track. Maybe it includes affordable and senior housing as well. Regardless, the factors in play are primarily job growth, which brings in-migration and increases population growth, as well as the “Colorado lifestyle” that is attracting so many from the coasts. While it is true the cost of living in Denver has grown significantly during the recent expansion, when compared to coastal cities, it is still attainable to many. Still, we should be looking for more solutions for the 80 to 100 percent of the area median income demographic and helping deliver more of those housing units.
McWhinney has a sizable portfolio in metro Denver. What can you tell us about demand for multifamily units in the metro?
Jaudes: McWhinney only manages 295 units in Denver (SOVA on Grant and RiDE at RiNo). We have another property in Westminster that is 394 units (Arbour Commons), a project that broke ground last week in Longmont that is 208 units (Clovis Point), and we have our largest presence in northern Colorado with four properties totaling 1,125 units (Trails at Timberline, Cycle, Pinyon Pointe and Railway Flats).
We have a pipeline of approximately 700 units breaking ground in Denver metropolitan statistical area later this year. However, I would tell you the demand side of the equation is stable. Concessions are pretty much there with every lease-up, but we are typically seeing those burn off or come down significantly once properties stabilize. It remains to be seen how long the economy can keep producing the 2.5 percent plus growth per year, but it’s comforting to be in the long-term holder position and not worrying about exiting our projects in the near future.
What does Denver have to offer in terms of investment/development opportunities going forward?
Jaudes: Tougher, as the low-hanging fruit has all been activated. Any site that is zoned by right and in a decent location is priced as such, making returns harder to achieve. We’ve taken on more risk on the pursuit side, jointly working with cities where both parties are looking to rezone certain sections of their city for high-density residential. Just across the street from Oskar Blues Brewery, our Longmont project was an example of this approach.
We aren’t in the acquisition space, but I’m told the value-add B and C product is very crowded, with some sales approaching replacement cost for new Class A projects.
What are your predictions for the multifamily market in the years to come? How does the late-cycle economy impact your business strategy?
Jaudes: Again, we like to focus on the long term, and long term we see Denver continuing to grow, perhaps not at the rate it has over the past couple years. We will continue to search for opportunities where we see healthy population and job growth, and sites within cities where the neighbors and community want us there. Smart growth is happening, and you do have projects where the developer and neighbors are friends. Those developments just don’t tend to grab the headlines.