Atlas Real Estate Group on Denver’s Multifamily Outlook

Co-founder Jason Shepherd explores the investment market and new development trends he's seeing, such as the rise of micro units.

Jason Shepherd, co-founder of Atlas Real Estate Group, a Denver-based full-service realty firm specializing in investments, brokerage and property management, says the firm focuses on workforce housing in the multifamily space and non-core submarkets that are in the path of development.

The company manages more than 2,300 units of residential investment real estate for its clients and has bought and sold more than 4,000 properties on behalf of individuals and institutional investors, totaling more than $750 million worth of transactions. 

Shepherd talks here about what he’s seeing in 2018.

With the first half of 2018 now behind us, what are the trends you’ve seen in Denver’s multifamily market?

Shepherd: In Denver, we have been flooded with new multifamily construction over the last few years. This comes on the back of five years of extremely high positive-net migration especially within the younger demographics. Recently, we’ve started to see the units getting smaller, inclusive of co-living and micro units. These new living experiences are serving the desire of the vibrant tenant mix that prefer community over privacy. The question is how sticky are these tenants? As an owner of multifamily, vacancy and turnover are two costs that have a gigantic impact on your return. Will these communal multifamily assets retain tenants for a few years, or do these new residents to a city or people transitioning from post college into their adulthood use this housing sector as a quick stop until they find something long term? Only time will tell but it’s a trend that is moving from the primary markets (LA, NYC, SF) quickly into the secondary markets like Denver.

What’s on your radar and why?

Shepherd: Developers have overbuilt the multifamily asset class in Denver and I’m keeping my eye on this over the next couple years. I’m patiently waiting to see what happens to these units as 10 years of apartment supply (using our average absorption rate for this asset class) enters our market. How do these units pivot? I like the idea of repurposing to independent living for the aging community or condo conversions but only time will tell. I’m really interested to see how suburban multifamily will play out as transportation begins to change, increasing mass transit and the undeniable introduction of autonomous driving might inspire some city people to venture out to the suburbs if traffic was less of an issue.

What is the most important thing that investors should be aware of in today’s multifamily environment?

Shepherd: I think it’s important to understand the ever-changing needs and desires of your tenants. The new multifamily might not be co-living but it will be more experience and community than ever before. This goes for baby boomers that desire a hassle-free housing option but would like to participate in activities, and the millennials that desire socializing over square footage. This is a product of the pendulum swinging back to physical interaction after a couple decades of virtual connection. Investors also need to be aware of the data and how information is presented in the space. For example, most calculations regarding vacancy rates remove “new product” or buildings that haven’t had their initial lease up. Well in a market in Denver, which we are delivering 20,000 units per year, that vacancy rate is dramatically skewed if you don’t include that data.

What’s your biggest piece of advice with today’s current market?

Shepherd: Be patient; post-housing crash we saw a flood of multifamily tenants. First, because a lot of people lost their homes or credit and also a large group of people that observed the fallout and preferred the “less stress” rental option. Couple that with lenders that were excited to loan as much cash as possible after of a few years of very controlled lending practices and you have a frothy multifamily construction market. 

What’s the key to planning a successful strategy?

Shepherd: “When people are greedy be fearful, when people are fearful be greedy.”—Warren Buffet