DENVER—“We get calls at least once a week from a new investor who wants to get into this market.” So says Terrance Hunt, executive managing director of ARA Newmark. All the things you've heard of Denver over the years…the views, the climate, the in-migration…all come home to roost in the Mile High City's multifamily market. Even the bad news—yes, there's bad news in Denver as well—such as the increasing cost of homeownership, feed into the renters' lifestyle. We'll explore all of these factors in this, the third in our series on the Denver market.

“The first time that Denver sold a building for more than $100,000 a unit was 2001,” Hunt continues. “We sold three in excess of $300,000 last year.” And he expects the trend to continue since the core market—which in Denver means Downtown/LoDo—is already seeing deals over $300,000 a unit.

So what specifically is driving the demand? It's clearly more than the pretty views. “Basically we've got a vibrant market,” says Shane Ozment, an ARA Newmark executive managing director. “Yes, we're a great destination city for people who want to live here. Jobs are also being created and companies want to move here as well. So we have good job growth and in-migration.”

And the city seems to be doing a good job of growing its own. “There's a lot of internal population growth,” says vice chairman Jeff Hawks, who reports that “about five kids per hour turn 21.”

The team also reports more high-paying jobs, particularly in high-tech and energy. Plus, they say the city is the nation's second largest federal employer, taking a backseat only to the nation's capital.

The oil and gas slump did little to impact the market, in large part because, as reported in a previous story, the city has diversified so broadly—into such markets as aerospace and healthcare (including an ongoing, $4.3-billion renovation of the Anschutz Medical Campus and Fitzsimons Life Science District). And, Hawks predicts, as long as prices remain above $50 a barrel, the local economy should continue on its growth path.

As stated above, even the local challenges tend to feed the multifamily market. “The main challenge is that we're getting big,” says Hawks, and that includes growing traffic congestion. “We just passed three million in population. And if you go within 60 miles of Denver, we have 4.2 million of the 5.2 million people in the state.”

And as with all growing cities, there's also a creeping lack of affordability, and the ARA team reports home prices exceeding $400,000. Condos are also not much of an option because of local “defect laws that preclude developers from building condos,” says Hunt.

So who's buying what, and where? “We're seeing our investor base evolve,” says Hunt. “We're seeing more institutional players, looking mostly into the CBD. Boulder is also getting attention. And we're starting to see international investors—primarily Canadian, Israeli and Chinese--show up at our office, attracted to Denver fundamentals.” Cap rates are running a sub-5 for Class A product, and we move up the scale for lower-yield product: Low 5s for value-add, 5 to 5.25 for Class B and above 6 for C. 

In terms of rents, which, not surprisingly, are growing, Ozment reports that, “If you look at Denver over the past four years, we've seen growth from 10 to 12% per year. Last year we were at 12.1%.” On a dollar basis, Q1 2015 rents posted at an average $1,200 per unit, or $1.43 per square foot.

But according to Hawks, the highest rents are to be found in the Downtown/LoDo subsector, where on average new construction can run to about $230 a foot. “with top-of-the-line product pushing up around $300.”

And of course, that comes with pretty views.