Tom Briney
The Denver market became an investment target late in the cycle. Thanks to strong economic, job and population growth, investment capital has flocked to the market and multifamily development has benefitted from strong rent growth year-over-year—but how much runway is left for rent growth in the market? With new apartment developments coming to market, rent growth may flat line, but only temporarily.
"Over the last several years, particularly in 2016 and 2017, we saw significant delivery of new units to the market—averaging 9,000 to 10,000 units annually," Tom Briney with Origin Investments tells GlobeSt.com. "But there also has been somewhat of a lull or slowdown for new permits, which precede development activity. This translates well for deliveries coming in 2020, 2021 and 2022. We're optimistic about the trajectory of growth in the Denver area over the medium term and believe that the three new construction projects we currently have underway are well-positioned in their individual market areas."
Overall, Denver's local economy is strong, and there is no reason to believe that will change anytime soon. "We believe there is a lot of growth left in Denver—the economy, jobs and the demand for affordably priced apartments. Projects are leasing up quickly," says Briney. "There is no real reason to believe that occupancy will dip in the near term."
On a macro level, however, it is a different story. Predictions of an oncoming recession are growing, and if the US economy stalls, it will likely impact activity in Denver. "The marco economy does give me some reason to pause," says Briney. "Greater market uncertainty and continued delivery of new units could cause rent growth to slow. One of the things we do at Origin when underwriting and evaluating a new development deal, which may not deliver units for 18-24 months, is to make an investment decision based on current market rents. This provides a hedge against some of the external factors over which we have no control."
Of course, this will also have an impact on investment sales activity. "One of the greatest challenges in the Denver area is the impact of the length of the current economic and real estate cycles we've experienced," says Briney. "The current cycle has been so long, and strong, that some properties have traded two or three times since the last downturn. Paying a multiple of two to three times what you could have paid even since 2012 is a tough pill to swallow for a lot of investors. For existing owners, the great question is whether to sell an asset or continue to hold it into some potential economic headwinds. Some owners are taking a defensive position, electing to hold on to assets because opportunities to reinvest profits are difficult to find."
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Kelsi Maree Borland
