Colorado-Real-Estate-Journal_414122

Page 10 — Multifamily Properties Quarterly — August 2024 www.crej.com MARKET UPDATE N E W B U S I N E S S @ A S S E T L I V I N G . C O M Connect with us to learn more! 7 2 0 . 2 3 6 . 1 4 0 0 F O L L O W @ A S S E T L I V I N G The Mountain Region’s True Third-Party Property Management Partner Our extensive service suite redefines property management to cover every aspect of your investment. T he case for development and investment in Northern Colo- rado has never been stronger, with economic growth reach- ing new heights. Reported by the State Demography Office, Larimer and Weld counties added more net new jobs – in absolute numbers, not just on a percentage basis – than the city and county of Denver in 2023. Moreover, state demographer data revealed that 50% of Colorado’s population growth occurred in Larimer and Weld coun- ties in 2023. But 2023 is not where the story ends. The runway in Larimer and Weld counties remains long. In Greeley alone, the city is project- ing a total build-out population of approximately 500,000. For refer- ence, the population of Greeley crossed over 110,000 in 2023. Northern Weld County has espe- cially experienced historic popula- tion and job growth resulting in positive tailwinds for apartment deliveries. Combined with a favor- able development and water policy, Greeley-Evans delivered approxi- mately 1,400 Class A, institutional size and quality market-rate units in 2023 and approximately 550 in the first two quarters of 2024. Of those deliveries, there are five com- munities still undergoing lease-up, with an average vacancy rate of 38.2% (CoStar, July 2024). Notably, these communities are command- ing a nearly 5% premium on chunk rents, equating to an $80 per month premium compared to older Class A product (CoStar, July 2024). Phase 1 of the Ledge Rock Apartments, at Interstate 25 and Highway 60 in Johnstown, will deliver 252 units in 2024 and is the only community under construction in northern Weld County. Despite the his- toric wave of deliveries, the north- ern Weld County apartment market demand has remained robust. In the past 12 months, 937 units were delivered, 1,381 units were absorbed, and rent growth increased to 1.7%, up from 0.7% this past April (CoStar, July 2024). With limited deliveries projected through 2025, we antici- pate that the market will continue to rapidly absorb product and rent growth will rise due to limited future supply. The law of supply and demand alluded to above is best illustrated by the juxtaposition of a supply con- strained neighbor, Fort Collins. In 2023, there were zero Class A mar- ket-rate apartment units delivered in Fort Collins, resulting in 4.63% rent growth (NAI Affinity, April 2024). Based on submitted develop- ment proposals, we estimate that under 500 units will be delivered per year over the next five years in Fort Collins. This lack of supply directly contributes to a higher cost of hous- ing where nearly 60% of renters and 20% of homeown- ers in Fort Collins are cost-burdened (city of Fort Collins Housing Strategic Plan, 2021). Within the last 12 months, institu- tional investment for multifamily assets in North- ern Colorado was limited to three transactions, just in Larimer County, and none of which occurred in 2024. The most recent institu- tional transaction is Centerspace’s, a publicly traded REIT, acquisition of the 303-unit Lake Vista commu- nity in October 2023. This Loveland property traded for $94.5 million, or $311,881 per unit, at a 5.13% cap rate, which was below the national average multifamily cap rate by approximately 75 basis points at the time, and included a debt assump- tion with a June 2026 maturity (CoStar, July 2024). Northern Colo- rado’s strong market fundamentals contribute to compressed cap rates that often remain lower than the national average. However, if there have been no sales of institutional-sized multi- family assets in Northern Colorado in 2024, then what multifamily assets are investors buying today? According to CoStar’s database, there have been 11 multifamily transactions across Larimer and Weld counties in 2024. These trans- actions range from four to 60 units, with the vast majority being under 20 units. The rapid rise in the federal funds rate and interest rates generally sidelined institutions, providing opportunities for “bite-sized” deals primarily financed with lower loan- to-value ratios or 1031 exchanges. Investors who were unable to deploy capital in 2021 and 2022 due to heavy competition are now entering the chat. Additional considerations for interest-rate-sensitive buyers are multifamily properties offering assumable loans or decent seller financing terms. We found that properties offering either financing tool received greater attention from potential buyers and would end with a successful transaction. For example, NAI Affinity represented the sellers of a 16-unit property in Estes Park with a 4.18% assumable Freddie Mac loan expiring in 2030. This property was sold March 21 to the Estes Park Housing Authority for $4.8 million, which reflected a 4.71% cap rate. The assumable loan, coupled with the Estes Park Hous- ing Authority’s mission and a high barrier to entry market, contributed to the successful transaction with a lower-than-average cap rate. Accord- ing to CoStar, the average market cap rate for multifamily sales is currently 5.1% and 5.9% for Larimer and Weld counties, respectively. Nationally, the current market cap NoCo Class A apartment market runway is long Lauren Larsen Managing broker, NAI Affinity Brecken Schaefer Project manager, real estate analyst, NAI Affinity Please see Larsen, Page 22