Colorado-Real-Estate-Journal_429145

November 2024 — Multifamily Properties Quarterly — Page 5 www.crej.com APARTMENT COMPLEXES ASSISTED LIVING FACILITIES WORKFORCE HOUSING AFFORDABLE SUPPORTIVE HOUSING Scan to learn more about our projects and capabilities. bryanconstruction.com *LIHTC Program Railway Flats Heritage at Church Ranch Solid Ground Apartments MARKET UPDATE T he Northern Colorado Class A, institutional size/quality, apartment market continues to show impressive resilience amid a large number of deliver- ies in northern Weld County over the last 30 months. NAI Affinity just com- pleted our biannual survey of the Class A, stabilized markets in the region: Northern Weld had slight growth in occupancy (from 95.25% to 95.5% year over year), and average asking rent per unit per month grew from $1,647 to $1,685 (2.31%) in that same period. This is tremendous resilience for such a large number of new units, and lease- up in new communities has been brisk. The job growth and population growth has kept this trade area very strong with the last wave of deliveries, and there is much less under construc- tion currently than there has been in a number of years. Presumably, this will result in occupancy growth and strong rent growth over the next few years. The Larimer County market, while solid, didn’t see the growth in occu- pancy and rents that northern Weld County did over the same period. Occupancy was down ever so slightly from 95.02% to 94.97%, and rents were down just a hair from $1,839 to $1,838 year over year. It is worth noting that newer communities expe- rienced strong rent growth over this period, but older communities, while still Class A, did not experience much, if any, rent growth, suggesting that tenants are prioritizing newer communities. Investment activity has increased as of late with several communities trading in September. While most of the investment activity remains on properties with assumable, attractive financing, one of these trades was at 4.51% cap rate as compared to the high 4s/low 5s cap rate range on the last few trades prior to these. This may suggest that there is higher invest- ment demand and, given the relative lack of buying options coupled with the Fed finally cutting the fed funds rate, buyers are being more aggressive on high-quality investments despite the 10-year Treasury yield being essen- tially the same as it was a year ago at 4.316%. The next few trades will likely be telling and should provide more pricing discovery for the market. It remains quite challenging to pen- cil new developments given the costs and interest rates that are largely unchanged after the 50 basis point cut of the fed funds rate. This will likely result in many fewer deliveries over the coming years and, should demand remain fairly high for new units, I expect that the region will experience occupancy growth and potentially strong rent growth given what I proj- ect to be a coming housing short- age, particularly for new apartments. With 30-year mortgage rates hover- ing near 7%, I expect many would-be homebuyers to remain renters for the foreseeable future, which should keep demand for new apartments higher than in some environments for the foreseeable future. While the land market for devel- opment of these types of assets has picked up since the start of 2024, some developers continue to ask for significantly longer contract periods than they have in the past with the lengthier entitlement timelines in many municipalities than in the past and uncertainty in the capital markets. Again, this is a strong indicator that there will be many fewer units deliv- ered in the future than in the recent past. With the timelines for entitle- ments and much longer construction periods (28-30 months in some cases), if a developer starts working on a site today, it’s likely that the delivery of finished units ready for occupancy will be four to five years out, leading to a likely window during which there are very few new units delivered in the market relative to the last cycle. The developers who have projects that still pencil or who are able to find creative ways to break ground in the next 12 months will likely deliver their projects into a very low new supply environ- ment, which should result in strong rent growth and occupancies between now and those deliveries, as well as strong lease-ups when those projects are delivered. Assuming that the capital markets improve, and interest rates/cap rates decline over the next 12 months, which I think is fairly likely, I expect an environment that will be much more conducive to new development in the future than we’ve seen over the past several years. Given the desirability of Northern Colorado and the continued job growth, I expect the Class A apart- ment market in the region to continue to grow and remain strong for years to come. s jakeh@affinitycre.com NoCo Class A markets see resilience, bifurcation Jake Hallauer, CCIM President, NAI Affinity