Colorado-Real-Estate-Journal_443738

INSIDE A range of feasible scenarios exists for market, economy in 2025 Forecast unclear Agencies, architects and contractors are delivering affordable options Affordable housing PAGES 29-36 Creating a building for use by all ages, abilities adds value for all Design philosophy PAGE 16 February 2025 PAGE 12 A year in review: Metro Denver institutional MF S tability in Capital Markets Envi- ronment + Increased Dry Powder = Elevated Transaction Volume Volatility in Capital Markets Environment + Decreased Dry Powder = Muted Transaction Volume Volatility in Capital Markets Environ- ment + Increased Dry Powder = ??? The final formula depicted above succinctly summarizes the phenom- enon experienced within the metro Denver institutional multifamily market throughout 2024. The ulti- mate result of the phenomenon was intentionally omitted above; now let us explore that. Looking back at historical institu- tional multifamily transaction vol- ume (sales transactions greater than $50 million) within metro Denver, the data is quite interesting, espe- cially when you overlay transaction volume with the corresponding aver- age U.S. 10-Year Treasury yield (a paramount benchmark within the field) for that respective year. The annual figures above show a direct correlation between vol- ume and the average yield of the 10-year U.S. Treasury, up until 2024. In 2023, the metro Denver market traded around $2 billion in institu- tional multifamily product with an average 10-year UST yield of 3.96%. However, in 2024, the metro Denver market traded around $4.5 billion in institutional multifamily product with an average 10-year UST yield of 4.21%. Therefore, in a year (2024) that experienced greater volatility in the capital markets, multifamily transac- tion volume more than doubled the prior year (2023). In 2024, we wit- nessed and experienced the resur- gence of deep pools of institutional capital specifically targeting entry or continued capital investment into the metro Denver mul- tifamily market. After summariz- ing key market transaction volume trends above, that leads us to a good segue to discuss recent active market participants. For this segment, let us review 2023 and 2024, years that featured around 20 and around 50 institutional mul- tifamily transactions within metro Denver, respectively. Some $2 billion of transaction vol- ume in 2023 was the lowest annual mark for the metro Denver insti- tutional multifamily market since 2013, which was largely due to insti- tutional capital patiently waiting on the sidelines. In 2023, private capital seemed to dominate the transac- tion arena, which was not the case in 2024. In 2024, major institutions reentered the marketplace through diverse avenues including portfo- lio offerings, single asset offerings, existing asset recapitalizations and selective development equity invest- ment opportunities. It is noted that these institutional capital sources generally flow together, signaling to the rest of the field that for the right opportunity, it is “game on.” Not every major multifamily market within the United States experienced the same revival from a transaction perspective in 2024 (the metro Den- ver multifamily market ranked sev- enth in transaction volume within the U.S. in 2024) and a significant contributor to the past and future success of the metro Denver multi- family market is our robust for-sale housing market. Per a study compiled by the National Association of Realtors, of the 227 largest cities within the U.S., Denver and Boulder rank 21st and 10th for median housing values of existing single-family homes, respec- tively. That equates to a median housing value of $654,600 in Denver and $832,200 in Boulder, compared to the U.S. median housing value of $337,400. The strength of the for-sale housing market has driven metro Denver’s multifamily fundamentals for some time. As of fourth-quarter 2024, the average monthly effective rent in metro Denver was $1,783. In comparison, if you were to analyze the prospective burden of homeown- ership assuming Denver’s average housing value of $654,600, conven- tional financing and market standard taxes and insurance, that equates to $4,028 monthly; thus, commanding a 2.25x or $2,245 monthly premium cost for owning versus renting in metro Denver. The law of supply and demand, right? We have highlighted the strong demand for not only equity investments into the metro Denver multifamily space but also have depicted the demand drivers and necessity from an end-user/renter perspective. The current multifamily supply picture in metro Denver has certainly received headline news, but what most articles or periodicals fail to touch upon is what that supply picture truly looks like on a going- forward basis. The table below details annual apartment building permits in metro Denver over the past five years. The table above characterizes metro Denver’s multifamily sup- ply pipeline as it currently stands, outlining annual declines in addi- tional supply year over year since 2022. In comparing the two most recent years, 2023 and 2024, the data indicates a year-over-year decrease of about 45%. Given the significant decline in forward-looking develop- ment projects, these factors position the metro Denver multifamily mar- ket to experience strong fundamen- tals in the coming years. Onward and upward in 2025. s alex.possick@jll.com Alex Possick Director, JLL Capital Markets Source: JLL Capital Markets Source: HUD - State of the Cities Data Systems (SOCDS) Source: JLL Capital Markets

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