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COLORADO SPRINGS
MULTIFAMILY
Currently, the Colorado Springs, Colorado, apartment market
is reeling from the effects of the economic downturn, the deployment
of approximately 10,000 troops from Fort Carson to Iraq and
substantial construction of multifamily properties between 1999
and the present. These factors have raised multifamily vacancy
rates from 2.8 percent in early 2001 to 12.8 percent as of the
second quarter 2003. As a result, many proposed and planned
projects are being shelved or cancelled. As of late October
2003, there were only four major projects, totaling 993 units,
under construction in the metro area.
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Daniel Sorrells
Research Manager
Marcus & Millichap Real Estate Investment
Brokerage |
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Very few national or regional developers are left in Colorado
Springs, though a few recent projects have been developed by
Greystar Construction, Embrey Properties and Fore Property Company.
Still, the bulk of new development has been built by local developers,
such as Griffis/Blessing.
Of the current development, the majority has taken place along
either Powers Boulevard, on the east side of Colorado Springs,
or on the south side of town. This is mainly due to the availability
of land. In order to increase the amount of quality housing
for troops and families stationed at Fort Carson, the first
phase of Mountain Crest Village, a 271-unit property, is currently
under construction near the base, which is located on the southern
edge of Colorado Springs.
Some other projects include the recently completed 250-unit
University Park, developed by Western National Properties; the
228-unit Fountain Springs, developed by Fore Property Company;
and the 440-unit Grand River Canyon, developed by Westwood.
However, the heavy amount of recent construction has caused
a significant spike in the vacancy rate throughout the metro
area and has led to substantial discounting, either through
free rent, reduced deposits or other move-in specials.
The typical project in Denver ranges between 240 and 350 units,
with a mix of one-, two- and, to a lesser extent, three-bedroom
units. Generally speaking, Class A properties have been developed
north, in the Briargate area, while several recently completed
affordable projects, constructed either with low-income housing
tax credits or as 221-d(4) properties, have been concentrated
in the south. The typical designs are oriented toward young,
unmarried professionals or young families.
Rental rates depend on the age of the project, as well as location,
and can range greatly. The overall metro average rent as of
the second quarter 2003 was 81 cents per square foot per month,
which represented a 3-cent decline from the previous quarter.
Asking rents for new product range between 95 cents and $1.10
per square foot for one-bedroom units and 90 cents to $1.00
per square foot for two-bedroom units. However, once concessions
are figured in, the effective rents are approximately 20 percent
lower.
Vacancy rates have risen considerably over the last year due
to heavy construction and troop deployments from Fort Carson.
The pain of increased vacancies has spread across the marketplace,
with the average mid-year vacancy rates for all submarkets exceeding
12 percent. Although construction has slowed, new product continues
to hit the market, indicating continued high vacancies throughout
Colorado Springs.
Once the local economy rebounds, we anticipate continued renter
interest in areas near major employment centers, namely, the
Briargate area on the north side of town. Properties near downtown
are also likely to perform well. As military personnel return
from Iraq or other deployment areas, properties near Fort Carson
(south and west of downtown) will also see an uptick in occupancies.
It has been a tough 2 years for the Colorado Springs apartment
market. Properties with poor management histories have been
hit especially hard, though even newly developed properties
are having a hard time maintaining profitability. For investors
interested in cash flow, this is not the time to buy. However,
there are opportunities for upside-oriented investors who are
willing to work to find under-performing properties where good
management will be a key to maintaining existing tenants and
attracting new ones. Once the economy gains momentum and generates
significant employment growth — likely to occur by late
2004 or 2005 — vacancies will decline and rent increases
will again be possible, greatly increasing property values.
Daniel Sorrells is the research manager in the Denver office
of Marcus & Millichap Real Estate Investment Brokerage.
©2003 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints of
this article contact Barbara
Sherer at (630) 554-6054.
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