Despite a continued soft apartment market, the two largest apartment sales in the history of Colorado Springs were closed in June.
The sale of Champions of Norwood Apartments closed June 2 for $36 million. The sale of Grand River Canyon Apartments closed on June 30 for $34 million.
Ron Spraggins, president of Commonwealth, and his sons, Ryan and Shane, represented the buyer, Grand River Canyon LLC, and the seller, Specified Properties LTD of Dallas firm in the Grand River sale.
Ron Spraggins said there are active buyers in the apartment market today for the first time in several years.
The Grand River Canyon Apartments has 144 units and according to Spraggins is a Class A complex.
Spraggins said Class A apartment complexes have about a 95-percent occupancy rate for the first time since 2001. Commonwealth classifies apartment complexes – A, B and C – according to amenities, unit size, construction quality, and tenant profession and income.
Spraggins said a “migration cycle” takes place among the classes of apartment complexes during a high-vacancy period. “When Class A complexes lowered their rents and offered concessions in order to fill their vacant units, many tenants from Class B complexes found they could move up to a better quality apartment and more amenities with little increases in rent,” he said. The same happens between Class B and Class C complexes, leaving Class C with the brunt of vacancies. However, Spraggins said that as occupancy rates increase the cycle starts again.
He said it is time to get back into the market and buy apartment complexes, before low vacancy rates return. Buyers think the right time to buy is when all is well economically, he said, but if the economy heads south, those owners are looking at lowering rents and sitting on the complex until things even out.
Doug Carter, owner of Doug Carter, LLC, another Springs apartment broker, agreed with Spraggins that it is a good time for apartment transactions. “I think it is a good time to buy if the people are smart about it and can take advantage of the low interest rates,” Carter said. “It (the apartment market) is still considered a soft market.”
However, Carter questioned Commonwealth’s A, B and C classifications. “Those classifications are his (Spraggins) definition and very subjective,” he said. Carter ranks apartment complexes by the age of the property.
His quarterly apartment vacancy rate report is similar to the Colorado Springs Metro Area Apartment Vacancy and Rent Study, which is written by Dr. Gordon Von Stroh, a professor of management at the Daniels School of Business at the University of Denver. Von Stroh reported second-quarter vacancy rates at 9.1percent, down considerably from first-quarter vacancy rates of 12.3 percent and a second-quarter 2003 rates of 12.8 percent.
Carter said vacancy rates peaked at 14 percent in June 2003. He said the return of 14,000 Fort Carson soldiers in March prompted improvement in vacancy rates. “Properties built after 1990 saw improvements in both rents and occupancies,” Carter said. He reported a 10.6-percent apartment vacancy rate in March, and expected the rate would decrease even more for June because of the returning troops. However, he calculated the average June 2004 vacancy rate at 10 percent.
Carter said the impact of new single-family construction is significant to the apartment market. “New home starts will reach record levels in this market for the third year, and builders are clearly targeting first-time home buyers, many of whom are renters,” he said. “Single-family home starts now need to be included as supply when looking at apartment supply and demand balances.”
Carter announced two apartment sales this month: Green Briar Apartments, 3925 E. San Miguel St.; and Kitty Hawk Apartments, 2914 N. Arcadia St. The 16-unit Green Briar sold for $745,000 in 33 days.
The 26-unit apartment complex Kitty Hawk, which was 43 percent occupied at the time of closing, was sold to Greccio Housing for $700,000. Greccio is a nonprofit affordable housing organization and provider. Executive Director Rich Stryker said the nonprofit will invest $250,000 into Kitty Hawk for interior and exterior renovations.
Stryker said Greccio’s target market will be individuals and families who make 50 percent less than the Springs median income. A family of four, for example, would be eligible if their income was no greater than $31,050, Stryker said. Four of the 26 units will be set aside for tenants who make 30 percent or less of the median income, he said. Greccio receives its funding from grants, corporations and individuals.
Carter said the deployment of 7,000 Fort Carson troops by March 2005 means continued slow economic growth.
“It could be spring 2006 before our economy gains real traction toward a more balanced market and a more vibrant economy,” Carter said. “We are certain this next deployment will not have as negative of an impact. Colorado Springs remains on the upswing and any delays in our recovery are clearly temporary.”