There were $198 million in apartment building sales in Colorado Springs in 2012. That’s the most since the start of the recession in 2007, according to market experts.
“It was a lot more fun to be an apartment broker last year than it has been for a while,” said Stuart Sloat, an apartment broker who recently moved his practice to Olive Real Estate Group. “Activity picked up tremendously right around the beginning of [last] year.”
And it stayed up. Brokers across the city said they had a busy 2012. Most anticipate apartment sales will continue to be strong through 2013.
There are a few reasons for the strong market.
“The last four years, apartments have been the single most popular investment choice nationally,” said Doug Carter, an apartment broker with Sperry Van Ness.
They have been safer and had higher returns than other investment types, drawing institutional investors like pension funds that otherwise might invest in stocks and bonds. They’ve also had easier access to financing than other types of commercial property investments because Fannie Mae and Freddie Mac will guarantee the loans, Carter said.
“That’s not true for other commercial real estate investments,” he said.
Carter said the interest in apartments is likely to continue because investors have cash that needs to be invested somewhere and apartments are still one of the easiest commercial options to finance.
For several years, Denver has been at the top of investors’ lists. As investors have pushed purchase prices higher and higher in Denver, interest has spilled over into Colorado Springs, said Ron Spraggins, CEO of Commonwealth Commercial Properties.
He has worked with investors who were looking in Denver and has even recently sold properties in Denver. But most of them, he says, he’s brought down to Colorado Springs.
Kevin McKenna, a broker with Apartment Realty Advisors in Denver, said he’s been working with clients who were shopping for something in Denver and came to Colorado Springs instead over the past three years. While ARA doesn’t have an office in the Springs, the firm represented a lot of properties here and sold more than $155 million of the $198 million in total apartments sales in 2012. McKenna said that’s because the firm has a reputation with big institutional investors.
Properties also have been selling at higher prices. Griffis Blessing paid $105 per square foot for the Bonterra Lakeside Apartments in the Cheyenne Mountain area. That’s a steep price for a property built in 1969, Spraggins said.
Most other properties that sold were 1980s buildings, averaging more than $120 per square foot.
It makes sense that sales prices are rising, Carter said. Interest rates are extremely low, which means investors can pay more for a building and still have positive cash flow. And since there is competition for a limited supply of inventory from investors, prices are climbing.
Spraggins says rising rents are also behind the increased apartment sales prices. He forecasts astronomical rent increases and cites a Trulia report saying rents climbed 6.7 percent year-over-year in the fall.
In reality, rent in Colorado Springs has gone up about 2 percent year-over-year for the past three years, said Ryan McMaken, spokesman for the Colorado Division of Housing, which reported this week that rents climbed to a record high of $790.95 even as vacancy increased to 7.1 percent.
While higher than it has been, it’s not far above the average vacancy rates in the past two years. Fourth-quarter vacancy last year was 6.7 percent, McMaken said.
The vacancy rate is plummeting much more dramatically in Denver and northern Colorado, McMaken said. He attributes the higher rate in the Springs to weak job growth.
Ultimately, the market conditions are still strong, Carter said. And he doesn’t see buyer demand waning.