The Colorado Springs multifamily housing market has in recent weeks seen the sale of two large apartment complexes totaling nearly $130 million — bringing total sales volume for the year to around $500 million and underscoring the strength of the local real estate economy.
The 440-unit Grand River Canyon apartment community in north-central Colorado Springs was purchased Nov. 30 for $73.25 million by Atlanta-based Cortland Partners, according to El Paso County property records. Real estate brokerage ARA Newmark represented the seller, Denver-based Griffis Residential (which bought it for $38.9 million in 2007), and said the “sale marks the most valuable multihousing trade in Colorado Springs history and the third largest trade of any asset class in the Springs’ metropolitan area since 2001.”
On that same day, the 300-unit Vineyards apartment complex near Rangewood and Woodmen sold for $55.25 million; and two weeks before that, the 276-unit Talon Hill apartments on the city’s north side were sold for $56.5 million, according to El Paso County records.
The previous multifamily sale record was set in September when ARA brokered the sale of the 315-unit Encore First & Main apartment community for $67.3 million.
Multifamily sales in Colorado Springs between January and mid-November (the most recent data available) accounted for nearly $354 million, according to information from the El Paso Assessor’s office. With the addition of the most recent sales, that number is now pushing half a billion.
“As far as volume goes, this is the busiest year on record,” said ARA Newmark’s Kevin McKenna, who represented the seller of Grand River Canyon and Encore at First & Main. “We’ve more or less doubled the averages we were seeing 10 years ago. … There are a variety of factors that contribute to that.”
One factor is a market that continues to tighten up as a result of vacancy rates that reached a historic low of 3.59 percent in the third quarter of 2016, as well as 9 percent rent growth over last year’s rates, according to the most recent Apartment Insights report for Colorado Springs.
“That puts us in the top tier of markets throughout the country,” McKenna said. “It’s just a very tight market right now, and it’s also one of the top markets in the country as far as rent growth goes.”
“I don’t see that changing anytime in the near future,” he added. “And I don’t see demand waning anytime soon.”
Experts attribute that to strong job growth throughout the region, which is driving a population increase in Colorado Springs. While the city has experienced a steady 1.9-percent annual population growth since the early 2000s, economic forecasts suggest those numbers will be overshadowed by future growth — increasing the local population by more than 300,000 in El Paso County between 2010 and 2040, according to the Colorado Office of Demography.
“I think there will be very optimistic rent growth for the foreseeable future,” McKenna said. “Denver has had five or 10 years of double-digit rent growth, while we’ve never hit that mark. But I think we will begin to see double-digit rent growth starting in 2017.”
One way to keep rents reasonable and supply the demand in Colorado Springs is simply to build more apartments, McKenna said. And some builders are doing exactly that.
By the end of November, the number of multifamily building permits for El Paso County had already doubled those pulled in 2015 — 47 compared to 23 — with five new permits pulled in November alone, according to records from the Pikes Peak Regional Building Department.
The 47 multifamily permits that have been pulled so far this year represent a total of 1,305 units compared to only 578 for the whole of last year (a 126-percent increase). Those projects are being undertaken by a group of local and out-of-state developers, including Nor’wood Development Group, Griffis/Blessing, Weidner Homes and Crowne Partners.
And there are another 1,900 units planned for Colorado Springs, local real estate experts said in a recent Colorado Real Estate Journal article. (Meanwhile, there are more than 50,000 multifamily units under construction or planned for construction in Denver.)
But construction costs remain high and have the potential to slow growth in the market — which could end up insulating Colorado Springs from the creation of a bubble from overbuilding, but could also cool the market.
“That makes construction financing that much more difficult,” McKenna said. “That would be the one factor that could let out some steam in the market, but those projects take 18 to 24 months to build. It’s not like we can just flip a switch and see more units magically appear — it takes time.”
The latest data from the Housing & Building Association of Colorado Springs shows there have been 4,582 new residential construction permits pulled thus far in 2016, which may be lower than the number the city needs each year to keep up with the growing demand, according to UCCS Economic Forum Director Tatiana Bailey.
“There’s clearly a very hot market here, and all of a sudden there is all of this interest in construction,” she said. “But is that construction keeping pace with the growing demand? My gut reaction is probably not.”
Bailey said that investors and developers will have to continue to ramp up construction to meet the need for rental properties in the region, but that — generally speaking — it’s better to be under-built than over-built.
“It’s a delicate balance, but I would say that it’s always good to err on the conservative side,” she said.
Other high-volume multifamily sales this year included the 276-unit Retreat at Cheyenne for $49.6 million, the 288-unit Village at Lionstone for $26.3 million, the 220-unit Glen at Briargate for $25.5 million and the 208-unit Cheyenne Crest Apartments for $25 million, according to El Paso County property records.