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Multifamily Investment Property Summary and Update for 2019

By Miles King, CCIM

How many times over the past several years have we heard the question, “How much longer will this booming national multifamily real estate market continue?” We have often heard this ongoing, powerful, multifamily real estate cycle compared to specific innings in a baseball game. A few years ago, it was said that we were in the 7th or 8th inning, then it was the 9th, and most recently, “extra innings” has been used as the reference. After all, we’ve had ten years of economic expansion. Many who study the Multifamily market kept predicting that the cheap mortgage interest rates would be rising in the near future. And corresponding increases in Cap Rates would effectively lower Multifamily values and transaction activity. Others said the huge increase in the new supply of apartments, along with continued robust rent increases, would significantly outpace tenants’ affordability, and decrease investor demand. Other concerns were also identified, such as the high rates of new apartment construction, lower absorption rates, trade wars, and inflation concerns from high employment. Also, homeownership was expected to increase at the expense of the number of renters in the market place.


And yet, 2019 was another excellent year for the apartment industry. Prices were still rising. Strong demand, an even further decline in interest rates, investors’ acceptance of lower returns, and higher sales prices emerged throughout 2019. Strong annual job increases have continued in Denver, Boulder, Colorado Springs, Ft. Collins, Greeley, and other front range cities and continued to add to the successful year in MF real estate.


As Lou Barnes, the college economics professor we all wished we could have enjoyed, said: “Real estate values depend upon the in or out-migration, the scarcity of land, and the strength of the local economy.” We could probably add that high barriers to new development play a big part as well.
However, there are several strong reasons for caution. Rent growth rates have slowed. In many areas, rent growth is barely above the 2.8% rate of inflation. The Denver Apartment Association reported that rents decreased slightly in the third quarter of 2019, and 23 different Colorado markets reported rent declines, including Adams, Jefferson, Broomfield, and some areas of Boulder County. Nationally, one-third of the top markets reported rent increases of less than 2.6%, according to Yardi Matrix. Also, more aging millennials are expected to become homeowners in the near future.


According to REIS, the national vacancy rate has increased slightly to 4.7%. Rent control is becoming more prevalent throughout the country. No doubt, rent control states will have higher Cap Rates, lower values, and less new development. Additionally, higher prices are causing a smaller volume of transactions. But who knows, maybe the biggest elephant in the discussion is the Covid-19 virus.


To find more yield, investors have migrated into secondary and tertiary markets. With 2019 rent increases of over 6%, Colorado Springs is probably the best example of a sought-after tertiary market.
In local Boulder news, The Armory project in North Boulder sold to new investors and is now under construction.


The 161 unit 1990s apartment building known as The Boulders sold for the 3rd time in recent years. This time the price was $62,500,000 with a cap rate of 4.1%, and a per-unit price of $388,199. The brokers involved said there were 25 offers.


2121 Canyon Blvd, a 60 unit, one, and two-bedroom community, was recently upgraded and sold for $17,180,000. After significant rehabilitation improvements 2000 Walnut St., a well-located 35 unit, sold for $10,477, 000. Both of these properties sold to foreign investors.


Morgan Creek Ventures is building a 38 unit sustainable net-zero apartment building in Phase II of Boulder Commons.
The following are the averages of six different metrics of Boulder’s 37 MF sales in 2019: GRM- 17.5, Est. Cap Rate Range- 3.5% to 5.2%, Price per Sq. Ft.- $505, Price per Unit- $429,674, Price per Bedroom- $235,963 and Rent per Bedroom per Month- $1,069.


Please feel free to contact Miles King, CCIM, or Brokers Scott Smith and Wade Arnold at the Colorado Group, Inc. for additional detailed information including Cap Rates in each of the 11 Boulder geographic sub-areas.


Miles King and the Colorado Group Inc. have been tracking Boulder Multifamily sales since 2001 based upon six different financial and property metrics. For more accurate figures, each sale transaction is then grouped with other properties in similar locations. No cost market evaluations are available to owners who are considering selling or exchanging their properties.

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