About $1.7 billion in institutional product traded hands in 2006, making it a banner year, said David Martin, managing partner of the Denver office of Moran & Co., a national brokerage firm specializing in apartment properties. The year before, the metro area saw about $1.5 billion in sales.
The strong activity was the result of Denver being on the radar screen of many institutional players and a function of improving fundamentals, according to Martin.
With so many properties having changed hands in the last two years, Martin expects activity to slow in 2007 to a more normal level of about $500 million to $600 million in sales.
Martin estimates that the Denver area added about 2,000 units in 2006, with approximately 2,500 more units in store this year. “The pipeline has really pulled back,” he said, explaining that in the past as many as 5,000 units have been produced.
This will help the rental market because occupancy rates will likely improve. Martin estimated that the overall occupancy rate in February was about 94 percent, which he described as “pretty good.” The area was maintaining its occupancy levels during the slow winter months, which is a healthy sign, according to Martin, who said the downtown area is one of the hottest submarkets.
One of the notable transactions in 2006 involved The Bascom Group’s purchase of The Breakers Resort, a 1,523-unit luxury apartment community for $190.5 million, or $125,082 per unit. It was described as the largest apartment transaction in city history. Bascom purchased the property in a joint venture with Koelbel and Co. Acquired with the Breakers was a undeveloped parcel of about 18 acres that is entitled for condominium construction and allows for the development of more than 600 units.
RealFacts, a multifamily research firm, reported that the average monthly rent in Denver was $865 in the fourth quarter of 2006. The average occupancy rate was about 92 percent.
Local developer Michael Zoellner, president of RedPeak Properties, described the Denver market as “stable to improving,” noting that the market generally saw revenue growth in 2006, but concessions didn’t burn off quite as quickly as some people had anticipated.
Marcus & Millichap Real Estate Investment Brokerage Co. also expects to see the market improve in 2007. “Despite slowing job growth, stronger renter demand and gains in population will continue the momentum in the Denver apartment market,” said Adam Christofferson, regional manager of the firm’s Denver office, in a January statement. “Limited construction will keep renter demand growing faster than supply, and vacancies will decline further in 2007.”
Marcus & Millichap’s Denver research report said vacancy is expected to fall 30 basis points to 7.5 percent by year-end. “Asking rents are forecast to advance 2.6 percent to $880 per month, while effective rents are expected to post a slightly stronger increase of 3 percent to $778 per month by year end,” said the report.