Long Term Real Estate Trends and COVID Impact in Denver

This post is from an email that Lon Welsh, founder of Your Castle, sent out. He spent four hours on a webinar hosted by the CO RE Journal for land development. Here’s the email:

———– Start Lon’s Notes ————

It’s hard to predict how COVID will impact inbound /outbound migration to CO; there are good reasons to think it’ll help and hurt.  Net, we should expect our population to grow at a slightly slower rate over the next 15 years as it did in the prior 15 years.

It’s going to be hard to cost-effectively build new properties (for rent or for sale) for the population growth, so we’ll likely be, on average, short of inventory for most of the next decade.  That will drive more price growth.

Trends Overview

Population growth is slowing in the entire US, and population growth in Denver and Colorado will also slow down. 

It’s hard to predict how COVID will impact inbound/outbound migration to Colorado; there are good reasons to think it’ll help and hurt.  Net, we should expect our population to grow at a slightly slower rate over the next 15 years as it did in the prior 15 years.

It’s going to be hard to cost-effectively build new properties (for rent or for sale) for the population growth, so we’ll likely be, on average, short of inventory for most of the next decade. That will drive more price growth.

There are a few screenshots near the bottom that do a great job outlining how job losses occurred in Colorado.

Summary

Where are we now?

  • There is a housing shortage.  That will continue
  • Not enough lots for new build – demand is high and not much supply of buildable land on horizon
  • We can’t process plats fast enough and get city approvals (e.g., takes 4 years in Thornton)
  • We could pull 30,000 permits for lots and sell them to developers!!
  • Builders doing a great job of selling virtually

Flight to suburbs?

  • Might be a trend, a bit to early to prove it
  • Average age first time buyer = 31.  Average age Millennial = 32. 
  • Millennials were insistent on living downtown 5-10 years ago when you surveyed them, but as expected, they are buying in suburbs now.  Schools, space, yard.

Fix up doing well

  • Remodelers are all really busy

Office space

  • no idea.  “50% expanding, 50% shrinking”… I can’t wait to get back to my office and work, he says.
  • Everyone is productive working at home, but most people prefer to work in office.
  • Cultural change in how do business… many decided we will come out of COVID working smarter.  Use that commute time to exercise. 

Where are we going

  • No prediction
  • That’s ok; world has NOT stopped
  • Bullish on resi and industrial.

Big land sales

  • Residential is doing well; commercial is slow
  • Demand is slow for most commercial sectors
  • Resi is great; strong – DSF, high density DSF; apartments, high end, suburban – all of it
  • FT Collins to Pueblo; solid demand across front range. 
  • Real shortage of buildable home lots.
  • No REO / short sales / distress sales

Last 20 big land deals – are closed, > $5MM

  • 10th + Federal
    • $1.25 acres for $4.15 MM; Buyer = Denver Health
    • $77 / SF for dirt  (pretty high for medical, esp: in a location like this)
    • Medical use.
    • Closed June 2020, post-COVID
  • Fitzsimmons, 14th + Ursula
    • $9.05 MM, 2.53 acres
    • $82 / SF for dirt
    • Will be an apartment
    • Closed June 2020.
    • Fitz is still under-utilized for resi.  It has a long growth plan in future.
    • Must have some good rents in pro forma to pay so much for dirt.
  • Prologis Industrial Park 70
    • Industrial is still doing well
    • $14.0 MM for 53.3 acres.
    • 470 / I-70
    • $6 / SF for dirt.
    • Goal = 450,000 SF warehouse.
    • Closed Nov 2019
    • Still strong demand for industrial space
  • 550 W 19th Ave
    • $9.55 MM for 1.65 acres, just adjacent to Bronco Statement
    • CMX-12, around 240 apartments.  Next to turntable.
    • Closed March 2020
    • That’s $35,000 / unit for dirt, which is probably OK
  • Porteos
    • 56th Ave, Aurora, on 470
    • 74 acres, $11.75 MM
    • Buyer = Costco; new distribution facility
    • $3.60 / SF for dirt.
    • Building a 590,000 SF warehouse
    • Closed Dec 2019
    • All of the on-going construction on I-70 drives traffic to I-470; esp: near DIA
  • Softball Country
    • 16.7 acres; $8.5 MM
    • $12 / SF for dirt
    • Use: 400,000 SF industrial.
    • Closed: Nov 2019
    • Great central location. 
  • 91st + Indiana (Arvada)
    • 19.2 acres, $5.2 MM
    • $6.21 / SF for dirt.
    • Will be mixed use development – did have a lot of retail component; we will have to see if / how the construction plans change.  Good demographics in area and not a lot of retail (yet)
    • Feb 2020
  • Waneka
    • 119th + County Line, Lafayette
    • Sold 143 Acres, $7.5 MM
    • $1.21 / SF for dirt.
    • Buyer: local gov’t for open space.
    • Closed Feb 2020
    • High price for open space deal.  Boulder has a lot of cash!
  • 104th + Steele
    • ½ mile to light rail
    • 75 acres, $6.1MM…. $1.89 / SF … seems like a deal.
    • Will build single family homes (McStain homes)
    • Took 4 years for Thornton to entitle land which held up deal.
    • Closed Jan 2020
  • 1115 Acoma – Evans School
    • 1.5 acres, $18MM
    • Buyer: Lennar multifamily
    • Use: multifam and retail
    • Closed Dec 2019
  • Metrocenter in Aurora (used to be called Center Point)
    • 19.3 acres, $7.7 MM, $9.30 / SF for dirt
    • Use: Mixed use
    • Dec 2019
    • Entitlements took a long time w Aurora. 
  • 1300 Cherokee
    • .5 acres, $6.7 MM
    • $320 / SF
    • 217 apartment units.
    • Closed March 2020
    • $30,000 / unit (probably OK)
    • Range  = $30K – $45K / dirt / unit
  • 7200 S Clinton, Aurora
    • 2.5 acres, $4.1 MM
    • 215 apartment units
    • $38 / SF
    • Closed Nov 2019
  • Anthology
    • Master plan community in Aurora
    • $10.8 MM
    • $4.13 / SF for dirt; $60,000 / house
    • Closed Dec 2019
    • From low $400’s to $600’s.  makes sense.
    • Should be a lot of growth; 10,000+ platted lots for resi in this area.
  • Interlocken
    • 16.7 acres, $8.6MM
    • $11.80 / SF
    • Use: townhome + condo
    • Closed Feb 2020
    • TH are tough to build – construction defects.  Builders are not excited about condo and TH. 
  • Centennial airport
    • 4.34 acres; $10.4 MM
    • $55 / SF for airplane hanger.  Buyer = VF corp (e.g., north face)
  • Red Rocks Center
    • $50MM for 263 acres; $4.36 / SF
    • 412 platted lots now; up to 1300 lots
    • Feb 2020
    • Buyer = Lennar.  Good deal for them.
    • Not much new build on west side – should be great
  • Broomfield biz center
    • 27 acres, $13.5 MM
    • $12 / SF
    • 2 and 3 story affordable TH
    • Nice urban high density – should sell well, since not much in Broomfield to build
  • Ridgegate (next to Skyridge)
    • 10.74 acres, $6.5 MM
    • $14 / SF – not cheap.
    • Medical
    • Feb 2020
  • Bannock + Alameda
    • 2.7 acres; $15.2 MM, $130 / SF
    • Buyer = Amli multifam
    • 370 multifam units
    • Closed Apr 2020
    • Super close to mass transit
    • $40,000 / door; so that’s the high end of the comps… but transit +++
  • 1605 Sheridan
    • 2.04 acres; $5.5 MM, $61.80 / SF
    • 200 multifam
    • Closed April 2020
    • $25,000 / unit; good deal.  Almost Sloans Lake.
    • Not sure if Lakewood building moratorium impacts this site – he thinks not

Single Family For Rent

  • Will this trend grow?  Yes, 2-3 calls / week for clients seeking that land.
  • Garden = 25 units / acre.  DSF = 12 units / acre (really?). 

Impact of Gaylord w/ no conventions?  Probably OK

  • Gaylord didn’t have enough rooms before COVID and was discussing expanding

Demographics in Colorado

  • Before COVID, where were we
  • What changes if any from COVID
  • Population is still growing, but at a slowing rate
  • Concentrated growth on I-25 corridor
  • Migration is becoming an issue, even pre-COVID
    • Growth constraints in Lakewood, Golden, Boulder, etc.
  • Labor is tight, CO is not as competitive
  • Aging – impacts everything
  • We are increasing diversity in CO, which is good

Big picture

  • 2018 vs 2019
    • US 328 MM people, +0.5%
      • Slowest growth since 1918 (world war one, Spanish flu)
      • And that was BEFORE COVID
    • Colorado 5.75 MM
      • 8th fastest growth, +1.2%
      • Slowest growth for CO since 2005
      • + 67,500 people in CO
  • Deaths are increasing as the community ages.  Normally.
  • Slow down in births. 
  • COVID will likely bring down birth rates further.
  • Migration follows the business cycle, as you expect
  • Note that births is a bigger driver of population growth than migration – NOT people moving here from TX

You need a lot of < 18 year olds now to set up future renter and housing demand in the future.

Denver and CO still OK… but not as good as TX

Colorado Department Of Transportation Data

CDOT… Region 1 – Denver metro to Eisenhower tunnel

  • Serve 2.8 MM, or ½ of state population
  • Maintain 3,700 lane miles in CO.  38,000,000 miles per day. 
  • 912 bridges, $1.5 billion budget.  1 million miles snow removal.  376 signals.  36,000+ cubic yards of trash and road debris (fill mile high stadium 20’ deep).  2.5 MM feet of guard rail.
  • Plow drivers as a group drive > 1 MM miles a year.

How maintain in COVID

  • 750 people in region 1 – “essential” so still working
  • Traffic off 80-90% during stay at home; so they got a lot of construction done.

Zoning and Entitlements

  • Strong market for resi demand.  Then recession in 2010… used up the extra lots
  • Now back: lets get land ready to build… lasted 7-8 years… now COVID
  • Did a lot of projects go on hold?
    • Yes, do 1-2 big projects at a time, so continued to work on them.  “blip”
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Authors
Chris Lopez
Chris Lopez is a Denver area real estate entrepreneur and investor, as well as the host of Bigger Pockets’ House Hackerz and the Denver Real Estate Investing Podcast.
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