Northern Colorado Multifamily Year in Review

Fort Collins Review & Statistics

Population Growth

• 2022 – 349,000
• 2023 – 354,000
• % Increase – 1.43%

Job Statistics

• 2,130 jobs were added in the past year, with the largest shift taking place in the Restaurant & Hotel sectors, which gained 1,800 jobs.
• The unemployment rate is currently at 2.7% is 120bps below the national average of 3.9%.
• Future job growth is predicted to be 51.8%, which is much higher than the US average of 33.5%
• Overall – Strong market fundamentals and promising outlook for infrastructural investment from the state level to ensure future economic growth and job opportunities. Fort Collins has become a secondary market to Denver residents who are currently being priced out due to increased costs of living. Fort Collins is strategically placed to absorb these residents.

Northern Colorado Multifamily Statistics

YOY Transaction Volume

• 2023 Volume – $419,462,993
• 2022 Volume – $722,257,000
• Change – 41.92% decrease

YOY Transaction Velocity

• 2023 Transaction – 28
• 2022 Transactions – 53
• Change – 41.17% Decrease

Avg Unit Price

• 2023 – $188,998
• 2022 – $192,171
• Change in $/Unit – 1.65% decrease

Avg Cap Rate

• 2022 – 5.01%
• 2023 – 6.04%
• Change in Actual Cap Rate at Sale – 103 bps increase

Class Breakdown 2023

• A =2
• C = 3
• C = 23

Largest Notable Transactions

• Lake Vista – 2235 Rocky Mountain Ave – 303 Units – $94,500,000
• The Greens at Van de Water – 2900 Mountain Lion Dr – 252 Units – $75,150,000
• 281 Willow – 281 Willow St – 197 Units – $65,000,000

Northern Colorado Multifamily Trends

Seller Financing

Seller financing, also known as owner financing or seller carryback, takes place when the seller provides financing to the buyer instead of or in addition to a traditional mortgage. Several factors have contributed to the uptick in seller-financed transactions through 2023 and the beginning of 2024.

• Market Conditions: In the current high-interest environment, obtaining traditional financing for multifamily properties can be challenging or expensive. Seller financing can be an attractive alternative for buyers who may not qualify for a bank loan, agency debt, and prefer more flexible terms.
• Buyer Appeal: Seller financing can make a property more appealing to a broader range of buyers, including those who might face difficulties securing a mortgage through traditional channels. This increased pool of potential buyers can lead to quicker sales and an increased chance of hitting or exceeding the listing price.
• Income Stream for Sellers: Seller financing is a great way to generate a steady income stream. By acting as the lender, sellers can earn interest on the loan amount while potentially deferring capital gains taxes.

Build-To-Rent (BTR)

The Denver metro and Northern Colorado markets are experiencing rapid growth in the build-to-rent (BTR) communities’ sector. Typically comprising duplexes, townhomes, or single-family detached homes managed by a single operator, these communities offer shared amenities akin to traditional apartment complexes. According to Rent Café, Denver and North Denver have witnessed a remarkable 91% surge in BTR completions over the past five years, escalating from 981 completions in 2017 to 1,869 completions last year. This upward trend is anticipated to persist due to rising unaffordability nudging potential buyers towards renting. These communities cater to a diverse range of renters, encompassing millennials establishing households, empty nesters, and individuals relocating to Colorado who wish to familiarize themselves with the area before committing to a home purchase. Additionally, they attract those who prefer to wait for potential decreases in interest rates, potentially making home buying more economically feasible.

Key considerations for prospective tenants in the BTR space include:

• Affordability: Given the average price of a single-family home in the metro area standing at $600,000, factoring in current interest rates and maintenance costs may lead to a substantial monthly premium for owning a home compared to renting a similar property in a BTR community.
• Location: BTR communities offer the advantage of residing in highly sought-after neighborhoods at a more achievable price. These properties are somewhat insulated from the current affordability challenges. If single-family homes become more affordable and the BTR sector faces negative growth, operators can transition these properties for sale as tenants’ leases expire.
• Amenities: BTR communities distinguish themselves from standalone single-family rental properties by providing a host of amenities, including swimming pools, fitness centers, conference rooms, and common entertaining spaces.
• Flight to Quality: North Denver is witnessing a significant demand for quality living units, exemplified by the proliferation of class “A” developments. Tenants prioritize factors such as space/comfort, security, accessibility, and location, all of which BTR communities offer, bridging the affordability gap.

To read the Denver End of Year Multifamily Report, click here.