Maintaining Market Share With Rehab and Renovation

Last month in our newsletter we talked about how Denver is in the midst of a boom. U.S. News ranked Denver #2 in the 100 best places to live in the US. A report that analyzed employment trends in the nation's 100 largest cities, also ranked Denver second in the nation for job seekers. The local multifamily housing market hasn't hesitated to take advantage of Denver's reputation.

Over 80 new projects were completed in the last 5 years. 25,000 units are currently under construction and will be completed this year with 3,246 new apartments already delivered in the first quarter. In a typical market, that might push vacancies up and drive rents down, however Denver isn't a typical market and properties like Dakota Ridge, a Berkshire Community located in Littleton, CO. know this.   Despite increases in inventory, rents are up. In March, metro Denver rental rates were 3.2 percent higher than last year. This exceeds the national average of 2.4 percent. Unincorporated Arapahoe County, Littleton and South Lakewood were among several other areas that saw increases at 5% and more. Given the market, existing projects need to look at ways to compete and hold their market share. And that's exactly what Dakota Ridge, a Berkshire Community located in Littleton CO, has done.

Stonebridge Builders has been fortunate to work with Berkshire Communities on several multifamily renovation and rehab projects. Their current project, the ongoing renovation of 480 units at Dakota Ridge, is a true partnership, with top to bottom oversight from Stonebridge and consistent timely feedback from Dakota Ridge.   Property manager, Kelsey Carter explained that in order to justify rent increases, maintain their share of the market and compete with other complexes, they needed to update the look and feel of their units as well as improve function and efficiency.   Based on market research, Dakota Ridge was anticipating adding an average rent premium of $65 - $225 based on the number of bedrooms in the unit. With the project a third of the way complete, a premium has been added to the rent for renovated apartments, however it exceeds their projections by as much as 37% in some cases.  

Dakota Ridge deliberately chose specific upgrades based on industry and market trends as well as feedback from residents and prospects. Certain upgrades were selected more for aesthetic purpose. For example, outdated bar level counter tops were replaced with single level surfaces to align with more desirable current kitchen design features. Other upgrades were chosen for improved function, durability and reduced maintenance long term, in addition to appearance. Vinyl blinds were replaced with 2-inch wood blinds. According to Carter, resident misuse has a greater impact on vinyl blinds and from the outside looking in aged vinyl blinds give a dated, unpolished look and feel. Replacing them with wood reduces maintenance costs, extends the life of the product and provides a more cohesive appearance between the interior and exterior.   In first floor units, plank hardwood flooring was installed to replace carpet and vinyl. According to a survey done by Multifamily Executive's Concept Community, the current renter wants hardwood flooring over carpet and they are willing to pay extra for it. Aware of this trend, Dakota Ridge believed they could achieve an additional rent premium of $15-40 for first floor units with plank hardwood over second and third floor units where it is not yet an option.  Given market conditions, on average they were actually able to achieve premiums 40-75% higher than projected.  

Choosing the right builder is one of the most critical components when undergoing a major renovation project. Berkshire Communities chose Stonebridge Builders for the Dakota Ridge rehabilitation project based on a long standing relationship and proven track record of success on previous projects.   About Stonebridge, Carter says that the main thing that sets them apart from other builders is how they handle situations with unexpected outcomes. Even with a perfect plan, things can still go awry. She explains, "Stonebridge works to make things right rather than placing blame where things went wrong. They are solution focused versus situation focused. Stonebridge's attitude is, it doesn't matter how it happened or who's fault it is, it's about how are we going to make it right."  

Stonebridge's President and CEO, Chris Tolar, says, "Our client relationships are equally as important as the quality of our work. Communication is paramount to the success of any project and we make that our number one priority from our first contact with the client, throughout construction and long after the completion of the project. That's how we do business."  

As an industry expert and leader, Stonebridge is the natural choice for any multifamily community or apartment renovation and rehabilitation. Contact us for industry insights, planning and execution of your next project. 

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Combining Housing with Co-Working Spaces: A Win-Win for Multifamily Communities.

In a competitive market, multifamily communities are consistently looking for ways to compete for market share. These days, combining housing and employment trends might just be the ticket for apartment communities.

43% of employed Americans work remotely at least part of the time. That figure is up 4% since 2012. The statistics get really interesting when you look deeper into the trends. During the same time period, from 2012-2016, the percent of those that reported working from home one day or less shrank by almost 10%, while those that reported working remotely 4-5 days per week grew by 7%.  With rising numbers of people working from home, there is an increasing need for alternatives to the traditional office setting. 

Many are choosing co-working spaces over a designated home office. People are seeking inspiring, brightly lit spaces filled with other like-minded people over solitude of their dining room table or an over-crowded coffee shop. Popular co-working spaces like Impact HUB in Boulder,  WeWork in Denver and Thrive (pictured) offer amenities that attract and retain members that otherwise might maintain a home office. Super fast Internet, business-class printers, complimentary coffee and tea and private phone booths combine the comforts of working from home with the benefits of the company office.

In the Denver Metro area, people pay an average of $200-300/month for a membership or “spot” in a co-working space.  A designated desk or office in one of these locations can range between $450-895/month. 

Can apartment complexes and multifamily developments capitalize on this new trend? Chris Tolar, President of Stonebridge Builders in Denver, CO thinks so. Tolar says, “Communities are looking at their common areas differently these days.  They’re no longer simply a shared space to have a networking event or birthday party, but they are potential opportunities to generate revenue. At Stonebridge, we are getting more requests to not only update the aesthetics, but also to design and build functional spaces that allow people to get work done.”

Given the ever-increasing numbers of people working remotely, multifamily communities can benefit greatly from the renovation or remodel of an existing common area into a functional co-working space.  Building common areas that allow people to effectively work from home without dedicating any of their living space to a home office can justify increases in monthly lease rates of$150-300 at a minimum.  

To design and renovate common areas for greater functionality and increased revenue, contact Stonebridge Builders for a consultation.

Is there a housing plateau coming for metro-Denver?

It’s news to no one that the Denver Real Estate market is at an all time high. It’s on fire right now and doesn’t show signs of slowing down any time soon. Or does it?

According to the Denver Metro Association of Realtors market trends report, in June, for the entire residential market of single-family homes and condos, there was an 8% increase, $25,600, in the median home price over last year. In the last month alone, median sold home prices increased 1.39% from the previous month.   Inventory is up with active listings 24.4% higher than last month and 9.67% over last year at the same time, with sellers trying to capitalize on rising prices and low interest rates.  We’ve seen annual appreciation gains in the double digits for 3 years in a row, with single-family home and condo prices up an average of 10.74% and 12.38% respectively for average sold prices. Across the board, total sales volume is $10.17 billion year to date (up 7.21% compared to 2015).

However, some analysts are claiming that we will soon begin to see signs of a much needed market correction and are predicting a plateau in the near future, even as early as 2017. Mark Boud, chief economist at Real Estate Economics based in Orange County, Ca., predicts the 3 year run in double digit appreciation in metro-Denver home prices will begin to fall off in the second half of this year. He predicts meager price increases and then small decreases by the middle to end of 2016; 5.4% appreciation in metro-Denver median home prices this year and 2.8% in 2017 and 1.8% in 2018. He doesn’t predict a similar crash in the market to what we saw 2007-2009 when job losses drove a depressed market and a rise in foreclosures and distressed sales. Boud suggests that a leveling off or plateau will require a shift in our thinking that has grown accustomed to sharp increases in home prices and property values. Anthony Rael, the Chairman of the Denver Real Estate Market Trends Committee at the Denver Metro Association of Realtors, says, “if we get anything under 5 percent in appreciation, sellers will lose their mind and think the market is collapsing.”

So, why are experts predicting a shift? Why would home prices begin to level off and possibly even decline given recent trends and no clear indication or signs of slowing down? According to Real Estate Economics, the Denver market is shifting from one that has been under-valued and under-supplied to one that is over-valued but still undersupplied.  Home prices have finally reached the limits that metro-Denver income levels can support and new building and development will most likely not correct lack of supply.

This means that when interest rates increase from where they are currently in the mid-3’s, the lowest level in three years as the Federal Reserve reacts to Brexit (Source: Freddie Mac), to the mid-5’s, where they are predicted to reach in 2020, it will become more difficult to finance a home. Trends towards increased conservatism in mortgage lending and underwriting guidelines combined with the fact that builders have the strong memory of being badly burnt during the most recent housing crisis as well as being faced with more challenging obstacles to overcome with City and County development standards, indicates that the market may be even more vulnerable to a decrease in continued growth. Given these predictions, it seems wise to take the advice of Mark Boud and Anthony Rael. We collectively need to shift our thinking and expectation around continued sharp increases in metro-Denver home prices and prepare for a plateau on the horizon.