Single-family home communities in Colorado are built to sell to owners, with some investors sneaking into the mix and grabbing properties to offer up as rentals.
Avilla Buffalo Run in Commerce City represents a different kind of creature, a single-family community built from the ground up entirely for renters and not owners.
“It is a deconstructed garden-complex apartment,” said Reed Ruck, managing director in Denver for NexMetro Communities, the developer. “It is a true hybrid that doesn’t exist in this market.”
NexMetro, based in Phoenix, has built similar communities in Arizona and Texas and recently branched into Colorado, where it has acquired land for three build-to-rent — also called build-for-rent (BFR) — home communities in the northeastern metro area.
Construction is in full swing at Avilla Buffalo Run in Commerce City, which is accepting tenants in the first phase of what will eventually be 123 single-level rental homes. Another 136 homes are underway in Brighton at Avilla Prarie Center, set to open this summer. Avilla Eastlake in Thornton, slated to open in the middle of next year, will be nearly as large as those two, with 244 homes.
The mix at Avilla Buffalo Run is 40 percent two-bedroom, with 30 percent each for one-bedroom and three-bedrooms, and rents are comparable to those of newer luxury apartments in the area, Ruck said. A one-bedroom lease starts at $1,450, while a two-bedroom goes for $1,750 and a three-bedroom starts at $2,125.
“We want to make sure we are in line with mortgage payments,” he said.
Build-for-rent communities appeal to a diverse mix of people, but what most tenants share in common is that they are renters by choice, Ruck said. Most make enough income to purchase a home, but prefer to rent, a group that is becoming a larger share of the market.
There are young singles who haven’t saved enough for a down payment, and the single parents and young couples with kids or kids on the way who need more space and privacy than what apartments can provide. At the other end are older adults downsizing from a larger home that has become a hassle to maintain.
“Some of our projects are 30 percent retirees,” he said.
Ruck said the maintenance-free lifestyle becomes more appealing as people age and baby boomers often don’t want to move into an apartment complex or age-restricted community. Years of strong home price gains this decade have left home sellers in metro Denver a thick equity cushion to cover lease payments for years.
The Avilla communities come with professional property management and 24-7 maintenance services, a big difference from mom-and-pop landlords responding, “I’ll get to it when I can.”
Landscaping services and trash valet are included in the cost of the rent. Each house is connected to fiber and wired to handle broadband connections from either CenturyLink or Comcast.
The communities come with dog parks, swimming pools, grills and firepits, walking paths and parks.
Avilla Buffalo Run also has many of the options common inside build-for-rent homes. Ceilings run 10 feet, creating a more open feel than the typical apartment. Full-size washers and dryers, side-by-side and not stacked, come with every unit. There is a back patio with a fenced yard — granted a small one.
Units come with durable laminate flooring but carpeting in the bedrooms. Other fixtures, such as the tubs and countertops, are designed for durability. And while the one-bedrooms are built as duplexes, the other units are stand-alone. That means no heavy footsteps or the patter of scurrying dogs from above or below.
“Residents don’t want anyone living above them, as is often the case for most apartment renters,” noted Don Walker, president at Johns Burns Real Estate Consulting in a blog post on build-for-rent homes.
Walker notes that build-to-rent single-family communities tend to have much lower turnover than apartments and can command a higher rent. As home prices and rents start to drop in the next downturn, John Burns forecasts that build-for-rent communities will do much better at holding their value.
Why build-for-rent
Although developers in metro Denver are pushing out thousands of studio and one-bedroom apartments, and to a lesser degree two-bedroom apartments, they aren’t building three-bedroom units to accommodate tenants as their families grow.
Nationally, three-bedrooms or larger represent just 11 percent of all apartments, according to John Burns Realty. Even though millennial renters are increasingly moving into their 30s and looking to start families, apartment developers have avoided adding units that large this decade.
The assumption is that young renters will transition to ownership of single-family homes when the time comes, just as earlier generations did. Plus, the economics of apartment construction today work better with smaller units than larger ones, especially given the lack of available land to develop, said Teo Nicolais, an instructor specializing in real estate at the Harvard University Extension School.
Homebuilders, for the most part, aren’t focused on entry-level homes, and the state’s construction defects law has resulted in a dearth of new condos this decade. Empty nesters are in no rush to downsize, preferring to hang onto their larger homes, further limiting the single-family inventory.
That has opened the door for the build-for-rent model, which is the latest iteration of a trend toward single-family rentals. After the housing crash, large investors swooped in to buy deeply discounted properties and convert them to rental.
But bargains have become harder and harder to come by. More recently, they have purchased new homes in master-planned communities.
“People have come to this state for employment and we don’t have enough for-sale housing to meet the demand,” said Camille Courtney, land acquisition manager at American Homes 4 Rent.
Courtney said American Homes 4 Rent has all-rental communities in Austin, Texas, Phoenix and Jacksonville, Fla., but a scarcity of land for development has made it harder to pull that off in metro Denver.
“We don’t have that in Colorado. We can’t get enough land to get one started. Eventually, we hope to have an all-rental community here,” she said.
Ruck, who comes from a career in multifamily development, acknowledges that build-for-rent won’t work everywhere, especially where high land costs drive denser development. Land is cheaper in the northeast part of the metro area, which is also enjoying robust population growth.
Avilla Buffalo Run stretches across 12.5 acres sandwiched between 120th Avenue and the Buffalo Run golf course just east of Jaspar Street. Commerce City had zoned the land for multifamily construction, expecting either townhomes or apartments, until NexMetro showed up and proposed something entirely different.
“It wasn’t something that the city sought out or brought in a specific developer for. When NexMetro brought this product forward, it met the requirements for multifamily. We ended up looking at it as an apartment building, just spread out,” said Robin Kerns, a planner with Commerce City.
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What sets Avilla Buffalo Run apart is that all 132 homes are on one lot. Commerce City, interested in preserving the inventory of homes for rent, required a deed restriction that prevents the homes in the community from being sold off individually at some point.
Some issues came up given the community’s golf course location. The units facing the course were required to upgrade their exterior accents. A dog run also had to be relocated to spare pets and their owners from being pelted by errant golf balls.
Kerns said the city did its homework to understand how other cities viewed NexMetro and what the new kind of development would bring.
“We heard we were dealing with a responsible and responsive developer. That was a lot of what helped us, that we were working with someone who is trying to do the right things,” he said.
