The Radiant sure draws the eye.
The team behind the lustrously namedluxury apartment building now consuming the 2100 block of Welton Street this week celebrated topping out on its 18th and final floor. The sizable project is expected to begin welcoming the first renters into its 329 units next June, developers say.
A block over, the Alexan Arapahoe Square project is on pace to deliver another 355 luxury apartments to Five Points by February, according to its website.
The two big builds make up a small slice of the apartment market being constructed in the city, and they are part of a trend playing out in Denver and nationally: developers building luxury apartments at a much higher rate than apartments attainable for lower-income earners.
Denver’s seemingly astronomical rent growth since 2000 finally appears to be slowing down. Apartment List tracked a 1 percent year-over-year increase in median one-bedroom rent in the city last month, down from a 7.3 percent jump between May 2015 and May 2014. That is leading some city leaders to wonder when developers will shift their focus from the high-end to creating more moderately priced products.
“I am concerned about an oversupply of luxury,” City Councilwoman Robin Kniech said this week. “I think there is this vague hope out there that if developers overbuild luxury, they will lower prices.I don’t see any evidence that is a likely outcome. You may need to offer more incentives to get folks in, like a month of free rent.”
During a panel held during the National Association of Real Estate Editors annual conference in Las Vegas last week, Suzann Silverman, editorial director of Multi-Housing News, said luxury construction accounts for 90 percent of new apartment building in the U.S. today.
Denver planning officials have issued 74 construction permits for multi-family projects so far in 2018. A Denver Post analysis of the listing and promotional websites for 15 apartment projects approved this year showed seven are being marketed as “luxury” and just one is as “affordable.” Overall, the metro area is expected to see 10,000 to 12,000 new apartments delivered this year, according to the Apartment Association of Metro Denver.
Part of the issue, according to industry veterans, is location.
“In the workforce area, demand is extremely robust. There is a lack of supply,” Robert Hart, CEO of real estate investment company TruAmerica Multifamily, said during the Las Vegas panel discussion. “The problem is all the new supply that’s being built, 85 to 90 percent of it has been built in the CBD — the central business district — and it has been primarily built for the renters by choice.”
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Hart’s company focuses on buying properties that need renovating in what he calls “first ring” cities just outside the urban core. In January, TruAmercia announced it closed on a $126.5 million deal that netted it an apartment community outside Seattle and the 319-unit Montair apartment complex at 8901 Grant St. in Thornton.
The developer of the Radiant does not share the concern that Denver has an overbuilt luxury market. It sees a construction market that is going to slow down in the coming years, providing it with ample opportunities.
Scott Johnson, mountain states division president for Lennar Multifamily Communities, acknowledges that apartment occupancy in Denver dipped slightly early last year, but the city still saw a record number of new units open and a record number of new units absorbed in 2017. With a local housing market that continues to run away from buyers, it’s a good time to keep building apartments for developers who can afford to, he said. Lennar announced this week that it will break ground next year on two 17-story apartment buildings in the Golden Triangle neighborhood, adding another 600 units.
“We don’t see the same supply numbers coming in the next couple years,” Johnson said. “Construction costs have gone up so much relative to rents. I think we’re in a period where we are going to see starts slow down.”
The city is rolling out new tools to combat a lack of affordable rental housing. On Monday, the City Council will hold its first reading of a measure that would put $1.18 million toward the Lower Income Voucher and Equity program. Using a combination of city, employer and nonprofit dollars to subsidize rents, the program will help people at risk of being priced out of Denver move into available apartments volunteered by property owners. Of the 40 properties that offered to participate in the program during its exploratory phase, about half were newer than 5 years old, said Laura Brudzynski, the city’s manager of housing policy and programs.
Kniech said early discussions are being had now about how the city can be ready for the next economic downtown. If the market softens, Denver officials want to be ready with investment dollars that could help partners buy rental properties and ensure affordability long term. She said there is another factor of the economy that could help: If wages grow in proportion to housing costs.
“Our Colorado employers need to respond to the low unemployment and worker shortages and they need to raise wages if they expect to have a workforce that can afford to live here and meet their needs,” she said.