Prediction: busy season ahead for multifamily landlords

by Becky Hurley, Colorado Springs Business Journal

Published: May 29,2009

It doesn’t take a fortune teller to predict that soldiers will come, and they will go – especially during war time.

About 3,000 members of the 4th Brigade Combat Team moving to the Pikes Peak region from Fort Hood and returning from Iraq have begun to arrive. Many have visited their newly assigned post and have scouted around for a place to live, said Laura Russman, executive director for the Apartment Association of the Pikes Peak Region.

At the same time, 3,000 or so of their fellow soldiers assigned to Fort Carson will leave during June and July for Iraq and Afghanistan.

This see-saw scenario is a familiar one, especially for area landlords. One minute multifamily owners are tilting optimistically toward the prospect of increased occupancies, and the next, they’re waiting for the ship-out “boot” to drop.

Push and pull

So how does this constant in-and-out activity accompanied by economic uncertainty affect apartment owners in and around local military installations?

Based on a first quarter 2009 Apartment Vacancy and Rent Survey, the Colorado Department of Housing and Denver University economist Dr. Gordon Von Stroh said Colorado Springs saw an overall 11.7 percent vacancy rate.

A similar survey completed by Apartment Insights determined the average local vacancy rate stood at about 9.9 percent. The difference probably is attributable to the state’s inclusion of all for-rent complexes of 10 units or more. The AI report covers only apartment communities of 50 units or larger.

“The smaller complexes also tend to be older – maybe built 30 or 40 years ago,” Russman said. “Most Fort Carson soldiers can make at least $1,200 or $1,300 in a housing allowance. That allows them to rent newer apartments with more amenities.”

The good news: many soldiers prefer renting apartments or homes off post because if they have money left over, they can spend it on other things. “If they live at Fort Carson, their entire allowance has to go to pay for where they live,” she said.

And most stay geographically close to their assigned unit.

Good and bad

Kelley Crance-Agnew, manager of the 208-unit Village at Westmeadow, just outside the gate at Fort Carson, said the complex is more than 96 percent leased. That’s up from less than 90 percent during January.

“It’s a blessing and a curse,” she said, referring to the community’s location at Fort Carson’s front door. “When the troops come in, we’re one of the first places they hit. We can sign 20 or 30 leases in a week’s time. But when they get their orders, they’re gone. Last year, within six weeks’ time, we had 45 soldiers vacate. But you get used to it – and budget accordingly. And we do see a full 100 percent turnover each year – that’s even more than in (college) student towns.”

Fort Collins, home to Colorado State University, which has more than 30,000 students, reported falling, rather than rising vacancies for the quarter.

Cheap digs

Rents, according to Von Stroh, have varied little since 2000 or 2001.

“Today the average rent in Colorado Springs is $693 per month,” he said. “It’s hovered between $690 and slightly more than $700 for the past eight years – and it’s not likely to change much in the next year.”

That might be because Colorado Springs apartments are a bargain – especially compared to Denver, where the average rent runs $200 to $300 per month higher for the same type of unit.

Troops moving from Fort Hood might be nervous about the higher cost of living in the Pikes Peak region, Russman said, but will see a break on the cost of monthly utilities.

“They won’t have the big air conditioning bills for so much of the year,” she said.

Location, location, location

So what do soldiers rent, and where do they prefer to live?

Vacancy rates throughout the city vary from a tight rental market in the northeast part of town, with a 9.4 percent vacancy rate, and the southwest, with 10 percent vacancies, to the more volatile markets of Security/Widefield and Fountain, where the vacancy rate during first quarter reached almost 29 percent.

Another soft rental market exists in southeast Colorado Springs – stretching from the area near The Citadel mall along South Academy Boulevard to Fort Carson. There vacancies can approach 18 percent or 19 percent.

The northwest and central parts of town are reporting 10.9 percent and 10.2 percent vacancies, respectively.

“The complexes really struggling right now are the older ones, built 30 or 40 years ago when soldiers only made a few hundred dollars a month and didn’t expect a lot of amenities,” said Ken Greene of Apartment Realty Advisors. “In today’s volunteer Army, one of the incentives is good pay and being able to live in a nice place. A lot of the smaller older properties can’t afford to keep up.”

Greene, a multifamily broker, also said some properties’ condition makes them less attractive to investors.

“There aren’t many buyers out there in a market like this anyway – the market only saw one sale during first quarter,” he said, adding that the Pikes Peak region does remain on investor radar thanks to its healthy military installations. “I still don’t see any new construction beginning this year or next.”

The Village at Westmeadow’s owners also manage the Commons at Briargate, near the intersection of Lexington Drive and Research Parkway, built during the 1990s with plenty of modern amenities, There are very few soldiers there, Crance-Agnew said, “But they definitely could afford it.”

Many choices

The good news – in the midst of gaining a net 900 new soldiers and the family members who accompany them – is that there are plenty of properties from which to choose.

Russman estimates there are about 30,000 apartment units in the Pikes Peak region – and no new ones have been built since 2000. And in the past, the Pikes Peak Apartment Association’s members banked on at least 35 percent of those renting apartments.

Thanks to the recession and the resulting spike in single-family and town home foreclosures, however, more soldiers and their families are looking for houses to rent.

“A lot of the families we met on a recent trip to Fort Hood have dogs, so they need a yard,” Russman said. “That means we’ll probably see more like 20 to 25 percent renting apartments. The apartment market is so unpredictable.”

Crance-Agnew agreed.

“You get used to it, the moving in and moving out,” she said. “We try very hard to make our troops feel appreciated – and they may go overseas, but when they return, they’ll come back and rent from us again. In fact, if the war ends and they all came back to town, I don’t think we’d (Colorado Springs) have room for all of them.”

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