Tag Archives: real estate

Good News for Colorado Springs Apartment Investors

Stories from three different areas point out the continuing investor interest in Colorado Springs.

2012 was a very good year for apartment sales in Colorado Springs. In fact, the $198 million total was the largest volume of sales since 2007, at the start of the recession.

Apartments are a strong investor magnet nationally, and for several reasons. First of all, the returns operators are getting are high enough to attract institutional investors, such as insurance companies and pension funds, who might otherwise invest in stocks and bonds. They also like the relative stability of well-run assets compared to other commercial real estate categories. In addition, apartments remain one of the easiest commercial types to obtain both equity and debt financing.

Apartment Building

Apartment Building (Photo credit: Wikipedia)

Colorado Springs is now getting on the radar of investors who have shopped in Denver, but found the competition there has driven prices way up recently. In fact, a great majority of apartment sales here have been brokered by Apartment Realty Advisors of Denver, which doesn’t even have an office in the Springs.

Prices paid for apartments here have been rising as well, boosted both by competition and rising rental rates. Most of the recent sales were of 1980s product, and they averaged over $120 per square foot.

Read the complete story here.

In more good news for Colorado Springs, WallSt24/7.com recently compiled a list of the best- and worst-run cities in the country. Of the 100 largest cities studied, Colorado Springs came in 14th, just ahead of Portland and Omaha. Factors that helped our city rank so well include its low crime rate and excellent credit rating. They also noted that our housing values stayed basically flat from 2007-2011, when those in the rest of the country was declining by an average of 10%.

Here’s the complete report.

It’s always flattering to be highly ranked in some national survey, but it may mean even more when someone is willing to bet real money on the future of the city.

For instance, billionaire Ray Kroenke, who owns the Denver Nuggets, the Colorado Avalanche and the St. Louis Rams, in addition to vast real estate holdings, recently purchased two Colorado Springs shopping centers for $31.5 million.

Uintah Gardens is a popular 215,00 square foot center on the west side, anchored by a King Soopers and includes a Walgreens, Petco and Big 5 Sporting Goods among others.

Academy Place is on north Academy at Union Boulevard. The Kroenke group bought all the retail shops between the Safeway and Target anchors.

Another Kroenke enterprise, THF Realty, is planning a 350,000 square foot retail mall on the south side that will be anchored by a Wal-Mart Supercenter and a Sam’s Club store.

Local commercial brokers believe it’s a real vote of confidence for the local economy that an investor of Kroenke’s clout (he’s on the Forbes Top 100 list) has turned his attention to Colorado Springs.

Here’s more on his local activities.

As you can tell from all this good news, many are feeling bullish on the Colorado Springs apartment market. However, with the deep pockets of institutional investors starting to buy up local properties, it’s getting harder for smaller investors to locate a deal that makes sense.

First Quarter 2012 Multifamily Investing News for Colorado Springs

“The local economy showed its strongest growth in two years. The Business Conditions Index stands at 106.91, its highest value since June 2008.” Thus begins the January 2012 version of the Quarterly Updates and Estimates report published by Fred Crowley, Senior Economist at the University of Colorado at Colorado Springs (UCCS).

http://www.usafa.af.mil/cadetFocus/cadetPhotos...

In the report’s section on the multifamily market, we learn that the average rent for an apartment in September was $779, and the vacancy rate was 6.2%. The author expects the market to remain tight through 2012 as troops returning to Fort Carson will outnumber the new apartment units in the construction and planning stages.

The report also states that unemployment dropped for six months in a row compared to the previous year. The rate stood at 9.37% in December 2011.

In other local news, Seagate Properties of San Rafael, California has bought its third apartment complex in the city in the last ten months. The latest acquisition was the 310-unit apartment complex known as Sunset Creek Apartments. Located at 5400 N Nevada, it is across the street from the UCCS campus and next to the University Village shopping center. Part of the Pikes Peak Greenway trail system goes right by the complex. The new owners plan to build a new swimming pool and clubhouse, as well as upgrading the tennis and volleyball courts among other improvements both inside and out.

Seagate now owns five properties in the area totaling 685 units. The others include Copper Chase, Cascade Park Apartments, Boulder Crescent Apartments and the Fillmore Ridge Apartments. They plan to buy a total of 2,000 units in Colorado in 2013.

U.S. News & World Report recently named Colorado Springs as one of the Top 10 “Best Weekend Getaway” destinations in the country. We made the list at the number six spot largely for our “prime picture-taking real estate” as well as for being home to the United States Air Force Academy and the Olympic Training Center. The top three recommended places to visit were the Garden of the Gods, Manitou Springs and the top of Pikes Peak.

In late-breaking news, Frontier Airlines has recently announced they are making Colorado Springs one of its first “focus cities”, a term they use to represent their new focus on local markets. In January, the airline announced new non-stop flights to Phoenix, Los Angeles, Seattle and Portland, starting in May. Part of the strategy is to use larger, newer, more fuel-efficient planes on these new routes.

“They clearly see the potential in this market,” said Dave Csintyan, interim CEO of the Greater Colorado Springs Chamber of Commerce and Economic Development Corp. “I think they see this as an underserved market.”

As the economy continues to improve and more troops and visitors return to Colorado Springs, it’s looking more and more positive for investors in the region.

Related Stories:

 http://csbj.com/2012/03/08/seagate-purchases-third-complex-in-10-months/

http://coloradospringsapartmentinvestor.com/new-apartment-sales-and-construction-in-colorado-springs

My First Real Estate Syndication: Lessons Learned

I recently closed on an 18-unit apartment in my town using money from a syndication I put together. There were so many unexpected twists and turns getting to the closing table that I realized others just getting started could benefit from my experience. Perhaps my story will help you better anticipate, and therefore avoid, some of these bumps in the road.

This article won’t address finding or analyzing your project. You’ve gone through the home study course, attended a bootcamp (or two) and hopefully have a mentor who can help you with all that. This will start with the assumption that you will need to pool funds from investors to make the deal happen.

First of all, when writing up your offer, try to put the closing date out further than you think you’ll need. Try for 75-90 days, and if you can only get 60, add in an option for a 30 day extension, even if you have to pay for it by letting part of your earnest money go hard. Unless you already have the down payment in the bank, count on  delays that will have you sweating bullets and losing sleep.

As a corollary to this rule, examine the calendar and try to avoid going through major holidays before closing. I first started working on this apartment deal in early October, and was thrilled when I had a signed contract by October 26. Little did I realize, a 60-day closing put us at December 26, the day after Christmas. Not only was this a holiday, since Christmas fell on a Sunday, but people start taking time off in the week before. Not much gets done between Christmas and New Year’s for that matter. You may be willing to give up family time to get the deal done, but it’s just not as critical for lenders, title companies or brokers. Also, Thanksgiving was in there and took at least another five days off the schedule. Luckily for me, the seller was willing to push the closing to mid-January, but you sure can’t count on that.

If your investors will not be actively running the project with you, but will depend on your efforts to make a profit, you’ve probably created a security. In that case, you’ll need to hire a securities attorney to draft your Private Placement Memorandum, Subscription Agreement and Operating Agreement. You won’t begin that process until you have a signed contract and the clock is ticking. Count on 30 days to get that back. With a 60-day closing date, you’ll only leave yourself a month to get these to your investors, with barely enough time to read through and understand the docs, run them by their accountant or financial advisor, make a decision and get the money into your account.

It’s very important to have more investors interested in working with you than you’ll actually need. I had a list of 26 folks who had expressed interest in being commercial real estate investors, but in the end, only six actually signed up and sent in their money. If it had only been five, I would have been in a tough spot. If you don’t close, you not only lose your upfront cash, you also lose credibility with the investors who now get their money back. Good luck in getting them interested in your next project, and try not to think about how they may represent their experience with you to their friends.

One way to mitigate some of this is to have a range of funds you’re going to raise. Your PPM can let you break impounds (start spending your investors’ money) when you’ve raised enough to cover the down payment and closing costs. Then you have an upper limit you can continue to raise, even for several months after closing. That’s the money that will pay your syndication fee and build reserves. I’m still waiting on one investor’s money to come in, but at least I had enough to close.

The reason his money hasn’t arrived yet is because he recently found out his so-called self-directed IRA custodian wouldn’t let him invest in real estate. So at the last minute, I had to help him roll his IRA to a new custodian that allows this kind of investment. If any of your investors will be using their retirement fund to get into your deal, make sure you know the custodian allows full self-direction of funds, and expect it to take longer than just writing a check. The custodian won’t give their OK until they’ve seen your PPM and Operating Agreement (at the very least).

Finally, when you’re recruiting investors, see if they’re fine with submitting their financial statement and tax returns to the lender, and then signing personally on the note. Most banks will want this from you, as well as anyone who will own 20% or more of the LLC. Even if everyone is below that threshold, they may want at least one of them to sign as a guarantor on the loan. Don’t be surprised if they want their spouse, and yours, to sign personally on a full-recourse loan as well.

I wish I had know all this back in October when I put this together. I would still have done it, and plan to do it again, but at least I wouldn’t have had so many surprises coming at me so quickly. I hope this will help you as you move into your first syndication. Good luck!

Colorado Springs Vacancies Continue to Drop

For the eighth quarter in a row, the vacancy rate in Colorado Springs has gone down, this time to 5.8%. The last time it was this low was in the third quarter of 2001 when it was at 5.4%.

As you’d expect, when the vacancy rate drops, the average rent goes up. Last year the average rent in Colorado Springs was $710. Now that same unit goes for $737, a 3.7% increase. In fact, the average rent has gone up for five quarters in a row, year over year.

These were just a couple of the facts in the new report released by the Apartment Association of Southern Colorado and the Colorado Division of Housing.

According to Ryan McMaken, a spokesman with the Division of Housing, “It’s taken 10 years for the vacancy rate to return to where it was before the 2002 recession hit Colorado, but with so little new construction, and with a continued troop presence in the region, it looks like rates may stay low, at least in the near term.”

Skyrocketing Rents Spell Opportunity

A recent post on CNNMoney.com claims apartment rents may soon rise by double digits in the hottest markets. And even in the rest of the country, rents may jump 7% in each of the next two years, according to Peggy Alford, CEO of Rent.com. She also predicts a national vacancy rate of 5% in 2012.

Chart of rising rents forecast.

Rising rents

“There will be an envelope of two or three years,when the rise in demand for rentals will exceed the industry’s ability to meet it,” says Chris Macke of  CoStar.

 

Much of this demand is fueled by the estimated 1.2 million young adults who moved back home with their parents from 2005-2010, and who are now starting to emerge on their own. In addition, more current roommates are beginning to go their own way as well, creating the need for two housing units when one sufficed previously.

The icing on the cake for apartment owners is the fact that virtually nothing has been built in the last few years, and new developments are only beginning to make a comeback. Part of the delay was due to lack of demand, and part because of the difficult loan environment.

A related article you may find useful:

Investing in Apartments: 3 Reasons Why Now Is a Great Time

And here’s a link to the source for this blog:

Rents are rising — lock in your lease (money.cnn.com)