DENVER | Main Development Thread #6

[wong21fr]

Originally Posted by Wizened Variations

Blah, blah, blah.

Do you just read Zero Hedge everyday, or do you write there as well?

[Wizened Variations]

Originally Posted by mhays

Those can be converted too, subject to local laws.

The only way prices will drop is if population growth shuts off or developers severely mistake the market. The current boom is happening despite a lot of people in roommate and extended family situations.

You say land prices and construction costs have risen. All true. How do you reconcile that with falling rents? In a growing market, rents will stay close to replacement costs. If rents go too high, supply will be added. If rents get too low, supply will slow, and since Denver is growing quickly, the gap will fill up pretty quickly.

Did Denver see falling rents in 2008? My city sure didn't, despite similar economic conditions. Instead they flattened, plus some moderate lease concessions. Condos were the problem. In both cities, rental construction picked up a couple years later.

I haven't heard any predictions that condos would really boom in either city, even if the defect legislation improves in Denver's case. You'd still have condo values that might not be high enough to justify construction, a general lack of buyer desire (much of the industry believes this is a mindset reset), and high hurdles for financing. Absent some changes across that board, it doesn't suggest a ton of condo construction. Construction will probably continue to be only cases that can finance without presales, who get the added benefit of building at today's prices but selling after the recovery is further along.

Condos are not being built in significant numbers in US (and Canadian) metro areas where the internationals do not want condos. This is a major reason so much big money is being invested in condo construction in NYC, Toronto, Miami, San Francisco, and, Vancouver. If big money is flowing into higher end condos, then the ripple effect of real estate appreciation naturally extends down the "food chain" and "cheaper" condos are built.

I think that real estate interests are masking the economic reality of the lowering of the standard of living for the majority of us here in the US, with propaganda about what young people want. The reality is that an increasing percentage of young people in the US cannot afford to buy a new home*(money required down, etc.). I think, too, the young people are no dumber than their parents, and, have shared their parents angst as the mortgage balances often became greater than the market value of their childhood homes. I think younger people are more wary of the risks of committing themselves to a long term debt, due to realistic fears that someday they might have to walk away (or run) from an upside down mortgage.

Apartment living is here to stay. H*** or high water, apartment complexes will continue to be built. The trend towards less square footage will continue, while apartment rent increases, outside of "hot" markets, will tend to follow the real rate of inflation.

*college debt is not helping either. A "good" university where students graduate and get a well paying job can leave a young person saddled with many tens of thousands of debt.

[Wizened Variations]

Originally Posted by wong21fr

Do you just read Zero Hedge everyday, or do you write there as well?

It's one of my electronic newspapers. I follow about 30 financial concerned websites regularly. In addition, I read the "national websites" for China, Japan, Russia, Canada, and, India.

I also read the Denver Post, skim the New York Times, look at the Financial Times, the Toronto Globe and Mail, and, look at the LA Times via the web. I skim Foreign Policy magazine, the Wall Street Journal, and Barrons via hardcopy.

I know where you are headed so I will tell you a favorite website. There is a genius (IMO) by the name of Michael Pettis, who about every two of three weeks writes an entry for his site, China Financial Markets. I read peoples comments here in detail. Read the last 5 or so entries and their comments.

[rds70]

Originally Posted by DownhomeDenver

So I'm not sure if this means anything but...see below from the Landmark Preservation Commission. Maybe it doesnt mean anything at all but "Owner has Withdrawn Application" seems rather negative to me.


MEETING AGENDA

Landmark Preservation Commission

1:00 p.m., Tuesday, July 1, 2014 at 201 W. Colfax Ave., room 4.F.6


Approval of Meeting Record

Approval of June 17, 2014 Meeting Record

Public Comment (limited to 2 minutes per speaker)

Public Hearing on Design Guidelines Update



Update Item - City Staff

Development Agreement Amendment for Country Club Gardens

Description: Update on proposed amendment to Country Club Gardens development agreement. (Relates to #314-14 and #536-14 below.)


Demolition Public Hearings - Barbara Stocklin-Steely

#314-14 33 S. Downing Street (also known as 16-23 S. Downing St.; Legal Address: 15 S. Downing St. & 14 S. Ogden St.)

Description: Hold continued public hearing for demolition of front 6’ of Buildings CCG 1B and 2B, Contributing Buildings to the Country Club Gardens Historic District. Owner has withdrawn application.


Design Review Projects - Barbara Stocklin-Steely

#536-14 33 S. Downing Street (also known as 16-23 S. Downing St.; Legal Address: 15 S. Downing St. & 14 S. Ogden St.)

Description: Continued Conceptual Mass & Scale of Infill Construction. Owner has withdrawn application.

STAFF RECOMMENDATION: No action

It looks like the developer is going to try and amend the development agreement for the property rather than go to the LPC. The City Council land use committee will consider the amendment at the next meeting.

Details here:

http://www.denvergov.org/sirepub/cache/2/11d13p45ugc4z1554o5rzcm3/60222807112014094415484.PDF

[mhays]

Today's 25 year olds will be replaced by tomorrow's....not nationally, as the echo boom passes by, but in urban cores like Denver, Seattle, and Portland that draw disproportionate numbers of them. Plus the echo was lower than the original baby booms (after both world wars).

Yes supply takes time, but it takes a lot of oversupply to precipitate double-figure average drops. Absent a huge economic bust, developers tend to be nimble enough to avoid that.

600 sf units aren't the core of the condo market but they're a sizeable chunk of it, at least where I live. That's a common type of "starter" unit and also draws a decent share of empty nester singles etc.

[mhays]

Originally Posted by Wizened Variations

If big money is flowing into higher end condos, then the ripple effect of real estate appreciation naturally extends down the "food chain" and "cheaper" condos are built.

I don't get your point about appreciation. Why would building high-end condos increase the values of lower-priced condos? The only instance that makes sense to me is penthouses helping mixed-income buildings pencil.

[TakeFive]

Originally Posted by Stonemans_rowJ

Millennials (aged 22-35) like Denver and are not opposed to buying- it's just not possible with down payment requirements, college loans, etc. compounded with lack of inventory in the core, which is where these people would want to live.

Even if construction defect changes, is it really going to blow the lid off current condo prices in Denver proper? Land costs and construction costs are way up.

We do tend to often disagree over things which have different definitions and/or context which may mean we really don't disagree at all... (LOL). In my own generalized use of Millennials it was more in line with a recent PBS broadcast which used Pew Research Center as their source. In March they defined Millennials as being today's 18-33 years old's.

I was specifically talking about those in the lower half of that age group as I made reference to those turning 18 in 2008. Even so generalities will never apply to every individual within the group. Additionally what is true in Denver may not be true at all in Elkhart Indiana.

What I'm confident is true is that as young adults reach the age of 28-30 many attitudes and preferences start to change, if they haven't previously. The specifics may be different but this general characteristic has been true for 50 years (or longer). I spoke of them being assimilated into (normal) society.

I don't doubt that six years after my starting point of 2008 individual preferences are changing as we speak. I don't disagree with you, in other words.

[bunt_q]

Originally Posted by TakeFive

The specifics may be different but this general characteristic has been true for 50 years (or longer). I spoke of them being assimilated into (normal) society.

Those preferences changed for the last 50 years... And they changed because of a very particular set of circumstances that has not existed at any other place or time in history - easy cheap transportation, subsidized cheap housing, and an era of large families. None of those exist anymore. The sudden preference for walking/biking doesn't exist in a vacuum. It's because driving is expensive and sucks. And women work now - they didn't 50 years ago - which changes lots of things. We don't get married until we're 30+, for example. We have one kid instead of three. And we don't have anybody at home to clean the 4-bedroom house that we no longer need or want, and daycare (already as much as a mortgage) charges $25 per minute if we're late picking up the little ones.

You're correct that preferences change somewhat - I am at the very upper end of the millennials, and I'd now like to own something at a fixed rate that can build equity, and where I am not living at the whim of a landlord. And I have money (but not $750,000-unit-money.) I simply don't want a 4-bedroom beast with a 45 minute drive - hell, I have enough trouble keeping up with dishes, the laundry, and this forum. But unfortunately, I do not have any options in Denver - the market is not responding - so I rent out of necessity. Probably because developers like mhays are critically misjudging evolving demand. But somebody will figure it out, and make a killing when they do.

[TakeFive]

Should we urbanize or should we sprawl?
Wrong question.

There is no question today's younger generation has found a taste and preference for urban living. Clearly this is a part of Denver's downtown DNA. Will downtown as Wong suggests be for the elites? Considering the size of units and quality of many new apartment projects that's questionable. But who can say over time, precisely.

bunt_q has the advantage of looking more at the whole pie rather than just a couple of slices. As I previously mentioned (and Wizened and bunt-q too) the growing income disparity virtually assures that as Denver grows much of that growth will consist of sprawl.

One thing that will never change is the urge to merge and families will blossom. I read recently (DBJ I assume) how many jobs Aurora has added in the last several years. Affordability and access to jobs will always be important, looking at the whole pie.

It's fair to say that the strong rents in downtown and central Denver which have helped to propel developers to keep on building will ultimately deter many as well.

[mhays]

Originally Posted by bunt_q

Those preferences changed for the last 50 years... And they changed because of a very particular set of circumstances that has not existed at any other place or time in history - easy cheap transportation, subsidized cheap housing, and an era of large families. None of those exist anymore. The sudden preference for walking/biking doesn't exist in a vacuum. It's because driving is expensive and sucks. And women work now - they didn't 50 years ago - which changes lots of things. We don't get married until we're 30+, for example. We have one kid instead of three. And we don't have anybody at home to clean the 4-bedroom house that we no longer need or want, and daycare (already as much as a mortgage) charges $25 per minute if we're late picking up the little ones.

You're correct that preferences change somewhat - I am at the very upper end of the millennials, and I'd now like to own something at a fixed rate that can build equity, and where I am not living at the whim of a landlord. And I have money (but not $750,000-unit-money.) I simply don't want a 4-bedroom beast with a 45 minute drive - hell, I have enough trouble keeping up with dishes, the laundry, and this forum. But unfortunately, I do not have any options in Denver - the market is not responding - so I rent out of necessity. Probably because developers like mhays are critically misjudging evolving demand. But somebody will figure it out, and make a killing when they do.

I'm marketing/research guy for a contractor, not a developer!

But from the developer perspective, what are they misjudging? If you mean big+central+cheap, maybe the math doesn't work yet.

[wong21fr]

Originally Posted by bunt_q

You're correct that preferences change somewhat - I am at the very upper end of the millennials, and I'd now like to own something at a fixed rate that can build equity, and where I am not living at the whim of a landlord. And I have money (but not $750,000-unit-money.) I simply don't want a 4-bedroom beast with a 45 minute drive - hell, I have enough trouble keeping up with dishes, the laundry, and this forum. But unfortunately, I do not have any options in Denver - the market is not responding - so I rent out of necessity. Probably because developers like mhays are critically misjudging evolving demand. But somebody will figure it out, and make a killing when they do.

How about $450K money? Does that get you into the areas that you desire or are we talking lower? What is the magic number to get the fiscally responsible millennial, at least the one that still tries to keep PITI below 25% of net income, into a residence in the city center neighborhoods?

[TakeFive]

Originally Posted by bunt_q

Those preferences changed for the last 50 years... And they changed because of a very particular set of circumstances that has not existed at any other place or time in history - easy cheap transportation, subsidized cheap housing, and an era of large families. None of those exist anymore.

Couple points of clarification. Of course I was speaking to the maturation process that we all go through but as to specific changes over time you point out many good ones.

Speaking of pies... if you think about the Denver Metro human pie, I suspect that you points may be true for the "white" slices but not so true of other flavors ie. family size.

In fact if I'm reading THIS right, then it appears that some of Denver's success is attributable to Ethiopia?

[The Dirt]

We also apparently have the highest Mongolian population in the US.

[bunt_q]

Originally Posted by wong21fr

How about $450K money? Does that get you into the areas that you desire or are we talking lower? What is the magic number to get the fiscally responsible millennial, at least the one that still tries to keep PITI below 25% of net income, into a residence in the city center neighborhoods?

You're kidding right? PITI at 25% of gross? That gets me to like $300k, even at today's low interest rates.

(The $285k shack on Glenarm would've come to about $1800-1900 per month with property taxes, insurance, mortgage insurance, etc.)

Under-$300k should be the target if you want millennials, even in the $75-100k household income range, to be able to make it. (Assuming most have some sort of school debt.)

[denconyny]

Originally Posted by TakeFive

Should we urbanize or should we sprawl?
Wrong question.

There is no question today's younger generation has found a taste and preference for urban living. Clearly this is a part of Denver's downtown DNA. Will downtown as Wong suggests be for the elites? Considering the size of units and quality of many new apartment projects that's questionable. But who can say over time, precisely.

bunt_q has the advantage of looking more at the whole pie rather than just a couple of slices. As I previously mentioned (and Wizened and bunt-q too) the growing income disparity virtually assures that as Denver grows much of that growth will consist of sprawl.

One thing that will never change is the urge to merge and families will blossom. I read recently (DBJ I assume) how many jobs Aurora has added in the last several years. Affordability and access to jobs will always be important, looking at the whole pie.

It's fair to say that the strong rents in downtown and central Denver which have helped to propel developers to keep on building will ultimately deter many as well.

I have to wonder as to why a lot of housing (and condos would be good if the laws are changed somewhat here as most in these discussions are suggesting) built without frills, just very basic stock and necessities, with some decent interior space, can't be build in places like Arapaho Square and some parts of Golden Triangle (both areas where there's overabundance of parking lots) and maybe some other parts close to downtown (but not necessarily right in the CBD) where land costs can't be that expensive? Solidly built but no-frills multi-housing building (as high monthly maintenance wouldn't be expected) so that they can be basically affordable to the masses of those who prefer city center or nearby? Build about some 50 or so 15 story buildings like these (and there's plenty of land within CBD range) with about 10 units per floor, and this will provide some 7500 units of affordable housing.

Not every building over 4 stories has to have doormen, swimming pools, fancy health centers on premises, etc, or be done with the most expensive imported cherry or mahogany wood inside, or whatever the latest and most expensive stone flooring/tile happens to be, or whatever else simply adds both short term and long term expenses. Have sufficient concrete walls and floors and let the residents finish their units the way they can afford if these be condos.

With my above, I think that it's important that the city elected officials, bureaucrats and city planners have some vision of this here and take an active part in making this happen. They can start by ditching their speed-dials to the luxury property developers. I can't see how it's that far of a stretch to get a massive amount of low cost (with inherent quality though) multi-family housing in or pretty near the CDB of Denver, where there is still an abundance of land to do this. This isn't Manhattan here....... we seem to have more surface parking lots here than Manhattan has residents. And if persons with power within the city can make keeping these surface parking lots much more costly to these owner speculators of the surface parking lots, well.... land will become very cheap very quickly around the Denver CDB to accommodate these 50 some affordable multi-family housing buildings.

Just my 2-cents here.......

[bunt_q]

You mean build urban housing exactly the same way as how many builders build suburban housing? Exactly. My guess is the answer has something to do with the financing. Easier to finance 200 lots of no frills single family housing than 200 units in a no frills building.

[denconyny]

Originally Posted by bunt_q

You mean build urban housing exactly the same way as how many builders build suburban housing? Exactly. My guess is the answer has something to do with the financing. Easier to finance 200 lots of no frills single family housing than 200 units in a no frills building.

I can't disagree with you here..... but how much of a part would current laws and policies have to do with this (probably everything, eh?)..... and how much could be changed so that financing of 200 units in a no frill building becomes easier than financing 200 no frills single family housing units? This is where the challenge is, and the umph and wherewithal to make it so.......

[bunt_q]

No you're right it's fixable.

[denconyny]

Originally Posted by bunt_q

No you're right it's fixable.

Are you okay tonight? That seems too easy......

[mhays]

If you want cheap units, the first step is generally doing woodframe, unless land prices are higher than Denver's outside the CBD. Concrete is expensive. Then reduce parking. Of course no pool but how common are those anyway? Delete balconies, etc. Or get aggressive and cut square footage. Cheaper cabinets can help but it's not enough to be really affordable.

You could cut the exercise room and community space off the lobby. But a lot of people see the exercise room as a way to avoid gym fees. The community space isn't expensive, and sometimes it's located in space that's not ideal for other purposes...in some cities it even counts against the "open space" requirements.