DENVER | Main Development Thread #6

[bunt_q]

I got a draft of this bill yesterday. I like it, it's very to the point. But I am not confident about its chances in the House. In terms of mandatory arbitration, it is pretty much the same as what raised the stink last year.

[TakeFive]

Originally Posted by bunt_q

I got a draft of this bill yesterday. I like it, it's very to the point. But I am not confident about its chances in the House. In terms of mandatory arbitration, it is pretty much the same as what raised the stink last year.

Hmm, while you can understand the legalese I did note from the DBJ article Pg. 5 this:

The bill will not require a "right to remedy" — a provision in California law that mandates that unit owners give builders an opportunity to repair defects before taking legal action.

While a number of coalition members wanted to include a similar provision, that would have required amending CDARA as well as CCIOA, backers were afraid that could open up general defects-litigation law to too many unwanted attempts at changes, Mulligan said.

"We think the mediation process on the front end of this bill is kind of a right to remedy," Clark said.

When you consider that all 41 members of the Metro Mayors Caucus along with the many other interests that are backing this bill, I'll predict this bill passes with little or no change.

[bunt_q]

The mayors all supported last years' attempts too. My purpose in reviewing it is to see what holes are left by it only applying to common interest communities under CCIOA.

The mediation provision is a waste of money and won't influence insurers at all. It's tossing a bone to feel good legislators and folks who make money off of mediation. The part that matters is making it so you can't amend mandatory arbitration clauses out of covenants, and requiring a majority of votes sign on to litigation. Especially during declarant control periods, this seems like it could effectively make early defects litigation impossible (admittedly I still need to review more closely). Fine by me, but it's not exactly a compromise with what the Dems and their concerns. Fingers crossed though.

[seventwenty]

Bunt please tells us more. No sarcasm. If you can't, it's cool.

[DenverPoke]

Originally Posted by bunt_q

The mayors all supported last years' attempts too. My purpose in reviewing it is to see what holes are left by it only applying to common interest communities under CCIOA.

The mediation provision is a waste of money and won't influence insurers at all. It's tossing a bone to feel good legislators and folks who make money off of mediation. The part that matters is making it so you can't amend mandatory arbitration clauses out of covenants, and requiring a majority of votes sign on to litigation. Especially during declarant control periods, this seems like it could effectively make early defects litigation impossible (admittedly I still need to review more closely). Fine by me, but it's not exactly a compromise with what the Dems and their concerns. Fingers crossed though.

If this will have no influence on insurers will developers be able to provide a product at a price point that is significantly different than now?

[bcp]

Originally Posted by seventwenty

Bunt please tells us more. No sarcasm. If you can't, it's cool.

^ that's some sound, solid sarcasm there! nicely done...

DP.."no"...and don't expect to see a massive rush of affordable condos happen quickly either, once this is fixed...defect liability is just ONE of the issues impacting affordability of condos (fire code, zoning code, parking,...plus that pesky free-market, and denver's housing shortage / popularity). the price-point may be lower, but the $/SF will be the same...maybe higher?

declarant period...raises a good point - but agree it should not be a carve out...i've seen some colleagues play some dirty games during that period..

[bunt_q]

Originally Posted by seventwenty

Bunt please tells us more. No sarcasm. If you can't, it's cool.

It's not a secret, I can email you the draft.

I think the bill would give builders and insurers plenty of comfort to move forward with condos again. (Whether that bring prices down, who knows, see bcp's post.) I just don't think it'll pass.

[COtoOC]

Originally Posted by RyanD

Fun facts and ironies about Stapleton. It's named after Ben Stapleton, who was a Denver Mayor in 12935 and also a KKK member.

Given that, Stapleton is named after him with MLK BLVD going right through the heart of it. Funny..

Yeah, I knew about the origins of "Stapleton". And isn't Walker Stapleton a relative of his? But the irony of MLK Blvd. running through a neighborhood named after a Klan member... lol!

[urbanAcheiver]

Originally Posted by bunt_q

It's not a secret, I can email you the draft.

I think the bill would give builders and insurers plenty of comfort to move forward with condos again. (Whether that bring prices down, who knows, see bcp's post.) I just don't think it'll pass.

Bunt, why don't you think it will pass? Its right down the middle bi-partisan as far as its advocates. I'm not questioning your intuition but I'm genuinely curious while hoping that you're pessimism is a mechanism for not getting disappointed.

Also regarding,

Originally Posted by DBJ page 1, paragraph 3:3

Developers say current state laws make it too easy to file class-action lawsuits over condo construction defects, bringing construction of condos to a virtual standstill.

I'm curious who specifically these developers really are. It would be nice to get a record and tally up some "we would have had it not been for..." statements from notable developers.

[bunt_q]

Originally Posted by urbanAcheiver

Bunt, why don't you think it will pass? Its right down the middle bi-partisan as far as its advocates. I'm not questioning your intuition but I'm genuinely curious while hoping that you're pessimism is a mechanism for not getting disappointed.

The opposition to this wasn't partisan. Last year, the prime sponsor was a Democrat, and the Democrats killed it in committee. The Republican pick-ups in the Senate will surely get it through there, but I am not sure the House is any different at all. And the actual bill being proposed is hardly changed from last year's, in terms of how much it'll irk all of the "protect the homeowners" types.

Maybe part of it is lowered expectations on my part, you're right. But I do not see anything fundamentally different from last year's defeat in the House. I can hope, though! It probably only takes one flipped vote to get it to the floor.

Originally Posted by urbanAcheiver

I'm curious who specifically these developers really are. It would be nice to get a record and tally up some "we would have had it not been for..." statements from notable developers.

It is all of them. You will not find a single developer (except for some mom and pop types) who are not having this issue. And 90% + of them have just stopped for-sale multifamily construction altogether. I do not have a single client who will touch condos right now.

[TakeFive]

Originally Posted by bunt_q

I think the bill would give builders and insurers plenty of comfort to move forward with condos again. (Whether that bring prices down, who knows, see bcp's post.) I just don't think it'll pass.

Originally Posted by urbanAcheiver

Bunt, why don't you think it will pass?
Also regarding,

I'm curious who specifically these developers really are. It would be nice to get a record and tally up some "we would have had it not been for..." statements from notable developers.

I think bunt_q is just being anxious and overly concerned.

I don't suspect that the specific developers would be useful. The opponents, after all are just speaking on behalf of the helpless, homeowner victims of shoddy construction (cough cough).

I'll suggest that the Governor's role will be key. Whether he endorse the bill publicly may not be as important as just his lobbying behind the scenes for more Dem support in the House especially (and the Senate).

My sense is that while they didn't necessarily throw the baby out with the bathwater you couldn't reach a workable solution without making life easier and more reasonable for builders.

I say it passes.

[mhays]

I (still) bet the largest issue with condos is that values aren't high enough. Defect law makes them more expensive of course, and it's a problem. But if values rise enough, I bet they get built.

The second problem is that the old "presale" method isn't trusted by buyers/financiers/developers, so you can't finance them that way yet. You need a ton of equity, then you get a smaller loan based on selling during/after construction. Not many developers can do this. Again, things will loosen up when condo values are higher. When that happens, buyers will see more benefit to locking up a place and a price early.

A third problem is that construction costs are rising quickly. In my area it's looking like around 5% annually for construction. Don't know for Denver but it might be similar. It'll get worse as the rest of the country improves, which will exacerbate today's lack of construction people on the technical and trade sides (our cities are currently living off migration of construction people from other regions). Land costs are probably rising even more quickly than 5% in Denver. Condo values need to rise even faster than 5% annually to overcome these and the other issues.

A fourth problem is that rentals are profitable. A developer will often choose the safe, easy path.

A fifth problem in Denver's case is the oil question. Regardless of how diversified the city has become it's a big sector, including whatever multiplier.

On the bright side, interest rates are incredibly low again, Denver probably has a lot of pent-up condo demand, and the city overall is getting better every year, which becomes a self-sustaining upward spiral.

[bunt_q]

Originally Posted by mhays

I (still) bet the largest issue with condos is that values aren't high enough. Defect law makes them more expensive of course, and it's a problem. But if values rise enough, I bet they get built.
buyers will see more benefit to locking up a place and a price early.

The second problem is that the old "presale" method isn't trusted by buyers/financiers/developers, so you can't finance them that way yet. You need a ton of equity, then you get a smaller loan based on selling during/after construction. Not many developers can do this. Again, things will loosen up when condo values are higher. When that happens,
A third problem is that construction costs are rising quickly. In my area it's looking like around 5% annually for construction. Don't know for Denver but it might be similar. It'll get worse as the rest of the country improves, which will exacerbate today's lack of construction people on the technical and trade sides (our cities are currently living off migration of construction people from other regions). Land costs are probably rising even more quickly than 5% in Denver. Condo values need to rise even faster than 5% annually to overcome these and the other issues.

A fourth problem is that rentals are profitable. A developer will often choose the safe, easy path.

A fifth problem in Denver's case is the oil question. Regardless of how diversified the city has become it's a big sector, including whatever multiplier.

On the bright side, interest rates are incredibly low again, Denver probably has a lot of pent-up condo demand, and the city overall is getting better every year, which becomes a self-sustaining upward spiral.

It's different here, none of those "normal" factors are really driving. Any and every developer locally would disagree with you. Insurance is impossible. I've got one client doing massive amounts of over-ex where the geotech says the soils are absolutely fine and it's not needed (engineer just throws up his arms). Folks are acting straight up paranoid - it's basically 100% you get a defects claim on every single project. It's a real world problem, not just academic anymore.

Yes, at high enough price points ($600k+ probably) you can get it done, and we're seeing a couple hundred of those. But that's the entire condo segment right now. It's under, what, 3% of building permits now are for-sale multi-family housing? That's not natural, it was 7-times that before the recession, when the urban market was much less strong than it is today. Land costs aren't a factor outside of the urban core, and outside of the urban core there are exactly zero units under construction.

I just hope the bill passes, that's all.

[enjo13]

Fun pictures from LoDo today:



This has a big fence around it and the old garage thing is gutted. Progress!



Perrty.



Building some type of plaque thing out front of Union Station. Nice flagpole too.

[Cirrus]

Hey, how are the Union Station plazas doing? Are there people in them?

I mean, recognizing that it's winter so naturally there'll be fewer than summer.

[DenverPoke]

Originally Posted by Cirrus

Hey, how are the Union Station plazas doing? Are there people in them?

I mean, recognizing that it's winter so naturally there'll be fewer than summer.

The great hall has certainly been very busy every time I've been. BTW, anybody else try to play shuffleboard there? The tables are seriously warped to the point you can't even play. That needs to be fixed or just remove the things.

Not sure on the plazas, they seemed decently occupied in the summer but I can't speak on the winter much, they were dead the few times I saw but it was pretty cold out.

[EngiNerd]

Today it wasn't winter.

[TakeFive]

Originally Posted by bunt_q

It's different here, none of those "normal" factors are really driving. Any and every developer locally would disagree with you. Insurance is impossible. I've got one client doing massive amounts of over-ex where the geotech says the soils are absolutely fine and it's not needed (engineer just throws up his arms). Folks are acting straight up paranoid - it's basically 100% you get a defects claim on every single project. It's a real world problem, not just academic anymore.

But that's the entire condo segment right now. It's under, what, 3% of building permits now are for-sale multi-family housing? That's not natural, it was 7-times that before the recession, when the urban market was much less strong than it is today. Land costs aren't a factor outside of the urban core, and outside of the urban core there are exactly zero units under construction.

I just hope the bill passes, that's all.

Interesting comment.

Just curious. Assuming the bill gets passed what parts of the metro area would you guess would see some condo development? Obviously not everybody can live downtown especially given the price points.

[pregersthehobo]

Originally Posted by mr1138

Yes I remember those well! The current "D4 Urban" plan for the Alameda and Broadway strip mall/Design Center area, http://d4urban.com/, is similar in the density that it shows. Let's hope they stick to it, because I think it could really work in this location. Especially once the CPV is all wrapped up, which now appears will now be very soon.

Not quite. I've been sitting on this because well, it's not much but...I had a meeting at the Pepsi Center administration level in October and there were site plans labeled "Pepsi Center Master Development Plan" in a stack on a filling cabinet on the way to the meeting room. They looked very similar to DI's (or was it Urbanism?) "Proposal" from awhile back. Naturally, I couldn't take a pic as I was in a meeting.

I had a follow-up in November and they were gone. I didn't see a date on them but they looked pretty recent.

Sadly, this is nothing more than rumor but Kroenke is definitely thinking, or has a one point thought about developing the parking lots at Pepsi.

Knowing the way Kroenke does business, he is going to own all of it. He might invite an investor or two but he doesn't really need them.

So there it is, I have no more info than that. But I think some of you would like to know, even if nothing comes of it.

[mhays]

Originally Posted by bunt_q

It's different here, none of those "normal" factors are really driving. Any and every developer locally would disagree with you. Insurance is impossible. I've got one client doing massive amounts of over-ex where the geotech says the soils are absolutely fine and it's not needed (engineer just throws up his arms). Folks are acting straight up paranoid - it's basically 100% you get a defects claim on every single project. It's a real world problem, not just academic anymore.

Yes, at high enough price points ($600k+ probably) you can get it done, and we're seeing a couple hundred of those. But that's the entire condo segment right now. It's under, what, 3% of building permits now are for-sale multi-family housing? That's not natural, it was 7-times that before the recession, when the urban market was much less strong than it is today. Land costs aren't a factor outside of the urban core, and outside of the urban core there are exactly zero units under construction.

So...you're saying there's a chance!

Every developer except the ones actually doing it.