DENVER | Main Development Thread #7

[bunt_q]

Originally Posted by Sam Hill

I doubt supply or demand will budge due to these new regulations. On the demand side things are very tight obviously. But the supply side is a free-for-all. Build as much as you can as fast as you can as the margins are big and will only get bigger as rents continue to skyrocket. If anything, some developers may cut corners on quality to try to compensate, but I don’t think any of them are going to get scared away from the market.

I'm not sure I'd characterize supply as a "free for all." It might feel that way, but there's pretty strong evidence that we are still building far less than we would if it was a "free for all." And while the curious behaviors of the seemingly rich and powerful always fascinate the "little people," development is hard, it's slow, and it is wildly expensive, and yes, risky. There isn't a developer out there that has the luxury of not passing on third-party costs, dollar for dollar. (Or more often, $1.10 for $1.00).

[TakeFive]

Originally Posted by mhays

That's not how it works. When you add cost to development, supply will slow down until scarcity pushes rents higher.

Development cost is countless factors of course, and some can edge downward to counter an upward factor, but the net will be higher costs.

My point might not be intuitive, but it's a basic tenet of commercial real estate.

You're speculating on what come next which is fine and may be true but Sam's 'real time' description is accurate.

It's always hard to accurately guess the future. But some developers like LMC or public REITS may plow ahead if they have money in hand and hope to weather any short term turbulence over time.

[Sam Hill]

I can see many obstacles to new supply hitting the market: bad zoning, NIMBY resistance, the labor shortage, etc. But with rents as out of control as they have gotten, it’s safe to assume the days of developers (who know what they’re doing) struggling to get a proposal to “pencil” are over. I’m not buying it.

And besides that, anyone have any better ideas for preventing the lower class from being forced out of the state or onto the street?

[mhays]

That's completely false. Some projects pencil but many don't. You won't find any developers or builders agreeing with you if they're honest.

Further, capital doesn't go to everything that pencils. It goes to the projects that pencil the MOST. Tilt the equation by a few percent and a project can fall down the list.

[mhays]

Originally Posted by TakeFive

You're speculating on what come next which is fine and may be true but Sam's 'real time' description is accurate.

It's always hard to accurately guess the future. But some developers like LMC or public REITS may plow ahead if they have money in hand and hope to weather any short term turbulence over time.

Prices are subject to real time realities, obviously. But there's no question that spreadsheets affect what's built, and there's no question that this results in a new supply/demand equation.

You mention that some developers (and their financiers) have different standards, in so many words. That's not relevant to my point, which is about how many units are built, not whether some still go forward.

[TakeFive]

I appreciate it can be hard to read peoples minds

Originally Posted by mhays

Prices are subject to real time realities, obviously. But there's no question that spreadsheets affect what's built, and there's no question that this results in a new supply/demand equation.

You mention that some developers (and their financiers) have different standards, in so many words. That's not relevant to my point, which is about how many units are built, not whether some still go forward.

I don't think I was disagreeing with you (except about Sam).

You're speculating on what come next which is fine and may be true

My other point was just something I wanted to put out there which also doesn't disagree with your POV.
-----------------------

You're not the only one not buying things

Originally Posted by Sam Hill

I’m not buying it.

If yesterday you owned $100,000 of Target stock today it's only worth $75,000 as the stock of Target dropped 25% today.

Target on Wednesday reported quarterly earnings that fell far short of Wall Street’s expectations, as the retailer coped with pricey freight costs, higher markdowns and lower-than-expected sales of discretionary items from TVs to bicycles.

That never happens - until today. The total value of Target dropped by $75 billion. Walmart dropped 11% yesterday and another 7% today. All retail stocks sold off in 'sympathy' although Costco (another good Seattle based company) held up better than many.

Basically the whole market sold off today on heavy volume. The only bright spot was the 10-Year T-bill interest rate dropped a bit as investors flee to safety.

Sam has been correct - so far. Construction costs keep going up but builders keep building.

I still have no crystal ball about RE going forward. I suspect so long as projects "pencil" construction will continue even though the rest of the economy seems to be falling apart.

[Sam Hill]

Originally Posted by mhays

Further, capital doesn't go to everything that pencils. It goes to the projects that pencil the MOST. Tilt the equation by a few percent and a project can fall down the list.

Sounds like there’s not enough liquidity in the market then. So maybe there’s a labor bottleneck and a liquidity bottleneck?

If you can’t make a project pencil with rents as high as they are, then how much higher do the rents need to go?

I’m not arguing that every single project that any developer proposes pencils in this market. I’m arguing that a 4% fee, at a time when the market is completely out of whack and in favor of developers (who are making huge profits right now), won’t slow new supply.

Maybe if the fees are permanent, in some future market…

We’ll see.

[Sam Hill]

Look, you all know how I feel; you’re not changing my mind; and I don’t want to clutter up this thread with any further arguments, so I’ll just leave you with this:

Every other attempt of a municipality to bring housing to the market the lower class can afford - that I’ve seen - only chases away developers and makes the overall market worse. This is the best idea I’ve seen so far. I don’t think it will chase a single developer away in a market as hot and expensive as this. And I’m not buying any developer’s argument that they’ll just have to raise rents to pass this cost on to the renters (which is the dumb argument they’ve been making).

It’s better than doing nothing and pushing all the poor people out of the city.

Should the City be doing more to encourage more development in general? Like zoning more neighborhoods for far more density, eliminating parking minimums, (and everything else that NIMBYs fight tooth and nail)? Yes yes yes!

[mhays]

Opinions are fine until they cause bad law. I'm flabberagasted at the idea that fluctuating spreadsheets don't influence the volume of construction.

Multifamily real estate suffers from a syndrome that hits certain fields...everyone apparently knows how to coach a football team, and 1/3 of the country doesn't trust virologists.

As for capital, there's a lot of it chasing apartment development. But still the sources pick and choose projects, and underwriting standards are different from one contestant and city to the next. A lot of projects are on the outside looking in in any city.

Regading more fair means of funding low-income housing, how about a property tax? Existing property owners would pay it too, expanding the taxable basis and making it more fair. It wouldn't disincentivize development anywhere near as much. Linkage fees actually make money for existing homeowners (like me) and landlords by reducing new supply, hence my suspicion behind a lot of their support.

[bunt_q]

Originally Posted by Sam Hill

If you can’t make a project pencil with rents as high as they are, then how much higher do the rents need to go?

I’m not arguing that every single project that any developer proposes pencils in this market. I’m arguing that a 4% fee, at a time when the market is completely out of whack and in favor of developers (who are making huge profits right now), won’t slow new supply.

You know, there could be a market where nothing pencils. If people really just can't afford rents at a level that makes projects pencil, because they're too broke, yet development costs are too high, then nothing will get built. There are markets in the world that look like that. (They tend to have sizable shantytowns.) Fortunately not here, because as expensive as it is, people can still pay, even if it's damn uncomfortable. But tht equation exists in lots of places, and it's not just because of some abstract notion of capitalist greed.

[Robert.hampton]

https://www.denverpost.com/2022/05/19/residential-rental-licenses-lack-of-inspectors/

Current city council has to be among the worst of the past 40 Years. What problem exactly were they trying to solve with this? We’re they intentionally trying to drive up rent following ‘the Boulder model’?

I remember in trying to justify this Chris Hinds told some story about an abandoned Burger King and the city had a hard time finding the actual owner of the land. ummm….wtf does that have to do with anything?

I hope the whole lot gets voted out. Really need to start over from scratch and get away from our current clown show.

[bunt_q]

Originally Posted by Robert.hampton

https://www.denverpost.com/2022/05/19/residential-rental-licenses-lack-of-inspectors/

Current city council has to be among the worst of the past 40 Years. What problem exactly were they trying to solve with this? We’re they intentionally trying to drive up rent following ‘the Boulder model’?

I remember in trying to justify this Chris Hinds told some story about an abandoned Burger King and the city had a hard time finding the actual owner of the land. ummm….wtf does that have to do with anything?

I hope the whole lot gets voted out. Really need to start over from scratch and get away from our current clown show.

Agreed. If there was an option to throw down our entire hand and take a chance picking all new cards, I'd take it it too. Wonder if we could write that into the charter and vote it. The Giant Ejection Seat clause.

[mhays]

In fairness, hidden property ownership and hard-to-reach owners (via cryptic LLCs, family properties splintered by inheritance, etc.) are a significant problem if your goal is to buy a property, force compliance, etc. Public records might not say much.

On the macro level, that can certainly impact land availability, neighborhood improvement plans, etc.

[wong21fr]

Originally Posted by bunt_q

Agreed. If there was an option to throw down our entire hand and take a chance picking all new cards, I'd take it it too. Wonder if we could write that into the charter and vote it. The Giant Ejection Seat clause.

Hey, but they made everyone safer by banning concealed carry in all Denver Parks (including the mountain parks) because it was all those dangerous 🞵🞵🞵 owners who go through the training and registration process who are discharging firearms there.

[Agent Orange]

Originally Posted by Robert.hampton

https://www.denverpost.com/2022/05/19/residential-rental-licenses-lack-of-inspectors/

Current city council has to be among the worst of the past 40 Years. What problem exactly were they trying to solve with this? We’re they intentionally trying to drive up rent following ‘the Boulder model’?

I remember in trying to justify this Chris Hinds told some story about an abandoned Burger King and the city had a hard time finding the actual owner of the land. ummm….wtf does that have to do with anything?

I hope the whole lot gets voted out. Really need to start over from scratch and get away from our current clown show.

Real curious which way the wind will be blowing come Spring 2023. And what candidates will arise. The big issues as of now seem to be housing prices/affordability crisis, uptick in crime, and the interrealted fent/meth and homelessness crises. Not sure a lot could change in the next year, maybe add a potential recession. A lot of the outcome will depend on who decides to run. As much as I'd like to hope otherwise, I don't foresee pro-development, YIMBY type message being very popular in Denver right now.

[bunt_q]

Originally Posted by wong21fr

Hey, but they made everyone safer by banning concealed carry in all Denver Parks (including the mountain parks) because it was all those dangerous 🞵🞵🞵 owners who go through the training and registration process who are discharging firearms there.

Cheesman hipsters and peace loving liberals everywhere run and shriek in terror after my dog chases a squirrel, clothes-lines the baby stroller with the leash, tips it over, and out spills out the pile of blankets, snacks, diapers, and Oh My God a (no clip) Beretta! from underneath. Safety. Assured.

[Robert.hampton]

Originally Posted by mhays

In fairness, hidden property ownership and hard-to-reach owners (via cryptic LLCs, family properties splintered by inheritance, etc.) are a significant problem if your goal is to buy a property, force compliance, etc. Public records might not say much.

On the macro level, that can certainly impact land availability, neighborhood improvement plans, etc.

Sure but a burned out Burger King is t going to apply for a landlord license. It was a stupid argument that just highlighted how little thought city council put into this silly ordinance that will just create administrative red tape and additional housing costs but provide no actual benefit to anyone by other than the four inspectors that will have unlimited work for the rest of their life.

[bunt_q]

Originally Posted by Robert.hampton

Sure but a burned out Burger King is t going to apply for a landlord license. It was a stupid argument that just highlighted how little thought city council put into this silly ordinance that will just create administrative red tape and additional housing costs but provide no actual benefit to anyone by other than the four inspectors that will have unlimited work for the rest of their life.

Call me evil, but I am passing on these costs dollar for dollar (and my time reading the 300 damn emails the City is sending per week on this) on my old house starting July 1.

[TakeFive]

Isn't this redundant?

Originally Posted by bunt_q

Agreed. If there was an option to throw down our entire hand and take a chance picking all new cards, I'd take it it too. Wonder if we could write that into the charter and vote it. The Giant Ejection Seat clause.

They already have property records (and Title Co's). They already have a 'state' “Warranty of Habitability.” How does this add any value?

How would this make enforcement any easier? Could be a case for the courts to decide or will they have some Big Brother power? I'd assume they will record an owner's representative for out-of-towners or passive owners. How do they plan to keep this up-to-date?

Originally Posted by wong21fr

Hey, but they made everyone safer by banning concealed carry in all Denver Parks (including the mountain parks) because it was all those dangerous 🞵🞵🞵 owners who go through the training and registration process who are discharging firearms there.

Yeah, this was a real laugher when I read the reasons. Methinks it's those intending mischief with 🞵🞵🞵🞵 that are the problem and this won't help with that?

It's easy enough to identify problems. The DCC did this because they could and it made them feel good even though it will accomplish nothing.

[Ich]

Looks like another big proposal for AS.

25 stories, 646 units, 396 parking spaces, office and retail.

https://denverite.com/2022/05/19/develop...paso-los-angeles-limousine-express-site/

Hopefully all this development helps active the retail core in downtown.