DENVER | Main Development Thread #7

[TakeFive]

Coming But Not Soon

Embrey to Build 283-Unit Apartment Community on Leetsdale Drive
March 15, 2023 - Mile High CRE


Rendering of 5231 Leetsdale, courtesy of Capstone Companies

San Antonio-based Embrey, a diversified real estate investment company, has purchased 5231 Leetsdale, a 219,562-square-foot (5.04 ac) land property in Denver.

The site is home to a small retail strip building and a hardwood flooring company. Embrey plans to demolish the buildings and build a new 283-unit Class A apartment community.

A classic suburban builder, Embrey has stayed on the periphery of the city center.

[TakeFive]

As Denver (downtown) Continues to Grow and Grow

This is a post I missed from back in November.

Fueled By Airport Acreage, Denver Development Opportunities Abound In The East
November 28, 2022 By Joe Fassler, Bisnow Denver

A parcel the size of Newark, New Jersey, sits on the east side of the Denver metro area, just south of the city’s airport, waiting for the development projects that local officials hope will transform the land surrounding Colorado’s major transportation hub.

A new slate of ambitious, large-scale projects were announced this year and are expected to bring previously unseen levels of activity to the area, offering up big potential for those willing to navigate the varying interests in the area and bet on further population expansion of the swelling cities that make up metro Denver.

The state of warehousing has changed (unsurprisingly); it's a bit mind-bogging.

“The scale of industrial development has changed,” Witty said. “Your average new building in Denver was 100K to 150K SF, and it didn't account for some modern functionality, like trailer parking. Now we’re seeing huge trailer parking requirements, and much larger-scale industrial developments, where you're talking about buildings that are two hundred to a million feet. And even though that million-square-foot building could functionally fit on 40 acres, the reality is they need so many employee parking spaces and trailer parking spaces, that they're now taking 70 to 90 acres for a single project.

Projects of that size can’t be plunked down anywhere in the city.

There's a disconnect somewhere

Industrial construction has been a hot sector for a decade but by the end of 2022 signs of being overbuilt were being reported. Fast forward and now they say there's a warehouse shortage.

Despite recent reports of consumer spending resiliency, warehouses are stuffed with goods that aren't moving. NPR Radio had an interesting segment on this last week.
Reuters also carried a relevant story.

Meanwhile, importers are selling products for pennies on the dollar to liquidators or offering steep discounts in customer email blasts. Still others have thrown up their hands.

Bobblehead maker Funko (FNKO.O) earlier this month said it was destroying $30 million to $36 million of toy products from its overstuffed distribution center in Arizona.

With respect to Denver I'd assume they're still catching up with the times for needing more space and more modern warehouse space.

[mhays]

Warehouses can certainly go into smaller sites, but it requires stacking.

It's easy to build parking garages.

It's harder to stack warehouses, but this is increasingly common in some cities, mine included. And in some of the world it's extremely common. Of course it requires highway-like ramps to the upper floors. But when land is expensive and hard to find, particularly in location-sensitive areas...

https://www.trammellcrow.com/en/projects/western/seattle/terminal-106

https://www.prologis.com/news-research/success-stories/prologis-georgetown-crossroads

[TakeFive]

This is interesting

Originally Posted by mhays

Warehouses can certainly go into smaller sites, but it requires stacking.

It's easy to build parking garages.

It's harder to stack warehouses, but this is increasingly common in some cities, mine included. And in some of the world it's extremely common. Of course it requires highway-like ramps to the upper floors. But when land is expensive and hard to find, particularly in location-sensitive areas...

https://www.trammellcrow.com/en/projects/western/seattle/terminal-106

https://www.prologis.com/news-research/success-stories/prologis-georgetown-crossroads

They do mention "for lighter-scale warehouse operations" but still it's interesting.

Of course there's no shortage of land in the desert and as wong has pointed out Phoenix feeds back into SoCal to a certain extent. I've had occasion to drive by some of the large and huge warehouse areas down here and it's simply amazing, watching all the 18-wheelers driving in and out.

I could see Denver utilizing both styles of warehousing.

[mhays]

Only the third floor of the ProLogis example is for lighter operations.

Even so, a lot of big stuff isn't heavy and doesn't require ground-floor-equivalent load capacity.

Another example is our new convention center, which puts the main exhibition hall on the bottom and a "flex hall" above that, which is basically exhibition space except you can't drive trucks on it. Then two levels of meeting rooms on top of that. Then the ballroom on top of that. Still small compared to Denver's center (we'll never get the 20,000-person hotel-using events) but it's the best we can do in five acres above-grade.

[TakeFive]

Congrats on completing your Convention Center redevelopment and expansion; it looks very nice. GeekWire had some nice coverage.




Photo credit to GeekWire / Kurt Schlosser

Originally Posted by mhays

Another example is our new convention center, which puts the main exhibition hall on the bottom and a "flex hall" above that, which is basically exhibition space except you can't drive trucks on it. Then two levels of meeting rooms on top of that. Then the ballroom on top of that. Still small compared to Denver's center (we'll never get the 20,000-person hotel-using events) but it's the best we can do in five acres above-grade.

Yeah, Denver has a logistical advantage of being 'centered' for ease of travel.

Originally Posted by mhays

Only the third floor of the ProLogis example is for lighter operations.

Even so, a lot of big stuff isn't heavy and doesn't require ground-floor-equivalent load capacity.

It's the huge volume of seasonal imports that created the need for very large distribution centers but things can and do change.

The LA Port of Entry and it's sibling Long Beach are no longer backed up with cargo waiting to unload. The gal on NPR who represented the retail segment mentioned shifting goods to more truck freight as appose to railroads which she said were still a logistical mess. This may eventually allow for more targeted delivery to smaller sized warehouses... who knows?

[mojiferous]

There was a scholarly article published today about the price effects of upzoning vs downzoning: https://journals.sagepub.com/doi/10.1177/00420980231159500 If you have SAGE access or are willing to spend $37 it's very interesting. Upzoning does focus new construction on high-end construction, but the effects are felt across price levels and rent does not increase, whereas downzoning definitely increases rents. Even more interesting is that they find that downzoning does not actually reduce construction!

I don't think there is any talk of downzoning anywhere in Denver, but there is definitely a lot of talk about how horrible upzoning is and how rent increases are the fault of new construction. A lot of people are convinced that things would be cheaper if we never built dense housing and it's nice to see yet another study providing evidence to the contrary.

[TakeFive]

Originally Posted by mojiferous

There was a scholarly article published today about the price effects of upzoning vs downzoning:

At first blush this sounds credible(?) At the least interesting.

The statistical effort is impressive enough

We generate the first cross-city panel dataset of land-use reforms that increase or decrease allowed housing density and estimate their association with changes in housing supply and rents. To generate reform data, we use machine-learning algorithms to search US newspaper articles between 2000 and 2019, then manually code them to increase accuracy. We merge these data with US Postal Service information on per-city counts of addresses and Census data on demographics, rents, and units affordable to households of different incomes. We then estimate a fixed-effects model with city specific time trends to examine the relationships between land-use reforms and the supply and price of rental housing.

And after all that what were the results?

We find that reforms that loosen restrictions are associated with a statistically significant 0.8% increase in housing supply within three to nine years of reform passage, accounting for new and existing stock. This increase occurs predominantly for units at the higher end of the rent price distribution; we find no statistically significant evidence that additional lower-cost units became available or moderated in cost in the years following reforms. However, impacts are positive across the affordability spectrum and we cannot rule out that impacts are equivalent across different income segments. Conversely, reforms that increase land-use restrictions and lower allowed densities are associated with increased median rents and a reduction in units affordable to middle-income renters.

WOW; no wonder statistical analysis give me a rash; plus the fact that Stats don't talk; they can't add context (although here they make a valid effort, I guess). There's no way of 'understanding' - unless you live there - what happened and why.

[mhays]

Real estate analysis suffers from a complete lack of parallel or "control" cases. There are always huge situational differences between any two.

Further, any data is typically about the past, not about the present, with some exceptions you can pay a ton for. Then you spend however long messing with already-outdated data.

[TakeFive]

Story Telling - every place has a story to tell

Sticking with what we're familiar with are we talking about up-zoning in Aurora or in Denver? Makes a huge difference.

Let's start with Denver. Note: rezoning or zoning in Denver is NOT my area of expertise. For that Ken is an expert but I can talk in generalities.

First Point: It's not 'impossible' for a fairly simplistic demand - supply concept to work it's magic.

First a definition:

For an apartment complex 5% vacancy is the same as full occupancy. Wait how can you say that? In the normal course of business of unit turnover and need to clean. maintain, repair, refresh may mean there's no ready-to-rent units at this moment. 3% to 5% is like a minimum vacancy but 5% is sort of an industry standard. A unit may lease out but not start for say 3 weeks is another item.

It can happen

There's currently a ton of new apartments under construction. Should the local economy flatline (or turn down) while these apartments are being completed resulting in vacancy tripling to say 15% then there's a HIGH probability that adding density will lower rents with a 15% (or higher) vacancy rate.

Over the last dozen years a lot of land has been rezoned to allow for added density. Prior to rezoning you couldn't build all those apartments along Brighton Blvd. Density enhancements have been added in many areas like 38th & Blake, Arapahoe Square, Golden Triangle. There's been new re-zoning neighborhood plans. Sun Valley has been rezoned for more density and targets affordable housing along with market rate housing. Areas like Fox Park have been rezoned, etc etc.

Sprawl can help relative to Metro Denver

Rezoning-upzoning land near DIA that provides various housing options will surely be more affordable than in the city center.

Doing the same near Castle Rock or Lone Tree can, at the least add more affordable options relative to those areas BUT affordability has a different meaning in more desirable areas.

And "Now you know the rest of the story" as Paul Harvey would always say at the end of his broadcast

[TakeFive]

Well said and funny too

Originally Posted by mhays

Real estate analysis suffers from a complete lack of parallel or "control" cases. There are always huge situational differences between any two.

Further, any data is typically about the past, not about the present, with some exceptions you can pay a ton for. Then you spend however long messing with already-outdated data.

I've read a number of White Papers by liberals that in order to be credible sounding rely on statistical analysis to insinuate that Correlation = Causation (what else can they do?) which we should all know this is is a fallacy. It may or may not be the primary cause(s).

As I would skim through these MS papers, I could easily spot certain dynamics that were (intentionally) overlooked that might be more critical than those things that were considered. Then there's influences that can't be known or measured. In any case, Conservative Think Tanks are just as guilty; that's politics.

[TakeFive]

Why does it take so dang long to add density in Denver?
It just does and every project is different.
Well how long has this development taken?
Over five years from initial planning to shovels hitting the ground.


Groundbreaking photo courtesy of Kentro Group.


Rendering of Krisana Apartments Courtesy of Kentro Group

151 Affordable Units Break Ground on Former CDOT Site
March 8, 2023 - Mile High CRE

Kentro Group, a Denver-based, privately-held real estate investment and development firm, and Lexton McDermott, a multifamily real estate development leader based in Centennial, have broken ground on Krisana Apartments, 151 units of deed-restricted, affordable housing located on the former CDOT headquarters site at 4343 E. Arkansas Avenue, Denver.

According to the developer:

Current plans for the former CDOT property, known at “The DOT”, located at 4201 E Arkansas Avenue, include an activated park with a restaurant or beer garden concept, a multi-modal transit center, a modernized King Soopers grocery store, and a blend of affordable and market rate housing.

Desiree Mathurin/Denverite had an in-depth story including background. With respect to what resulted (including density) the Denver City Council along with the neighborhood were all directly involved. It is what is is.

[SirLucasTheGreat]

Looks like there's some very massive housing reform coming in at the State level. Among other changes, looks like Polis will be banning single family zoning in all of the "tier 1" cities.

Gov. Polis’ housing proposal would allow duplexes, townhomes, ADUs across many cities in Colorado
https://www.cpr.org/2023/03/22/gov-polis-housing-proposal-duplexes-townhomes-adus/

[TakeFive]

I saw this. Did you see this?

Blake Street Tavern to close doors in April after 20 years serving sports fans
March 17, 2023 - The Denver Post; credit Kyla Pearce (The Denver Gazette)

DENVER — Blake Street Tavern, an award-winning sports hangout, bar and eatery popular among locals and tourists, will shut its doors in early April.

After years of celebrating sports and bringing the downtown community together, the tavern announced it is closing on April 9 "to enjoy one last Rockies homestand with everyone," according to Blake Street Tavern General Managers Shelley Majeres and Rhiannon Arriaga Mackenzie.

Blake Street Tavern - 2301 Blake





I've been there a couple of times.

[TakeFive]

They're going to get rid of precious parking lot spaces
Can they really do that?

Nearly 300 new apartments planned near Blake Street Tavern
Mar 21, 2023 By Kate Tracy – Reporter , Denver Business Journal

As a long-standing downtown sports bar is set to close next month, its property appears to be poised for new apartment construction. Its landlord, Seattle-based Urban Renaissance Group, submitted plans this month to the City and County of Denver to construct a new five-story building mostly on the parking lot adjacent to the bar.

The proposed building would have 58 residential units and a 6,994-square-foot area for food and beverage businesses on the building’s ground floor. The new building would also provide 89 spaces of parking and would bring a total of 117,567 square feet of new development, according to the site plan. Plans indicate five separate retail food and beverage spaces on the proposed building’s first floor.

It's complicated

Urban Renaissance Group also owns the parking lots behind Blake Street Tavern at 1551 Park Ave. West and 1561 Park Ave. West, where the firm plans to build apartments as well. The group also purchased the nearby one-story office building at 2399 Blake St. for $33 million in 2018, according to previous reporting.

Urban Renaissance Group purchased the Blake Street Tavern building, along with the adjacent property currently occupied by the coworking company Spaces, in 2016 for $21.2 million, according to property records. The 0.97-acre property also includes the parking lot next to Blake Street Tavern. While Spaces’ building will remain, Blake Street Tavern’s annex where the Tailgate Room is located will be demolished to make way for the new building at 2325 Blake St.

Double your apartment pleasure.

Meanwhile, behind Blake Street Tavern, Urban Renaissance Group this month also submitted a site plan to develop the parking lot at 1561 Park Ave. West. The proposed nine-story building on the 1.86-acre lot would bring 237 units to the site, in addition to three stories of below-grade parking with 350 spaces.

Urban Renaissance Group hopes to start this project in early 2024 and complete it in early 2026, according to city plans. Since the firm submitted its concept plan before the city’s inclusionary zoning requirement took effect, the firm does not plan on designating any of the 237 units as affordable.

Urban Renaissance Group has hired Oz Architecture to design developments at both 2325 Blake St. as well as 1561 Park Ave. West.

Seems I recall discussing this proposal previously so consider this an Update.

[Ich]

Glad Polis is actually trying to address increasing the housing supply rather pushing for endless leases and rent control which will most likely make the situation worse.

https://www.cpr.org/2023/03/22/gov-polis-housing-proposal-duplexes-townhomes-adus/

[twalm]

Originally Posted by SirLucasTheGreat

Looks like there's some very massive housing reform coming in at the State level. Among other changes, looks like Polis will be banning single family zoning in all of the "tier 1" cities.

Gov. Polis’ housing proposal would allow duplexes, townhomes, ADUs across many cities in Colorado
https://www.cpr.org/2023/03/22/gov-polis-housing-proposal-duplexes-townhomes-adus/

Sounds like a knock on single family zoning in dense areas. Sounds like a big win to me! I appreciate the inclusion of mountain towns in this, building single family suburbs in walkable mountain towns with limited space is incredibly dumb.

[Darius C]

Originally Posted by Ich

Glad Polis is actually trying to address increasing the housing supply rather pushing for endless leases and rent control which will most likely make the situation worse.

https://www.cpr.org/2023/03/22/gov-polis-housing-proposal-duplexes-townhomes-adus/

It is too heavy handed and not thought through. What do you think will happen to SFH property prices if a single lot suddenly becomes worth up to 6 units to a developer? What do you think will happen to TOD when existing SFH lots become alternative building sites?

One positive, predictable outcome would be some restoration of political balance in CO in the next election cycle since the suburbs---sorry, I meant Tier 1 cities---will not be thrilled.

[wong21fr]

Originally Posted by Darius C

It is too heavy handed and not thought through. What do you think will happen to SFH property prices if a single lot suddenly becomes worth up to 6 units to a developer? What do you think will happen to TOD when existing SFH lots become alternative building sites?

Well, existing homeowners might get paaaid should they choose to sell, not that that doesn't happen already. What's wrong with that? Polis' libertarian streak is showing in the across the board upzoning and I relish the thought of a market-based experiment like this that relaxes zoning requirements and allows the market to come up some novel solutions to addressing affordability.

Considering that TOD is also upzoned and has parking requirements loosened, it probably results in more TOD development. Greystar isn't coming in to build 10 6-unit projects.

One positive, predictable outcome would be some restoration of political balance in CO in the next election cycle since the suburbs---sorry, I meant Tier 1 cities---will not be thrilled.

I can definitely see the GOP running on a local control platform, but it will likely still get lost in the RMGO, anti-abortion, and Trump servitude planks of the current CO GOP.

[TakeFive]

Originally Posted by Darius C

One positive, predictable outcome would be some restoration of political balance in CO in the next election cycle since the suburbs---sorry, I meant Tier 1 cities---will not be thrilled.

Originally Posted by wong21fr

I can definitely see the GOP running on a local control platform, but it will likely still get lost in the RMGO, anti-abortion, and Trump servitude planks of the current CO GOP.

Agree that Republicans would need to project an image beyond just "Crazy." It is fun having a Dem Governor in the desert; I've always preferred some degree of political balance. During Colorado's very Republican past the voters often chose a Dem Governor; it made for good politics and good government.

It's a bit odd to see Liberals who are normally notorious for adding Red Tape in order to satisfy every special interest group find a Liberal issue where they want to eliminate Red Tape. Of course that's the key; it's a liberal issue.

Well Said

Originally Posted by Ich

Glad Polis is actually trying to address increasing the housing supply rather pushing for endless leases and rent control which will most likely make the situation worse.

https://www.cpr.org/2023/03/22/gov-polis-housing-proposal-duplexes-townhomes-adus/