DENVER | Main Development Thread #6

[Brainpathology]

Out of curiosity.. out of all the factors that everyone thinks is contributing to the lack of condo development from the blood moon this month to construction defects laws to loan changes, to commodities prices, to the fact that millennials just so much love cheap apartments that they would rather club baby seals than buy a condo.

Out of all these problems.. even if you don't believe the law is the most significant problem there (in other words even if you're wrong), what problems out of all of them can Denver or the state fix?

[EngiNerd]

Originally Posted by architectosity

Looks like denver just got 3d updated in google maps/earth, seems very recent:

https://www.google.com/maps/@39.7444736,-104.9937843,251a,20y,170.51h,55.17t/data=!3m1!1e3
https://www.google.com/maps/@39.7487774,-105.0036552,426a,20y,10.17h,51.66t/data=!3m1!1e3
https://www.google.com/maps/@39.7205005,-104.9842111,398a,20y,1.73h,52.86t/data=!3m1!1e3

tip: hold down shift while dragging to orbit in maps.

Cool! Look at how full those rivers are too!

[corey]

Greedy people like the Glendale Rug Store owner who vehemently feign disgust over imminent domain just to try to get an exorbitant price for their property are not my favorite either. Thinking their crappy business can only exist at its current location and turn down a way more than far offer of $11 million for it so that Glendale can develop a nice entertainment complex. Land in downtown Denver often doesn't even cost that much. They are just trying to hold out for even more money. I now hope they don't sell and miss out on a once in a life time opportunity. The land right on Colorado Blvd. isn't that important to this project. No one else, not even a hotel or some other kind of developer, is going to offer them that much down the road. I remember a small business was pulling the same shit with RTD over its parking garage for the Lakewood Wadsworth light rail station. I wonder how much money they ended up extorting from RTD.

[Brainpathology]

Wouldn't the building become historic as soon as the contract to accept 11Milion is signed though?

[CherryCreek]

Originally Posted by corey

Greedy people like the Glendale Rug Store owner who vehemently feign disgust over imminent domain just to try to get an exorbitant price for their property are not my favorite either. Thinking their crappy business can only exist at its current location and turn down a way more than far offer of $11 million for it so that Glendale can develop a nice entertainment complex. Land in downtown Denver often doesn't even cost that much. They are just trying to hold out for even more money. I now hope they don't sell and miss out on a once in a life time opportunity. The land right on Colorado Blvd. isn't that important to this project. No one else, not even a hotel or some other kind of developer, is going to offer them that much down the road. I remember a small business was pulling the same shit with RTD over its parking garage for the Lakewood Wadsworth light rail station. I wonder how much money they ended up extorting from RTD.

I agree entirely. I kind of like Glendale's response though, you can keep your crappy rug store we will build without it. I got to wonder whether there is some seller's remorse going on with the rug store. I would think that lot as a "stand alone" lot isn't worth nearly as much to others as it was to the Glendale developers.

They will have to sell a lot of rugs to make up for the $$$ they passed on! Of course, the owners claimed "sentimental" value, so perhaps being able to continue sell rugs in that cramped, noisy space next to Colorado Blvd. is worth the millions they walked away from!

[mhays]

The last condo boom was aided by a bunch of factors that just don't exist anymore.
1. Lending standards were lax.
2. The presale-based financing model worked because lenders trusted it, and buyers felt a sense of urgency about getting in before prices rose further, or before their favorite unit got snapped up, or in some cases because entire buildings were going in one day.
3. Condos looked better financially for developers, because values vs. rents had a different ratio.

Now condos aren't valued high enough. I'd extrapolate (based on not much) that it might require $600-700/sf sales to make a condo tower work in Denver if it broke ground today. That would suggest that the existing similar units go for (guessing) at least 80-90% of that. If existing units aren't that high, there's a big part of your answer. The condo law stuff will have an effect on where the number needs to be, but I suspect it's percentagewise in the low single digits. Some aspects make highrises cheaper to build in Denver, like the ability to do parking podiums (not that I like those) and not being in a seismic zone.

When the numbers work, developers will step in. They won't be the standard type that needs presales to get financing. They'll be ones with deeper pockets. One thing that will draw them is that they can build in 2016 but sell at 2017/2018 prices, which isn't possible with presales.

[Brainpathology]

I've seen articles saying the insurance you have to carry and the diligence you have to do to defend the inevitable lawsuit (and only having two HOA members agree to sue is definitely inevitable) adds at least 10% of the cost of the development. As razor thin as development needs to be to pencil out I would imagine that's a lot more than enough to price every development out of remote affordability. And that would be on top of high end construction that is going to add to the cost of the units even before you add the insurance and documentation with photographic evidence that you followed "standard practice" or whatever the similar term is in construction.

These aren't numbers I'm pulling out of the air either. However, I'm not really in the mood to research 10 articles I know I've seen referenced on these pages and elsewhere that quote those figures but they are there. There are plenty of articles with developers saying we'd love to build but we can't because the cost to cover the court case we will definitely be getting after we build is prohibitive.

Of course things will get built whenever the numbers work. Like in Cherry Creek where building a fortress that will cost several hundred a square foot on top of construction costs that are higher for the quality they are going with anyway means they pencil out.

Buildings are very obviously being built in Denver, everywhere. If the law allowed for construction quality of the ballpark lofts for example or 2100 lawrence etc to be sold as condos without a guaranteed lawsuit that would wipe out any margin the developer had, some of them would be. It's not like these places are renting out to everyone with a 500 credit score. These aren't all filling up with losers who couldn't buy if they had the option to buy a "entry level" (for Denver) condo. But they aren't... and the developers will and have told us why the number one reason for that is in the last few years.

[bunt_q]

Has anybody on this Board ACTUALLY READ the study that DRCOG commissioned, at the legislature's request, to look at the issue of the lack of condominium development in Denver? Because it doesn't seem like it. We have a professional study on this exact issue, and instead folks are citing puff pieces that are roughly as sophisticated as CNN Money articles on "best cities to live in." I am confused by that.

[Stonemans_rowJ]

Originally Posted by Brainpathology

I've seen articles saying the insurance you have to carry and the diligence you have to do to defend the inevitable lawsuit (and only having two HOA members agree to sue is definitely inevitable) adds at least 10% of the cost of the development. As razor thin as development needs to be to pencil out I would imagine that's a lot more than enough to price every development out of remote affordability. And that would be on top of high end construction that is going to add to the cost of the units even before you add the insurance and documentation with photographic evidence that you followed "standard practice" or whatever the similar term is in construction.

These aren't numbers I'm pulling out of the air either. However, I'm not really in the mood to research 10 articles I know I've seen referenced on these pages and elsewhere that quote those figures but they are there. There are plenty of articles with developers saying we'd love to build but we can't because the cost to cover the court case we will definitely be getting after we build is prohibitive.

Of course things will get built whenever the numbers work. Like in Cherry Creek where building a fortress that will cost several hundred a square foot on top of construction costs that are higher for the quality they are going with anyway means they pencil out.

Buildings are very obviously being built in Denver, everywhere. If the law allowed for construction quality of the ballpark lofts for example or 2100 lawrence etc to be sold as condos without a guaranteed lawsuit that would wipe out any margin the developer had, some of them would be. It's not like these places are renting out to everyone with a 500 credit score. These aren't all filling up with losers who couldn't buy if they had the option to buy a "entry level" (for Denver) condo. But they aren't... and the developers will and have told us why the number one reason for that is in the last few years.

I think the part you are missing is a building like 2100 Lawrence for example. If you needed to sell what, 300 units there, plus what 10% of them affordable, and you need 50% of the building to sell before it can get FHA financing. A lot of these millennials don't have 3.5% down and the debt to incomes, let alone 20% down.

What is a better ROI? Build an apartment building, get it leased up super quick, and flip it to an institutional investor, or attempt to sell off a condo building like that.

[ski82]

It’s very risky to have such a large part of your city not be able to afford to put down roots. Many of the new residents are not from CO, nor can they afford to live the lives they want to in CO. Many of these people will be ex-residents in some time. I suppose housing prices will stabilize relative to incomes then? Is that what we want?

Denver and Colorado should be more proactive in solving these issues, regardless of how widespread they are across the country. The clock is ticking for getting millennials into urban, affordable, family oriented neighborhoods. There are that can be done about it. Condo defects legislation is the low hanging fruit. Will it solve everything? Not even close. But masking the evidence and costs of the current status quo behind what the market requires is disingenuous. The min market price is made up largely by these sorts of legal requirements! I’m amazed anyone could in good faith want to contribute to this forum and its urbanist ideals and simply eschew these problems. It's going to be too late by the time the market corrects itself in the existing legal framework. Reset the framework, the incentives, and the narritive and let the market react to that...only more quickly to solve the problem at hand. The clock is ticking.

[RyanD]

3.5% down... Okay let's think about this.

In Chicago... (yes I'm going to keep using this example because it's effing ridiculous and makes NO sense that they should be cheaper. Also, it's fresh on the mind after talking about it for a few hours last night)

... my fiancee and I can get a nice condo for 150-175k. Or a stabby single family renovated home for $35k.

So our 3.5% down payment would distribute like so:

$1225 for stabby or $5250-$6125 for nice, which we have in savings right now.

Add on property taxes, HOA, blah blah blah, Chicago is expensive, whatever, you're sitting pretty at $980.23-$1143.60 per month for our mortgage plus maybe $200-$400 for HOA's if we chose a condo.

Our household income is just shy of $75k and we could EASILY do this.

-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In Denver... You're going to spend $350k on a same-as-Chicago-quality home (if you're super super super super super lucky and not out in Lochbuie or something)

So our 3.5% down payment would be: $12,250(!)

Add on same stuff as Chicago, minus high property taxes, that gives us a mortgage of: $2,170.54

Oh, we can't do that on a monthly basis. At least not comfortably by any means...

This whole bull about 'millennials can't afford this market' is absolute garbage. I'll just move somewhere else so I can buy in a non-arrogant market. Peace!

[wong21fr]

Originally Posted by Stonemans_rowJ

I think the part you are missing is a building like 2100 Lawrence for example. If you needed to sell what, 300 units there, plus what 10% of them affordable, and you need 50% of the building to sell before it can get FHA financing. A lot of these millennials don't have 3.5% down and the debt to incomes, let alone 20% down.

What is a better ROI? Build an apartment building, get it leased up super quick, and flip it to an institutional investor, or attempt to sell off a condo building like that.

This is a valid point, but when the insurance portion of the cost of for-sale is 3-4 times higher than for-sale the ROI analysis is a no-brainer. There's pretty much zero profit margin on any kind of multi-family for sale requiring an HOA outside of ultra-luxury product at this time due to the insurance costs eating it all up.

Lending requirements, lifestyle preference changes, wage stagnation, and construction liability are all contributing to the almost total lack of muti-family for-sale construction. But construction liability is by far the one that a) is what is preventing for-sale from being built (albeit in smaller numbers percentage-wise compared to pre-housing crisis), and b) we can do something about NOW.

[wong21fr]

Originally Posted by RyanD

3This whole bull about 'millennials can't afford this market' is absolute garbage. I'll just move somewhere else so I can buy in a non-arrogant market. Peace!

You also keep comparing cities that have a stagnate or negative population to one that is experiencing some of the highest growth rates in the country. That is a big factor for why Chicago is cheaper than Denver. Same for Philly. It's not the entire explanation, Ryan, and there's a lot of things wrong with the Denver housing market (many, many things); but I'd probably look at places like San Diego, Minneapolis, Seattle, Houston, i.e. for a comparison that's valid.

[RyanD]

EDIT: This is MSA, not county.

Chicago grew 1% from 2010 - 2014 effectively bringing in 93,061 people.

Denver grew 8.3% from 2010 - 2014 effectively bringing in 210,664 people.

Let's just go down the list percentage to actual population growth from 2010-2014:

Houston: 9.6% - 569,690
Los Angeles: 3.4% - 433,287
Seattle: 6.7% - 231,663
Austin: 13.2%: 226,996
San Diego: 5.4% - 168,123
Minneapolis: 4.4% - 146,319
Portland: 5.2% - 122,236
Philadelphia: 1.4% - 85,802

United States of America: 3.3% - 10,098,951

Even at 1% that's a whole lot of people still trickling in there. You can look at percentages all day but 8 times the percentage only equals just over 2 times the growth.

All hail growing Denver! It's perfect here and the market is great!

[bunt_q]

This notion that millenials can't afford to buy is nonsense. If they can afford $1,800 in rent, at 4% mortgage rates, they can sure as hell afford to buy a condo. And it's easy to claim they don't want to when they don't have the option. That same polling shows that millenials, by an overwhelming margin, have no desire to rape, murder and pillage. And it must be right since, you know, most millenials aren't doing those things.

[wong21fr]

Originally Posted by RyanD

Chicago grew 1% from 2010 - 2014 effectively bringing in 93,061 people.

Denver grew 8.3% from 2010 - 2014 effectively bringing in 210,664 people.

Even at 1% that's a whole lot of people still trickling in there. You can look at percentages all day but 8 times the percentage only equals just over 2 times the growth.

All hail growing Denver! It's perfect here and the market is great!

Cook County population:
1980 5,253,655 −4.3%
1990 5,105,067 −2.8%
2000 5,376,741 5.3%
2010 5,194,675 −3.4%
Est. 2014 5,246,456 1.0%

Population change over the last 35 years: 7,199 (.14%)

Denver County population:
1980 492,686 −4.3%
1990 467,610 −5.1%
2000 554,636 18.6%
2010 600,158 8.2%
2014 663,862 10.6%

Population change over the last 35 years 171,176 (34.7%)

It's not the entire explanation, but it's a factor in why Chicago is cheaper than Denver. They've also got tons of old stock (thank you urban planners in Denver), pro for-sale multi-family laws, a terrible football team, etc.

[bunt_q]

Originally Posted by ski82

It’s very risky to have such a large part of your city not be able to afford to put down roots. Many of the new residents are not from CO, nor can they afford to live the lives they want to in CO. Many of these people will be ex-residents in some time. I suppose housing prices will stabilize relative to incomes then? Is that what we want?

Denver and Colorado should be more proactive in solving these issues, regardless of how widespread they are across the country. The clock is ticking for getting millennials into urban, affordable, family oriented neighborhoods. There are that can be done about it. Condo defects legislation is the low hanging fruit. Will it solve everything? Not even close. But masking the evidence and costs of the current status quo behind what the market requires is disingenuous. The min market price is made up largely by these sorts of legal requirements! I’m amazed anyone could in good faith want to contribute to this forum and its urbanist ideals and simply eschew these problems. It's going to be too late by the time the market corrects itself in the existing legal framework. Reset the framework, the incentives, and the narritive and let the market react to that...only more quickly to solve the problem at hand. The clock is ticking.

Well put.

[RyanD]

Originally Posted by wong21fr

It's not the entire explanation, but it's a factor in why Chicago is cheaper than Denver.

I was doing MSA v. MSA not County v. County. Whole picture. Not singling out any county.

[bunt_q]

Originally Posted by wong21fr

It's not the entire explanation, but it's a factor in why Chicago is so much cheaper than Denver.

That's garbage and you know it. You're comparing apples to oranges. Picking random dates. And making the cardinal error of comparing cities not metros.

Also, if growth rates and prices are so closely correlated, how do you explain why nearly every city in Arizona, Texas, and Florida has managed to stay relatively affordable? Might it be because they allow themselves to build their way out of the growth?

If there isn't a liberal fast growing city that can find a way to remain affordable and inclusive while still growing, it is starting to make a pretty compelling argument for sprawl. I'm sorry, but whatever the reason for being anti-car and pro-urbanity is, it can't be as important as the interest in making sure every person can afford a roof over their head. And the most progressive cities are the ones failing the worst at that. Somebody needs to solve it. And if mhays is correct that an inclusive urban environment is impossible, then maybe we're on the wrong side of history being urbanists.

[bcp]

On Chicago...we have millions, literally, of 100 year old housing units all over the city. These are mostly dense and multi family. Good, average and bad areas. We don't have to start from scratch for most housing (own or rent).

Big difference that impacts average cost.

Blame DURA, but it's also just a factor of two cities developed in different manners and intensities.