Gordon Von Stroh, Jamie Van Leeuwen (Senior Policy Advisor for Gov. John Hickenlooper), and mortgage broker Mike Rosser at the Rocky Mountain Communities's award breakfast at the Cable Center.

As Jamie Van Leeuwen was reading the proclamation from his boss, Gov. John Hickenlooper, declaring Nov. 9 as “Gordon Von Stroh Day,” he stopped, caught his breath, turned to the 250 business leaders and associates gathered to honor – and gently lampoon – Von Stroh, and said: “This is the longest proclamation I’ve ever seen. This is a two-hour proclamation.” But then, when it comes Von Stroh – creator of an apartment statistical data base that is the envy of the nation, a business professor at the University of Denver for the past 45 years, and a fierce advocate for affordable housing – there is a lot to commemorate. Today, Von Stroh was honored by the non-profit Rock Mountain Communities’ at its inaugural awards breakfast, established to “celebrate an individual who has demonstrated outstanding commitment, passion, and wisdom in support of affordable housing.” Although Von Stroh’s passions are many – in addition to teaching he has long volunteered and been a guiding force at the Central City Opera House Association and helped create the Cherokee Ranch and Castle Foundation – many of the people attending the awards breakfast at the Cable Center on the DU campus know him best for the comprehensive apartment survey he has researched and compiled since 1981.

Von Stroh’s reports carry a lot of weight

“Arguably, millions of dollars of capital has come to the Denver area because of Gordon’s studies,” said Mike Zoellner, President and CEO of RedPeak Properties, one of Denver’s largest apartment development and ownership companies. “Denver was not known as a place for institutional money even 10 years ago, but Gordon’s reports have given institutional investors the confidence to invest here,” Zoellner added. The flip-side is that Von Stroh’s reports also have helped Denver from becoming horribly over-built as many other areas, as his reports details such things as average and median rents, vacancies by age, geography and product type, so they track in real-time when supply and demand appear to be out of balance. Also, because Von Stroh’s report is from an academic institution, it has more credibility than other reports, Zoellner said. Eric Tupler, a vice chairman of CBRE Capital Markets, who has placed more than $6 billion in commercial real estate financing, agreed.

“When you compare what Gordon produces, you just don’t find that kind of depth and detail in other cities,” Tupler said. That is exactly right, agreed Doug Andrews, a principal of the Denver office of Apartment Realty Advisors, one of the main sponsors of the event. “What his report provides is not only current market conditions, but historic data,” Andrews said.“There are not many places where you can go back 30 years with the type of comprehensive data that his reports provide.”

Drawing the line at mooning

DU Provost Gregg Kvistad said that Von Stroh’s guiding principle is summed up in four words: “How can I help?” His help was widely sought, he said, which he noted led to countless meetings, and working breakfasts, lunches, dinners, “and did I mention meetings?” But Von Stroh never complained. And his work often remained in the background, as he didn’t seek the spotlight. Few know, for example, that one of his research projects provided the basis for the Scientific and Cultural Facilities District, which provides millions of dollars in funding for a wide variety of non-profits.

One of the few times Kvistad ever saw Von Stroh lose his cool was when an undergraduate at DU decided to drop his trousers and moon all of the students, parents, faculty and friends gathered for a graduation. When Von Stroh went to eject the student from the building, he pleaded his case by saying that his grandmother was in the audience. “You mooned your grandmothers?” responded an incredulous Von Stroh. That vignette provided a seamless segue to the roast part of the event, for Von Stroh, known for his self-deprecating humor. Jeff Hawks, a principal of Apartment Realty Advisors, took the stage wearing a Von Stroh mask, and answered “questions” from people in the audience.

Gordon Von Stroh, aka Jeff Hawks, fields questions from the audience during the roast portion of today's even honoring the long-time DU professor.

Many of them dealt with Von Stroh’s age (he’s 69) and his tightness with a dollar. One question, for example, involved the median rental price of the Cliffs at Mesa Verde. The answer was five bushels of maze and we learned that the Anasazi revered him as an elder statesman.

Several people asked, given their decades of friendship with him, could they get a discount to the Central City Opera. “No,” was always the answer.

And we were told he married a minister not so much to learn to be a better Christian, but because he would not be required to put any money in the collection basket during Sunday services.

One person asked how his statistics showing that the average rent could be trusted, when he put it at $925.50 per month, and it clearly was $925.70. Von Stroh’s research made it clear that 47.856 percent of statistics are irrelevant anyway.

On a more serious note, Von Stroh was diagnosed with ALS, better-known as Lou Gehrig’s disease last May. Part of the donations from the Rocky Mountain Communities’s event are going to ALS research. Although there is no cure for the disease, Von Stroh noted that “miracles do happen. This is not my last rodeo.” Those gathered responded the only way the could. They gave him a standing ovation.

Contact John Rebchook at JRCHOOK@gmail.com

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Gordon Von Stroh

Gordon Von Stroh’s name is synonymous with apartments in the Denver area and in Colorado.

As well it should be.

After all, Von Stroh, a professor of Management and Director of the Customized MBA program at the Daniels College of Business at the University of Denver, has been at the helm of a comprehensive apartment analysis and report that is the envy of the nation for the past three decades. He began teaching at DU in 1967, one of the youngest PhDs in the school’s history.

The 68-year-old, self-effacing Von Stroh can explain the economic vacancy rate so even a journalist can understand it, while those who live and breathe the multifamily market devour data in the quarterly reports that can run 60 pages or more of figures, charts, tables and maps.

If the old Merrill Lynch message needed a new home, it would be: “When Gordon Von Stroh speaks, people listen.”

“He really is a celebrity of sorts,” in multi-family housing and economic circles, notes Ryan McMaken, of the Colorado Division of Housing, which has depended on Von Stroh for its apartment reports since 1995.

And like any deserving celebrity, from time-to-time it is inevitable he will be recognized by his peers. From 8 am. until 9:30 a.m. on Nov. 9, Von Stroh will be honored by the non-profit Rocky Mountain Communities at its inaugural awards breakfast at the Cable Center, 2000 Buchtel Boulevard, on the DU campus.

“I am proud to acknowledge that Gordon Von Stroh has been a friend, business associate, and mentor to me for many years,” said George Hamblin, chair of the RMC, which has provided affordable housing, programs and services to more than 11,000 struggling families during the past 20 years.

“He has a unique ability to stimulate productive thought to arrive at a decision and/or conclusion,” Hamblin continued. “He is a leader that develops successful teams as evidenced by the many exemplary organizations on which he has served as board chair, including our own.”

Von Stroh’s character is as highly regarded as his research and knowledge of the apartment industry.

“He is one of the most ethical individuals that I have ever encountered,” Hamblin said. “Rocky Mountain Communities is pleased to create this annual award in honor of our leader and friend Dr. Gordon Von Stroh.”

Nancy Parker, chair of Central City Opera, is taking part in the RMC event. Von Stroh has volunteered many hours at the Central City Opera.

“Gordon Von Stroh has been an important person to our organization for many years,” Parker said. “He frequently recruits his  Daniels School of Business students to do projects and studies for us and is a vocal advocate of the opera. Both Patrice (his wife) and Gordon have been loyal supporters and  we are pleased to participate in Rocky Mountain Communities’ event to honor him.”

“Amazing” reports

Terrance Hunt, a principal of the Denver office of Apartment Realty Advisors, described Von Stroh’s contribution to the world of apartments as “amazing.”

No where else, he said, can you find 30 years of rigorous research that is consistent and credible.

“A lot of our clients buy apartment communities in multiple markets and they frequently remark about the quality, details and depth of Gordon’s reports,” Hunt said. “To have 30 years worth of data on such things as vacancies and rent levels and concessions is just unbelievable. Our clients tell us that they do not find such detailed reports in other markets or even from highly paid valuation services and national research services. The  Denver information is invaluable to our clients, owners, sellers and consumers.

“The other thing that makes it unique is the consistency and calculating the data the same way,” Hunt said. “A lot of reports in other markets sometimes start out strong, but then kind of fizzle. Someone else takes it over and they use a different methodology, which pretty much makes comparisons to prior period worthless. That is not the case with Gordon.”

Data-driven reports

McMaken, of the state housing division, said that some people in the industry have criticized Von Stroh’s reports from time to time, especially if they don’t find his findings to their likings. Indeed, during tough times, renters have been known to cut out newspaper articles about his findings and mail it to landlords that are trying to raise rents at a time when vacancies are rising.

Rent surveys, like any survey, only capture the data at that point in time.

“But if you look at trends – when he shows the market is going up, or the market is going down – he is always right,” McMaken said. “Right on the money.”

Fighting Lou Gehrig’s Disease

Unfortunately, earlier this year, the tall and lanky Von Stroh with professorial white hair and an easy manner, was diagnosed with Amyotrophic Lateral Sclerosis (ALS), often referred to as “Lou Gehrig’s Disease.” ALS is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord. There is no cure.

Von Stroh said he does not want to hide the fact that he has ALS. This event, in a small way, he notes, can help shine a light on the disease.

“ALS is an under-funded area of medical research, and there is a need to find the cause and the cure,” Von Stroh said. “They just recently discovered what happens with the motor neurons with ALS, but not what is causing  the change, or how to fix it.  Truly, ALS is a very cruel disease, and happens more often than is thought.”

Von Stroh also offered thanks to RMC for all of its work with affordable housing, something he has long viewed not just through an academic filter, but also through a human and emotional prism.

“Affordable housing is crucial to the lives of more and more people,” Von Stroh said. “With RMC, resident services also are provided to help people improve their work skills, training/education, job access, and similar services to help them become more productive citizens.”

Sponsorships opportunities are still available for this event. Sponsorships levels are available from $500 to $10,000 to be recognized as a title sponsor. Individual seats are $40 each and a table of eight is $320.

To learn more, please visit this Rocky Mountain Communities link.

Contact John Rebchook at JRCHOOK@gmail.com

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The report shows apartment vacancy rates fell 21 percent year-over-year from last year’s second-quarter rate of 6.1 percent. The vacancy rate was also down from 2010’s first-quarter rate of 5.5 percent. The vacancy rate generally falls from the first to the second quarter as a result of seasonal factors.

Tight market

“A vacancy rate below 5 percent is generally regarded as a sign that the market is tight,” said Gordon Von Stroh, a professor of business at the University of Denver, and the report’s author. “The vacancy numbers haven’t been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas.”

The report shows apartment vacancy rates fell 21 percent year-over-year from last year’s second-quarter rate of 6.1 percent. The vacancy rate was also down from 2010’s first-quarter rate of 5.5 percent. The vacancy rate generally falls from the first to the second quarter as a result of seasonal factors.

As vacancy rates moved down, the area’s median rent increased. During the second quarter of 2011, the median rent in metro Denver rose to $863.37, increasing 2.5 percent from 2010’s second-quarter median rent of $842.70. In county-level market areas, the median rent rose in Adams, Arapahoe and Jefferson counties, but fell slightly in Denver County, Douglas County and the Boulder/Broomfield area. The region with the largest year-over-year increase in median rent was Arapahoe County with an increase of 4 percent from $806.11 to $838.79. The largest decline was found in Denver County where the median rent fell 1.6 percent from $814.14 during 2010’s second quarter to $800.94 during this year’s first quarter.

Rents lag inflation

“On average, rents were very flat in many areas between 2002 and 2010, but we’ve begun to see some sustained growth in recent quarters.” said Ryan McMaken, a spokesman for the Division of Housing. “However, in the year-over-year comparison for the second quarter, rents haven’t really kept up with inflation. The CPI is up about 3 percent over the past year, but the metro Denver median rent increased 2.5 percent. More desirable properties are certainly able to push rents significantly, but in general, it looks like many owners have not been able to push rents as much as they may have liked.”

Although market rents increased in many areas over the past year, rental losses due to concessions, discounts and delinquencies rose slightly. Rental losses rose to 11.4 percent during the second quarter of 2011, rising from 2010’s second-quarter rate of 9.6 percent.

Contact John Rebchook at JRCHOOK@gmail.com

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Overall, renters in Colorado are paying less on a monthly basis for their apartments than they were in 1998, when the rent is adjusted for inflation, according to an analysis by InsideRealEstateNews.

In 1998, the average monthly rent for all apartments in the  state was $660, about 32 percent more than average rental rate at the end of the third quarter of 2010, according to data from the Colorado Division of Housing. However, when adjusted for inflation, in today’s dollars, the amount renters were paying a dozen years ago is the equivalent of $886. When adjusted for inflation, rental prices peaked in 2001. At that time, the average rent in the state was $785, but when adjusted for inflation, equates to $970.

“That does not surprise me at all,” said Ryan McMaken, economist for the housing division. “I do not think apartments rents have kept up with the CPI (Consumer Price Index, which measures consumer inflation), for the past few years. Essentially, rents have been nearly flat.”

Incomes not rising

That said, McMaken doubts many renters feel as if they are getting great deals.”In real terms, incomes are not rising,” McMaken said. “Incomes have not gone up. Many renters view it as still hard to pay the rent.”

In 2000, the median income of a renter in Colorado was $32,712, which is more in nominal (current) dollars and real (inflation-adjusted) dollars for the average renter today. That is equal to $41,547 in today’s dollars, largely because inflation was still high in 2000. Last year, the median income for Colorado renters was $32,722 – or $33,359 in inflation-adjusted dollars – slightly higher than the median income of $32,506 of a renter in 2010, according to Census Bureau data collected by the housing division.

Bigger bang for the (rental) buck

Not only are renters paying less in real dollars now than they were 10 or 12 years ago, but they are getting more for their money, said Gordon Von Stroh, a University of Denver business professor, who prepares a number of reports on the residential rental markets in Colorado and the Denver area.

“For example, if you look at many of the communities built in the past 10 or 15 years, they have very nice health clubs, which literally means you don’t have to pay for a health-club membership,” Von Stroh said. “They also provide many other amenities such as very nice business centers, granite in kitchens, carports or garages, plenty of storage space, and nine-foot ceilings, just to name a few.”

He made it clear that the average rents aren’t corresponding exactly with the newer, more lavish apartment communities, but includes many older units without such nice features. The newer apartments at better locations typically higher than average rents. However, he said that one of the reason that the overall average prices are rising is because of the new breed of apartments. In addition, older apartments are being upgraded to compete with the newer ones, he added.

Still, for most of the last decade, rental prices have been either up slightly or down slightly.

Rising rents not covering costs

“And the increases that have been charged, are not covering the costs of ownership,” Von Stroh said. “Real estate taxes have gone up, it costs more to pave a parking lot, all of the new services and amenities cost money. When you compare the costs of rent increases to the cost of operating and maintaining an apartment building, they do not come to close to covering the increased expenses.”

That said, with an overall third-quarter vacancy rate of 5.5 percent – the lowest since 2001 – Von Stroh said he thinks that it is almost inevitable that rents will rise.

“Given the fact of declining vacancies, little supply being added to the market, and an unemployment rate that is stable, or increasing slightly, I do think rates will go up and go up quickly,” Von Stroh said. “I’m actually pretty optimistic that sooner or later the economy is going to pick up again. Even a modest increase in the economy and jobs and incomes, will mean increased rates.” He said that people losing their homes in foreclosures and short sales, also are filling some apartment, although for the most part, they are renting single-family houses.

Given all of the apartment fundamentals, Von Stroh’s advice to prospective renters is a no-brainer. “I would strongly urge anyone looking at an apartment to sign the longest lease possible,” he said.

Tipping point

Von Stroh said at some point, rents will rise enough that it will spur people to leave apartments and buy homes. “As rents rise, there will be a tipping point, where some people will decide they are better off owning than renting,” Von Stroh said.

But he doesn’t think the buying frenzy of five or six years ago is going to return anytime soon. He, and others, noted that young people are waiting longer to get married and start families, so they do not have the traditional need of a home at an early age. Also, they have many friends and family who were burned in the housing crash, following years of easy money and lax underwriting.

“Don’t get me wrong,” Von Stroh said. “I am in favor of people buying homes. I think it is a worthy and worthwhile goal. I just think that we went overboard four or five years ago, when  the message was buy, buy, buy. People have to realize that buying a home is not just being able to afford your mortgage payment. What if the furnace goes out? You  have to prepare for things like that.”

Economist Patty Silverstein said that she also believes with such low vacancy rates and little construction, there is going to be “price pressure,” on rents.

“We are starting to see a little more job growth and a slightly better economic position, although obviously we are not out of the woods yet,” Silverstein said. “And I would think moving forward, we are going to see more price pressure, especially when you keep in mind that we are building almost nothing, so are going to to be somewhat constrained by the supply of apartments.”

She also agreed with Von Stroh that eventually, rising rental prices will spur home buying.

Eyes wide open when buying

“Certainly, that has been the historical position,” Silverstein said. “At some point, with rising rents, people start thinking they are just throwing money away and they move away from a rental position to a home ownership position. And certainly, homeownership is very affordable right now, with prices being low, and interst rates being low.”

And, like Von Stroh, Silverstein hopes that prospective home buyers have learned a lesson from the housing calamity, which still remains a huge drag on the economy.

“Hopefully, people have learned the lesson that there is more to home ownership than just the cost of making your mortgage payment,” Silverstein said. “Renters should choose home ownership with their eyes wide open. But, yes, we will reach that price tipping point again.”

3rd Quarter by Year	Vacancy Rate	Average Rent	Inflation-adjusted rent into 2010 dollars
1996	4.3%	$583.43	$813.27
1997	4.4%	$625.90	$852.40
1998	4.0%	$660.12	$885.74
1999	3.7%	$606.13	$913.87
2000	3.5%	$730.65	$928.00
2001	6.2%	$785.19	$969.68
2002	9.1%	$765.53	$931.90
2003	11.1%	$792.59	$941.99
2004	9.8%	$792.59	$917.67
2005	8.6%	$805.27	$902.30
2006	7.2%	$824.54	$894.57
2007	5.7%	$821.41	$866.45
2008	6.6%	$851.47	$864.95
2009	7.4%	$841.86	$858.26
2010	5.5%	$871.78

Year	Median Income	Inflation Adjusted Income
2000	$32,712	$41,547.47
2005	$30,475	$34,128.10
2006	$31,028	$33,661.53
2007	$32,271	$34,040.98
2008	$33,555	$34,086.98
2009	$32,722	$33,358.63
2010	$32,506

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The last time that rates were lower was in the first quarter of 2001, when they stood at 4.3 percent, shows a report released today by the Colorado Division of Housing. And the last third quarter when the vacancy rate was lower was in 1999, when it stood at 3.7 percent. Vacancies fell in all Front Range metro areas except Loveland, although they did rise in Grand Junction and in several mountain areas including Summit County, Eagle County and Glenwood Springs.

The third-quarter vacancy rate of 5.5 percent reflects almost a 26 percent drop from the rate of 7.4  percent in the third-quarter of 2009.

“I think rates are going to continue to fall,” said Gordon Von Stroh, a University of Denver business professor and the author of the report, which in addition to the housing division, is sponsored by Apartment Realty Advisors and Pierce-Eislen. “Maybe not in the fourth quarter of the first quarter of 2011, but I think they will be lower in 2011. That will be especially true if we see any improvement in the job situation. Even though we’ve seen some improvement in our job situation, the unemployment rate remains relatively high.”

Even a moderate increase in demand could lead  to an “extreme shortage” of rental units in the not-to-distant future, said Terrance Hunt, a broker with Apartment Realty Advisors. The  reason is that it is so difficult to get financing, there will be little construction to meet expected, demand, he said. Also, young people are marrying and having children later, and so are remaining renters longer than in the past, he said. He added that buying a home is “not as sexy as it was,” a few years ago, in the wake of the national housing crash.

Organic growth

At the same time, a record number of people in the area graduated from high schools last year, and more people turned 21, many of whom will be renters. In addition, college-educated young people are moving to Denver without jobs, as they figure if they have to be unemployed, they would rather it be in Denver than most other places in the country. Many of these people will take lower-paying jobs, until they can establish themselves in careers.

Ryan McMaken, economist for the housing division, said many landlords fear raising rents as much as one might expect, because they know there has not been much wage inflation. If the raise rates too much, too fast, he said renters will:

• Use such things as Craig’s List to find cheaper places.
• Will move back to their parents’ basements, as they did in 2009.
• Or find roommates to reduce their monthly rental costs.

“We definitely have demand, but there is no surge in building,” Hunt said.

Rents aren’t high enough to justify construction

Rents would need to rise an additional 20 percent to justify construction, he said. “Back in 2001, you could call a bank and say believe rates were going to rise by “X” amount based on historical data, and they would give you a loan. Now, if you try to pro forma a deal at $2 a square foot, the bank will say, “But you’re only getting $1.25 a square foot. Come back when you have some comps for $2-a-square foot.”

While overall monthly average and median rents hit all-time non-inflation adjusted highs of $872 and $824, respectively, they are only marginally higher than a year earlier. The average rent increased by only 3.5 percent, and the median by 4.4 percent. Indeed, the rent increases for the most part, are not even matching the increased cost of maintaining and operating a building, Von Stroh said. “My advice to renters would be to sign a long-term contract,” because rents appear poised to rise

In Colorado Springs, the vacancy rate fell to the lowest third-quarter rate in nine years, to 6.6 percent. The lowest metro-wide vacancy rate was found in Fort Collins where the rate dropped to 2.8 percent from 5.5 percent, year-over-year. In Fort Collins, vacancies are at the lowest levels reported since 2001 when the first-quarter vacancy rate was 2.6 percent. Vacancies rose from 7.5 percent to 7.9 percent in Grand Junction, year-over-year.

Vacancy rates dropped in many smaller communities such as Alamosa and Montrose, but rates also rose in Eagle County, rising from 3.5 percent to 8.9 percent, year-over-year, for the third quarter, and the rate also rose slightly in Summit county during the same period from 5.0 to 5.2 percent.

The metro Denver apartment vacancy rate, measured in a separate survey released last month, also fell year-over-year, dropping from 7.4 percent to 5.3 percent.

Tighter markets

“Generally speaking, rental markets are continuing the trend toward tighter markets that we’ve seen in recent quarters,” Von Stroh said. “This isn’t the case in every single market, but given how vacancies are declining significantly in Fort Collins, Greeley, Colorado Springs and other areas as well, it’s clear that empty units are now relatively scarce and that increases in rent levels are likely to follow.”

Among Colorado’s metropolitan areas, only Grand Junction reported a decline in the median rent with a year-over-year drop from $680.37 to $674.08 for the third quarter. Median rents also fell in several Western Slope and mountain regions, although median rents increased in Eagle County and Summit County in spite of increases  in vacancy rates.

The metro Denver median rent, measured in a separate survey, was $856.64 for the third quarter.  The entire report is available online at the Division of Housing Web site.

3rd Quarter by Year	Vacancy Rate	Average Rent	Inflation-adjusted rent into 2010 dollars
1996	4.3%	$583.43	$813.27
1997	4.4%	$625.90	$852.40
1998	4.0%	$660.12	$885.74
1999	3.7%	$606.13	$913.87
2000	3.5%	$730.65	$928.00
2001	6.2%	$785.19	$969.68
2002	9.1%	$765.53	$931.90
2003	11.1%	$792.59	$941.99
2004	9.8%	$792.59	$917.67
2005	8.6%	$805.27	$902.30
2006	7.2%	$824.54	$894.57
2007	5.7%	$821.41	$866.45
2008	6.6%	$851.47	$864.95
2009	7.4%	$841.86	$858.26
2010	5.5%	$871.78

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Apartment vacancies in the Denver metro area fell to 6.1 percent in the second quarter, the lowest rate in two years, according to a report released Tuesday by the Apartment Association of Metro Denver and the Department of Local Affairs’ Division of Housing.  And vacancy rates could be headed lower, much lower.

The metro area apartment market, with growing demand from renters and little construction on the horizon, could see its current vacancy rate cut by almost half, equaling or exceeding its highest occupancy rate ever, said Jeff Hawks, principal of Apartment Realty Advisors.

Pent-up demand for apartment huge

“There are now only about 17,000 vacant units out of 289,000 units,” Hawks said. In the next five years, 180,000 people in the Denver area will turn 20, and even a small portion of them could easily fill all of the empty apartments, he said. the lowest vacancy rate on record was 3.6 percent in 1994, but it is almost impossible to get past a 98 percent occupancy rate (2 percent vacancy rate) because of normal turnover in apartments. Hawks said the market is already experiencing a huge amount of pent-up demand, as young people are sick of doubling up or living with their parents.

Rents rising, but not enough for construction

And while landlords are starting to raise rents by as much as 10 percent, rental rates would need to rise by 20 percent to 25 percent to justify a construction boom, said Hawks and Lauren Brockman, principal of Orion Real Estate Services.

“I think we could be heading towards a huge shortage of apartments,” Brockman said.

Hawks said that today’s market is eerily similar to 1979, when baby boomers moved to Denver in droves. The market responded by adding 75,000 apartment units in about a half dozen years. That, however, is not in the cards.

In the 1970s, many of the baby boomers were college-educated and single, who planned to buy homes in the near future.

Quality of life drives demand

And some of that is still going on, Hawks said. He said there appears to be a largely uncounted market of people who were laid off from their jobs, and decide to move to Denver for the qualify of life here.

“They figure that if I can’t find work in Chicago, this is a good time to move to Denver, a place where I really want to live, and try to find a job there,” Hawks said. Indeed, he recently hired a financial analyst for his office who lost a job out of state and moved to Denver without a job.Hawks said 40,000 people have moved to Colorado this year, and many of them did so without jobs.

But while the educated workforce tends to marry and have children later, there is a much bigger wave of Hispanics moving to the area. Many of them have larger families and lack college degrees and are more likely to rent than buy, Hawks said.

Arizona immigration laws could impact Denver-area apartments

Hawks said he believes that the focus on the immigration laws in Arizona will result in a lot of Hispanics, many of them undocumented workers, move to Denver.

“There have been some abuses,” Hawks said. He said he served on a subcommittee for the Apartment Association of Metro Denver, that looked into the plight of poor, undocumented renters. In some cases, Hispanics were renting a one-room apartment to three or four men, and charging them $400 or $500 a month. What they didn’t realize, or were afraid to ask, is that they could each rent their own small apartment for the same amount, Hawks said.

Even among college-educated renters, there is not going to be the exodus from apartments to homes as there has been in the past, despite record low mortgage rates, predicted Brockman.

Young renters wary of homeownership

“A lot of these young renters have older friends who were burned in the housing market,” Brockman said. “They have come to realize that homeownership doesn’t mean you are going to see your profits go through the roof. If you look at just your principal and interest payments, in some cases it is cheaper to own than to rent. But when you look at the total cost of home ownership – insurance, buying lawnmowers, furniture and everything else,

The last time rates were lower was in the first quarter of 2008, when the overall vacancy rate for all apartments was 5.9 percent.  Rate,s are down 32 percent from the second quarter of 2009, when they stood at 9 percent. In the first quarter, they were 6.5 percent.

In recent years, vacancy rates have tracked closely with the unemployment rate, illustrating a close connection between job growth and demand for apartments. In recent quarters.  however,  vacancy rates have remained low in despite job losses and slow job creation.

Apartments filling up, despite few job

“Vacancy rates continue to tighten in spite of meager job growth,” said Gordon Von Stroh, professor of business at the University of Denver, and the report’s author. “There has been little new apartment development in recent years, so the tight supply we do have will become even tighter once we start to see some large-scale job creation.”

Vacancy rates had initially increased following the rapid increase in the unemployment rate in late 2008 and early 2009. But the vacancy rate quickly fell below eight percent by the end of 2009.

For 2010’s second quarter, the highest vacancy rates were found in Denver County where rates fell year-over-year from 9.8 percent to 7.4 percent. Rates were lowest in Douglas County where vacancies fell year-over-year from 5.8 percent to 3.9 percent. Vacancy rates fell in all metro Denver counties form the second quarter of 2009 to the same period this year. 2010’s first quarter vacancy rates by county were Adams, 5.2; Arapahoe, 6.4; Boulder/Broomfield, 4.9; Denver, 7.4; Douglas, 3.9; Jefferson, 5.4.

Rents rising

Rent growth was unusually strong. The metro-wide average rent increased year over year from $870.37 to $899.97 during the second quarter. For the first time in more than a year, all counties reported year-over-year increases in county-wide average rents.

“We’re starting to see signs of more significant increases in rents,” said Ryan McMaken, a spokesperson for the Division of Housing. “Rent growth, which hasn’t been adjusted for inflation in this survey, has been very moderate for several years now. But we’re likely to see more growth in the short- and medium-term as population grows and supply remains stable.”

Average rents for all counties were: Adams, $892.48; Arapahoe, $856.54; Boulder/Broomfield, $995.07; Denver, $909.46; Douglas, $1085.79; and Jefferson, $845.38.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865/

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According to a report released Thursday by the Colorado Department of Local Affairs’ Division of Housing, the number of days on the market for single-family rentals and similar properties fell from 53 days during the first quarter of 2009 to 45 days in this year’s the first quarter Properties were also on the market for fewer days during the first quarter of this year as compared to the fourth quarter of last year when properties were on the market for almost 54 days.

“Living in a single-family home continues to be popular, but purchasing one isn’t an option for as many households in the current climate,” said Gordon Von Stroh, professor of business at the University of Denver, and the report’s author. “So, more people are looking to rent, and that has brought down the vacancy rates quite a bit from their peaks above 9 percent that we saw back in 2005.”

The metro-wide fall in vacancies in single-family rentals and similar properties was led by falling vacancies in Adams County and Douglas County where, year over year, vacancy rates fell by more than once percentage point to 3.7 percent and 0.9 percent, respectively. Vacancy rates also fell in Arapahoe and Denver Counties. Jefferson County and Boulder/Broomfield area reported slight increases.

Vacancy rates for all counties surveyed were: Adams, 3.7 percent; Arapahoe, 2.6 percent; Boulder/Broomfield, 2.3 percent; Denver, 3.0 percent; Douglas, 0.9 percent; and Jefferson, 3.9 percent.

Average rents climbed as vacancies tightened.

The average rent for single-family and similar properties rose to $1,035.56 during the first quarter, rising from 2009’s first quarter rate of $1,004.44. 2009’s first-quarter average rent is the highest average rent yet recorded for the first quarter.

“The fact that average rents continue to rise shows that renter demand for these properties remains relatively high in spite of a soft job market,” said Ryan McMaken, a spokesperson for the Colorado Division of housing. “Owners can apparently manage to raise rents a little, but uncertainty about wages and job security for renters will put some downward pressure on rents also.”

“Things have really tightened up since 2005,” when the rental vacancy stood at 9.5 percent, McMaken said. “Of course, back then part of what was going on was the frenzy buying of single-family homes, when you had easy credit and if you are renting, you are just throwing your money away. Now, people are much more prudent. In many cases, people have decided they are better off renting at this point of time,” he said. Or they don’t have the credit and job security to buy a home.

While rents are up, but landlords may not be able to continue to raise them.  Average rents for all counties were: Adams, $1,099.39; Arapahoe, $1,032.89; Boulder/Broomfield, $1,684.57; Denver, $984.52; Douglas, $1,367.76; and Jefferson, $969.50.

Rents may hit ceiling

“The demand is high enough now to raise rents,” McMaken said. “But given that a lot of people are not feeling fabulous about their job prospects, the economy may put some downward pressure on rate increases.”

Bob Alldredge, of Jericho Properties, suspects that many of the new landlords are still taking small losses on their properties, despite the increases in rents.

“The majority of the new accounts we are receiving, people are renting because they can’t sell them,” Alldredge said. “I’m guessing that a lot of them are experiencing a small negative cash flow, which is better than the alternative – a short sale or foreclosure.”

A lot of the accidental landlords want to base their rental income on the size of their mortgages, he said.

“Unfortunately, that’s not how it works,” Alldredge said. “We have to explain to them that their dollar position in the house makes no difference. It is the market that sets the price that they can rent the house.”

Rental houses are bargains

Susan Melton, of Assured Management, said that houses still remain a bargain, compared with renting apartments. She noted that apartments, overall, rent for about $1.00 per square foot, while homes in the Denver area rent for an overall price of 82 cents per square foot.

“Homes really are a bargain on a per-square-foot basis,” Melton said.

Alldredge, however, noted that most people who rent houses are not also looking to rent traditional apartments. Von Stroh has noted that many people who lose their single-family homes in foreclosure want to rent other houses in the same neighborhood, so their children don’t have to change schools.

Even though the supply of rental homes has clearly risen – although the exact amount is difficult to estimate – the demand is even stronger, driving down the vacancy rates, Alldredge said.

But he is not sure that trend will continue in the near-term.

Tax-credit impact not felt yet

“We have seen a lot of people who have moved out of rental houses – or who are planning to move out – because of the housing tax credits, which required people to put the home under contract by the end of April and close on the home by the end of June,” Alldredge said. “Those numbers weren’t reflected during the first quarter, but they will be a factor later in the year. That will result in more vacancies in May and June. But we will still have the pressure that that there is more demand than properties on the market. While no one has a crystal ball, I think we might see some flattening in the vacancy rates.”

The Colorado Statewide Vacancy and Rent Study is released each quarter by the Colorado Division of Housing. The report is available online at the Division of Housing Web site.  

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

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The report shows the overall statewide decline in vacancies was driven by drops in Grand Junction,  Colorado Springs and along the eastern plains. Fort Collins and Pueblo were the only metropolitan areas reporting higher vacancies, year over year. By contrast, many  mountain areas reported vacancy rate increases , including Aspen, Durango, Eagle County, Glenwood Springs, Steamboat Springs and Summit County.

Vacancy rates in all metropolitan areas were Colorado Springs, 6.9 percent; Ft. Collins/Loveland, 4.9 percent; Grand Junction, 11.6 percent; Greeley, 6.9 percent; Pueblo, 12.6 percent. The metro Denver vacancy rate, measured in a separate survey, was 6.5 percent for the first quarter.

The first quarter’s statewide average rent fell from $844 during 2009’s first quarter to $840 during the first quarter of this year. Among metropolitan areas, average rents fell year over year in Fort Collins, Grand Junction and the metro Denver area, but were up in Colorado Springs, Greeley and Pueblo. Average rents rose year over year in several mountain areas including Aspen, Alamosa, Buena Vista, Eagle County, Glenwood Springs and Summit County.

Rents expected to inch up

“The statewide average rent fell slightly, but we see a lot of smaller markets with rising rents, and given the overall drop in vacancies over the last year, a slow movement upward for rents seems likely,” said Ryan McMaken, a spokesperson for the Division of Housing. “Fort Collins and Grand Junction are the only large markets where rents have fallen by more than a few dollars over the last year.”

The average rent in Fort Collins fell from $854 during the first quarter of last year to $837 during the first quarter of this year. In Grand Junction, where vacancies hit 13.3 percent during 2009’s fourth quarter, first quarter average rents fell from $680 to $663, year over year.

“The cost of operating rental units continues to increase, so there is upward pressure on rents driven by costs,” said Gordon Von Stroh, a professor of business at the University of Denver, and the report author. “But the employment and wage situation is putting downward pressure on rents, so we’re not seeing many big changes right now.”

One reason that the vacancy rate has dropped is because 60,000 to 65,000 students graduate each year from high school, and are looking to rent their first apartment, Von Stroh said.

Of course, the same dynamic was in place a year earlier, when the vacancy rate was much higher.

Fear factor not as great

“There’s been a fundamental shift in housing,” from the first three months of 2009, when the economy was in shambles, said Terrance Hunt, a broker with Apartment Realty Advisors. “A year ago, people were looking at alternative situations to try to save money. But a year is a long enough time to spend in mom’s and dad’s basement. Since there has been a shift in the economy, fewer people are doubling up to save money. The last downturn will go down as one of the worst in terms of fear.”

Average rents in all metropolitan areas measured were Colorado Springs, $709.99, Ft. Collins/Loveland, $837.99; Grand Junction, $663.47; Greeley, $660.86; Pueblo, $547.03. The metro Denver average rent, measured in a separate survey, was $877.16 for the first quarter.

The Vacancy and Rent Surveys are a service provided by the Colorado Division of Housing to renters and the multi-family housing industry on a quarterly basis. The Colorado Vacancy and Rent Survey reports averages and, as a result, there are often differences in rental and vacancy rates by size, location, age of building, and apartment type. The 29-page report is available online at the Division of Housing’s Web site.

Market area	1stQ 2009	1stQ 2010
Alamosa	12.9%	6.3%
Aspen	2.1%	2.7%
Buena Vista	9.5%	13.5%
Canon City	9.4%	5.6%
Colorado Springs	11.7%	6.9%
Durango	6.1%	7.1%
Eagle County	2.1%	6.0%
Fort Collins-Loveland	4.4%	4.9%
Fort Morgan-Brush	6.9%	7.1%
Glenwood Springs	1.5%	3.2%
Grand Junction	4.0%	11.6%
Greeley	6.4%	6.9%
Gunnison	7.9%	7.3%
Lake County	8.0%	7.9%
Montrose	9.4%	6.6%
Pueblo	7.4%	12.6%
Salida	3.8%	4.3%
SE Colorado	3.5%	0.7%
Steamboat Springs	1.2%	6.0%
Sterling	6.7%	4.2%
Summit County	2.7%	4.9%

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

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The overall vacancy rate fell to 6.5 percent in the first quarter, a 22 percent drop from the 8.4 percent vacancy rate in the first quarter of 2009, bucking a seasonal trend of falling rates, noted Gordon Von Stroh, the University of Denver business professor who authored a report released today by the Apartment Association of Metro Denver and the Department of Local Affairs’ Division of Housing,

And while monthly rental rates are basically flat, the smart money is that they are poised to rise.

That can be seen in demand from buyers. Today, when an apartment community is placed on the market, there are typically at least 30 offers coming in, while a year ago, the market was at a virtual standstill, said Terrance Hunt, an apartment broker with Apartment Realty Advisors.

Tax credit not creating exodus from apartments

Even the the federal tax credits of $8,000 for qualified first-time home buyers ( as well $6,500 for some move-up buyers ), which expire today, have only had a nominal impact on the rental market.

Hunt does have one renter in an apartment he owns who asked to go on a month-to-month rent, because he has a condo under contract that he hopes to close by the June 30 deadline for the tax credits.

Despite the tax credits, low interest rates, and sellers willing to part with their homes at realistic prices, there is not a huge exodus out of apartments, Hunt and Von Stroh said. For one thing, it is more difficult than ever to qualify for a loan, and some renters are finding that their work history and debt ratios are not strong enough to get the super-low rates they hear about, Hunt notes.

“And then some people look at what their mortgage payments would be and they are just not confident enough to pull the trigger,” Hunt said. “It’s not like a few years ago when everyone was leaving apartments to buy homes. Friends were telling stories about how they have only lived in their home for three months and they’ve already pulled $100,000 out of it. They looked at it like they had made $100,000 on their home. But the truth is, those people aren’t in such good shape today.”

He said many of the people taking advantage of the tax credits accelerated their decision because of them, and would have bought in the next eight to 18 months, without the credits.

Von Stroh said that some people are realizing that home ownership, while positive in many respects, does not have to be the American Dream for everyone.

“People are not participating in this great herd instinct of having to buy a home,” Von Stroh said. “Now, people are looking at the pros and cons of buying a home much more objectively.”

And that is good for apartment owners, because prospective home buyers often make the best tenants, who are willing and capable of paying higher rents, said Ryan McMaken, spokesman for the housing division.

“I have to think that the fundamentals for apartments are looking pretty good, at least in the short-term to the medium-term,” McMaken said.

Economy still weak, despite apartment strength

Von Stroh said that the strength in the apartment marketplace, is not a sign that the overall Denver-area economy is getting back on its feet.

“The apartment market had pretty much been tracking the unemployment rate,” Von Stroh said. “This time, rates fell, pretty substantially, even though unemployment is still fairly high.”

“In spite of the economy, there’s still relatively strong demand for rental housing right now,” said Lauren Brockman, a principal with Orion Real Estate Services. “Unemployment here is comparatively low compared with much of the nation, so people are staying here. And we’re also seeing people come in from out of state, so even with limited job growth, people want to be here, and many of them need apartments.” Reasons for the apartment demand, in addition to people not buying homes in droves, include population growth, and a limit on supply. Rents need to grow another 25 percent before it can justify construction of market-rate units, Hunt said.

Little apartment construction

“We added almost 8,000 new units in 2001 and more than 9,000 in 2002, so that lead to quite a few vacancies as unemployment rose in 2003,” Hunt said. “But we’re facing a much different situation now. Between 2003 and 2009 fewer than 3,000 new units were added each year, so we may be looking at some pretty tight markets in the near future.”

Vacancy rates in the first quarter fell to the lowest point since the third quarter in 2008. Vacancy rates peaked at 13.1 percent during the first and second quarters of 2003, but during the most recent recession, vacancy rates rose to only 9.0 percent during the second quarter of 2009.

For 2010’s first quarter, the highest vacancy rates were found in Arapahoe County where rates fell year-over-year from 9.7 percent to 7.2 percent. Rates were lowest in Douglas County where vacancies fell year-over-year from 7.1 percent to 4.4 percent. Vacancy rates fell in all metro Denver counties form the first quarter of 2009 to the same period this year. 2010’s first quarter vacancy rates by county were Adams, 6.8; Arapahoe, 7.2; Boulder/Broomfield, 5.0; Denver, 6.9; Douglas, 4.4; Jefferson, 5.8.

In general, a vacancy rate of 5 percent is considered the “equilibrium” rate. Rates below 5 percent indicate tight markets. “We only need to absorb a few thousands more units and we’re at 5 or 5.5 percent,” Von Stroh said. “We could get to that point very quickly.”

Average rents across the Denver metro area were largely stable. The overall average rent in the metro Denver area fell to $877.16, down from $881.92 during the first quarter of last year. Rents rose slightly from 2009’s fourth-quarter average rent of $875.39.

“Without job growth, and with renters looking to cut costs, it’s been difficult for owners to raise rents very much” said McMaken, the housing division spokesman. “However, once we see some job growth, demand should spur some significant rent increases.”

“Rental losses for owners from discounts and concessions are up compared to last year,” Brockman said. Concessions include offering tenants free rent for a month in return for signing a lease.

When compared to the first quarter of 2009, Adams County, Douglas County and Jefferson County reported increases in overall average rents, while average rents in Arapahoe and Denver counties fell.

Average rents in the Boulder/Broomfield were essentially unchanged as average rents increased by four dollar to $946.60.

The highest average rent was reported in Douglas County at $1055.12, and the lowest was reported in Arapahoe County at $833.94. Average rents for all counties were: Adams, $874.56; Arapahoe, $841.03; Boulder/Broomfield, $946.60; Denver, $883.87; Douglas, $1055.12; and Jefferson, $833.94.

Investment strategy shifts

Hunt, of Apartment Realty Advisors, said that a year ago, when investment demand was weak for apartments, investors were buying them on yield. Now, increasingly, they are looking at them based on replacement cost. Some buyers who purchased a year ago, are now in the position that they could flip them for large profits. “But most of those buyers still think there is a lot of the meat on the bones,” Hunt said. “They think there’s a lot of positive upside. They’re putting long-term debt on the property and see opportunity by adding value by increasing management services.” He said a lot of buyers believe they will be able to raise rental rates by 5 percent in the first year of ownership and 10 percent the following years

The Vacancy and Rent Surveys are a service provided by the Apartment Association of Metro Denver and the Colorado Department of Local Affairs’ Division of Housing to renters and the multi-family housing industry on a quarterly basis. The Colorado Vacancy and Rent Survey reports averages and, as a result, there are often differences in rental and vacancy rates by size, location, age of building, and apartment type. The full Report is available through the Apartment Association of Metro Denver at www.aamdhq.org; and limited information is available online at the Division of Housing Web site, at this link.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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It also is taking longer to find tenants for homes. The number of days on the market for single-family rentals and similar properties increased from 45 days during the fourth quarter of 2008 to 53 days during the fourth quarter of 2009. Detached single-family rentals in particular faced a two-year high of 62 days.

Federal tax credits turning renters into buyers

“There is no one economic factor behind the increase, but some of the people that had been in single-family have purchased homes to take advantage of the tax credit,” said Gordon Von Stroh, Professor of business at the University of Denver, and the report’s author. “But the unemployment rate remains above last year’s rates, and that will tend to keep vacancies up.”

The tax incentives to buyers “is the other element,” causing fewer people to buy homes, but it not as great of force as it was last fall. The big rush is over,” said Robert Alldredge, principal of Jericho Properties. “Last year, when they thought the credits would expire in November, we saw a big rush of people leaving rental homes to buy houses,” he said. “And those were our most-qualified renters. They were sort of the cream of the crop. But we have not seen as much of that this year. It’s just too hard to qualify for a loan. I think a lot of the renters who were qualified to buy, already have taken advantage of the program.”

The  $8,000 tax credit for first-time home buyers, which requires a home to be under contract by April 30, and closed by the end of June, is not attracting buyers to condos and townhomes, for the most part, he said. There also is a $6,500 tax credit available for qualified homeowners, some of whom may want to sell their home and buy a smaller one, as well as move up.

“The tax credit incentive is driving more toward single-family homes and less than condos and townhomes,” Alldredge said. “People want house and if the government going to give you a hand out, some people will take it, if they can qualify for a loan.’

Susan Melton, the broker/owner of Assured Management in Lakewood, agreed with Alldredge.

“A majority of the good tenants who are taking advantage of the tax credit, want to move into a single-family home, and not a condo or a townhome,” she said. “It had a big impact on us at the end of last year, but we have not seen very much activity so far this year. I think the majority of people who qualified for the program have already taken advantage of it.”

Single-family homes rule as rentals

Single-family detached homes also are more attractive to renters, Von Stroh said.

“The overall vacancy rate has run up to 5.5 percent,” Von Stroh said. “But when you start looking specifically at the data, single-family home rental vacancy rates are about the same,” Von Stroh said. “A year ago, single-family home vacancies were at 4.5 percent and now they are at 4.7 percent. But condo rentals were at 4.5 percent and are now at 6.1 percent. And duplexes were at 4.4 percent, and are now at 7.7 percent.”

Melton  said one reason for that is because if a family loses its homes in foreclosure, it wants to remain in a rental house, and not a condo or a townhome. ”If you look at the units with five bedrooms or more, there is a zero vacancy rate,” Melton noted. “One-bedroom units have the highest vacancy rates.”

The metro-wide jump in vacancies in single-family rentals and similar properties was driven by increasing vacancies in Denver County and Arapahoe County where vacancy rates were at 6.8 percent and 5.7 percent respectively. Vacancy rates fell in Adams County and Douglas County. Rates were flat in Jefferson County and in the Boulder/Broomfield area.

Vacancy rates for all counties surveyed were: Adams, 4.1 percent; Arapahoe, 5.7 percent; Boulder/Broomfield, 3.8 percent; Denver, 6.8 percent; Douglas, 3.0 percent; and Jefferson, 4.7 percent.

Rents still rising

In spite of rising vacancy rates, average rents continued to climb.

The average rent for single-family and similar properties rose to $1016.77 during 2009’s fourth quarter, rising from 2008’s fourth quarter rate of $995.24. 2009’s fourth quarter’s average rent is the highest average rent yet recorded for the fourth quarter.

“The fact that average rents continue to rise shows that renter demand for these properties remains relatively high in spite of a soft overall rental market and poor job growth,” said Ryan McMaken, a spokesperson for the Colorado Division of housing. “Owners can afford to raise rents a little since many people still prefer the roominess of a single-family home to an apartment, but today, fewer people view buying a single-family home as the fail-safe purchase that they once did.”

Average rents for all counties were: Adams, $1024.79; Arapahoe, $995.23; Boulder/Broomfield, $1631.30; Denver, $952.27; Douglas, $1372.91; and Jefferson, $974.90.

It’s the mix

But Melton isn’t seeing rental rates rising.

“If you look over the last 10 years, the overall rental rates have not increased that much,” she said. “Part of the reason rates are up has to do with newer, bigger units entering the rental market from people who either can’t sell their houses or want to wait until they can get a better price. These homes are not only bigger, but have less wear and tear than a home that has been in the rental pool for the past 20 years, so they get a higher price. But overall, I would say rents are flat.”

The Colorado Statewide Vacancy and Rent Study is released each quarter by the Colorado Division of Housing. The report is available online at the this link.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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