The report said the overall drop was “due largely to a cutback in multi-family construction,” although it did not break out the drop in apartment and housing construction. There were 30,334 total permits issued last year in the six Rocky Mountain region states. In the Denver metro area, building permit activity peaked at 28,310. “Now that is a comparison for you,” said economist Patty Silverstein, principal of Littleton-based Development Research Partners.

Silverstein noted that there were 3,408 building permits issued in the Denver metro area last year, the lowest on record. (For a separate report on the Denver metro area’s construction activity, please go to this link.)

“The regional numbers track pretty well with the Denver-area numbers,” Silverstein said.

Jeff Hawks, principal of Apartment Realty Advisors in Denver, said that apartment construction in the Denver area “has come to a screeching halt. There really was no new construction at all.” From about 2005 to 2007, apartment communities in Denver and almost every other major city in the US. were selling for cap rate of 4.5 percent, while cap rates have now risen to 6.5 percent. The cap (short for capitalization) rate is the net operating income divided by the sales price or value of a property expressed as a percentage. The lower the cap rate, the higher the sales price.

“I believe that every apartment building that was sold during the past couple of years at these low cap rates is not worth its debt,” Hawks said. “Because of that, the developers and lenders have pulled in their horns. They have to handle these legacy issues and they are not building anything new. To build anything new today in Denver, you would have to convince your construction lender and your equity partners that you could basically get 20 percent or 30 percent more in rents than you are getting today.”

Raising rents is tough at a time when a lot of new high-paying jobs aren’t available, he said. The HUD report noted that Colorado’s unemployment rate at the end of last year was 7.5 percent, the highest of the six states in the Rocky Mountain region – that had an overall unemployment rate of 6.8 percent. Colorado’s unemployment rate, however, was lower than the U.S. unemployment rate of 10 percent. The report also noted that the population grew 1.7 percent from the 52-week period ending on July 1 for the six-state region, even though the number of non-farm employment fell by 3.7 percent in Colorado. That compared with a 3.6 percent drop for the region and a 3.0 percent drop for the U.S., according to HUD.

If Colorado would see job growth, and it were possible to raise rents by 5 percent annually, it would still be another four years before new apartment buildings would be built, Hawks said. “And we have 180,000 kids turning 20 in Colorado over the next five years, which is going to mean we are heading for a huge shortage of apartments,” Hawks said. “The last time we saw that kind of increase was from 1969 to 1975 and we built 70,000 units. We’re going to face a real push and pull with supply and demand. We’re going to see a real shortage of apartments.”

Jeff Thredgold, corporate economist for Vectra Bank, said that Colorado’s overall housing market still is in better shape than many other places in the country, such as California, Nevada, Arizona and Florida.

“Colorado is in a recession, but Colorado did not get hit as hard in the recession, as some of these other states that had these excesses of housing,” Thredgold said. “Colorado did not see the huge increase in housing prices and then the huge deflation of housing values as some of these other states. Colorado did not get as carried away as some of these other states. Even states like Idaho have been hit hard.”

Still, the drop in construction activity hurts the entire economy, he said. “It hurts everybody,” he said.”We have seen a huge decline in home building across the country from its peak. But of course, you don’t want to keep building when you are already over-built. There are some excesses to still be worked off in Colorado, but we’re not nearly as bad as a lot of other states.”

S. Robert August, a Denver-area housing consultant, said the drop in building activity, “is a bad thing. It is bad for Colorado and it is bad for the country.” August blamed the banks. “The biggest issue is that banks are not lending money,” August said. “Until the banks start lending and circulating money, the permits are going to keep going down. Pent-up demand is not being met, based on the fact of the organic direction of life continues to go on.”

He said that big, national builders, such as Denver-based MDC Holdings, parent of Richmond American Homes and KB Home, are continuing to build because they have lines of credits to finance construction. “It’s the smaller to mid-sized buildings that do not have the ability to get loans,” August said.

Source: HUD

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

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Rick Garcia today was named HUD Region VIII executive director, according to sources.

Denver City Councilman Rick Garcia has been  named as HUD regional director for Colorado and five other states.

U.S. Housing and Urban Development Secretary Shaun Donovan  announced that President Barack Obama’s selected Garcia as the HUD director for Region VIII that also includes Montana, both Dakotas,  Wyoming and Utah.

InsideRealEstateNews.com was the first publication to report that Garcia was likely to be named as the HUD regional director. (For the previous blog, please go to this link.)

Garcia’s City Council term would have expired in 2011. A spokeswoman from his office said a special election will be held within 60 days after his resignation. Garcia, who was first elected in District 1, which covers portions of northwest Denver in 2003, has not yet announced his resignation date.

Garcia will serve as HUD’s liaison to mayors, city managers, elected representatives, state and local officials, congressional delegations, stakeholders and customers and will be responsible for overseeing the delivery of HUD programs and services to communities, and evaluate their efficiency and effectiveness.

“This Administration is focused on addressing housing, transportation, education and energy together, when we look to improve communities,” said  Donovan. “Rick Garcia understands and embraces the sustainable community concept. When you combine that with his extensive work on the affordable housing front and foreclosures, he became the ideal candidate for this position.”

“I am honored to have been selected and appointed by President Obama to serve as HUD’s regional director during this important time of economic challenge and opportunity in our nation’s history,” Garcia said. “My understanding of western cultures, land use, transportation, housing and community economic development allows me to hit the ground running and lead the Rocky Mountain region in achieving HUD’s national objectives.”

David Zucker, owner of Zocalo Development, one of the greenest infill developers in Denver, said Garcia was a great choice.

“Rick is a hand-in-glove Rick is  fit for the job,” Zucker said. “He’s a thoughtful, committed advocate of housing – of all types – who, from a broad background of experiences, is schooled in understanding the critical but complex relationship between housing, transportation, planning and energy. He’s going to be a great leader for this HUD region.”

Elected to the Denver City Council in June 2003, Garcia has made economic revitalization, access to new transit projects and business development his priorities. Garcia has served as the chair  of the Denver Regional Council of Governments (DRCOG) and has served as Chairman of the Metro Vision Issues Committee and a voting member of the Regional Transportation Committee of DRCOG.

Garcia is also the former Board Chair of the Colorado Housing and Finance Authority of the NEWSED Community Development Corporation and is a founding Community Advisor to the University of Colorado’s Latino/ Research and Policy Center.

Prior to being elected as a city council member, he also served as a consultant on Denver business development and government affairs, a senior manager for organizational development, training and Direct Services in the Colorado Department of Administration and Personnel, the state director for Small Business Development and Policy and, president of the Denver Urban Economic Development Corporation.

Garcia has earned numerous state and local awards for his leadership and community advocacy work. He earned his undergraduate degree in Business Administration from Columbia College and he earned his MPA from Harvard University’s John F. Kennedy School of Government.

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

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