WSJ - Mile High Rents Put Denver In Big Time Company (Delta: real estate, 2015)

[SkyDog77]

Mile-High Rents Put Denver in Big-Time Company - WSJ

Apartment dwellers in New York, San Francisco and Boston often pay more in rent than average Americans spend on monthly home-mortgage payments.

Is it time to add Denver to that list?

Perhaps, if you are talking about the 34-story glass luxury apartment tower near downtown Denver that is a venture of PM Realty Group and partner National Real Estate Advisors LLC.

If all goes as planned, the new building, called the Confluence, would be Denver’s tallest apartment building with some of its most expensive apartments.

The developers are aiming for an average rent of $2,800 on their 288 units in a city where the average apartment rents for $1,110 a month and the average home mortgage also is in that range, based on current rates. The units in the new building will range from $1,500-a-month studios to two 3,500-square-foot three-bedroom penthouses that will go for $12,000 a month.

“We’re looking for people who want to live in a highly amenitized building with tremendous views, close to all the action and an ultraluxury lifestyle,” says Roger Gregory, president of PMRG Investments, a unit of PM Realty Group.

PMRG says it studied Denver’s economy to determine whether there are enough well-heeled residents who could afford rents the company plans to charge at the Confluence—so-named for its location at the intersection of the South Platte River and Cherry Creek.

“When you look at Denver, you got a highly educated workforce,” says Mr. Gregory, who points out that the city has a disproportionate share of white-collar jobs.

In the greater Denver area, professional-services jobs comprise 21.1% of its total employment, 4.7 percentage points higher than the national average, according to a recent report by the Bureau of Labor Statistics.

Petroleum engineers, who earn $72.84 an hour, are Denver’s highest wage-earners, and employment in the energy sector, which includes mining, logging and construction, has grown 3.8% in the 12 months ending in October, according to the BLS.

The city’s dependence on oil production has some economists worried about what sharply falling oil prices could do to the area’s economy. In fact, according to data firm CoStar Group, one-fifth of Denver’s downtown office space is filled by energy companies.

But for now, employment growth in other areas has allayed concerns of an energy-industry downturn. Thanks to hiring across almost all sectors of Denver’s economy, particularly those in manufacturing and health, unemployment in October was 3.7%, compared to a national rate of 5.8%.

One of the fastest growing cities in the nation since the recovery, Denver, a city of 649,495, grew by 49,337 people in the three years between 2010 and 2013, more in those three years than during the entire decade between 2000 and 2010, according to the Brookings Institution.

For PMRG, a Houston-based real estate firm, Denver’s job growth and growing population are reassuring trends. The company also points to the recent success of other luxury-rental buildings downtown. Line 28 at LoHi, a mid-rise building with 130 rental units, opened in 2013 and is 98.5% occupied. The rent paid by tenants amounts to about $2.92 a square foot, according to CoStar, even higher than the $2.62 a square foot PMRG hopes to achieve once the Confluence is occupied.

In July 2013, PMRG and National Real Estate paid $10 million for the 1.21 acre site of the Confluence, or $200 per square foot, according to broker Stephen Roesinger of Newmark Grubb Knight Frank.

“I sold this [parcel] back in 2005 for $60 a square foot, and then sold it to PM for $200 [a square foot] about a year ago,” Mr. Roesinger says. “I actually remember when this property was $2 a square foot; I’m talking about the early 1980s, not 1910.”

Denver has seen an increase in new apartments. In the first three quarters of this year, 5,985 new units were completed, according to CBRE Group Inc. Of those, 2,493 were built in downtown alone, according to CBRE, which projects that another 4,038 are currently under construction, representing 8.1% of downtown’s current inventory.

That kind of growth has sparked debate among economists and developers about how long the good times can last. “I spoke with a developer who said he’s not building any more apartments,” because he’s worried the Denver market is near a saturation point, says Alan Mark of Mark Co., which marketed and sold the Spire, one of downtown Denver’s luxury high-rise condo buildings.

But Mr. Mark says the supply of luxury rental buildings is still low compared with the amount of wealthy residents that city has attracted. “I still think there’s a need in this go-round for high-end apartment condo [-style] living. I think there are people who aren’t ready to buy a condo and they want to experience urban living and they don’t want to compromise.”

[Mach50]

Beautiful tower, nice location and it will add to the skyline nicely.

People pay high rents already in Cherry Creek, I think this will do fine. I can only hope they keep building them like this.

[davebarnes]

"Highly amenitized building"
Just shoot this guy now.

[sunsprit]

there are many of us who remember previous boom/bust cycles in the petroleum business in Denver ...

when you could see more than a few cars with bumper stickers that read:

"please God, let there be another oil boom

I promise not to pi** it away again"


If the current low price per bbl continues for awhile, I think it's a safe bet that the energy business will be tightening their belts again in the Denver region. Petroleum engineers and other high paying industry jobs can and will be laid off when their services are no longer required for a bust cycle. Regionally, we're already seeing the energy industry curtailing operations in the area in the field for 2015.

[Littlekw]

Sunsprit, you make the exact point that crossed my mind in reading the article. They're building in hopes of luring high-paying oil job workers into the apartments. If oil prices stay as low as they are, that's not a good plan. Layoffs are already occurring in ND and WY and likely Weld County. 20% of downtown Denver office space is leased to energy companies? That could turn ugly if oil prices don't rebound.

I grew up in Mesa and Delta Counties in the immediate years following the Exxon oil shale pull-out in the early 80's. It was a rough time on the Western Slope. Anyone not familiar with that scenario just do a web search on "Black Sunday Western Slope." Granted, Denver's economy is much more diversified than it was then so another oil bust won't necessarily wreck the economy of the city or state like it did in the 80's but it won't be pretty, either.

Several of my family members had that bumper sticker you mentioned but it seems like the boom-bust cycle of pertroleum will always repeat itself. The Western Slope is still dealing with the more recent aftermath of the crash in natural gas prices a few years ago. Let's hope oil prices get back up or that Denver and the state are better prepared this time if they don't.

[jwiley]

I agree, very few people realize how important oil and gas are to Denver and Colorado as a whole, a couple of years ago I read a study that the oil and gas industry was actually responsible for close to 500,000 job in the state, and while I think that was a little high there is little doubt that a long term drop in oil prices is going to hurt all of us badly.

Many of the companies operating in North Dakota and Wyoming have their corporate operations in Denver, and with the cut backs already happening it is only a matter of time before the cut backs hit their corporate offices in Denver and also Houston.

That being said it is entirely possible that they will not have any problems renting out the apartments in that building, Denver has been attracting people from throughout the country and some of them are bound to have plenty of money.

[suzco]

Originally Posted by sunsprit

there are many of us who remember previous boom/bust cycles in the petroleum business in Denver ...

Yes. The one in the mid-eighties spurred the then recently unemployed Hickenlooper to create the Wynkoop Brewery, sparking the revitalization of lodo, and pioneering the Colorado brewing scene.

[davebarnes]

Originally Posted by jwiley

Iread a study that the oil and gas industry was actually responsible for close to 500,000 job in the state

Not even close.
Total civilian labor force in Colorado (DEC2014) = 2.8M
"The study, commissioned by the American Petroleum Institute, calculated that 31,900 people work in the industry" " In total, the industry supported more than 93,500 jobs in Colorado." [I did not read the entire study.]

1. 3% at best
2. Yes, most are higher paying



Sources:
Colorado Economy at a Glance
Where are the oil and gas jobs concentrated? Study says downtown Denver - The Denver Post
https://www.colorado.edu/leeds/sites...dy%20FINAL.pdf

[denverian]

Originally Posted by Mach50

Beautiful tower, nice location and it will add to the skyline nicely.

People pay high rents already in Cherry Creek, I think this will do fine. I can only hope they keep building them like this.

I'm looking forward to it rising. But the average rent= my mortgage!

[robertgoodman]

Originally Posted by denverian

I'm looking forward to it rising. But the average rent= my mortgage!

Yep but living in a high rise adjacent to a park with connections to the two big bike paths, with views of the mountains and/or downtown, and within walking distance of DUS.

It's pricey no doubt but with the info out there it seems to be just a bit of a premium over the current "luxury" rentals in downtown. If demand holds I don't think that premium is unreasonable given it's location, and being a new build.