Boulder home market ‘healthier’ as appreciation rate declines

BOULDER — The rate at which single-family homes appreciate in Boulder is slowing down, and more homes are becoming available on the market, pointing to a “healthier” residential market in the city by the Flatirons.

DB Wilson, broker associate with Re/Max of Boulder, said the rate at which home prices have appreciated has dropped from 14 percent a year ago to between 5 percent and 6 percent now.

“That’s healthier,” he said, but added that there isn’t much available for sale below $550,000 in Boulder.

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“We’ve lost the low end,” he said during BizWest’s CEO Roundtable on real estate and construction held Tuesday at the offices of Berg Hill Greenleaf & Ruscitti LLP.

He said the number of home sales are up, the time on the market is shorter, and the market still favors sellers, pointing out there is about 3½ months of inventory, still below the ideal six months of inventory.

Wilson said home prices historically appreciate steeply in four-year cycles.

“We are in the last year of a four-year period,” he said. “But I don’t expect prices to go down … they will likely level off.”

The median home price in Boulder exceeded $1 million in May, and was in the high $900,000s in June.

Stephanie Iannone, owner and managing broker of Housing Helpers, said the number of offers a seller may expect is declining.

“Higher prices are making it harder to qualify for a mortgage,” Iannone said. “Only 26 percent of the inventory is below $400,000 in Boulder County.”

David Sinkey, president and CEO of homebuilder Boulder Creek Neighborhoods, has found his sweet spot — building ranch-style homes for empty nesters in the $300,000 to $400,000 range.

“We can’t build enough product,” he said. But he is also finding success in building and selling homes for active adults that command $900,000 to $1.2 million.

Sinkey agreed with Wilson that there is no good answer for dealing with affordability.

Cost of construction, rising taxes

The problem facing homebuilders — and commercial developers — is the rising cost of construction.

In the commercial sector, it is affecting lease rates for tenant finishes of commercial and industrial buildings, as are increasing property taxes driven higher by assessed building valuations.

Jorge Espinoza, broker associate and principal at The Colorado Group, said several factors are affecting the increasing cost of making improvements for tenants tenant finishes made by landlords — lack of skilled labor, increased material costs and the city of Boulder’s new energy code. The code, Espinoza said, requires landlords to bring an entire building to the new code when the project reaches a certain percentage of a building’s assessed value.

Some of these improvements are not being done if tenants aren’t willing to absorb the added cost in the lease.

“It’s creating a big struggle in negotiating, Espinoza said. “It all depends on what the landlord is willing to do — sometimes, it’s take it or leave it.”

Lynda Gibbons, CEO of Gibbons-White Inc., said those taxes can reach $5 per square foot, and the city’s parking requirements for a new project can add $2 to $3 per square foot to a lease.  

Gibbons, who was an investor in and handles leasing for Pearl West, a mixed-use development in downtown Boulder, said the city’s push to “make (industrial) parks more fun” by incorporating more amenities in the parks such as restaurants, coffee shops and places for social meetups is “weakening the core.”

Becky Gamble, CEO of Dean Callan & Co., said park owners have benefitted from this. “That’s where smaller companies can go when they can’t afford to be downtown anymore.”

Jeff Wingert, president and chief operating officer of W.W. Reynolds Cos., said subleasing office and industrial space has been in a slowdown mode for at least a year, but sees signs of life.

“East of 28th Street, there has been a fair amount of activity picking up the last two to three months,” Wingert said.

Developing industrial buildings on speculation is paying off for most right now.

Developers are leasing-out spec buildings before they can complete them in the Colorado Technology Center in Louisville.  Andrew Freeman, principal of Freeman Capital Management, said he expects the park to be built-out in the next couple of years.

Keith Burden, principal and managing broker of Burden Inc., said his company’s new light-industrial building in Gunbarrel designed for smaller companies leased out quickly, adding that lease rates for industrial space has hit a new high.

Chris Jensen, principal of Vista Commercial Advisors Inc., said not all builders can gain the financing needed because of increased building costs.

“Lenders and builders are having a harder time agreeing on projects,” Jensen said. “Cost of construction along with increased cost of building permits in many cities, as high as $50,000 per house, creates a challenge. … It’s blowing up deals.”

Sinkey added that new codes requiring fire-suppression systems can cost $10,000. “I don’t see that coming down,” he said.

Reshaping the shopping center

The type of brick and mortar retail businesses in shopping centers is making a monumental shift, moving from soft and hard goods to food and entertainment venues.

“Food is the new anchor category,” said Allen Ginsborg, managing director and principal at NewMark Merrill Mountain States, the group that converted the enclosed Twin Peaks Mall into The Village at the Peaks, an open-air center that is predominantly made up of eateries and entertainment.

Another prime example is the Village at Burlington shopping center in Longmont. At one time, its two anchor tenants were an Office Depot and a Sports Authority sporting-goods store.

It now has as anchors, The Wild Game, an entertainment center that includes bowling, a bar, arcade and live music space, and The Jump Craze, an indoor trampoline park that will open in mid-August, said Burden, who owns and manages the Village at Burlington.

While Ginsborg said retailers are in a state of reconsolidation,  Stephen Tebo, founder and owner of Tebo Development, hasn’t had a problem keeping his retail properties totaling 350,000 square feet leased. He said he has only two spaces vacant, one of 1,400 square feet and another of 1,700 square feet.

“There isn’t a lot of retail being built,” Tebo said. “There has been turnover of prime spaces. We had five open up within two blocks of each other, but we were able to fill them fairly quickly.”

Participants

Keith Burden, principal/managing broker, Burden Inc.; Jorge Espinoza, broker associate/principal, The Colorado Group; Andrew Freeman, principal, Freeman Capital Management; Becky Gamble, CEO, Dean Callan & Co.; Lynda Gibbons, CEO, Gibbons-White Inc.; Allen Ginsborg, managing director/principal, NewMark Merrill Mountain States; Stephanie Iannone, owner/managing broker, Housing Helpers; Chris Jensen, principal, Vista Commercial Advisors Inc.; David Sinkey, president/CEO, Boulder Creek Neighborhoods; Stephen Tebo, founder/owner, Tebo Development Co.; DB Wilson, broker associate, Re/Max of Boulder; Jeff Wingert, president/COO, W.W. Reynolds Cos. Moderator: Christopher Wood. Sponsors: Justin Dodge and Liz Castro, EKS&H; George Berg, Becky Rigo and Peter Schaub, Berg Hill Greenleaf Ruscitti.