Inventory shortage raising real estate prices

BOULDER – The real estate industry in the Boulder Valley is experiencing an inventory shortage, driving lease rates up in the commercial sector and creating bidding wars for homes.

Realtors and developers agreed that the market is strong here, but wondered when it might slow down, during BizWest’s CEO Roundtable on real estate Tuesday morning at the offices of event co-sponsor Berg, Hill, Greenleaf and Ruscitti LLP.

“Rental rates are spiking because supply is so low,´ said Chris Jensen, president and broker of Vista Commercial Advisors Inc., referring to office and retail space. He said companies were able to realize savings during the downturn of several years ago, but now the demand is greater as companies grow and look for more space and others are moving into the area.

Andrew Freeman, managing broker of Freeman Myre Commercial Real Estate Services, who handles much of the property in the Colorado Technology Center in Louisville, said tenants who are renewing leases are faced with higher rental rates. He said that following a four- to five-year drought, land sales have picked up in the CTC during the past 12 to 18 months, and speculation buildings are going up there.

Commercial landlord Stephen Tebo, chief executive of Tebo Properties, said his retail spaces are full, which is pushing up rates. He said there are rates on the Pearl Street Mall in Boulder that are at $50 per square foot, plus a triple net of $14 to $17 per square foot, making it $67 per square foot per year.

That same rate is being commanded at PearlWest, said Michael-Ryan McCarty, a senior broker associate at Gibbons-White Inc. Pearl West is a mixed-use project under construction at 1048 Pearl St., site of the former Daily Camera building in downtown Boulder.

Becky Gamble, CEO of Dean Callan & Co., said commercial activity in Longmont is the strongest she’s seen during the past five to seven years.

W. Cotton Burden, president and CEO of Burden Inc., agreed.

“Longmont is as strong as we’ve ever seen it,” he said.

Burden’s recently completed 115-unit luxury apartment and mixed-use project on Main Street in Longmont, Roosevelt Park Apartments, has exceeded expectations. He said the retail space is 100 percent leased, and the apartments are “nearly full.”

Jason Kruse, managing broker of The Colorado Group Inc., said the commercial sector in Longmont is not as strong as in Boulder, but vacancy rates are lower than they’ve been.

“Office and industrial activity is stronger than retail,” he said. “There are few properties for sale, he said. “It’s like a piece of meat with wild dogs going after it.”

The low inventory holds true for residential real estate, said D.B. Wilson, managing broker of Re/Max of Boulder. He said for 2014 compared with 2013, listings in Boulder County are down 6.5 percent, average time on the market is down to 73 days, and median and average sales prices are up 2.4 percent and 4.3 percent, respectively.

He said buyers are engaged in bidding wars that sometime lead to buyer’s remorse.

“We had a condo listed for $300,000 that received 31 offers,” Wilson said. “It sold for $40,000 over list price. … Sometimes that bidding leads to buyer’s remorse that ends with a canceled contract.”

Wilson said the most attractive price points for homes are in Firestone and Frederick in Weld County.

Attractive financing is fueling the frenzy. For the first half of this year, the interest rate for a 30-year fixed mortgage was at 4.16 percent, Wilson said.

While an influx of projects are being proposed to alleviate the shortage, the construction industry is experiencing an increase in construction costs, a shortage of reliable sub-contractors and stiffer competition for workers.

“It’s hard to get subcontractors’ attention,´ said Paul Brinkman, co-owner of Fort Collins-based Brinkman Partners, because of all the apartment projects that are being built and more that are planned.

Financing for commercial projects is appealing right now, Tebo said. “On loans of five years or less, you can’t beat the local banks. They will compete. They are willing to negotiate.”

Freeman added that it’s also a good time for refinancing with rates between 2 percent and 3 percent. “But at some point, those rates will expire,” he said.

Brinkman predicts the volume of projects will decline in the next two to three years as interest rates go up.

Participants: Paul Brinkman, Brinkman Partners; W. Cotton Burden, Burden Inc.; Andrew Freeman, Freeman Myre Commercial Real Estate Services; Becky Gamble, Dean Callan & Co.; Chris Jensen, Vista Commercial Advisors Inc.; Michael-Ryan McCarty, Gibbons-White Inc.; Stephen Tebo, Tebo Properties; D.B. Wilson, Re/Max of Boulder.

Sponsors: George Berg, Giovanni Ruscitti, Rick Greenleaf and Tom Merrigan, of Berg Hill Greenleaf Ruscitti LLP. Hy Harris and Bob Bond of EKS&H LLLP.

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