We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure?
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The 10 executives from area brokerages and construction firms who participated in the Boulder County Business Report’s CEO Roundtable on real estate Tuesday morning pointed toward plenty of reasons to believe that business is better now. But they are keeping a close eye on increasing interest rates and the cost of construction materials and labor, factors that could put a damper on a strong market.
The housing market, of course, is the aspect of real estate that the public tends to latch onto the most. And while Boulder County weathered the downturn much better than many areas of the country, business has increased in the area in recent months.
D.B. Wilson, managing broker at Re/Max of Boulder, presented Multiple Listing Service statistics for the county showing that median and average sales prices are rising in every community in the county. Average days on the market over the first half of 2013 are down 23 percent, from 107 days to 82 days, compared to the same period a year ago.
“Pretty much everything is going the direction we would like to see for a strong market,” Wilson said.
While housing might be the most visible, those in the commercial sector are finding reasons for excitement as well.
Steve Kawulok, managing director of Sperry Van Ness/The Commercial Group, said one positive sign is that of the largest real estate deals lately, several have been land sales.
“We haven’t seen that for a few years,” Kawulok said. “So it says developers are optimistic about the future. We had to dust off the manuals about how to sell dirt because we hadn’t sold dirt in so long.”
In addition to land, competition is heating up in the investment market for infill sites as they become increasingly hard to come by, said Lynda Gibbons, chief executive of Gibbons-White Inc. Paul Brinkman, co-owner of Brinkman Partners, added that more capital is coming into the Colorado market from the East Coast and West Coast, particularly in multifamily and commercial office space.
One of those rare major infill deals in Boulder that Gibbons spoke of was the recent $11.2 million purchase of three parcels near the intersection of 30th and Pearl streets that are pegged for redevelopment by Denver developers. Becky Gamble, CEO of Dean Callan & Co., represented the seller in a deal that accounted for $6.9 million of that overall transaction, which included two other sellers.
“Anything that can be redeveloped and have an added component of residential to it … has a huge demand,” Gamble said. “It never stops really, specifically in Boulder.”
Finding banks and other institutions willing to lend money for projects has become easier, said many of the folks gathered Tuesday, with banks starting to compete for business again particularly at a local level.
“They seem really well capitalized and ready to lend,´ said John Koval, vice president/director of development for Coburn Development.
Leasing in downtown Boulder has shown signs that are starting to positively affect areas in the eastern parts of the county and Broomfield for retail and office space.
Scott Reichenberg, president of The Colorado Group Inc., said incentives are starting to dry up in many of the commercial transactions. Whereas landlords might have been offering things like six months of free rent in recent years, those incentives are shrinking. Downtown, Tebo Development Co.’s CEO Stephen Tebo said that any opening on the Pearl Street Mall is snatched up before the prior tenant even has a chance to move.
Gibbons, whose commercial real estate firm has a hand in the redevelopment of the former Daily Camera building on Pearl Street in Boulder, said she’s hoping all of the leased space – which ranges in price from $15 per square foot to $65 per square foot – will be filled by the time the redevelopment is 50 percent completed. Groundbreaking is scheduled for March 1.
All of that demand and increased rental rates downtown are causing some businesses that could afford space during the recession to look east for better value. Chris Jensen of Vista Commercial Advisors Inc. said moving to Louisville or Lafayette or Broomfield might be a step down in the quality of office space available for some businesses. But that also contributes to an East County three-way savings effect – reduced operating expenses, lower rent and expandable space – that can make leaving downtown Boulder attractive to some companies.
But obstacles exist.
For people like Brinkman and Koval, whose companies have development and construction aspects in addition to real estate, costs to build new product remain high.
Koval said that the price of construction materials remained high during the recession. In addition, Brinkman said, much of the skilled labor force left the construction industry during the downturn. Some of that labor has been siphoned off to the energy industry, while some simply has moved on and not returned to construction.
“Right now we’re fortunate in that we have a lot of our sub(contractor) base staying with us,” Brinkman said. “But if you’re out there trying to find skilled labor, it’s challenging.”
Fee increases by cities have also led to increased development costs and the threat of rising interest rates also adds to some hesitance on the part of developers.
But for the most part, the prevailing feeling Tuesday was that things are looking up.
In Longmont, which was hit hard by foreclosures in the housing market and in high vacancy rates in commercial space, Tebo and Jensen both said things seem to be improving. And with incentives still plentiful in Longmont and plenty of space available, the city remains a strong value option for tech companies that might be looking to expand as the economy turns around.
Much of that turnaround can be attributed to optimism surrounding the redevelopment of the Twin Peaks Mall. The Village at Twin Peaks is expected to break ground sometime by the end of the year, said Allen Ginsborg of developer NewMark Merrill Mountain States.
While retail, Ginsborg said, is overbuilt in much of the area, he believes the tenant mix at The Village at Twin Peaks is shaping up nicely for the future.
Ginsborg said the key in retail, which has been hurt in many respects by the Internet, is to find tenants with goods that are necessities like food or experiential like movie theaters that will draw foot traffic that attracts smaller retailers. He said there’s also been a push at The Village to build outdoor amenities like a dog park and install shopping centerwide wireless Internet access to help make the location a community gathering space, something Longmont residents have been yearning for.
“Retail is changing,” Ginsborg said. “It’s as much experience now as it is buying goods and services. And so a lot of what we’re focused on is how to create that right merchandise mix that will create that right experience. Because what’s going on outside the doors is now becoming almost as important as what’s going on inside the doors in terms of driving sales.”