BOULDER — Real estate prices continue to climb in Boulder, begging the question: When will the cycle take a downward turn?
Commercial and residential chief executives who work the area have expected a downturn for some time, but right now, they’re not seeing it.
“I thought it was over awhile back,” said Jim Loftus, principal of Loftus Developments, “But there may be two or three years left … prices and rents continue to escalate.”
Loftus wasn’t the only one at BizWest’s CEO Roundtable on Real Estate and Construction thinking Boulder is the exception to the rule of cyclical ups and downs.
“When we lose value, it’s usually less than most (other places)” said Stephen Tebo, founder and owner of Tebo Development Co.
That may be because Boulder still is a bargain for outside investors with plenty of cash, and the cachet of a Boulder address for large businesses is as desirable as ever.
Steve Kawulok, managing director of SVN/Denver Commercial l LLC, said his firm analyzes investments made in commercial properties, and that two-thirds of recent deals are “fresh money coming into the Boulder Valley.”
Lynda Gibbons, chief executive of commercial real estate firm Gibbons-White Inc., agrees. “Acquisitions are still strong … there are many willing to pay up. … An 18-month dip? I don’t see one coming.”
Scott Holton, principal of Element Properties, said, “There’s always someone with cash, a 1031 exchange, or someone willing to pay more.”
Most agreed that banks are slowing their lending, cautious that there could be a downturn coming.
“There’s still a lot of private equity out there,” said Jeff Wingert, president and chief operating officer of W.W. Reynolds Co., and increasing sale prices of commercial properties are being driven by outsider demand. But, he said, there are fewer deals coming through. “I see it slowing as interest rates increase.”
Developing new buildings is another matter, though, as scarcity of available land, increasing cost of materials and labor and the Boulder City Council’s height limitations and newly enacted fees for an affordable housing fund are making a cauldron of mud that developers are finding hard to stir.
The affordable-housing linkage fee for new commercial developments in Boulder was raised from $9.53 per square foot to $12 in November 2016. In May, the council voted to raise it to $30, the second-highest affordable-housing linkage fee in the nation, behind Palo Alto, Calif.’s fee of $35. The recent $18 increase will be implemented at a pace of $6 per year for the next three years.
Seeing the increased fees on the horizon, some developers are hurrying up their development schedule. Becky Gamble, CEO of Dean Callan & Co., said Crescent Real Estate may speed up its timetable for projects within Flatiron Park, a business park on the east side of Boulder, where Crescent has multiple holdings.
Lease rates, driven by increased Boulder County property taxes, have reached the point that they are driving out many small companies who can’t afford them. Stephen Tebo said triple-net expenses in downtown Boulder can be as high as total leases in surrounding towns. In a triple-net lease agreement, the tenant agrees to pay all real estate taxes, building insurance and maintenance on the property in addition to any normal fees that are expected under the agreement such as rent and utilities.
Home prices in the region continue to increase, with no signs of stopping. Todd Gullette, managing broker of Re/Max of Boulder, said home prices continue to appreciate, a trend that started in 1978 at an average annual appreciation rate of 5.7 percent. Gullette said from January to June this year in Boulder County, the average sale price of a home was up 10.5 percent, and the average median price increased 7.5 percent. In the city of Boulder, the average sales price was up 12.7 percent and the median price was up 5.7 percent.
Stephanie Iannone, owner/managing broker of Housing Helpers, said Boulder is losing its millennial population because of the high home prices.
“Boulder workers opt to move out, to Frederick, Firestone land Denver,” she said. “What we are left with is older, more established, wealthy people are moving here. That’s the community we are creating.”
Keith Burden, principal and managing broker, Burden Inc.; Becky Gamble, CEO, Dean Callan & Co.; Lynda Gibbons, CEO, Gibbons-White Inc.; Todd Gullette, managing broker, Re/Max of Boulder; Scott Holton, principal, Element Properties; Stephanie Iannone, owner/managing broker, Housing Helpers; Steve Kawulok, managing director, SVN/Denver Commercial LLC; Jim Loftus, principal, Loftus Developments; Stephen Tebo, founder/ owner, Tebo Development Co.; Jeff Wingert, president/COO W.W. Reynolds Cos. Moderator: Christopher Wood, BizWest Media LLC. Sponsors: George Berg, Mark Changaris, Becky Rigo and Peter Schaub of Berg Hill Greenleaf Ruscitti. Jim Cowgill and Jeremy Wilson of EKS&H.