Boulder business leaders see continued economic strength

BOULDER — Boulder’s industry leaders gathered at BizWest’s CEO Roundtable Tuesday to discuss the economy and economic development along the Front Range.

Across the board, major Boulder industries have benefited from significant growth.

“We’re nearing our record economic expansion,” said Brian Lewandowski, associate director for the Business Research Division and senior associate dean for the Leeds School of Business at the University of Colorado Boulder.

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While growth will likely slow down in 2019 and 2020, Lewandowski said he would be hard-pressed to see a recession in 2019.

“It’s hard to look at the economy now and point to something that will derail us before June,” he said. “It’s hard to find something that will derail us before the end of 2019, especially with the Fed backing off increasing interest rates.We’re not seeing economists saying recession but are seeing them say slowdown.”

That being said, the analogy he used is college football: If you take a look at preseason ranking in August, there were a number of teams on the list that ended up not being on the list at the end of the year. Looking three months or six months out or 12 months out from the last recession, the economy looked pretty healthy.

“So my point is, things can change,” he said.

Lewandowski did say he had some concerns: trade, slower growth, interest rates. All of that stems from uncertainty, which can come from federal policies and signals from Washington.

When it comes to Colorado, however, he’s optimistic.

“For Colorado, I’m still bullish,” he said. “We’re outperforming the nation. We’ve been a star performing state since the recession.”

Kyle Heckman, CEO of Flatirons Bank, said he’s seeing the benefits Colorado is enjoying reflected in the customers with whom he works.

“People are generally feeling confident,” he said. “I’m not sensing a lot of hesitancy in Boulder County. Right here, I don’t see or hear a lot of banter or negativity.”

Another market that is seeing growth — although that growth can come with a double-edged sword — is housing and real estate.

“When you look at house price appreciation by state, Colorado is ranked about No. 5. It usually toggles between 4 and 10,” said Todd Gullette, managing broker for Re/Max of Boulder. “It’s not a race we want to win. You see places like Arizona and Florida that have high volatile ups and downs across the country. It’s nice to see increases of 7 to 10 percent. It’s nice to be at the top, but there’s really no need.”

Looking at the housing price index by metro area, he added, Boulder has been No. 1 in appreciation. It was up 415.25 percent up 1991.  “Boulder’s appreciation is not peaks and valleys but peaks and plateaus,” Gullette said. “It goes through typical cycles.”

One adjustment that needs to be made due to Boulder’s gangbuster growth is a lack of inventory. Gullette said that low inventory should be accepted as the new normal.

“There are a few developable lots in our future, and you can build them out quickly to save some affordable-housing problems for the moment,” he said, “but in the long term we need to get used to the inventory level.”

Boulder also has a high number of rentals. Boulder is over 50 percent rented. In fact, said Gullette, it’s safe to assume that on every street there is likely a house being rented. Additionally, attached dwellings are seeing high demand, and developers are responding by moving from building single-family housing to multi-family housing.

Perhaps one of the most drastic changes that has come with Boulder’s boom is the increase in real estate prices.

In the city of Boulder, the average home price is up to $1.2 million and the median price is up to $955,000. The number of days on the market, a sign of how quickly things are moving, is down to 57 days for Boulder. That figure is down 11 percent from 2017 and is about half the days on the market for a home sold in 2012.

While real estate seems to be growing, the health-care industry is focusing on efficiency.

“Health care marches to the beat of a different drum,” said Paul Hinchey, chief strategy officer for Boulder Community Health. “There are tremendous pressures, federally and locally, to drive the cost of health care down. With the Affordable Care Act and Medicaid expansion, there was anticipated to be a lower cost of care, but that hasn’t quite materialized. In a world of rising costs, there has been shrinking reimbursement. We’re making up the cost of care, but it’s almost always a losing proposition, and we don’t break even on most reimbursement.”

He added that employers are getting tired of double-digit health-care costs and are putting pressure on payers, and payers are putting the pressure on health-care systems to drive down their reimbursement.

“It’s all a massive weight of declining reimbursement,” he said. “2017 and 2018 were tough for us in Boulder, but we’re small and nimble. The organization [Boulder Community Health] has done a great job of looking at optimization to drive costs down. It’s what health-care systems across the country are doing, small and large systems: trying to be more efficient.”

Hinchey said that over the years, Boulder Community Health has seen an increase in competition. To counterbalance that competition, the health-care system has leaned into its community relationships.

“The community-centric motivation drives us to provide the services we do,” he said. “We do a lot of thing that have negative margins for us, but we do them because they’re the right thing to do in the community. The most obvious one is our investment in behavioral health, which is a universal loser for reimbursement, and the patient population is tough. Most folks don’t invest in it, but we have heavily because it’s the right thing to do. Because of that, we need to be more efficient in the areas that do make money so we can sustain the margins and maintain the mission.”

Another industry looking toward innovation to keep up with growth is higher education, as seen through what the University of Colorado Boulder is doing.

“We are madly looking at how we can run more efficiently,” said Frances Draper, vice chancellor for strategic relations at the University of Colorado Boulder. “We’re innovating at the campus, because by being an innovative campus, we can attract students from all over the nation. We’re allowing some of our key strengths in Boulder to come to the fore. And there are some amazing ones. Our goal is to get more efficient in employing our resources, be a key leader in innovation and be good thinkers for tomorrow’s leaders.”

Draper said one way CU Boulder is innovating is by looking at the student population in the future and how it can best be served. Student bases are changing, as evidenced through the rise of massive online entities being heavily advertised. She said the university is also trying new experiments, such as a master’s of science for electrical engineering, where there is no prequalifying element: students can start taking the class and as they pass move onto the next step. If they go all the way, they are able to earn their master’s degree.

As the Boulder economy grows, so too has Boulder’s attraction to tourists both for leisure and business.

“Boulder has a great brand,” said Maryann Mahoney, CEO of the Boulder Convention and Visitors Bureau. “People are coming here for a business trip and coming for meetings and are seeing this beautiful playground and open space.”

Because of this, Mahoney said her team is targeting high-value travelers, especially those in groups.

Mahoney said as long as the economy stays strong, she expects travel to reflect that.

“When consumer confidence is there, business travelers continue to travel, and families plan their family vacations because they’ve earned it,” she said.

DIA is the fifth-busiest airport in the country, she added, and that’s bolstered by the availability of affordable airlines to Denver. People visiting friends and family is a high market for Colorado. In Boulder, it makes up 43 percent of visitors. Day visitors is also a strong travel market: About 4 million day visitors come to Boulder. And Boulder captures visitors from other cities as well: Of the people who visit Denver as overnight guests, about 16 percent of those visitors come to visit Boulder while staying in Denver.

Another sector reflecting Boulder’s strong economy is the real estate investment sector.

“The quality of life here is hard to argue with,” said Hunter Barto, senior associate at Dean Callan & Co. “This has become a destination, and it’s a destination for investment dollars.”

He said that cap rates are stable and low, and he doesn’t expect that to change. Interest rates could put upward pressure on cap rates, but Barto said he didn’t expect that to quell any enthusiasm for markets in the area.

Barto also acknowledged that Boulder wasn’t the only Boulder County city seeing an upward trend.

“Longmont has seen a relative nice increase in lease rate activity,” he said. “Longmont has also become more of a destination now. It used to be seen as a solution or alternative. But it has great electricity prices, fiber internet. People gravitate to it more and more.”

Boulder’s economic development had a major year in 2018, said Clif Harald, executive director of the Boulder Economic Council.

“Last year, we saw leasing activity and new names that were rumored for years come in, names like Amazon,” he said. “We saw a bubbling up of activity that I don’t remember seeing for years and years from big multinational names. You  had things like the acquisition of Justin’s by Hormel, big things in food and bioscience. It was unprecedented.”

But serial acquisition can have its downsides. Companies such as Boulder Brands was swept up in it. AstraZeneca closed.

Still, Harald said he was hopeful a new company could come in and fill the spaces. AstraZeneca made significant improvements to the buildings it’s now leaving in Boulder and Longmont that could be attractive to a new biologics manufacturer.

Beyond these examples, Harald said niche Boulder industries such as natural-foods production and biotech are seeing success.

“These biotech companies, like ArcherDx and Inscripta, are raising tens of millions of dollars is serial rounds multiple times a year,” he said. “There’s new technology coming out of the labs at CU.”

He added that while some employees get laid off as major companies decide to leave Boulder, there’s an opportunity to reabsorb that talent and keep it in the region through the rise of new successful startups.

“Demand for the people the companies are leaving behind are high,” he said. “But it’s not something we can be complacent about, we have to be working with the Colorado Bioscience Association and Naturally Boulder and the governor’s office to support employees laid off, help them transition. We want to keep that talent here. We don’t want it leaving Boulder County, and we don’t want it leaving Colorado.”

The Boulder CEO Roundtable on the Economy included: Hunter Barto, senior associate at Dean Callan & Co.; Frances Draper, vice chancellor for strategic relations, University of Colorado Boulder; Todd Gullette, managing broker at Re/Max of Boulder; Clif Harald, executive director of the Boulder Economic Council; Kyle Heckman, CEO of Flatirons Bank; Paul Hinchey, chief strategy officer for Boulder Community Health; Brian Lewandowski, associate director of the Business Research Division and senior associate dean of the Leeds School of Business at University of Colorado Boulder; and Maryann Mahoney, CEO of the Boulder Convention & Visitors Bureau. Moderated by BizWest editor/ publisher Christopher Wood. Sponsored by EKS&H, now part of Plante Moran (represented by Jim Cowgill and Jeremy Wilson) and Berg Hill Greenleaf and Ruscitti (represented by George Berg and Peter Schaub).