RE Summit: Institutional investors like yields possible in NoCo

LOVELAND — What McWhinney Real Estate Services Inc. discovered years ago about Northern Colorado is now being discovered by national players — institutional investors — who want a piece of the action in the region.

That was the assessment of both McWhinney and three new players in the Northern Colorado market who appeared during a panel discussion at the BizWest Northern Colorado Real Estate Summit held Wednesday at the Ranch Events Center in east Loveland. Jake Hallauer, president of NAI Affinity, moderated the discussion.

Tyler Erickson, senior development manager for McWhinney said that Chad and Troy McWhinney determined “decades ago” that “people want to be here. It’s all about seeking quality of life.” The brothers determined that setting up their development business here would enable them to “get in front of the inevitable.”

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Ashley Davidson, director of operations for Cortland Management LLC, an Atlanta-based company, concurred with that assessment of the NoCo market. “We’re all here for a reason. We love living here. From an institutional perspective, there’s an opportunity for liquidity,” she said.

Gabrielle Rubenstein, development manager for Indianapolis-based Buckingham Properties LLC, said the region gives the company options. “We can come in, build and hold or sell,” she said.

Likewise Sal Perdomo, director of acquisitions and development for Albuquerque-based Titan Development, said that his development company moved north from Colorado Springs to Denver and now to Northern Colorado. “Population growth drove some of that,” he said, which ramps up demand for housing and increases rental rates.

The institutional investors, including McWhinney, like that land is generally available. “It’s not land constrained like Denver,” said Erickson.

The drawback to working in Northern Colorado is that municipalities are generally smaller, with smaller planning staffs, which can stretch out development time, he said. 

All four companies participating in the panel were intrigued by the concept of build-to-rent, in which home builders construct neighborhoods with the intent of renting the properties instead of selling them. Such neighborhoods attract a different consumer than what might be considered traditional. Davidson said her company’s experience with build-to-rent has shown that they are appealing to single women and Millennials without children. 

The trend begun during the pandemic of working from home has also created interest in rental units that are larger than apartments, said Rubenstein. 

Davidson said that larger work-from-home spaces can also be accommodated in more traditional apartment buildings that add or convert some space to co-working areas. “We’re leveraging common spaces to meet changing needs in the market,” she said.

But it’s all about value for the investing company, the participants agreed. 

“You’re getting a better value for what you invest in [in Northern Colorado] compared to a Tier 1 community. You can buy a Class A property at a competitive price and get rental growth, too. You’ll continue to see that type of investment for that reason, Perdomo said.

Erickson said that at one time, investors overlooked Denver, which was considered a Tier 3 city. That also meant they were not paying attention to Northern Colorado. “All of a sudden, the institutional investors found us.

“It’s about chasing yield. You can still get a yield deal up here. Some of the institutional investors want to enter the market and hold assets for years,” he said.

When they do, they’ll see growth in rental rates, which panel participants predicted would be from 8% to 12% this year. 

“The reality is, people want to be here. Most of the top markets are more expensive than here, so people are willing to come here and pay higher rents [than what they are currently paying,] Erickson said.