ECON 2018
Econ 2018 Kicks off AAMD’s 50th Anniversary
T
he 2018 AAMD Economic
Conference was the official kick of
the Apartment Association’s 50th
Anniversary, where over the course
of the year several activities and celebrations are
planned. The first ever “Golden Loyalty” Award
was presented to Standard Interiors for 50 years
of membership to the Association.
General Manager Jenny Jacobs and Owner
Robert Hempel accepted the prestigious award
from Executive Vice President Mark Williams.
Conference Chair, Judy Blaes welcomed over
450 attendees to the annual forecasting
conference where a diverse lineup of experts
presented data, analysis and opinions about the
upcoming future of the economy and the industry.
Decisions for Industry
Investors
Marcel Arsenault started with an overview
of the market, including a description about
the importance of how the apartment industry
is driven by job growth. The excellent job
growth in Denver (over 3% per year) has been
a critical piece of the success of the industry
over the last eight years.
Arsenault described how the Federal
Reserve has done the job of stimulating the
national and local economy by keeping interest
rates low, but now the Fed has completed its
job and will be raising rates in 2018, which
could signal changes, including a recession.
Arsenault eluded to a recession in 2020
and had some advice for apartment investors.
Self-proclaiming a negative perspective on
apartments- Arsenault predicts job losses
(slowing employment growth), leading to
lower occupancy, leading to lower rents, and
reduction of loan payments. He illustrated
www.aa mdhq.org
how the “end of easy money” over the next
couple of years would increase cap rates and
slow investment in apartments. » » Tax Bill will delay the recession 1-2 years
He called the tax bill a short term “sugar rush”
that would help, but only be temporary. Others
may view a reduction in the corporate tax rate to
21%, more substantial than a sugar rush, but we
shall see. » » Oil jobs are recovering in Colorado
Some other key observations from
Asenault included:
» » Single-family inventory are constrained
and the low supply has led to an increase
in demand and price of a home
(and apartments).
» » Multi-Family housing permitting in 2016
and 2017 was extraordinarily high and he
predicts approximately 12,000 new units
will exceed demand, and frame Denver
as over-built
» » Rent Growth is at its lowest rate since
2010, with concessions persisting and both
rent and occupancy falling
» » Downturn in values are 1 to 3 years away,
which makes 2018 a good time to sell
» » Millennials are moving to the suburbs, but
it will take them ten years to get there
» » Increasing interest rates will lower the
amount of cash available for multi-family
investment
Arsenault wasn’t all “doom and gloom”,
however, and offered the following positives
for our industry:
» » Single family houses are expensive and SF
permits are under trending
» » US Gross Domestic Product is increasing,
which will keep job growth strong
» » Capital is currently abundant
Arsenault offered the following advice;
» » Refinancing and lock in rates in 2018
» » Accumulate cash and be ready to adjust
and respond to opportunities
» » Keep your banks happy as you ride through
the cycle
» » Don’t have your pedal to the metal right
now, but in the meantime find great
operation partners and get ready to pile
back into apartments when the
opportunity strikes
» » Some opportunities will exist in the condo
market, conversions will be tough for
anything new
4th Quarter Vacancy &
Rent Report
Chris Geer and Teo Nicolais teamed up
again to review all of the vital stats from the
4th Quarter 2017 Metro Denver Vacancy and
Rent Report.
Average rent was down $16/month at
$1,396. Vacancies were up a full percentage point
from 5.4% to 6.4%. Nicolais described how most
companies manage around that 94% occupancy
rate, so once vacancies go above 6%, we begin to
see rent reduction and additional concessions
and discounts. Geer noted that some of the
trends are tied to seasonality - “it happens”
during the fourth quarter like this quite often.
FEBRUARY 2018 • TRENDS | 23