As we all know, the foreclosure crisis has created a much stronger apartment market for the Denver metro area. Subprime issues bode well for apartment owners as would-be homeowners just three years ago are back to renting apartments. New construction for apartments remains at historically low levels. Colorado job growth continues to outpace the national average. The stock market has been no safe haven as of late. In short, demand for apartments is up and supply remains relatively low. So it is easy to see why so many investors are getting out of other commercial product types and moving their capital to apartment buildings.
Class A and B apartment building typically have pools, fitness centers, business centers and so on. These apartment buildings have been enjoying low vacancy and increased rates since the economic downturn. Older apartment buildings have been seeing an increase in rentals in C class buildings. Class C buildings do not have any amenities that come along with them. This increase in Class C buildings has a considerable amount to do with the trickle-down effect. As people move out of Class A and B apartments they will fill in the previously empty spots in Class C buildings.
Class C apartment buildings are now more attractive to investors simply because of the sharp increase in rental rates for these buildings. The nicer and newer models of apartment buildings have seen rental increase upwards of 15 percent, but the older buildings have not seen much change. Now there are plenty of opportunities for investors to capitalize on the older class C buildings.
Some class C owners who only have one or two properties are not taking advantage of this investing phenomenon. They have not raised their rents in a considerable amount of time and are failing to do so during the economic downturn. Considering how they have struggled to keep apartments filled the notion of filling the vacancies are filling in with quality tenants.
Due to fears that their building once again will become that same time and energy-consuming problem they wrestled with for most of this decade, some owners remain hesitant about raising rents. Thus, there is real opportunity for investors to acquire Class C apartment buildings that are underperforming. And with rents moving north so rapidly, sometimes the gap between actual rent and market rent is astounding.
All the necessary ingredients are lining up perfectly for apartment building owners. Capitalization rates are increasing and so are the net operating incomes as rents continue to rise. The difficulty in the lending market has not improved. Most savvy investors will find opportunity in the change in the apartment building market and will continue to capitalize on it. There has not been a better time to sell or acquire apartment buildings.