The multifamily housing market sector has seen faster recovery than many other segments of the housing and commercial real estate markets. Nonetheless, there are some concerns over the increasing costs of land and materials which are expected to continue to rise as developers continue to undertake new multifamily construction projects. Another concern is that the economic downturn has resulted in some of the previous construction labor force moving on to new fields creating a shortage as construction recommences. To counter these concerns, developers are paying closer attention to what their customers and potential tenants want and need in multifamily housing market in order to ensure that their complexes can effectively compete in the marketplace.

Recently, there has been a pull back by the major players in lending, resulting in stricter underwriting standards. This affects all sectors of the real estate market, including the multifamily housing market, and is making rates from private and hard moneylenders more competitive with traditional lenders. Hard money lenders can provide bridge financing to borrowers who have a solid plan for a multifamily project but aren’t yet able to meet the bank’s more stringent requirements. Hard money lenders typically are lenders for land acquisition loans to give the developer’s time to create plans and specifications to find the right construction lender. This often takes as long as a full year or in some cases even longer.

Last year, new-home construction starts, which include multifamily projects, were the highest they’ve been since 2008, but were still over 40 percent below normal. Still, nearly a third of the permits issued were for multifamily housing, the highest percentage seen in two decades. The supply and demand balance remains delicate, with upfront costs increasing, but this is offset somewhat by an increase in demand as most everyone agrees that the market will continue to favor landlords for the foreseeable future.

As owners and investors of multifamily properties seek to attract the younger, technologically-driven generation to their developments, more are offering cutting-edge and high-tech amenities as well as increased social areas shared by the complex. Green building features and amenities are another way in which investors seek to attract new renters and increase gross rents.

The competition within the multifamily market has made it more difficult for investors in two ways: first, by restricting available capital to purchase new assets; and second, by forcing them to hold on to assets for nearly twice as long—six years on average currently, up from an average of three years before the housing crisis.

Denver’s Multifamily Housing Market Boom:

The Denver Business Journal reports that Denver is currently one of the top apartment markets in the U.S. based on the Apartment Association of Metro Denver’s 2013 Summer Economic Forecast event. The second quarter vacancy and rent report for metro Denver, which was released during the event, shows that the vacancy rate has dropped to a 13-year low of 4.2 percent, while average monthly rent has climbed to $1,022, the first time Denver has seen rents above $1,000.

Terrance Hunt, principal with ARA Colorado, and Ron Throupe, professor of real estate at the University of Denver, reported on several factors which they believe are fueling Denver’s multifamily market:

• Population growth: Denver has been increasing by 20,000/year and is currently nearing 3 million total
• Homeownership: Rates are now down below the national average (63.9 percent) at only 61 percent.
• Home availability: There is a record-low number of single-family homes and condos available for sale in the metro area.
• Mortgage costs: In the past year, annual mortgage costs have increased by an average of $137, while rents have only increased by $43 on average.
• Job growth: The metro area saw 52,200 new jobs created last year.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.