I thought I would discuss a topic with which most of us Denverites are all too familiar: our boom and bust real estate cycles, and if we’re destined to repeat history again this time—or not.
The surge of real estate development in Downtown Denver is quite evident. Currently, we have 45- and 41-story buildings under construction plus a bunch of mid-rise buildings in the 5 – 32 story range under construction too, and a couple more 40+ story buildings scheduled to break ground in 2008. Add in the dozens of lower-scale townhome and condo buildings in our Center City districts like Highland, Golden Triangle, and Curtis Park, and we’re definitely experiencing a Downtown boom like we haven’t seen since the 1980s. Is all of this development just leading us into another bust, where we’ll experience a decade or more of development inactivity?
The other day I was chatting with my buddy Joe about our current Downtown boom and he brought up a good point I’d like to expand upon. Denver is obviously feeling the impact of the current credit/financing crisis. Today, most of our Downtown infill projects are having a hard time getting financing. Even developers with strong reputations and relatively deep pockets are currently finding it difficult to obtain funding for their projects. Other cities like Las Vegas, Miami, San Diego, and Phoenix boomed when credit was easy to get. They built more units than was justified, and now they’re paying for it through declining values and huge unsold inventories. Just as our boom was, well, starting to really boom, the credit crunch hit and has stalled many projects. Perhaps we should be grateful.
Joe and I speculated that if the credit markets were generous right now, Denver would be going through an even bigger boom than we already are. Downtown Denver would probably be going crazy with high-rise condo and office construction, only to leave us a few years from now in a position of over-supply and severely declining values. That is our history, after all. Instead, the credit crises has weeded out weaker projects and kept in check the number of new projects under construction. Our current Downtown real estate boom has been moderated, which hopefully will result in what Denver has typically failed to do on its own: maintain a healthy but measured, sustainable pace of new development over a long period of time. Maybe it took an external force like the national credit crunch to save us from ourselves and to interrupt what would have been our next Denver boom and bust cycle.
Ken, as a matter of history, I'd like to point to the energy cycle boom/bust that happened in the 1980's, as it was one of the reasons that real estate went into the tank at that time.
Perhaps this downtown Denver real estate cycle will be influenced by the energy economy (on the western slope)? This is probably why Ritter and others are so eager to obtain alternative energy industries to diversify our economy.
This theory holding true, when crude oil hits $200 or $300 a barrel (as many have predicted), real estate in Denver may continue to grow…
Regardless of easy credit, Colorado continues to add as many jobs as the nation as a whole, loses. More jobs mean more people and more people need a place to live and work.
It’s hard to gauge how many of these people will want to live downtown and not in the suburbs, but lets hope expensive gasoline has a silver lining named Infill.
I think we're seeing a trend towards increased urbanization on a national level these days, especially with the looming energy crisis. Small towns and suburbs are just becoming too impractical. Denver will keep growing, and if it's at a moderate pace, then there won't be a threat of buildout.
Jeff, you touch on something important here, which relates to Ken's earlier two posts about public space: Denver's uniquely positioned at the moment to build up the downtown area more or less from scratch, integrating it into historical districts with upgrades in terms of good parks and superb condo towers and the like (particularly among Gen-X and -Y professionals, maintaining a lawn and a picket fence has become much less desirable, particularly if there are good parks nearby). Between good parks, good transit, and a more walkable environment, I foresee Downtown continuing to grow, and as Ken points out, probably at a healthy pace. Part of the key here is not only to attract good jobs in the energy sector, but to ensure that this are not merely plants like the one in Windsor, which will drive development near there, but also concomitant office space and possibly even headquarters, which can be located Downtown.
I think if anything Denver will suffer the opposite problem: living near the city core has become TOO desirable, to the extent that increasingly only fairly well-heeled folks can afford a decent place near Downtown (Five Points and Whittier have thus far bucked the trend, but this is changing). I'm not sure we want to turn Denver into San Fransisco in that respect.
If we can develop more affordable, appealing housing options for families downtown we will have all the demand needed to sustain residential development downtown. The convention center will hopefully continue to bolster the hotel boom. I think Denver should also better promote itself nationally as a vacation destination because there is so much here that I am sure alot of people are unaware of. For several years now I was relieved that Denver wasn't going through the out of control development booms Nevada, Arizona, and Florida were experiencing. I will take more moderate, steady, sustainable growth any day. I know several people who invested in houses to flip in Phoenix and Fort Myers, Florida who are really hurting right now.
This is true- having even more projects going up now could leave us in a heap of trouble in a few years.
Housing is down, the dollar is down, inflation is up, trade inbalance is rising, and oil is skyrocketing. Damn… are there any economic indicators heading in a positive direction?
In addition to what Ken mentioned in his blog and other commentators have mentioned above, several other factors are different with the current building boom compared to the 1980s which would help mitigate overbuilding even without the credit crunch induced slow down. There is much more diversity of land uses in downtown Denver today with a mix of multifamily, office, hotel, retail, restaurant, entertainment, civic/cultural, etc (often times multiple uses at the same site) and this diversity is well reflected in many of the current and proposed development projects. In the 1980s too much development was concentrated in the office sector. The downtown and regional economic base is much more diverse and less dependent on a single sector than it was during the previous energy boom. Finally there has been and will continue to be a huge amount of public investment in downtown Denver including FasTracks and Union Station, increasing regional connectivity in the core and pushing up downtown land values.
There was a lot of development downtown over the 90s. But it wasn't the vertical type. More turning those blank 80's plazas into pedestrian friendly area with shops and retail
>if anything Denver will suffer the opposite problem: living near the city core has become TOO desirable, to the extent that increasingly only fairly well-heeled folks can afford a decent place near Downtown… I'm not sure we want to turn Denver into San Fransisco in that respect
Oh you mean like in Boulder?
The secret to avoiding runaway gentrification is simple: Don't let demand run away from supply. As demand goes up, make sure supply is able to keep pace.
Sounds easy, but we all know what happens. Folks move in and then try to stop the flow of residents right after they're through the door. That mindset has to be fought against constantly. Slow growth NIMBYism in high density areas is the enemy of affordable housing.
Put greenbelts up, sure. Or in Denver's case, maintain the "areas of stability". But then you have to raise the density in your areas of change to compensate accordingly, or you're just making things worse in the long run.
It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.
Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.
This asset bubble is different than all of the others – it will never slow down, or pop. The gains are permanent.
^ great point…and there are many other things the city can do to encourage affordability through zoning that encourages density, low parking, better transit and free market forces (rather than poorly designed inclusionary housing systems)
DENVER IS NOT OVERBUILDING! – DENVER IS CATCHING UP!
Interesting thoughts. Great story.