Originally published: costar.com
Seattle-based alternative asset manager Timberlane Partners has purchased its first multifamily property in the Denver area as investors flood the market in anticipation of a decade-low in new construction starts
that is expected to elevate rents.
Since 2011, Timberlane has built or acquired more than $1 billion in multifamily real estate across the West Coast and Mountain West regions, but none in Denver. And while the company’s $40.5 million purchase of 2828 Zuni St., a 105-unit apartment complex in the city’s LoHi neighborhood, marks Timberlane’s initial purchase in the city, it likely won’t be the last.
2828 Zuni is “a prime, well-located asset with significant potential for improvements,” Dave Enslow, co-founder and principal at Timberlane, said in a statement. “We are eager to continue expanding our portfolio across the greater Denver market.”
Located at the intersection of Interstate 25 and North Speer Boulevard near employment and retail hubs, 2828 Zuni includes a mix of studio, one- and two-bedroom apartments. Asking rents at the property currently average $2,267, a $200 premium over similar units nearby, according to CoStar data.
Concession use is low at 0.8%, while vacancy rates sit near 6.7% — better than the 11.5% rate registered by comparable properties in the area. 2828 Zuni was completed in 2014 by Canwest Investments. It last changed hands in March 2015 when UBS Realty Investors purchased the building for $32 million.
Timberlane said it plans to undertake “significant enhancements” to common areas and individual units.
Sales slowdown
Like much of the U.S. multifamily market, high interest rates and tepid rent growth have slowed sales in Denver. After falling sharply from peaks near $5 billion in the last quarter of 2021, total multifamily sales have hovered around $900 million for three of the past four quarters, a 30% decline from the market’s pre-pandemic five-year quarterly average, according to a CoStar analysis.
But Denver has begun attracting more multifamily investment as the market has moved past a peak in new apartment openings and construction starts have dwindled to record lows in the past two quarters.
The building slowdown has helped put a potential end date on the supply-induced rent declines that have plagued many Sun Belt and Mountain West markets in recent quarters. “While construction activity has been a central theme in the Denver market and will put pressure on rents through the remainder of 2024, groundbreakings have fallen to a decade-low, which should support stronger rent gains as early as next year,” Jeannie Tobin, CoStar’s director of market analytics for the Denver market, said.
New markets
These assumptions have been key in Equity Residential’s recent push to expand its historically coastal-focused portfolio into new markets, including Denver.
Despite annual rent growth in Denver that has hardly reached 1% over the past five quarters, Equity made a $1 billion bet on the region with its purchase of an 11-property portfolio from investment firm Blackstone that spanned markets in Atlanta, Dallas and Denver. The deal added 978 units across three properties to Equity’s Denver portfolio.
Weeks later, Equity purchased Novel White Fence Farm, a 202-unit property at 6273 W. Jewell Ave. in Denver for $77 million. “In the longer term, we see relief on the way that starts in these oversupplied markets have collapsed,” Mark Parrell, chief executive at Equity, said on the company’s most recent earnings call. “Deliveries in 2026 and 2027 are likely to be much lower than both current levels and historical levels. These expected lower supply levels underpin our property acquisition underwriting in outer years where we expect a significant rental rate recovery.”
Timberlane and Equity join other companies that have made significant purchases in Denver this quarter, including Courtland, AvalonBay, BMC Investments and The RMR Group.