Real estate development: a mixed bag
Public-sector construction projects are waning, but multifamily market remains solid :
The Governor's Office of State Planning and Budgeting in March announced that the state general fund revenue is projected to be $164.5 million higher in the next fiscal year than was originally forecasted, due to continued improvement in the job market and increased confidence among households and businesses.
While confidence is up, the reality is that commercial development is still playing catch up. Financing remains a challenge for private developers and competition for jobs among builders remains high.
It's clear that the real estate development landscape remains a mixed bag.
On one hand, we are seeing an uptick in development projects in Northern Colorado. For example, DTMF Investments, an affiliate of Loveland-based McWhinney, recently purchased 16 acres to build a Class A apartment community. On the other hand, private developers are still struggling with access to capital.
We've been busy estimating on a variety of projects, including multifamily housing, HUD-financed projects and projects financed by REITs, but competition for construction projects is tight and materials costs continue to fluctuate. Concrete and steel prices are up, while lumber has been holding steady. Gypsum and drywall products were up 10 percent last year and another 30 percent since January.
According to recent news from the Association of General Contractors, "Construction spending in February topped year-ago totals by 5.8 percent as a double-digit increase in private construction offset a small drop in public-sector spending."
"It is heartening to see that nearly all private residential and nonresidential segments exceeded their February 2011 levels this February and that the decline in public construction has moderated from the steep pace of early last year," said Ken Simonson, the association's chief economist. "The improvement is too widespread to be attributable just to favorable weather comparisons."
Simonson noted that public construction spending declined 1.4 percent in February from a year earlier and 1.7 percent from January. The two largest public categories showed similar results. Highway and street construction, the largest public category, edged up 0.4 percent year-over-year but fell 2.6 percent for the month.
Educational spending rose 0.8 percent over 12 months but dropped 2.5 percent from January to February. Association officials warned that public construction spending may soon decline more sharply, unless lawmakers provide adequate funding for transportation and other infrastructure needs.
Public sector construction projects may be waning, but the multifamily market remains solid. The Arbors at Sweetgrass, a 249-unit Class A apartment community in Fort Collins, recently sold for $115,000 per unit, "a very strong price," according to the Colorado Real Estate Journal. CB Richard Ellis broker David Potarf was quoted as saying the sale shows the strength of the market in Northern Colorado.
While the economic downturn has been tough on contractors and those servicing the real estate development industry, we are hopeful that lending for private developers becomes more readily available, fees continue to increase for jobs and the economy continues to trend upward.
Terry Drahota is president and CEO of Drahota, a Fort Collins-based and general contractor and construction management company. Reach him at email@example.com or 970-204-0100.
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