FORT COLLINS — Struggling with regulations, rising costs and the uncertain atmosphere created by the Trump administration’s policy shifts, real estate executives in Northern Colorado say their best course is to ride the roller coaster and adapt.
“Endurance builds character, and character builds faith and hope,” said Tom Hall, a partner at Waypoint Real Estate, during BizWest’s CEO Roundtable in Fort Collins on Tuesday, adding that hope is “what we need right now.”
The impact of both federal and state policies are top of mind for Justin Morrison, owner and president of Mountain-N-Plains Inc.
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“My concern is contractors using [tariffs] as a means to drive up their costs and using that as an excuse,” Morrison said.
As for Colorado’s business climate, he added, “a lot of our portfolio is moving out of state because of the weekly laws that are driven down on us from the state, so that’s pushed business out of Colorado, unfortunately. We were at over 500 residential properties a couple years ago, now we’re down to just over 400.”
Jared Goodman, senior vice president at Cushman & Wakefield, noted that the erratic federal policy shifts have “been a roller coaster” but added that the atmosphere is causing “a little bit more scrutiny on investments.
“The right type of product is still moving, surprisingly,” he said, “but some of the more risky product – multitenant, retail, things like that – we’ve been seeing buyers underwrite them a little bit. They aren’t moving as quickly.
“Yesterday I was talking to a buyer, and I said, ‘I’m glad I’m not heavily invested in the stock market right now,’ and he goes, ‘But you are.’”
Some panelists didn’t seem as worried about the impact of tariffs as were others.
“We’re invested in a lot of service-oriented businesses for whom tariffs aren’t an issue,” said Nathan Klein, senior partner at LC Real Estate Group. “Who’s going to tariff a haircut?”
Still, he said, the short-term impact of tariffs “should be positive for warehousing because there’s a lot of American companies buying foreign goods and trying to be in front of tariffs with their purchasing power. Long term is that there could be a manufacturing benefit as we onshore some of these things.
“The ones that seem to be impacted the most right now are restaurants,” he said. The cost of the ticket and the lack of quality employees is driving the service down so the cost is up and the service is down.”
Forrest Hancock, development director for Montava Development and Construction Co., which wants to build a 4,000-home project on 1,000 acres in northeast Fort Collins, said tariffs create a multiplicity of worries for residential development.
“When you get into the homebuilding side of things, I’m worried because on the tip of everybody’s tongue is lumber,” he said. “The U.S. lumber market never solved the problems that came out [with the COVID-19 pandemic.] “They didn’t go build sawmills, and they didn’t create opportunities to produce more American lumber, so we still need Canadian timber.
“If the volley of tariffs continues, that’s going to drive lumber prices up,” he said. And with the administration’s crackdown on immigration, he added, “labor’s going to be interesting, too.”
Hancock, noting that trade schools “aren’t as prolific as they used to be,” added that the supply of skilled laborers is so short that at one Denver-area construction site, competing developers were luring workers away from one project to another across the street with the promise of more money.
Still, Hancock cited some mitigating factors.
“Oil’s down. Oil drives asphalt. Oil drives concrete. Oil drives our PVC water mains and our sewer lines,” he said. “So I’m choosing to breathe and not freak out.”
For Brandon Wells, president and CEO of The Group Inc. Real Estate, a bigger challenge is demographics.
“Northern Colorado is shrinking, stagnant,” he said. “The average age of a new-home buyer is 38 years old. We’re in the business of trying to build new homes, so who in two years, when we’re developing and our builder is building, is going to buy these homes? Who’s going to be able to afford them, especially with a new policy coming in for energy efficiency, which is beautiful, but it drives costs up, and that seems counterproductive to selling homes these days.”
To attract projects, Wells said, “you’ve got to try to remove the red tape. If we stay in a non-growth-oriented mode in certain communities, we will pay the price long term with the underlying economics of what are the core demographics for supporting entry-level positions?
“Growth is the solution,” Wells said. “Growth isn’t the problem.”
Noting that Northern Colorado has “very little industrial-zoned land in Northern Colorado,” Klein wondered where those buyers of new homes were going to work even if they could afford one.
“Brandon’s talking about where are these people going to live,” Klein said, “and I go, ‘But where are we going to put ’em?’ When Loveland did the Amazon deal, they took 100 acres of prime regional industrial land out of play. Where’s that going to be replaced?”
Gage Osthoff, a broker and partner at Realtec Commercial Real Estate Services Inc., cited a case where two sites of 200 acres were platted and annexed for industrial use but then were taken by the county for recycling uses.
“Some of those communities don’t like industrial,” Osthoff said, and Bill Reilly, vice president of SVN/Denver Commercial, observed that working with cities and counties is “never boring.”
The median cost of a home statewide is now $639,000,” Hancock said. “Fort Collins is a college town. These college graduates coming out, I don’t see them affording a $639,000 home. Our target is providing a multitude of segments so we want to try to bring that price point down, but still, when they don’t have jobs and a place to live and work in Fort Collins, they move out.”
Troy McWhinney, chief financial officer for McWhinney Real Estate Services Inc., noted that “the cost to rent is a lot cheaper than the cost to own. So if you’re a young family, you might not want to own right now.
“Owning a house used to be the American dream. It’s expensive to own a house,” he said. “If you can rent and take that money and invest it elsewhere, the difference between ownership and renting, I’m telling young people, you might not want to buy a house. Take that savings and do something else with it. Go start investing. Don’t spend it.”
McWhinney said his company’s residential projects at Centerra South in Loveland and Baseline in Broomfield “only made sense for us with public-private partnerships, with the City of Loveland and with the City and County of Broomfield. Without those, they aren’t even close to working.”
Adam Frazier, president of real estate development and operations for Richmark Cos. in Greeley, agreed.
“Nothing really works without public-private partnerships in downtown Greeley right now,” he said. “We have a great [Downtown Development Authority] and City Council.” But in some cases, such as land near Greeley’s airport where there’s “not enough power, water or sewer to build anything, it’s going to take multiple governments.”
The use of special districts, especially metropolitan taxing districts, are “still a necessary tool,” noted Jason Woolard, CEO of Pinnacle Consulting Group, and Jake Hallauer, president of NAI Affinity, said potential developers aren’t committed to any one location.
“Developers and investors are location agnostic,” he said. “They can go anywhere. They’re just looking for a place where they can make a reasonable profit without overbearing risks.”
As for consumers, Wells said, “sentiment is all over the place. People are confused. People don’t like change, but people really don’t like change when there’s no clarity. Nobody’s got clarity, so that gives everybody a hunker-down mentality.”
“You’ve got to pay attention to the economics,” said Tom Livingston, principal at Livingston Real Estate and Development. “That’s the bottom line. If you think they’re going to change because of sentiments, you’re wrong. Everybody expects you can still come to Northern Colorado and do the real low-density, mixed use projects that we did in the past. That’s over.”
Those economics, said Julia Crawmer, asset manager and broker at Mountain-N-Plains, are leading to “some consolidation in businesses, with people retiring and selling off their business in consolidations. Office space is absorbing smaller spaces but landlords are having to give concessions whether it’s tenant-improvement allowances or rent concessions up front.”
In retail, she said, “you’ll have a small guy struggling and landlords trying to help them out as much as they can because it’s their livelihood.”
For those property owners, Morrison said, “going to court now over any type of damages is a lose-lose situation for landlords. Landlords really don’t have any rights any more. Now it’s getting to the point where we tell our clients, ‘Listen, this tenant wants their whole security deposit back, not half of it, and so just give it back to them because it’s not worth the legal fight.’”
Hancock said he and Max Moss, Colorado president of HF2M Inc. and a partner on the Montava project, “are on a panel that’s exploring how to meet the city council’s goal of carbon zero by 2030. But frankly, it just adds cost. A proposed 9- to 10-kilovolt solar system on every rooftop, that’s $30,000 right there. Then you look at the data showing how many buyers you lose with every thousand dollars in increase, and we just lost 30,000 buyers right there.
“There’s a balance in there,” he said. “Our group hasn’t found that balance yet. I personally think it needs to be incentives from the cities. Permitting costs in Fort Collins are expensive, and that just adds to it.”
Still, Moss said, “we’re seeing the city being very receptive to this reality. They’re listening. They’re balancing city council goals with economic reality, and they’re listening to people like us saying, ‘This can’t happen. We’re going to have to do this differently.’”
Engaging with the city of Fort Collins “is better than it’s ever been, and they are much more open than they’ve ever been,” Moss said.
Recalling that a consultant hired by Fort Collins’ utilities department once proposed nearly tripling the city’s raw water rate, he said developers responded by pointing out the flaws in the report. Eventually, he said, “the city council didn’t raise, they lowered their water fee because they looked at and listened to the truth, and they cared.”
Moss said that’s a lesson the real estate industry as a whole could follow.
“I would love this group to turn from what are we struggling with to what can we do,” he said. “That would be really encouraging to me. What are the things we could do together that could make a difference and build this place in a great way.”