Feature

Denver Real Estate 2012

We may not be in a citywide bull market, but there are plenty of reasons to feel pretty darn good about real estate in the Mile High City this year. This is especially true of Highlands, which has become a nationally recognized, trendsetting model for the possibilities of 21st-century new urbanism. Here’s how Highlands became the hottest part of town—and which local neighborhoods might be next.

May 2012

On any given night, ask your friends, colleagues, or neighbors what they’re doing and where they’re going, and chances are the word “Highlands” will be part of the answer. Maybe they’ll be dining on pork steamed bao at the hotter-than-hot Linger, or grabbing a Negroni at the hipper-than-hip Williams & Graham. Maybe they’ll be canoodling over glasses of Burgundy at Z Cuisine, or downing a burger and a pint of Odell’s Levity Amber Ale at Highland Tap and Burger. Or maybe they’ll be queuing up for a cold treat and a warm night at Little Man Ice Cream. 

Just as Manhattan’s formerly seedy Lower East Side and San Francisco’s Mission District have evolved from underserved no-man’s-lands into hip nightlife destinations (while maintaining just enough seediness to stay interesting), Highlands (which is composed of East Highland—aka LoHi—and West Highland) has over the past few years become the part of town to live in and be in.

What makes Highlands so hot? We polled some Denver real estate pros to determine the factors behind the boom, and in the coming pages we detail which neighborhoods have Highlands-type potential.

This is not to suggest that Highlands is problem free. The area’s educational options are still works in progress; Academia Ana Maria Sandoval Montessori magnet school and the bilingual Escuela de Guadalupe, for example, are much-lauded elementary learning centers, but North High School has a more modest track record. The education situation, though, will likely change “as families decide to stay in the city awhile and get more involved in the schools,” says Kentwood City Properties’ Liz Richards.

The burgeoning commercial activity means parking is threatening to become a big city–type concern. “Parking really needs to be thought out now,” Richards says. “There’s certainly a need, and if more parking can be provided”—via dedicated lots or garages—“people can make money on it, and it’ll be win-win.”

Then there’s overdevelopment. Besides the proposed multi-unit projects in Highlands Square, LoHi is witnessing all kinds of construction, much of it new buildings with dozens of rental units. Because LoHi has largely been zoned MX5, or mixed-use up to five stories, it’s ripe for new apartment buildings. “This area went from being transitional a few years ago to having a number of big-name developers coming in,” says Ryan Diggins, a partner with Gravitas Development Group, which has several Highlands projects. He says developers are using assemblages—purchases of multiple adjacent single-family lots—to get the necessary acreage for bigger rental projects. “They’re building primarily smaller, contemporary, more manageable, affordable, and energy-efficient units,” Diggins says. “LoHi is almost a blank canvas for this sort of thing.”

Richards, for one, says new rental properties in that area are actually overdue: “Until recently, there hasn’t been any new construction that’s a decent rental, so it’s fulfilling a huge need in the marketplace,” she says, adding that she doesn’t see the Highlands boom slowing any time soon. “Whether they’re buying or renting,” she says, “people want to go where it’s hot.”

Location

The rehabilitation of LoDo in many ways led to the Highlands renaissance. The nationwide new urbanism trend has renewed the appeal of city living, and once Denver erected the Millennium, Platte River, and Highland bridges, the seamless pedestrian and bicycle link between northwest Denver and downtown made it that much easier to walk or bike to work or to LoDo restaurants and recreation. Other neighborhoods, regardless of their proximity to downtown, have followed suit by improving paths for biking and walking or by adding light rail lines to speed commutes and get people out of cars.

Mixing commercial and residential

The once-booming, later-dormant Highlands commercial areas have been revitalized over the past decade. It’s more than just the retail and restaurant hub at Highlands Square; the area is also bubbling over with mini-commercial districts such as 32nd Avenue and Zuni Street, along Tejon Street, and on Tennyson Street between 38th and 45th avenues—stretches with a few eateries or boutiques that break up the residential enclaves and bring in visitors from other parts of town. 

Walkability

Even if you aren’t heading downtown or out to eat, Highlands itself has plenty of attractions for the everyday pedestrian, such as Sloan’s Lake to the west and the Platte River trails to the east. There are plenty of parks—a boon to the growing number of young families in the area—and they’re spread out enough that the nonparents aren’t constantly fighting stroller traffic like in more congested parts of the city. And between historic Victorians, well-kept bungalows, Denver Squares, and vibrant new construction, a walk in Highlands is like a self-guided architectural tour.

Spreading the Wealth 

One benefit of Highlands fever is that it’s surrounded by a number of once-modest neighborhoods that are becoming the indirect beneficiary of Highlands’ success. “Interest is moving north to Berkeley, east to Sunnyside, south to Jefferson Park, and west to Sloan’s Lake,” says Charles Roberts of Your Castle Real Estate. “You can almost see it on a block-by-block basis up to Pecos Street. The prices are still high in the epicenter, but they’ve moved into those other neighborhoods.”

Note: Although neighborhood boundaries are often in dispute, for our purposes West Highland is bordered by 38th and 29th avenues and Federal and Sheridan boulevards; East Highland sits between 38th and Speer Boulevard, and Federal and I-25. Together they form Highlands.

LOCATION: Areas with easy access to downtown, other neighborhoods, and freeways

BAKER

DOM  (Days on Market): 86, Average Sale Price:  $264,000, Price Change (Year over year from December 2010 to December 2011): + 6 percent

Although Baker seems to have enough amenities to become the next Highlands—from nightlife and inventory to the preponderance of hipsters—it also has limitations such as small lots and occasionally sketchy blocks. “Baker’s a good example of what Highlands was like in 1995,” says Charles Roberts of Your Castle. “It’s wonderfully transitional, but you don’t want to end up in the wrong part of it.”

Ones to Watch

Capitol Hill—DOM 153, Average sale price $423,000, Price change - 2 percent

Curtis Park (Five points)—DOM 117, Average sale price $284,000, Price change 0 percent

_____

MIX OF RETAIL/RESIDENTIAL: Areas that tastefully blend residential comfort with lively retail centers

BERKELEY WEST

DOM: 89, Average sale price: $292,000, Price change: + 6 percent

A neighborhood on the rise, thanks to the improving Tennyson Street Cultural District and its proximity to Highlands and freeways. “Tennyson Street gives residents more options than just one or two restaurants or coffee shops, and the area is trending along the lines of Highlands with a mix of new builds and fixer-uppers,” says Liz Richards of Kentwood City Properties.

Ones to Watch

Cherry Creek—DOM 120, Average sale price $814,000, Price change - 7 percent

Platt Park South—DOM 59, Average sale price $394,000, Price change + 5 percent

_____

WALKABILITY:Areas with a variety of attractions within walking distance

STAPLETON

DOM 94, Average sale price $432,000, Price change + 1 percent

This area is more than fulfilling its new-urbanist mission, with plenty of parks, an evolving commercial district, and a planned light- rail line. “Stapleton is one area where values have held up, and a lot of new residential and commercial development is going on,” says Lina Krylov of ERA Herman Group Real Estate.

Ones to Watch

Cherry CreekDOM 120, Average sale price $814,000, Price change - 7 percent

Downtown (CONDOS < $500,000)—DOM 87, Average sale price $274,800, Price change  + 1 percent

_____

SPREADING THE WEALTH:Areas whose attractiveness is helping surrounding neighborhoods grow and thrive.

WASHINGTON PARK EAST

DOM 110, Average sale price $597,000, Price change + 2 percent

This old standby remains as attractive as ever, and its desirability is helping sustain the tonier Belcaro and Cory-Merrill neighborhoods through a tough down period, while extending its reach to areas like University and Virginia Village. “In a neighborhood like Virginia Village, which is right near these areas, you can get a lower price for decent-size lots and a good location,” says Lane Hornung of 8z Real Estate.

Ones to Watch

City Park West—DOM 54, Average sale price $351,000, Price change + 34 percent 

South Park Hill—DOM 76, Average sale price $442,000, Price change + 5 percent

Priority Report Some of the things potential buyers and sellers should be thinking about as they navigate the housing market.

1) Location > Size

What: Sure, you can get more for your money in the ’burbs, but do you really want to live there?
Why: “There’s continued migration into the city, where people want pedestrian-friendly areas, don’t want to deal with commutes, and would rather have 1,600 square feet in a sensible, great location rather than 3,000 square feet farther out.”
—Liz Richards, Kentwood City Properties

2) Upcoming Elections < Market Realities

What: Think the November elections will fundamentally change the housing market? Think again.
Why: “We’ve run data during congressional and presidential election years, and an election year doesn’t change anything. Look at what’s actually happening in the market, not at this hocus-pocus stuff.”
—Charles Roberts, Your Castle Real Estate

3) Denver > The Rest of the U.S.A.

What: National trends mean little in your own backyard, but there’s nothing wrong with hometown pride, and Denver is the envy of most other markets nationwide.
Why: “Denver’s been in the top five, at least, for the past several years. It’s not great yet, but it’s not falling off a cliff like a lot of other markets.”
—Lane Hornung, 8z Real Estate

4) Lifestyle > Quick Returns

What: The days of fix-and-flip are over for almost everyone but the fix-and-flip pros. And that’s all right.
Why: “People have adjusted their paradigm and now realize that their house is more of a home than an investment. People want to be smart, but they’re buying it more for the emotional connection than because they think it’ll be worth more in a few years.”
—Liz Richards

5) New Renters > Old Renters

What: Being a renter once pegged you as struggling, young, unreliable, and thus undesirable. No longer.
Why: “My perception of today’s renters, especially in areas like Highlands, is that they’re affluent and high-end in ways that can only improve a neighborhood.”
—Liz Richards

6) Affordability > Greenness

What: Sure, we want better windows and efficient water heaters; they just can’t be too exotic.
Why: “People think things like solar are really neat, but they aren’t as willing to spend money on it because it takes so long to pay back the investment.”
—Tarl Ford, Highland Renovations

7) Smart > Cheap

What: Just because you can afford a home doesn’t mean you should buy it.
Why: “A sub-$275,000 market may not put you in a sexy neighborhood like Highlands, but more of a bread-and-butter kind of neighborhood. But this will be hard to find while we’re all waiting for the shadow inventory to be released.”
—Lane Hornung

8) Fix it up > Move On Up

What: The credit crunch is motivating homeowners to go the renovation route because it’s easier to find money for incremental improvements.
Why: “People are increasingly interested in investing in their homes; they’re willing to spend more [on a new kitchen or addition] because they’re in it for the long haul.”
—Tarl Ford 

Going Up In Denver’s hottest and most saturated neighborhood, there’s only one way to build—and some people aren’t too happy about it.

The one category of real estate Highlands currently lacks is mid- to high-end rental properties, so it’s no surprise that developers would want to fill that market gap. Unfortunately, the proposed buildings designed to do just that have roused a vocal group of Highlands homeowners who think it’s a looming disaster.  

RedPeak Properties will break ground later this summer on three plots near Highlands Square at 32nd Avenue and Lowell Boulevard. The project will result in low-rise (four- or five-story) apartment buildings with about 150 rental units. One of the three buildings will have some 9,000 square feet of retail space. The apartments will be studios, one- and two-bedrooms that will rent for $950 to $2,000 per month and are designed to be “a new residential option” for a neighborhood that currently lacks rentals, according to RedPeak development director Evan Lichtenfels. 

Although the project is in compliance with Denver’s zoning code, and RedPeak tweaked its plans after area residents voiced concerns about its size and scope, certain folks haven’t been mollified. The resistance has gotten ugly at times—councilwoman Susan Shepherd got into a shouting match last fall with antidevelopment activists on her own front porch.

The concern is that the new buildings will create an untenable traffic crunch in an area that already can be difficult to navigate. “They want to build on three lots that are already public parking lots, plus the project will eliminate some on-street parking because of fire codes,” says Bill Menezes, a representative for the group No High Rises in West Highland, which has vociferously opposed the project. “Common sense tells you this will cause major problems.”

No High Rises rejects RedPeak’s claim that it can only make money on a multistory, mixed-use complex. Menezes cites another nearby project at 32nd and Irving—five standalone townhomes with a small retail complex—as proof that a developer can build something profitable that also fits into the Highlands landscape. “It boggles the mind that here’s someone who thinks you can make money on that type of project, within the character of the neighborhood, and RedPeak is saying no, and the city is OK with it,” says Menezes, who also contends that the city won’t rectify an earlier zoning error.

Lichtenfels insists the LEED-certified project won’t create the feared headaches; he says the buildings will have ample parking, including bike parking (RedPeak is negotiating with the city to get a B-Cycle station on site). The developer worked with an advisory committee that includes councilwoman Shepherd and several groups—including No High Rises—to tweak the buildings’ design. “We’ve tried to be sensitive to residents’ concerns and create designs that fit the area’s existing structures,” says Lichtenfels, who characterizes the advisory committee’s meetings as productive and amicable. “We’ve made concessions, but no matter how many we make, there may always be people opposed to the project.”

The 32nd and Irving project features houses (that are actually on 31st Avenue) built by Gravitas Development, which are priced at around $600,000. Although Ryan Diggins, a Gravitas partner, says his company tried to fit the existing landscape, he also understands RedPeak’s motivations. “There are almost no rental apartments in that neighborhood, so they’re eliminating a key demographic that wants to be there,” he says.

Another Highlands-focused broker doesn’t understand all the fuss: “I think the people objecting to the project won’t put their minds around change,” says Liz Richards of Kentwood City Properties. “Some of these new rental projects will be really nice, and they’ll bring in the type of high-end renters that only help the neighborhood.”

Market Reader

8z CEO and founder Lane Hornung on the surprisingly sunny picture of Denver real estate.

__

Q: What’s your overall assessment of the current market?

A: We’re still in a recovery, but it’s gathering momentum in different places.

Q: What is it about Denver’s real estate that makes things so much better than in the rest of the country? 

A: There are a couple of things: In home-price metrics, Denver’s been in the top five, at least, for the last couple of years. A guy on CNBC just sent me something saying Denver is the place he’s telling investors and real estate pros to buy property. We have a migration happening, and it’s in the right demographics. We’re third in the country in migration, but in the key demo of 25- to 44-year-olds, we’re number one. Those people are moving here not necessarily for jobs, but for lifestyle and a better housing market. It’s relatively stable and healthy, and it doesn’t look skimpy to them. The markets on the coast are getting healthy enough to let people get out of them. 

Q: How did the downturn affect people’s assumptions about home ownership?

A: You’d think that the dream of home ownership is dead, especially among the millennials. But survey after survey says the millennials want home ownership as much as any other generation. It’s smaller, smarter, not so much fix-and-flip, but they really want home ownership. 

Q: But they’re going about it differently?

A: Right. It’s gotta be smart and well-researched. They’re way savvier, and they know the market. They’re really cautious, and rightly so, all the way through the transaction. What’s great about that is that they make great sellers later on, because they bought right. They’re not underwater, or in a bad house with a bad floor plan, or on a bad street.

How Low Can It Go?

Denver’s real estate market is promising for both buyers and sellers—if only there were more properties to buy and sell.

Real estate brokers may not agree on strategic approaches or where we are in the market curve, but they’re unanimous about one thing: We need more inventory.

Although the worst of the foreclosure crisis is probably over, banks are still sitting on countless repossessed homes nationwide. It’s frustrating buyers, sellers, and brokers alike, especially in a relatively strong market such as Denver. “Right now we have about 10,000 properties on the market; four years ago we had about 27,000,” says Charles Roberts, a co-owner and managing broker with Your Castle Real Estate. “Our inventory is down 39 percent from last year for single-family homes, and more than 50 percent for condos. It’s a dramatic change, and it’s driving everything right now.”

The reasons for the shortages vary. When foreclosed properties flooded the market a few years ago, they were often dumped as low-priced, as-is deals that investors could quickly fix and flip; now banks are releasing homes much more slowly, but in better condition. “They’ll put in new carpeting, interior paint jobs, anything to make them more marketable,” says ERA Herman Group’s Lina Krylov. “It helps bring them closer to market price.”

Then there’s the ongoing perception among would-be sellers that we’re in a buyer’s market. “Everyone in Denver thinks that, and under $500,000, nothing could be further from the truth,” Roberts says. He says that potential buyers in the 25 to 35 age range have only known bad markets, so they’re “overcorrecting” by remaining renters. And more renters means fewer homeowners. 

For now, all brokers can do is wait and educate on-the-fence sellers about how the combination of lower-than-ever interest rates and minimal inventory—not to mention Denver’s recent ranking by the Case-Shiller index as the number-three real estate market in the country—should finally motivate them to dive into the market. 

What’s at least 10 miles long, about a half-mile wide, and has a river running through it?

A: Denver’s next great “neighborhood.”

At a gathering of real estate pros in March, Paul Washington, executive director of the Denver Office of Economic Development, called the Platte River Corridor “in my opinion, the most underused riverfront real estate in the entire country,” one that presents Denver with a development opportunity of more than $1 billion. In the coming decade, the corridor will undergo a massive overhaul that will improve existing trails and parks along the South Platte, add new ones, and create a landscape that should improve commercial and residential environments along the entire stretch of the river. Here’s a peek at what’s already been accomplished, and what Denverites can look forward to seeing on our one and only waterfront. 

Down By the River

Numerous municipal organizations are working together on the changes outlined below. Some modifications are a ways off; some are already under way. The net result is that the new South Platte should give many areas—commercial, residential, and recreational—a welcome makeover.

Green Street Connections: Expanding and improving certain streets that traverse the river to make them more pedestrian and bike friendly, and provide easier access to adjoining neighborhoods.

Bridges: Erecting bike and pedestrian bridges to make the river crossable at more points, which will increase non-auto traffic and encourage green-space development along the more fallow stretches of the river.

River Gateways: Creating newer—and nicer—entryways to riverside bike and walking paths.

Night Lighting: To make quiet stretches of the river safer during the evening hours.

Light Rail: Expanding current routes to include more stations to get people out of their cars and encourage commercial and mixed-use development along transit lines.

Re-zoning: Tweaking current zoning codes in areas near the Platte to allow for development of mixed-use properties.

Environmental Improvements:
More people using the Platte for boating, fishing, swimming, or simply walking next to it means a greater need for the environmental safeguards necessary to keep water quality high and preserve natural habitats.