Is Colorado closing for business, one county is!

Anyone who has sat on i70 or i25 knows the growth pains occurring in Colorado first hand.  Colorado’s population continues to rapidly increase and housing / commercial real estate is becoming more constrained throughout the front range.  This huge population increase is having existing residents say “enough”.  One county in the front range is actually “closing down” any new development.  Is this a trend that other counties will pursue?  What is the impact on real estate prices?

Boulder led the trend many years ago restricting development, but one county has taken it a step farther and stopped any development for the next year.  The Westminster city council  ( a NW suburb of Denver in Jefferson county) to ban new development for 12 months.

The sewer system in Westminster can no longer handle the increase waste.  The City of Westminster enacted an emergency ordinance for a 12-month moratorium on the acceptance of new development applications that increase the sewer demand for projects that flow into the Big  Dry Creek Interceptor Sewer.

Westminster Colorado shut down any new development:

With a 12 month moratorium, any developments that don’t have their building permit are out of luck.  This is a huge burden on property owners.  Imagine if a developer had three pad sites ready for development with loans on the property, they were finalizing leases with the tenants for their specifications and were about to go vertical.  This new moratorium ended any possible hope for development and also likely cost the developer the tenants.  What tenant wants to wait two plus years for space?  This moratorium will have a chilling impact on any new residential or commercial development in Westminster.

This is not a new problem:

According to a report by the city of Westminster this has been a known issue since 2012 and according to documents from the city will take 8 years to resolve.  Will developers wait 8 years to build on their property? What will banks do that have loans on property that are basically unbuildable for such a long period of time?

From the city council:

An assessment of the BDCIS conditions and capacity was performed and documented in a report in 2012, which was updated in 2015.  This report confirmed that several segments of the BDCIS are reaching the end of their useful lifespan and/or have insufficient capacity to support continued development and redevelopment of the area.  Plans were made to initiate a BDCIS project over a multi-year horizon beginning in late 2018 with targeted completion by 2026.  However, the need for improvements has become critical sooner than anticipated with available pipeline capacity being consumed by the development that has occurred.  Flows have increased by approximately 40 percent since 2008.

The BDCIS system is now at a trigger point of risk that warrants both near-term mitigation measures, as well as longer-term expansion to support continued development.  Not addressing these system constraints is believed to compromise the health, safety, and welfare of the community with a level of risk that is not acceptable.  Therefore, an emergency situation is considered to exist until further action can be taken and a moratorium on new development applications is recommended.

Prices will increase & decrease? :

Prices will increase on existing properties as no new supply will come online.  This trend will continue at least for a couple years since once the moratorium is lifted it will take 12-18 months to build something.  The moratorium could also last much longer, as it is projected to take 8 years to rectify the issue.  This will have a chilling impact on existing property owners and prices of undeveloped parcels could decline as they are suddenly no longer buildable and might not be buildable for quite some time.

Someone will pay

Furthermore, in order to lift the moratorium, fundamental changes have to be made to the sewer system to accommodate more volume.  Who is going to pay for this massive infrastructure?  I can almost guarantee that new developments will be assessed a large fee in order to finance the sewer improvements.  This will make building even more expensive.

Other areas in the front range will have the same issue:

The entire front range has a similar issue to Westminster, infrastructure has not come close to keeping up with the increasing demands of the rapid growth in population.  Major improvements to infrastructure must occur in order to accommodate future growth.  The problem is nobody wants to pay for these improvements and so costs will be passed on to the last people in line (the current developments) which will in turn pass the costs on to the end residential or commercial user.

There is no easy solution to the infrastructure crisis throughout the Colorado front range.  The likely solution that passes incremental costs on to developers will further the housing crisis and continue to increase commercial lease rates.  At one point the state will hit a tipping point and businesses and consumers will look to other markets.  Are we at the tipping point now?  How will a mass slowdown in net business and consumer migration impact the state of Colorado?  Will this ultimately lead to lower prices?  We don’t know the answers to these questions yet but with the current trends how quickly will we find out?

Sources/Additional reading

• https://www.denverpost.com/2018/07/23/westminster-sewage-problems/
• https://westminster.novusagenda.com/agendapublic/CoverSheet.aspx?ItemID=2452&MeetingID=328

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties  both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.

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