The word is out. The Grand Junction economy has rebounded, and real estate investments are flying off the shelf. It appears nearly every real estate investment type — including commercial service properties, hotels, industrial buildings, multi-family buildings and office buildings — is either fully leased or selling.
It’s a great time to be a buyer in Grand Junction with realistic capitalization rates of between 6.5 percent and 8 percent and bank interest rates that remain just above 4 percent.
Commercial brokerages see energy services companies moving to the area or expanding operations. Construction payrolls are growing because of street maintenance work, the expansion at St. Mary’s Hospital and extensive remodeling work needed with new building tenancies. Don’t forget the housing market, which has had a stellar year. In addition, forward-thinking people work to entice small technology companies to move to the Grand Valley. Reports of new company moves to the valley increase.
What makes an investment in Grand Junction real estate so positive? Consider the fact many people selling buildings that house national retail brands in Southern California, Texas and the East Coast price those buildings typically at 4.5 percent to 6 percent cap rates. That means a building netting the owner $150,000 a year before taxes is being marketed at a list price of $2.5 million to $3,335,000, respectively. Low cap rates are almost always to be expected as regional markets top out and investors think it’s a good time to invest. Competition to buy these investments increases.
But let’s look at Grand Junction cap rates.
Multi-family buildings with 12 to 50 units constitute a good barometer of local cap rates. Residential income properties remain in high demand, and you’d expect cap rates to be low as a result. But in Grand Junction, we’re seeing sales of larger apartment buildings in good condition at rates of between 7 percent and
8 percent. Compared to the California market, our investment netting the owner $150,000 that sells for $3 million in California sells for $1,875,000 here. Yes, California has more buyers competing for these investments than does Grand Junction. But if you’re investing in Western Colorado, chances are good your purchases will offer a substantially higher return than a similar property in California.
It could be argued the California or Texas real estate markets remain less volatile than the Western Colorado market. The additional population in larger metropolitan areas insulates owners from vacancies that might be more prevalent in times of a down economy in our area.
But is this true across the board? Probably not. We’ve seen the Texas economy bust even more than our area in past years. Same with the Denver economy.
Real estate investments must take into account our staying power in times of economic weakness. That usually means we shouldn’t borrow too much on any of our investments and manage them in a way that creates more sustainable profitability.
Yes, the word is out. Grand Junction is a great place to invest.