He was born in the summer of his 27th year
Coming home to a place he'd never been before
He left yesterday behind him, you might say he was born again
You might say he found a key for every door

John Denver’s iconic 1972 hit first spoke to me about 45 years ago. My family moved to Colorado from Canada in 1978. What a different place Denver was from Montreal; the scenic beauty of the majestic mountains and rivers was something I had never seen before.

My history in Colorado runs deep. I completed high school in Denver and did my undergraduate studies in Colorado Springs. My family owned a home in the Vail Valley beginning in the late 70’s and I’ve been fortunate to have had a place up there for the last dozen years. I’ve learned to appreciate that the summers in the mountains are as spectacular as the winters.

Pathfinder began investing in Colorado back in 2009, when we purchased a portfolio of bank owned assets from an institution that was subsequently seized by the FDIC.  Over the years, we’ve made over 20 investments in Colorado, including almost 1,200 multifamily units, primarily in the Denver/Boulder metro area, making it our most active investment market in unit count. Today, we own 577 multifamily units spread across five separate projects (with 14 additional units under construction today).

Colorado’s population and economic growth trajectories have been nothing short of amazing.  The population has doubled since 1980, from about 2.9 million to over 5.8 million. The Denver metro area’s population has soared over that same time. Back in 1980, the metro area had about 1.3 million people; today, it’s almost 3 million.

But the bigger story for Colorado is its economic diversity. My family’s Denver-based real estate development and hard money lending business got crushed in the late 1980’s when the oil and gas boom which had fueled Denver’s growth turned bust. Denver was kind of a one-horse town at that point. The real estate industry was decimated during that cycle, as the various oil and gas industry companies closed their doors or pulled their wagons out of town. Instead of the cranes you see across the sky today, you saw empty high rise office buildings stretching from downtown through the various suburban office parks of Denver Tech Center, Greenwood Plaza, Panaroma Park and Inverness Business Park.

But that was then. What a different story today.

Today, the Denver metro’s business base is made up of industry clusters that include aerospace, aviation, bioscience, broadband and digital communications, energy and natural resources, financial services, food and beverage production, healthcare and wellness, IT-software, arts and culture and outdoor recreation across its seven counties. According to the Denver Metro Chamber of Commerce, its unemployment rate is currently 2.9%, well below its historic average. Colorado job openings are also at a historic high; there are more job openings than there are unemployed. Real estate has also been booming.  Almost 8 million square feet of new industrial buildings will be delivered this year, along with over 14,000 apartment units and almost 20,000 single family homes. We fully expect those numbers to shrink over the next few years, as inflation and high interest rates curb some of the growth. And developers have responded to the high housing prices and interest rates; this year, they will pull more construction permits for apartments than single family homes.

We like university systems that drive business and innovation, and Denver gets straight A’s in this department. In the fiscal year ended June 2022, the University of Colorado and its hospital affiliates represented a $13.3 billion economic engine for the state, according to an economic impact report from the Leeds School of Business. And CU is just one of several colleges and universities across the front range.

Denver has also become a young and wealthy population. The average annual household income in Denver is $111,981, while the median household income sits at $78,177. Residents aged 25 to 44 earn an average of $88,186. According to the Chamber of Commerce’s reports, Metro Denver is a relatively young region with a median age of 37 years and has its largest population concentrations in the 30-44-year range (22.5%) and 15-29-year range (21%), supplying companies with a large and highly skilled workforce.

I would be remiss if I didn’t mention the billion dollar plus impact the ski industry has on the state, along with the multiple professional sports teams that drive the economic engine of multiple ancillary businesses and give the locals lots to root for (as an aside, the Denver Broncos, Avalanche and Nuggets all sold out their season ticket packages this past year).

Still, there have been some growing pains along the way. While we’re not seeing Silicon Valley home pricing, Denver is no longer the affordable mecca that it once was. As a result, homeownership rates have fallen.

Colorado’s homeownership rate peaked in 2005 at 71.6% and has fallen steadily since to 65.9% in 2021, the 11^th lowest rate in the country. Denver County’s rate is now at a meager 54%, well below the national average. Not bad for apartment owners, but not great for young people trying to build equity.

Affordability concerns may disperse some of the housing demand toward less expensive areas of the state – like Fort Collins and Colorado Springs. Homelessness is pervasive, especially in downtown Denver. Downtown businesses have also suffered.  According to CBRE, 27.2% of downtown offices are vacant. And in its fourth quarter 2022 office report, JLL reports that sublease space across the market equaled 4.8% of total inventory in Denver, the highest level on record.

And the population growth has slowed.  Population growth in 2021 was the slowest in three decades.

We’re also starting to see more NIMBYism. Like most cities across the western U.S., Denver is badly in need of affordable housing. A local municipal golf course (Park Hill) was shuttered in 2018 after an investor purchased it for $24 million. Their plan was to develop a mix of residential, retail and park space, including a significant portion of income- restricted housing across its 155 acres.  But two weeks ago, the voters turned the project down. The land may revert to a golf course, or the developers may go back to the drawing board to try something new.  Either way, the large swath of land will continue to sit fallow for a while longer.

Like most cities, Denver has its pluses and minuses. But these days, the scales tip to the pluses. I’m fortunate to be able to spend time in both Colorado and California. And Pathfinder is fortunate to have made one of our largest investment allocations in the State. We are believers in the long-term prosperity of Colorado.

Lorne Polger is Senior Managing Director of Pathfinder Partners. Prior to co-founding Pathfinder in 2006, Lorne was a partner with a leading San Diego law firm, where he headed the Real Estate, Land Use and Environmental Law group. He can be reached at lpolger@pathfinderfunds.com.