Denver, Commercial market in pits
Despite gains, Denver is worst in country in Moody's rankings
rockymountainnews.com
By John Rebchook, Rocky Mountain News
October 17, 2002
The bad news is that Moody's Investor Service ranked Denver's commercial market worse than any metropolitan area in the country for the second consecutive quarter.
The good news is that Denver dramatically improved its overall average score to 31 from 14 from the previous quarter, according to the national ranking of more than 60 metropolitan areas in its third-quarter update report.
Moody's ranks apartments, retail, office, industrial and hotels as either red, green or yellow.
A red score of zero to 33 means the market is under stress; yellow, from 34 to 66, warrants monitoring; and green, 67 to 100, means it is not under imminent stress. The national average score is 65, more than twice as high as Denver's.
Sally Gordon, vice president and senior credit officer for Moody's, said she never uses the adjective "worst" to describe a metro area.
"We have looked rather carefully at the economic data (from) Denver" to arrive at its current ranking, she said. She noted that employment growth is expected to decline 2 percent this year, in "stark contrast" to the robust growth of 3 percent to 4 percent in previous years.
"When employment is no longer growing, offices are not occupied, factories don't need warehouse space, and shopping centers don't do well because people aren't buying new tennis shoes and things," Gordon said.
She also noted that the Denver-area equivalent of a gross national product will only grow by 0.7 percent this year, compared with 8 percent to 9 percent annually from 1997 to 2000.
"My third point is that business bankruptcies are up by 200 percent from early 2000," Gordon said. "And the flow of venture capital is down 70 percent."
Offsetting those negatives, she said, is the quality of the labor force and the diversification of the economy. "The evidence and data is that Denver should, in fact, outperform the national economy long term, but until it actually happens we have to rely on what is actually there," Gordon said. The latest report is based on the second quarter.
Today, the apartment market is the only real estate sector that has moved from red to yellow, in one quarter rising to a score of 66 from 31. Retail, however, showed the biggest percentage increase, rising 200 percent to 21 from 7.
Jeff Hawks of Apartment Realty Advisors said the apartment market is showing excellent signs.
"I believe putting the apartment market in red was completely inconsistent with what I'm seeing from investors," Hawks said. "We're about to put an institutional-quality apartment property on the market, and we're receiving more interest now than we did with similar properties that we sold in the year 2000, when Denver was one of the hottest markets in the country."
Moody's noted employment is expected to rebound in Denver next year, which will help apartments.
Rick Calhoun, who heads Denver's CB Richard Ellis office, said he disagrees with Moody's methodology and thinks last quarter's assessment was too harsh. |
