Cutting Through the Noise on Denver Multifamily Financing
[Editor’s Note: Slatt Capital focuses on market-specific trends where our advisors have a presence and developed expertise. In this piece, we focus on multifamily market oversupply and strong lender appetite in the Denver central business district. For another view from the NorCal market perspective, check out Navigating Mixed-Use and Multifamily Debt: A Capital Advisor’s Playbook – Slatt Capital]
If you have been paying attention to the Denver multifamily market lately, you have probably heard a lot of doom and gloom about oversupply. And while that concern is real from an investment and ownership standpoint, from a financing standpoint the story is quite different. In the three years I have been in this market, I have rarely seen lender appetite as strong as it is right now.
What Lenders Are Actually Saying
The oversupply narrative tends to hit hardest for property owners who are struggling to hold on to assets with their current debt load. But on the lending side debt funds and conventional lenders are actively looking for opportunities to put capital to work in Denver. That shift has been meaningful, especially compared to where things stood 12-18 months ago when lenders were dragging their feet. Since the turn of the year, the tone has changed significantly, and lenders are moving more aggressively.
That said, they are being selective. Downtown Denver and the CBD are largely off the table for most lenders right now. The strongest activity is in the suburbs — Wheat Ridge, Arvada, Aurora, Castle Rock, and the surrounding areas. Lenders want to be outside the core right now and the deals that are getting done most easily are stabilized assets. That is simply the safest bet in this environment. Construction and value-add deals can still get done (I am personally working on several) but you need to be in the right submarket and have the right story to tell.
What Has Changed in Underwriting
Compared to 2-3 years ago, lenders are a bit less flexible on underwriting standards — but there is an important nuance. The standard 1.20 to 1.25 debt coverage ratio threshold is still in place, but lenders are increasingly willing to bend on that number if the sponsor is strong. In today’s market, sponsor quality carries more weight than it used to. A borrower with solid financials, a proven track record, and strong cash flow can often get a lender to move off their standard parameters in ways they would not have before.
For new borrowers and those without deep lender relationships, conventional banks and credit unions remain the most accessible path to financing. Life companies and debt funds come into the picture for repeat borrowers or more complex deals like construction.
Stop Trying to Time the Market
This is the piece of advice I give more than any other, especially to middle market investors. The rate environment is volatile right now — it goes up, it comes down, and nobody knows where it is headed next month, let alone next year. I have watched too many borrowers sit on deals that penciled perfectly, waiting for conditions to improve, only to watch the window close on them entirely.
A lot of investors think they can time the market. I have many examples of that being exactly the wrong approach. If your deal pencils today and you have the capacity to move forward, do it. Do not wait for a better rate that may never come. The borrowers who win in this environment are the ones who stop gambling on the future and take advantage of what is in front of them right now.
My Advice for Borrowers Right Now
The biggest mistake I see borrowers make is thinking they can outsmart the lender. Every bank has specific underwriting parameters and a credit officer who enforces them. The borrowers who come in trying to negotiate around those guardrails almost always lose time and goodwill. The ones who come in prepared, realistic, and working with someone who knows the market tend to get deals done.
Looking Ahead
I expect that Denver multifamily financing conditions will normalize in about 18 months. The supply that was overbuilt will fill up as demand returns — and people will move back into the city. There is also very little new construction underway right now, which is actually a good sign for the long-term health of the market. For owners and developers with the ability to hold, patience will pay off. Denver is a resilient market. It has been through cycles before and it will come back.
For what it is worth, Fort Collins is the strongest market in Colorado right now and Colorado Springs is the one to watch most cautiously. But Denver remains the most adaptable market in the state, and I expect it to prove that again over the next couple of years.