Construction-Defects Reform Rekindling Some Condo Interest

Just over a year after reforms were made to Colorado’s construction-defects laws, developers are treading cautiously into the condominium construction market.

Last May, Colorado Gov. John Hickenlooper signed into law legislation that makes it more difficult for associations of condominium owners to file multi-million-dollar construction defects lawsuits.

“Changes in the construction defect laws have really made things easier for developers,” Slate Real Estate Advisors Partner Stan Kniss says. “We’re in the midst of a pretty undersupplied market given the hold on for-sale construction projects over the last 10 years.”

Despite the changes, there still aren’t as many condo projects in the works as people in the industry had hoped to see post-reform.

“We wanted the law to change the insurance market, and we’re still waiting to see the insurance market react,” says Elizabeth Peetz, vice president of government affairs for the Colorado Association of Realtors.

Construction defects had been an ongoing issue since 2013 when Colorado’s condominium construction shortage was linked to the high cost of insurance for developers. The new law requires more than half of all residents of a condo complex to agree to bring a lawsuit against the complex’s builder over construction flaws. Previously, homeowners association boards could initiate legal action, which scared many builders out of the condo market.

While the developers may not be building as many condos as some had hoped, the reformed law has spurred some condo development.

“I think I went six years without getting a call from a developer saying they were doing a condo project,” Kentwood City Properties agent Dee Chirafisi says. “Now, I’m definitely seeing more projects being announced and more developers calling myself and other brokers in the office looking for land or looking for projects. I’ve definitely had some of the apartment developers saying we’re thinking about not doing rentals anymore and doing condos.”

Dublin Development Principal Jae Edwards says the onerous construction defects laws had kept him from building condos. But about a year before the reforms went into effect, he started entitling property for condo development. Today, Dublin has two projects going vertical, another that is in the entitlement process and two more that are in the vetting process.

“We’re trying to hit an attainable price point,” says Edwards, who will serve on a panel at the Bisnow Multifamily Annual Conference 2018 Sept. 13 at Halcyon, a hotel in Cherry Creek.

Edwards wasn’t the only developer who started projects before the law changed. NAVA Real Estate Group started work on Lakehouse, a 196-unit mixed-use community on the south shore of Sloan’s Lake, well before the reforms went into effect, and residents have started moving into Westfield Co. Inc.’s 99-unit S*Park project in RiNo.

“We need for-sale product in this market,” says Westfield Partner Jonathan Alpert, a Denver native. “That’s the thing that scares me the most about our city – if you can’t put down roots, where do you go next?”