Colorado’s Commercial Real Estate Industry
Statewide Economic Impact Report




                                          ...
Colorado’s Commercial Real Estate Industry
Statewide Economic Impact Report




Submitted by

University of Colorado      ...
About NAIOP

              The National Association of Industrial and Office Properties is the
              nation’s lead...
Preface
Foreward
Table of Contents

                    List of Tables / List of Figures .....................................................
List of Tables

Table 1:      Economic Impacts of Commercial Real Estate and
              Multifamily Construction on Col...
List of Appendices

Appendix A: Economic Impacts, by County, 2006 ...........................................................
Executive Summary

                    The commercial real estate industry impacts the Colorado economy in
               ...
Table 1: Economic Impacts of Commercial Real Estate and
                                         Multifamily Construction ...
Figure 1: Impacts of Commercial Real Estate and Multifamily Construction on Colorado Regions, 2006




              * Reg...
The per capita impacts of income-producing property on Colorado regions were highly variable in 2006, with the
greatest im...
I. Introduction
At the request of the Colorado Chapter of the National Association of
Industrial and Office Properties (NA...
Table 2: Colorado Real Estate Regions

    Region                                                          Counties
    No...
A. Commercial and Multifamily Property in Colorado: 1967-2006
The commercial and multifamily construction industries have ...
The rate of income-producing property construction and the growth rate of the Colorado economy are closely linked,
with a ...
Figure 8: Colorado Commercial and Multifamily Construction as a Percent of GDP, 1967-2006




                     Source:...
With the continued growth in population and employment, the
demand for income-producing property is expected to continue t...
have greater economic overlap since goods and labor are often
provided from neighboring counties; and commuting employees ...
B. Summary of Impacts for Existing Commercial Properties
Direct spending in the existing inventory of all commercial prope...
1. Existing Office Properties
Direct spending in the existing inventory of office properties totaled $3.38 billion in 2006...
This analysis also considers the household (induced) impact, which is the indirect impact that household earnings and
expe...
Direct employment related to industrial real estate was estimated at 3,293 employees earning $132.0 million in 2006,
for a...
Direct employment related to retail real estate was estimated at 18,627 employees earning $705.7 million in 2006,
for an a...
IV. Economic Impacts of Tenant Improvements
The economic impacts of tenant improvements were calculated separately. Howeve...
1. Office Property Tenant Improvements
Estimated direct spending on tenant improvements for office properties totaled $96....
3. Retail Property Tenant Improvements
Estimated direct spending on retail property tenant improvements totaled $94.0 mill...
5. Multifamily Property Tenant Improvements
Estimated direct spending on tenant improvements for multifamily properties to...
V. Economic Impacts of New Construction
Necessary data for calculating the impacts of income-producing property constructi...
1. Office Property New Construction
Direct spending on office property construction totaled $465.4 million in 2006, for a ...
3. Retail Property New Construction
Direct spending on retail property construction totaled an estimated $536.4 million in...
5. Multifamily Property New Construction
Direct spending on multifamily construction totaled $1.4 billion in 2006, for a m...
VI. Economic Impacts of Commercial Property Transactions
The buying and selling of commercial property in 2006 resulted in...
VII. Economic Impacts of Commercial Property Refinancing
Refinancing commercial property in 2006 created a total new loan ...
VIII. Fiscal Impacts
Commercial property impacts federal, state, and local governments in terms of property taxes, sales t...
B. Commercial Property Sales Taxes

Sales tax revenues obtained from direct spending on construction
materials in the Stat...
Table 26: Summary Impacts of Commercial Real Estate and
                                     Multifamily Construction on C...
Appendix A: Economic Impacts, by County, 2006
                                                                            ...
Appendix B: Notes to Methodology


                      EXISTING PROPERTIES
                      To estimate direct spen...
BOMA segregated the data by three regions: Denver, Suburbs, and Boulder. Denver and Suburbs had similar cost
estimates ($1...
ULI data was segmented into five categories of shopping centers: Super Regional, Regional, Super Community,
Neighborhood, ...
Table 30: Denver-Boulder-Greeley CPI

                                                                                    ...
HARD AND SOFT COSTS
The economic value of construction spending to the Colorado economy can be separated into two componen...
Appendix C: RIMS II Colorado Regions

            Region 1 - Eastern Plains Agricultural        Bent, Cheyenne, Crowley, E...
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
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Statewide Economic Impact Report
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Statewide Economic Impact Report
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Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
Statewide Economic Impact Report
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NAIOP Colorado is proud to announce the publication of its inaugural study on the impact of commercial real estate on Colorado\'s economy. A joint study by the University of Colorado and the University of Denver finds that the commercial real estate sector accounts for more than 10 percent of Colorado\'s economy. Commercial real estate generated $23.4 billion in 2006 economic impact, with almost 70 percent coming from existing properties.

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Statewide Economic Impact Report

  1. 1. Colorado’s Commercial Real Estate Industry Statewide Economic Impact Report National Association of Industrial and Office Properties The Forum for Commercial Real Estate Colorado Chapter Submitted by University of Colorado University of Denver, Franklin L. McGraw Hill Construction Research Real Estate Center Burns School of Real Estate & & Analytics Thomas G. Thibodeau Ph.D. - Construction Management Academic Director Glenn R. Mueller Ph.D. - Professor Real Capital Analytics, Inc. Brian Lewandowski - MBA, Leeds School Andrew G. Mueller, MSRECM candidate, of Business Burns School of RECM Research sponsored by:
  2. 2. Colorado’s Commercial Real Estate Industry Statewide Economic Impact Report Submitted by University of Colorado University of Denver, Franklin L. McGraw Hill Construction Real Estate Center Burns School of Real Estate & Research & Analytics Thomas G. Thibodeau Ph.D. - Construction Management Academic Director Glenn R. Mueller Ph.D. - Professor Real Capital Analytics, Inc. Brian Lewandowski - MBA, Leeds School Andrew G. Mueller, MSRECM candidate, of Business Burns School of RECM Research sponsored by NAIOP Colorado Chapter 1720 S. Bellaire Street, Suite 110 Denver, CO 80222-4303 Ph: (303) 782-0155 Fax: (303) 820-3844 www.naiop-colorado.org
  3. 3. About NAIOP The National Association of Industrial and Office Properties is the nation’s leading trade association for developers, owners, investors and other professionals in industrial, office, retail and mixed-use commercial real estate. Founded in 1967, NAIOP comprises 15,000+ members in 54 chapters throughout North America. NAIOP provides networking oppor- tunities, educational programs, research on trends and innovations and strong legislative representation. The Colorado Chapter includes over 700 members. Our monthly breakfast meetings are open to non-members. If you are involved with commercial real estate in Colorado (including office, industrial, retail, mixed use, etc.) as a developer, owner or investor or affiliated service provider, then you should be involved with us! ©2008 National Association of Industrial and Office Properties Colorado Chapter. All Rights Reserved. Is is important to remember that the data collection measures included in this report should be regarded as guidelines rather than as absolute standards. The information readily available may differ according to the geographic area in question, and results may vary accordingly. Local and regional economic performance is a key factor. Further study and evalua- tion are recommended before any investment decisions are made. This project is intended to provide information and insight to industry practitioners and does not constitute advice or recommendations. NAIOP Colorado disclaims any liability for action taken as a result of this project and its findings.
  4. 4. Preface
  5. 5. Foreward
  6. 6. Table of Contents List of Tables / List of Figures ................................................................ii List of Appendices..................................................................................iii Executive Summary ................................................................................1 Introduction ............................................................................................5 Commercial and Multifamily Property in Colorado: 1967-2006 ........7 Methodology ........................................................................................10 Economic Impacts of Existing Commercial Property ..........................11 Total Area ..........................................................................................11 Summary of Impacts for Existing Commercial Properties ................12 Existing Office Properties ..............................................................13 Existing Industrial Properties..........................................................14 Existing Retail Properties ..............................................................15 Existing Hotel Properties................................................................16 Economic Impacts of Tenant Improvements ........................................17 Summary of Tenant Improvements Impacts ......................................17 Office Property Tenant Improvements ..........................................18 Industrial Property Tenant Improvements ......................................18 Retail Property Tenant Improvements............................................19 Hotel Property Tenant Improvements ............................................19 Multifamily Property Tenant Improvements ..................................20 Economic Impacts of New Construction ..............................................21 Summary of Impacts for New Construction ......................................21 Office Property New Construction ................................................22 Industrial Property New Construction............................................22 Retail Property New Construction..................................................23 Hotel Property New Construction..................................................23 Multifamily Property New Construction ........................................24 Economic Impacts of Commercial Property Transactions ....................25 Economic Impacts of Commercial Property Refinancing ....................26 Fiscal Impacts ........................................................................................27 Commercial Property Taxes ..............................................................27 Commercial Property Sales Taxes......................................................28 Conclusion ............................................................................................28 i
  7. 7. List of Tables Table 1: Economic Impacts of Commercial Real Estate and Multifamily Construction on Colorado’s Economy....................................................................................2 Table 2: Colorado Real Estate Regions ..................................................................................................................6 Table 3: Existing Property, Square Feet (000), by Region, 2006 ..........................................................................12 Table 4: Economic Impacts of Existing Commercial Property, by Region, 2006 ................................................13 Table 5: Economic Impacts of Existing Office Real Estate, by Region, 2006 ......................................................14 Table 6: Economic Impacts of Existing Industrial Real Estate, by Region, 2006..................................................15 Table 7: Economic Impacts of Existing Retail Real Estate, by Region, 2006 ......................................................16 Table 8: Economic Impacts of Existing Hotel Real Estate, by Region, 2006........................................................17 Table 9: Economic Impacts of Tenant Improvements, by Region, 2006 ..............................................................18 Table 10: Economic Impacts of Office Tenant Improvements, by Region, 2006 ..................................................18 Table 11: Economic Impacts of Industrial Tenant Improvements, by Region, 2006 ..............................................19 Table 12: Economic Impacts of Retail Tenant Improvements, by Region, 2006 ....................................................19 Table 13: Economic Impacts of Hotel Tenant Improvements, by Region, 2006 ....................................................20 Table 14: Economic Impacts of Multifamily Tenant Improvements, by Region, 2006 ..........................................20 Table 15: Economic Impacts of New Construction, by Region, 2006 ....................................................................21 Table 16: Economic Impacts of Office Construction, by Region, 2006..................................................................22 Table 17: Economic Impacts of Industrial Construction, by Region, 2006 ............................................................22 Table 18: Economic Impacts of Retail Construction, by Region, 2006 ..................................................................23 Table 19: Economic Impacts of Hotel Construction, by Region, 2006 ..................................................................23 Table 20: Economic Impacts of Multifamily Construction, by Region, 2006..........................................................24 Table 21: Total Commercial Property Transaction Volume, in 000s, by Region, 2006 ..........................................25 Table 22: Total Commercial Property Transaction Fees, in 000s, by Region, 2006 ..............................................25 Table 23: Total Commercial Property Refinancing Volume, in 000s, by Region, 2006 ..........................................26 Table 24: Total Commercial Property Refinancing Fees, in 000s, by Region, 2006 ..............................................26 Table 25: Colorado Assessed Property Value and Estimated Taxes, 000s, by Region, 2006 ................................27 Table 26: Summary Impacts of Commercial Real Estate and Multifamily Construction on Colorado’s Economy, 2006........................................................................29 Table 27: Per Square Foot Office Property Operating Expenses ..........................................................................32 Table 28: Per Square Foot Retail Property Operating Expenses ..........................................................................33 Table 29: Industrial Property Operating Expenses, 2006 Estimates ......................................................................33 Table 30: Denver-Boulder-Greeley CPI ..................................................................................................................34 Table 31: Construction and Tenant Improvements Soft Costs Estimates ..............................................................35 List of Figures Figure 1: Impacts of Commercial Real Estate and Multifamily Construction on Colorado Regions, 2006 ............3 Figure 2: Direct Spending Per Employee, 2006 ......................................................................................................3 Figure 3: Per Capita Impacts of Commercial Real Estate and Multifamily Construction on Colorado Regions, 2006 ................................................................................................4 Figure 4: Map of Colorado Real Estate Regions......................................................................................................6 Figure 5: Colorado Commercial and Multifamily Construction, 1967-2006 ............................................................7 Figure 6: Colorado Commercial and Multifamily Property Stock, 1970-2006 ........................................................7 Figure 7: Colorado Commercial and Multifamily Construction Value Versus GDP, 1967-2006 ..............................8 Figure 8: Colorado Commercial and Multifamily Construction as a Percent of GDP, 1967-2006 ..........................9 Figure 9: Colorado Property Tenant Improvements, 1967-2006 ............................................................................9 ii
  8. 8. List of Appendices Appendix A: Economic Impacts, by County, 2006 ..................................................................................................30 Appendix B: Notes to Methodology........................................................................................................................31 Appendix C: RIMS II Colorado Regions ..................................................................................................................36 Appendix D: Supply of Existing Commercial and Multifamily Property (000s sf), by Property Type, by County, 2006 ....................................................................................37 Appendix E: Economic Impacts of Existing Commercial Property, by County, 2006..............................................38 Appendix F: BOMA Office Expense Definitions ......................................................................................................39 Appendix G: Economic Impacts of Existing Office Real Estate, by County, 2006 ..................................................40 Appendix H: Economic Impacts of Existing Industrial Real Estate, by County, 2006..............................................41 Appendix I: Urban Land Institute Retail Expense Definitions ................................................................................42 Appendix J: Economic Impacts of Existing Retail Real Estate, by County, 2006 ..................................................43 Appendix K: Economic Impacts of Existing Hotel Real Estate, by County, 2006....................................................44 Appendix L: Economic Impacts of Tenant Improvements, by County, 2006 ..........................................................45 Appendix M: Economic Impacts of Office Tenant Improvements, by County, 2006................................................46 Appendix N: Economic Impacts of Industrial Tenant Improvements, by County 2006 ..........................................47 Appendix O: Economic Impacts of Retail Tenant Improvements, by County, 2006 ................................................48 Appendix P: Economic Impacts of Hotel Tenant Improvements, by County, 2006 ................................................49 Appendix Q: Economic Impacts of Multifamily Tenant Improvements, by County, 2006........................................50 Appendix R: Economic Impacts of New Construction, by County, 2006 ................................................................51 Appendix S: Economic Impacts of Office Construction, by County, 2006..............................................................52 Appendix T: Economic Impacts of Industrial Construction, by County, 2006 ........................................................53 Appendix U: Economic Impacts of Retail Construction, by County, 2006 ..............................................................54 Appendix V: Economic Impacts of Hotel Construction, by County, 2006 ..............................................................55 Appendix W: Economic Impacts of Multifamily Construction, by County, 2006......................................................56 Appendix X: Colorado Assessed Property Value and Estimated Taxes, by County, 2006 ......................................57 Appendix Y: Assessed Valuation, Revenue, and Average Levies by County, 2006 ................................................59 iii
  9. 9. Executive Summary The commercial real estate industry impacts the Colorado economy in a variety of ways. The industry purchases construction and building maintenance materials from Colorado suppliers and provides jobs for Colorado residents. Existing income-producing properties provide permanent jobs maintaining, managing, and leasing property. New construction and tenant improvements employ construction workers, architects, and engineers. Income-producing property transactions and refinancing provide employment in the brokerage, financing, and legal professions. Finally, revenues generated by property and sales taxes are important sources of financing public services. Activities in the commercial and multifamily property sectors have two measurable impacts on Colorado’s economy. First, income-producing property spending has direct impacts on the State’s output, earnings, and employment. Second, each dollar spent in the Colorado real estate industry has an indirect, or multiplier, effect on the Colorado economy. The indirect influence of real estate spending occurs when money spent on real property is used to purchase other goods and services in the State. For example, real estate employees spend wages earned in their jobs on housing, food, clothes, entertainment and other goods and services in Colorado. These expenditures create more employment and increase output in other industries. This report estimates the direct and indirect impacts that income- producing property has on the Colorado economy. Economic impacts are reported separately for existing properties, for tenant improvements, new construction, transactions, refinancing, and for the fiscal impacts of property and sales taxes. Economic impacts are reported for the entire State of Colorado, for eight regions in Colorado and for each county. Direct income-producing property spending was estimated at $12.3 billion in 2006, or 5.4% of Colorado’s economy. The total (direct and indirect) economic impact that income-producing properties had on the State’s output totaled $24.3 billion in 2006, or 10.5% of Colorado’s economy. In 2006, there were 137,832 direct employees servicing Colorado’s income-producing property sector, earning an annual average income of $32,832. Total 2006 employment (direct plus indirect) in the State attributable to income-producing property was 254,976, with employees earning an average annual wage of $32,177 (Table 1). Most of the economic impact ($16.1B of the $24.3B) was generated by existing income-producing properties. Office and hotel properties account for nearly 76% of this contribution. New income- producing construction contributed $3.3B in direct spending and $6.9B in total output (direct plus indirect economic impacts). See Appendix A for county specific impacts of existing, tenant improvements, and construction. 1
  10. 10. Table 1: Economic Impacts of Commercial Real Estate and Multifamily Construction on Colorado’s Economy Direct Spending Total Output Direct Earnings Total Earnings Direct Total (000) (000) (000) (000) Employment1 Employment Existing2 Office 3,377,771 7,026,103 1,386,691 2,509,433 38,973 74,756 Industrial 301,387 623,368 132,039 230,295 3,293 6,449 Retail 1,574,128 3,256,520 705,653 1,219,051 18,627 35,106 Hotel 2,881,556 5,158,947 984,274 1,663,087 45,793 67,255 Total Existing 8,134,842 16,064,938 3,208,657 5,621,866 106,686 183,566 Tenant Improvements Office 96,426 212,582 35,339 72,056 840 1,995 Industrial 14,693 33,231 5,367 11,261 128 312 Retail 94,036 211,932 34,496 71,906 820 1,987 Hotel 112,504 248,651 40,974 84,157 974 2,321 Multifamily 27,195 60,587 10,016 20,616 238 571 Total TI 344,854 766,983 126,192 259,996 3,000 7,186 New Construction Office 465,385 1,008,333 170,534 341,997 4,054 9,478 Industrial 517,969 1,091,131 190,880 371,999 4,560 10,386 Retail 536,406 1,179,158 196,923 400,545 4,681 11,080 Hotel 313,518 574,134 109,816 189,096 2,608 5,249 Multifamily 1,431,905 3,016,571 522,341 1,018,760 12,242 28,031 Total Construction 3,265,183 6,869,327 1,190,494 2,322,397 28,145 64,224 Other 3 Construction Period Interest/Fees 137,294 137,294 - - - - Transactions 411,408 411,408 - - - - Refinancing 47,093 47,093 - - - - Total Other 595,795 595,795 - - - - Total All 12,340,674 24,297,043 4,525,343 8,204,259 137,832 254,976 1 Employment refers to the number of workers, both full time and part time. 2 Existing does not include multifamily. 3 Other does not include multifamily, nor the impact on employment, earnings, multiplier effect, or impact on individual counties due to the uncertainty of the source of, and redeployment of funds. Sources: McGraw-Hill Construction Research & Analytics, 2007; BOMA International, Experience Exchange Report 2007; Urban Land Institute, Dollars & Cents of Shopping Centers / The SCORE 2006; PKF Hospitality Research; NAIOP Industrial Income and Expense Report 2001-2002; Real Capital Analytics; NorthMarq Capital; University of Colorado-Boulder; University of Denver The impact of income-producing property was highly variable by region, with the greatest impacts located in the Denver Metro, North Front Range, and Mountain Resort regions, tallying 79.3% of the total impact collectively (Figure 1). 2
  11. 11. Figure 1: Impacts of Commercial Real Estate and Multifamily Construction on Colorado Regions, 2006 * Regions exclude the refinancing and transaction impacts because these impacts were measured at the state level, but not the county or regional level. Average direct spending per income-producing real estate employee was $85,212, with a regional standard deviation of $8,613 (10.1%) (Figure 2). The Denver Metro region accounted for nearly 53.2% of direct spending, and therefore greatly impacted the average. Figure 2: Direct Spending Per Employee, 2006 3
  12. 12. The per capita impacts of income-producing property on Colorado regions were highly variable in 2006, with the greatest impact at $16.35 per person occurring in the Mountain Resort region (Figure 3). Naturally, areas with higher levels of income-producing property activity and comparably smaller populations will have larger per capita impacts, as is true in the Mountain Resort and Pueblo regions. The average per capita impact for the eight regions was $4.34. Figure 3: Per Capita Impacts of Commercial Real Estate and Multifamily Construction on Colorado Regions, 2006 County Population Source: U.S. Census Bureau, www.census.gov, as of September 26, 2007. 4
  13. 13. I. Introduction At the request of the Colorado Chapter of the National Association of Industrial and Office Properties (NAIOP), the University of Colorado- Boulder and the University of Denver collaboratively analyzed the economic impacts of income-producing property on Colorado’s economy in 2006. Income-producing property is undoubtedly a major contributor to the Colorado economy in terms of output, employment, and wages. This report defines commercial property as office, industrial, retail, and hotel. Income-producing property is commercial and new multifamily construction. It estimates the economic and fiscal impacts of the income- producing property industry on output, earnings, and employment. Economic impacts are reported for the entire State of Colorado and separately by region based on economic and geographic similarities identified in the 2006 publication “Economic Contributions of Real Estate Activity and Value in Colorado” produced by the Business Research Division of the Leeds School of Business at the University of Colorado-Boulder (Table 2 and Figure 4). The appendices provide individual county impacts. Impacts for Broomfield County are not reported separately due to the inauguration of county status in 2001. Since Broomfield County was created from land located in Adams, Boulder, Jefferson, and Weld counties, the impacts that income- producing property had in Broomfield County are included in these four counties. The income-producing property industry contributes to the Colorado economy by purchasing goods and services from Colorado suppliers and by providing jobs throughout the lifecycle of a property. From the time an income-producing property is conceived by a developer, lawyers, architects, engineers, and a host of other real estate professionals become involved in the planning of the building, the surrounding land, and the public and private infrastructure required to support the development. During the construction phase, an even larger group of professionals are called to action, from builders to construction managers orchestrating numerous construction trades, including carpenters, steel workers, plumbers, electricians, landscape architects, heavy equipment operators, concrete specialists, and many more. Finally, once construction is complete, the property employs another set of individuals to keep the building operating, including leasing agents, financiers, maintenance workers, and property managers. 5
  14. 14. Table 2: Colorado Real Estate Regions Region Counties North Front Range Boulder, Weld, and Larimer Counties Grand Junction Mesa County Denver Metro Denver, Arapahoe, Adams, Broomfield, Douglas, and Jefferson Counties Eastern Plains Baca, Bent, Cheyenne, Crowley, Elbert, Huerfano, Kiowa, Kit Carson, Las Animas, Lincoln, Logan, Morgan, Otero, Phillips, Prowers, Sedgwick, Washington, and Yuma Counties Mountain Resort Eagle, Pitkin, Routt, San Miguel, Summit, Garfield, and Grand Counties Pueblo Pueblo County Colorado Springs El Paso and Teller Counties Mountain Rural Alamosa, Archuleta, Chaffee, Clear Creek, Conejos, Costilla, Custer, Delta, Dolores, Fremont, Gilpin, Gunnison, Hinsdale, Jackson, La Plata, Lake, Mineral, Moffat, Montezuma, Montrose, Ouray, Park, Rio Blanco, Rio Grande, Saguache, and San Juan Counties Source: Business Research Division, Leeds School of Business Figure 4: Map of Colorado Real Estate Regions Source: Business Research Division, Leeds School of Business. The total economic impact of income-producing property spending on the Colorado economy is estimated in two parts. First, spending has a direct contribution to output, earnings, and employment. Employment refers to the number of employees, both full time and part time. Spending also has an indirect, or multiplier, effect on the economy because the dollars spent (or earned) in income-producing property are used to purchase other goods and services in the state. This multiplier effect is measured using the U.S. Department of Commerce, Bureau of Economic Analysis’s (BEAs) Regional Input-Output Modeling System (RIMS) II multipliers. These multipliers estimate the influence of spending in one or more industries on output, earnings, and employment in other industries. The multipliers are produced by BEA using data on the local area personal income and the national input-output accounts. This report captures a snapshot of the lifecycle of income-producing property for the State of Colorado in 2006. 6
  15. 15. A. Commercial and Multifamily Property in Colorado: 1967-2006 The commercial and multifamily construction industries have added more than one billion square feet of office, industrial, retail, hotel and multifamily space in Colorado since 1967. Construction has traversed through three major cycles over 30 years, and it is currently in its fourth. The first cycle started in the 1960s and peaked in 1973. The next cycle bottomed out in 1975 and peaked in 1984, fueled by office construction. The third cycle bottomed in 1991, with the slowest construction expansion in the 30-year period, which was followed by 10 years of increasing construction activity. Colorado is currently in another cycle that bottomed in 2003 and is now moving toward another peak (Figure 5). Figure 5: Colorado Commercial and Multifamily Construction, 1967-2006 Sources: McGraw-Hill Construction Research & Analytics, Bureau of Economic Analysis The total stock of income-producing property increased at a 2.84% compound annual growth rate from 1970 to 2006. The total stock naturally tracks the construction of new income-producing property as it is the product of existing, new, and decommissioned properties. In 2006, income-producing property, including office, industrial, retail, hotel, and multifamily, totaled nearly 1.35 billion square feet in Colorado, compared to 491.3 million in 1970 (Figure 6). Figure 6: Colorado Commercial and Multifamily Property Stock, 1970-2006 Source: McGraw-Hill Construction Research & Analytics 7
  16. 16. The rate of income-producing property construction and the growth rate of the Colorado economy are closely linked, with a correlation of 0.79 from 1967 to 2006 (Figure 7). Over time, the major drivers of Colorado’s economy have also changed, with manufacturing representing 16.5% of Colorado’s GDP in 1967, compared to 6.5% in 2006. Conversely, Professional Business Services is now a major underpinning of the Colorado economy, representing 13.7% of 2006 State GDP. Figure 7: Colorado Commercial and Multifamily Construction Value Versus GDP, 1967-2006 Sources: McGraw-Hill Construction Research & Analytics, Bureau of Economic Analysis Real estate is one of the three basic “factors of production” (land, labor, and capital) required for virtually all economic activities. When new jobs are created in the state, greater demand is placed on places to eat, work, shop, play, and sleep. From 1967 to 2006, commercial and multifamily property construction has gone through four extended growth periods (including the current cycle). Peak construction as a percent of GDP occurred in 1972, comprising 4.9% of GDP (Figure 8). Conversely, at 0.37%, 1991 brought the lowest contribution of GDP from construction. Income-producing property construction’s 30-year average contribution to Colorado’s GDP is 2.0%, signaling that the 1.4% of State GDP in 2006 was an underperforming year overall. 8
  17. 17. Figure 8: Colorado Commercial and Multifamily Construction as a Percent of GDP, 1967-2006 Source: Bureau of Economic Analysis, University of Colorado-Boulder, University of Denver. In addition to income-producing property construction, expenditures on tenant improvements are a major contributor to local and state economies. From 1996 to 2006, tenant improvements have averaged $262 million annually in Colorado (Figure 9). Figure 9: Colorado Tenant Improvements, 1967-2006 Source: McGraw-Hill Construction Research & Analytics. 9
  18. 18. With the continued growth in population and employment, the demand for income-producing property is expected to continue to remain strong, with the natural cycles inherent to the industry. II. Methodology The base methodology for this report was obtained from the NAIOP publication “How to Calculate the Economic Contribution of Office, Industrial and Retail Real Estate to the Local Community” by Stephen S. Fuller, Ph.D., George Mason University (2007). This study builds on the NAIOP methodology by including commercial tenant improvements, commercial transaction costs and commercial financing costs. For greater detail regarding the methodology, see Appendix B. Data from McGraw-Hill Construction Research & Analytics on the total square feet of existing commercial real estate for each property type were employed, along with data on specific property-type operating expenses to estimate aggregate spending and employment for operations, maintenance, management, and utilities. McGraw-Hill Construction Research & Analytics data on square feet of new construction, by property type, along with data on per square foot construction costs obtained from R. S. Means, were used to estimate the value of new construction. Data on tenant improvements were also provided by McGraw-Hill Construction Research & Analytics. RIMS II multipliers, obtained from the BEA through the State Demography Office, provided the basis for estimating direct employment and earnings based on direct spending, as well as the indirect output, employment, and earnings. BEA publishes RIMS II multipliers by industry sector and by economic region in Colorado (Appendix C). This study employs the multipliers that include the impact of local government. Multipliers are reported for output, earnings, and employment. For instance, if the utilities industry output multiplier is 2.1365 for the State of Colorado, then the impact of $1 million in utilities spending on Colorado’s economy is $2.1365 million ($1 million direct spending and $1.1365 million indirect). Direct earnings can be estimated using the BEA direct earnings per dollar of sales to final demand multiplier, which in this scenario is 0.1808. Therefore, the $1 million in utilities spending generates $180,800 in direct earnings. Similarly, employment can be estimated using the direct employment per million dollars of sales to final demand multiplier. The employment multiplier in this example is 2.2577. That means there are 2.2577 jobs generated for every $1 million in utility expenditures. It should be noted that the estimated multiplier impacts on specific counties are estimates and are more accurate in non-metropolitan areas. The difficulty estimating metropolitan county multiplier effects is because metropolitan areas 10
  19. 19. have greater economic overlap since goods and labor are often provided from neighboring counties; and commuting employees spend a higher proportion of their earnings near their home. The multiplier effects in this report assume that the economic activities from income- producing property in a county are proportional to the area of income- producing property in that region. The economic impacts of income-producing property transactions and refinancing were estimated on a direct basis only. The indirect, or multiplier, effect is omitted because of the difficulty in knowing how much of the interest and fee income is spent in Colorado. Fiscal impacts are based on State of Colorado reported estimates of assessed income-producing property values and estimated property mill levies in each county. III. Economic Impacts of Existing Commercial Property Existing commercial property undoubtedly has a profound impact on the Colorado economy in terms of output, earnings, and employment derived from operating expenditures. These operating expenditures include a variety of services, such as management, cleaning, repairs, maintenance, leasing, expenditures on utilities, and so on, that keep the property functioning. To assess these impacts, data has been gathered from numerous public and private sources. Necessary data included existing income- producing property area in square feet by type and by county, operating expenditures per square foot, and industry economic multipliers. The economic impact of tenant improvements and construction of new properties are examined in a later section. A. Total Area In 2006, the three major metropolitan areas in Colorado (Denver Metro, North Front Range, and Colorado Springs) contained 83.5% of the existing commercial and multifamily stock in Colorado, with nearly 1.13 billion square feet of income-producing property. The Denver Metro region alone represented 57.2% of the existing stock of income- producing property. Table 3 provides total income-producing property space, by property type, for each of the eight regions in the State. Individual county estimates are provided in Appendix D. 11
  20. 20. B. Summary of Impacts for Existing Commercial Properties Direct spending in the existing inventory of all commercial properties totaled $8.1 billion in 2006, for a total (direct and indirect) effect of $16.1 billion on Colorado’s economy, or 7.0% of State GDP (Table 4)1. For existing real estate, direct spending generally includes operating costs associated with the administration, cleaning, maintenance, utilities, and taxes on the properties. The existing income-producing property sector employed 106,686 direct employees earning an average wage of $30,076. The 183,566 direct and indirect employees earned an average wage of $30,626. See Appendix E for county impact. 1 The analysis of existing property does not include multifamily. 12
  21. 21. 1. Existing Office Properties Direct spending in the existing inventory of office properties totaled $3.38 billion in 2006, which generated a $7.03 billion total impact on Colorado’s economy, more than 3.0% of Colorado’s total output (Table 5). Direct spending includes operating expenses related to administration, security, utilities, cleaning, building repairs and maintenance, and property maintenance (see Appendix F for the Building Owners and Managers Association definitions). This sector directly employed 38,973 workers at an average wage of $35,581. The impacts varied widely by region, with the Denver Metropolitan region accounting for two-thirds of the existing office impact. Appendix G provides county level impacts. Each dollar spent providing goods and services for existing office properties has a multiplier effect on the economy due to inter-industry relationships. For example, office properties occasionally need parking lots resurfaced, which affect the resurfacing company directly, but also impacts revenues for companies that sell resurfacing supplies and equipment. Hence, a dollar spent by a firm on commercial property has a ripple effect throughout the economy. Since some of the supplies and equipment are purchased from out of state, the multiplier effect is smaller than the national multiplier. The same holds true for counties within Colorado – goods and services are imported from other counties, which reduces the impact on the primary county. This regional multiplier disparity has been accounted for by the BEA RIMS II multipliers. 13
  22. 22. This analysis also considers the household (induced) impact, which is the indirect impact that household earnings and expenditures have on the economy. According to the 2005 Bureau of Labor Statistics Consumer Expenditures Survey, consumers spent 79% of their pretax income on goods and services (the rest goes to taxes). Non-shelter expenditures comprised 53% of pretax income. These expenditures have a profound impact on the economy, employing accountants, gas station attendants, grocery store clerks, real estate brokers, and so on. Direct employment related to existing office real estate was estimated at 38,973 employees earning $1.39 billion in 2006, for an average annual wage of $35,581. This includes administration, security, utilities, cleaning, building repairs and maintenance, and property maintenance employees servicing office real estate. Applying the multipliers to employment and earnings yields total employment of 74,756 employees earning $2.51 billion, for an average annual salary of $33,569. 2. Existing Industrial Properties Direct spending on the existing inventory of the industrial real estate sector totaled $301.4 million in 2006, which generated a total impact of $623.4 million, or 0.3% of Colorado’s economy (Table 6). This includes the existing inventory of manufacturing plants, warehouses, and laboratories. Direct spending includes operating expenses related to common area maintenance, water and sewer, repairs and maintenance, property management, real estate taxes, insurance, and other. 14
  23. 23. Direct employment related to industrial real estate was estimated at 3,293 employees earning $132.0 million in 2006, for an average annual wage of $40,092 (see Appendix H for county impacts). Applying the multipliers to employment and earnings yields total employment of 6,449 employees earning $230.3 million, for an average annual salary of $35,708. 3. Existing Retail Properties Direct spending in the retail real estate sector totaled $1.57 billion in 2006, which generated a $3.26 billion impact on Colorado’s economy, or roughly 1.4% of Colorado’s total output (Table 7). Direct spending includes operating expenses related to building maintenance, external property maintenance (i.e., parking lot), utilities, advertising and promotion, insurance, and general and administrative expenses, and so on (See Appendix I for Urban Land Institute definitions). 15
  24. 24. Direct employment related to retail real estate was estimated at 18,627 employees earning $705.7 million in 2006, for an average wage of $37,884 (see Appendix J for county impacts). This includes building maintenance, external property maintenance (i.e., parking lot), utilities, advertising and promotion, insurance, and general and administrative expenses. Applying the household multipliers to employment and earnings yields total employment of 35,106 employees earning $1.2 billion, for an average salary of $34,725. 4. Existing Hotel Properties Direct spending in the hotel real estate sector totaled $2.88 billion in 2006, which generated a $5.16 billion impact on Colorado’s economy, or roughly 2.2% of Colorado’s total output (Table 8). Direct spending operating expenditures per square foot were obtained from PKF Hospitality Research. This sector employed an estimated 45,793 workers at an average wage of $21,494 (see Appendix K for impact by county). This includes managerial operations and building maintenance workers, as well as hotel room cleaners. Applying the household multipliers to employment and earnings yields total employment of 67,255 employees earning $1.7 billion, for an average salary of $24,728. 16
  25. 25. IV. Economic Impacts of Tenant Improvements The economic impacts of tenant improvements were calculated separately. However, since tenant improvements are essentially construction, the RIMS II construction multipliers were employed to calculate the multiplier effects of direct spending on output, earnings, and employment resulting from industry expenditures on tenant improvements. Necessary data included income-producing property alterations by value, by type, and by county; industry soft costs (i.e., architectural, engineering, construction management, and site improvement); hard costs (construction materials and construction worker wages); and industry multipliers. Property alteration figures were obtained from McGraw-Hill Construction Research & Analytics; industry soft costs were estimated as a percentage of total project costs obtained by RS Means CostWorks for Building Construction; and RIMS II construction industry multipliers were obtained from the State Demography Office, compiled by the Bureau of Economic Analysis. A. Summary of Tenant Improvements Impacts Direct spending on tenant improvements totaled $344.9 million in 2006, for a total (direct and indirect) effect of $767.0 million on Colorado’s economy, or 0.33% of State GDP (Table 9). Income-producing property tenant improvements employed 3,000 direct employees earning an average wage of $42,062. The 7,186 direct and indirect employees earned an average wage of $36,181. See Appendix L for county impacts. 17
  26. 26. 1. Office Property Tenant Improvements Estimated direct spending on tenant improvements for office properties totaled $96.4 million in 2006, for a total impact of $212.6 million, or roughly 0.09% of Colorado’s economy (Table 10). The 840 direct employees earned an average of $42,060, while the 1,995 direct and indirect employees earned an average $36,117. See Appendix M for county impacts. 2. Industrial Property Tenant Improvements Estimated direct spending on industrial property tenant improvements totaled $14.7 million in 2006, for a multiplier effect of $33.2 million, or 0.01% of Colorado’s economy (Table 11). The 128 direct employees earned an average of $41,849, while the 312 direct and indirect employees earned an average $36,151. See Appendix N for county impacts. 18
  27. 27. 3. Retail Property Tenant Improvements Estimated direct spending on retail property tenant improvements totaled $94.0 million in 2006, for a multiplier effect of $211.9 million, or roughly 0.09% of Colorado’s economy (Table 12). The 820 direct employees earned an average of $42,065, while the 1,987 direct and indirect employees earned an average $36,186. See Appendix O for county impacts. 4. Hotel Property Tenant Improvements Estimated direct spending on hotel property tenant improvements totaled $112.5 million in 2006, for a multiplier effect of $248.7 million, or 0.11% of Colorado’s economy (Table 13). The 974 direct employees earned an average of $42,086, while the 2,321 direct and indirect employees earned an average $36,252. See Appendix P for county impacts. 19
  28. 28. 5. Multifamily Property Tenant Improvements Estimated direct spending on tenant improvements for multifamily properties totaled an estimated $27.2 million in 2006, for a multiplier effect of $60.6 million, or 0.03% of Colorado’s economy (Table 14). The 238 direct employees earned an average of $42,073, while the 571 direct and indirect employees earned an average $36,112. See Appendix Q for county impacts. 20
  29. 29. V. Economic Impacts of New Construction Necessary data for calculating the impacts of income-producing property construction include the amount of new income-producing space, by property type, and by county; site development costs; industry soft costs (i.e., architectural, engineering, and construction management); hard costs (construction materials and construction worker wages); and industry construction multipliers. Financing development costs (construction loan fees and construction loan interest) are accounted for in the Transactions and Refinancing sections. Data on new construction were obtained from McGraw-Hill Construction Research & Analytics; industry soft costs were estimated as a percentage of total project costs obtained by RS Means CostWorks for Building Construction; and RIMS II construction industry multipliers were obtained from the State Demography Office, compiled by the Bureau of Economic Analysis. A. Summary of Impacts for New Construction Direct spending on income-producing property construction totaled $3.3 billion in 2006, with an output multiplier effect of $6.9 billion, or roughly 3.0% of Colorado’s output (Table 15). Direct employment in new commercial and multifamily construction totaled 28,145 employees earning $1.2 million, for an average wage of $42,298. The employment multiplier effect of new construction totaled 64,224 direct and indirect employees earning an estimated $2.3 billion, for an average wage of $36,161 in 2006. See Appendix R for county impacts. Separately, the impacts of construction loan interest and fees attributable to new construction were estimated at $117.0 million. Table 15: Economic Impacts of New Construction, by Region, 2006 Direct Spending, Total Output, Earnings, w/Multiplier, Region Employment w/Multiplier 000s 000s 000s 000s Colorado Springs $300,118 $611,511 $111,952 $210,309 2,660 5,892 Denver Metro 1,368,077 3,197,129 512,550 1,097,491 12,014 30,099 Eastern Plains 8,034 13,429 3,018 4,718 72 131 Grand Junction 56,719 109,104 22,315 39,015 532 1,090 Mountain Resort 444,195 772,354 153,133 251,526 3,636 6,972 Mountain Rural 270,627 474,764 94,434 155,989 2,242 4,330 North Front Range 506,165 1,056,574 177,518 345,656 4,230 9,598 Pueblo 311,248 634,462 115,574 217,693 2,759 6,110 All Regions $3,265,183 $6,869,328 $1,190,494 $2,322,398 28,145 64,224 Sources: McGraw-Hill Construction Research & Analytics, 2007; University of Colorado-Boulder; University of Denver 21
  30. 30. 1. Office Property New Construction Direct spending on office property construction totaled $465.4 million in 2006, for a total effect of $1.01 billion, or 0.44% of Colorado’s economy (Table 16). The 4,054 direct employees earned an average of $42,068, while the 9,478 direct and indirect employees earned an average $36,084. See Appendix S for county impacts. Table 16: Economic Impacts of Office Construction, by Region, 2006 Direct Spending, Total Output, Earnings, w/Multiplier, Region Employment w/Multiplier 000s 000s 000s 000s Colorado Springs $91,291 $186,003 $34,070 $63,985 809 1,792 Denver Metro 237,507 556,420 87,797 189,843 2,087 5,231 Eastern Plains 240 401 90 141 2 4 Grand Junction 17,885 34,389 7,046 12,308 168 344 Mountain Resort 16,919 29,520 5,836 9,628 139 266 Mountain Rural 17,101 30,378 5,995 10,017 142 278 North Front Range 67,385 136,467 23,333 44,118 556 1,228 Pueblo 17,058 34,755 6,366 11,956 151 335 All Regions $465,385 $1,008,333 $170,534 $341,997 4,054 9,478 Sources: McGraw-Hill Construction Research & Analytics, 2007; University of Colorado-Boulder; University of Denver 2. Industrial Property New Construction Direct spending on industrial property construction totaled an estimated $518.0 million in 2006, for a total effect of $1.09 billion, or 0.47% of Colorado’s economy (Table 17). The 4,560 direct employees earned an average of $41,861, while the 10,386 direct and indirect employees earned an average $35,817. See Appendix T for county impacts. Table 17: Economic Impacts of Industrial Construction, by Region, 2006 Direct Spending, Total Output, Earnings, w/Multiplier, Region Employment w/Multiplier 000s 000s 000s 000s Colorado Springs $26,640 $54,306 $9,889 $18,630 236 523 Denver Metro 127,348 298,623 46,835 101,652 1,119 2,806 Eastern Plains 750 1,255 281 440 7 12 Grand Junction 17,236 33,185 6,759 11,843 162 332 Mountain Resort 6,448 11,199 2,210 3,633 53 101 Mountain Rural 1,618 2,832 575 945 14 26 North Front Range 46,013 94,657 15,971 30,713 382 855 Pueblo 291,916 595,075 108,359 204,143 2,587 5,731 All Regions $517,969 $1,091,131 $190,880 $371,999 4,560 10,386 Sources: McGraw-Hill Construction Research & Analytics, 2007; University of Colorado-Boulder; University of Denver 22
  31. 31. 3. Retail Property New Construction Direct spending on retail property construction totaled an estimated $536.4 million in 2006, for a multiplier effect of $1.18 billion, or 0.51% of Colorado’s output (Table 18). The 4,681 direct employees earned an average of $42,070, while the 11,080 direct and indirect employees earned an average $36,150. See Appendix U for county impacts. 4. Hotel Property New Construction Direct spending on hotel property construction totaled $313.5 million in 2006, for a multiplier effect of $574.1 million, or 0.25% of Colorado’s economy (Table 19). The 2,608 direct employees earned an average of $42,100, while the 5,249 direct and indirect employees earned an average $36,024. See Appendix V for county impacts. 23
  32. 32. 5. Multifamily Property New Construction Direct spending on multifamily construction totaled $1.4 billion in 2006, for a multiplier effect of $3.0 billion, or 1.3% of Colorado’s economy (Table 20). The 12,242 direct employees earned an average of $42,667, while the 28,031 direct and indirect employees earned an average $36,344. See Appendix W for county impacts. Table 20: Economic Impacts of Multifamily Construction, by Region, 2006 Direct Spending, Total Output, Earnings, w/Multiplier, Region Employment w/Multiplier 000s 000s 000s 000s Colorado Springs $88,705 $180,734 $33,105 $62,173 786 1,742 Denver Metro 663,282 1,545,691 252,256 534,276 5,822 14,577 Eastern Plains - - - - - - Grand Junction 4,866 9,356 1,917 3,348 46 94 Mountain Resort 341,461 593,816 117,729 193,406 2,795 5,361 Mountain Rural 43,500 76,195 15,170 25,022 360 695 North Front Range 290,091 610,781 102,164 200,535 2,433 5,564 Pueblo - - - - - - All Regions $1,431,905 $3,016,571 $522,341 $1,018,760 12,242 28,031 Sources: McGraw-Hill Construction Research & Analytics, 2007; University of Colorado-Boulder; University of Denver 24
  33. 33. VI. Economic Impacts of Commercial Property Transactions The buying and selling of commercial property in 2006 resulted in a total sales volume of $7.48 billion in the State of Colorado and an estimated $411.4 million in transaction fees (Tables 21 and 22). According to NorthMarq Capital, a typical commercial property transaction generates 5.5% of the total transaction amount in fees that are paid to professionals and businesses engaged in the transaction. This percentage represents the total of brokerage commissions, loan origination fees, title insurance fees, engineering costs, closing costs, and other typical fees incurred when the title of a commercial property changes hands. The impact of transaction fees on direct employment and earnings, including their multipliers, have not been calculated due to the ambiguous sources and uses of funds. For instance, loan origination fees paid to a bank are not bank expenditures nor purely profit; rather, these funds are reinvested in and out of the state. See Appendix B for notes on methodology. 25
  34. 34. VII. Economic Impacts of Commercial Property Refinancing Refinancing commercial property in 2006 created a total new loan volume of $3.14 billion in the State of Colorado, and an estimated $47.1 million in fees (Tables 23 and 24). According to NorthMarq Capital, a typical commercial property loan refinancing generates an average 1.5% of the total loan amount in fees paid to commercial banks, loan officers, appraisers, inspectors, engineers, and other professionals involved with refinancing. The indirect impacts of refinancing fees and mortgage interest on economic activity have not been calculated due to the ambiguous sources and uses of funds. For instance, mortgage interest paid to a bank are not bank expenditures nor purely profit; rather, these funds are deposited nationally and reinvested in and out of the state. See Appendix B for details on methodology. 26
  35. 35. VIII. Fiscal Impacts Commercial property impacts federal, state, and local governments in terms of property taxes, sales taxes, and development fees. Development fees were excluded from the fiscal analysis due to the extremely varying fee structures throughout Colorado counties and cities; however, fees were included in the output analysis since they were aggregated in the per square foot soft construction costs. Most fees are designed to directly offset a public cost, such as adding water meters, inspecting properties, or providing other services. Property taxes have a direct local impact based on the geographical locale of the property, whereas sales taxes depend on where purchases are made. Both have significant impacts on government revenues, contributing a combined estimated $1.26 billion to local, county, and state government. A. Commercial Property Taxes Commercial property taxes, excluding multifamily properties, totaled $1.18 billion in 2006, including county, city, school, and special districts. In 2006, office property taxes were estimated at $353.5 million; industrial property taxes, including manufacturing, totaled $430.7 million; retail property taxes were estimated at $326.2 million; and hotel property taxes were estimated at $67.0 million (Table 25). Colorado property taxes are calculated based on assessed values and mill levies (county, city, special district, and school). Property values are multiplied by the assessment ratio (29% for non-residential property), then multiplied by the property tax mill rate. Assessed property values for 2006 and estimated mill levies are published on the Department of Local Affairs, Division of Property Taxation website as of September 7, 2007 (http://www.dola.colorado.gov/dpt/publications/2006_annual_report_index.htm). See Appendix X and Appendix Y for county detail. 27
  36. 36. B. Commercial Property Sales Taxes Sales tax revenues obtained from direct spending on construction materials in the State of Colorado were estimated at $75.2 million in 2006. The total impact of sales tax revenues (direct and indirect impacts) were estimated at $160.7 million in 2006. This assumes that 60% of new construction are material purchases, 20% of additions to properties are material purchases, and 40% of tenant alterations are material purchases. Material purchases have a direct impact on municipalities and counties based on the location of the purchases (which may be a different county). Therefore, if an office building is constructed in Greeley, Colorado, a portion of the materials are probably purchased in Commerce City. Hence, Greeley does not receive the full benefit of the construction expenditure. For simplicity in estimating sales taxes from construction material purchases, an assumption was made that 100% of the materials are purchased in the county where construction takes place. This surely overstates the impacts for some counties and understates the impacts for other counties, but only the aggregate fiscal impact is reported here. Conclusion The impact of the income-producing property industry on Colorado’s economy is significant. Adding together the individual property sectors for existing property operations, new construction, transactions, and refinancing, commercial property and new multifamily construction directly contributed $12.3 billion to Colorado’s economy in 2006. Including the indirect impact on output, income-producing property contributed an estimated $24.3 billion to Colorado’s GDP, or 10.5% of the State economy (Table 26). Income-producing property direct employment totaled 137,832 in Colorado in 2006, or 6.1% of State employment, at an average wage of $32,832. Including the indirect employment, income-producing property employed 254,976 in 2006, at an average wage of $32,177. 28
  37. 37. Table 26: Summary Impacts of Commercial Real Estate and Multifamily Construction on Colorado’s Economy, 2006 Direct Spending (000) Total Output (000) Percent of Colorado’s GDP Existing1 Office 3,377,771 7,026,103 3.0% Industrial 301,387 623,368 0.3% Retail 1,574,128 3,256,520 1.4% Hotel 2,881,556 5,158,947 2.2% Total Existing 8,134,842 16,064,938 7.0% Tenant Improvements Office 96,426 212,582 0.1% Industrial 14,693 33,231 0.0% Retail 94,036 211,932 0.1% Hotel 112,504 248,651 0.1% Multifamily 27,195 60,587 0.0% Total TI 344,854 766,983 0.3% New Construction Office 465,385 1,008,333 0.4% Industrial 517,969 1,091,131 0.5% Retail 536,406 1,179,158 0.5% Hotel 313,518 574,134 0.2% Multifamily 1,431,905 3,016,571 1.3% Total Construction 3,265,183 6,869,327 3.0% Other2 Construction Period Interest/Fees 137,294 137,294 0.1% Transactions 411,408 411,408 0.2% Refinancing 47,093 47,093 0.0% Total Other 595,795 595,795 0.3% Total All 12,340,674 24,297,043 10.5% 1 Existing does not include multifamilies. 2 Other does not include the impact on employment, earnings, multiplier effect, or impact on individual counties due to the uncertainty of the source of, and redeployment of funds. Sources: McGraw-Hill Construction Research & Analytics, 2007; BOMA International, Experience Exchange Report 2007; Urban Land Institute, Dollars & Cents of Shopping Centers / The SCORE 2006; PKF Hospitality Research; NAIOP Industrial Income and Expense Report 2001-2002; Real Capital Analytics; NorthMarq Capital; University of Colorado-Boulder; University of Denver 29
  38. 38. Appendix A: Economic Impacts, by County, 2006 *EXISTING, TENANT IMPROVEMENTS, AND CONSTRUCTION Direct Direct Total Output, Earnings, w/Multiplier, Total Output, Earnings, w/Multiplier, County Employment w/Multiplier County Spending, Employment w/Multiplier Spending, 000s 000s 000s 000s 000s 000s 000s 000s Adams $847,960 $1,910,667 $331,486 $666,440 9,129 19,490 La Plata $82,382 $135,071 $30,243 $45,158 1,157 1,669 Alamosa 23,042 36,230 9,268 13,320 315 456 Lake 33,507 57,866 11,883 19,103 294 540 Arapahoe 1,393,234 3,090,047 554,390 1,086,026 15,827 32,334 Larimer 520,519 951,538 192,722 316,426 5,337 9,485 Archuleta 8,357 14,067 3,047 4,701 96 152 Las Animas 16,121 25,096 6,297 9,049 230 325 Baca 1,954 3,113 870 1,226 25 37 Lincoln 8,859 14,440 3,489 5,231 99 159 Bent 2,465 3,907 1,029 1,474 33 49 Logan 25,772 40,840 10,467 15,117 351 509 Boulder 794,118 1,755,491 313,782 614,778 9,292 18,610 Mesa 195,515 350,032 79,070 127,418 2,348 3,971 Chaffee 19,955 32,721 7,324 10,941 281 405 Mineral 2,026 3,404 830 1,217 24 37 Cheyenne 2,812 4,545 1,171 1,709 33 52 Moffat 14,351 23,733 5,307 7,977 182 271 Clear Creek 9,904 16,430 3,802 5,649 130 193 Montezuma 29,980 49,561 11,278 16,837 401 592 Conejos 2,117 3,341 894 1,270 28 41 Montrose 44,456 80,447 17,930 29,228 515 894 Costilla 1,266 1,992 526 749 17 25 Morgan 16,569 28,886 6,683 10,139 194 313 Crowley 706 1,125 304 433 9 14 Otero 18,110 28,749 7,575 10,857 244 356 Custer 1,777 2,730 637 929 27 37 Ouray 2,832 4,721 1,072 1,610 35 54 30 Delta 11,105 19,354 4,668 7,223 141 228 Park 9,739 16,795 3,475 5,563 87 158 Denver 2,018,989 4,410,503 807,296 1,553,129 24,450 47,624 Phillips 2,904 4,650 1,282 1,822 37 56 Dolores 12,653 21,493 5,399 7,881 136 222 Pitkin 340,130 569,276 117,798 184,652 4,045 6,318 Douglas 428,838 964,024 168,492 337,017 4,649 9,868 Prowers 14,657 22,877 5,816 8,337 206 294 Eagle 550,747 904,154 189,822 291,536 7,587 11,042 Pueblo 476,610 947,624 183,013 329,558 4,830 9,657 El Paso 847,023 1,586,934 342,970 564,421 11,014 18,367 Rio Blanco 7,199 11,920 2,665 4,007 90 136 Elbert 315,190 641,237 117,742 220,718 2,803 6,187 Rio Grande 7,796 12,405 3,268 4,687 100 150 Fremont 28,520 54,752 11,679 19,616 339 602 Routt 183,162 303,201 63,696 98,396 2,379 3,559 Garfield 160,328 264,997 54,910 85,309 1,976 2,980 Saguache 1,035 1,648 461 649 13 20 Gilpin 213,870 366,126 73,534 118,731 2,057 3,593 San Juan 1,348 2,227 512 760 18 27 Grand 184,233 304,082 63,281 97,952 2,441 3,618 San Miguel 121,580 199,535 41,687 64,142 1,676 2,438 Gunnison 66,616 112,097 23,519 36,785 760 1,212 Sedgwick 2,835 4,470 1,153 1,656 40 57 Hinsdale 1,658 2,687 580 872 25 35 Summit 278,854 452,795 96,690 146,255 4,146 5,830 Huerfano 6,055 9,383 2,298 3,317 88 123 Teller 30,222 57,685 11,325 19,735 384 659 Jackson 1,435 2,397 565 835 18 27 Washington 2,154 3,450 952 1,352 27 41 Jefferson 1,006,532 2,231,263 401,639 785,150 11,595 23,488 Weld 269,372 491,505 101,264 164,944 2,738 4,881 Kiowa 7,829 12,410 3,265 4,675 105 153 Yuma 4,388 7,017 1,900 2,712 57 85 Kit Carson 8,611 13,484 3,355 4,853 125 176 COLORADO 11,744,880 23,701,247 4,525,343 8,204,261 137,831 254,976 Sources: McGraw-Hill Construction Research & Analytics, 2007; BOMA International, Experience Exchange Report 2007; Urban Land Institute, Dollars & Cents of Shopping Centers / The SCORE 2006; PKF Hospitality Research; NAIOP Industrial Income and Expense Report 2001-2002; University of Colorado-Boulder; University of Denver. County impacts exclude economic effects of transactions and refinancing.
  39. 39. Appendix B: Notes to Methodology EXISTING PROPERTIES To estimate direct spending (from total operating expenses) by property type and by county, total area was multiplied by the per square foot (PSF) operating expenses. Total square feet of commercial and multifamily property space, by property type, by county, was obtained from McGraw-Hill Construction Research & Analytics. Operating expenses by property type were obtained from BOMA, ULI, NAIOP, PKF Hospitality Research, and RS Means CostWorks. When possible, expenditures were segmented by services to buildings, management services, and utilities. Total operating expenses were multiplied by the output multiplier to estimate the total impact of the sector on Colorado’s GDP. The direct earnings per dollar of sales to final demand were used to estimate the direct impact of expenditures in the commercial real estate sector. The total earnings per dollar of sales to final demand multipliers were used to estimate the total (direct and multiplied) impacts of the sector on incomes. Similarly, the direct employment per million dollars of sales to final demand multipliers were used to estimate the impacts of the sector on employment; and total employment per dollar of sales to final demand was used to estimate the total (direct and multiplied) employment impact. Employment is limited to those employed by the commercial real estate sector, specifically omitting those employees working in the commercial real estate space (i.e., the retail space lessor, not the clothing store clerk). Note that Broomfield was not included in the McGraw-Hill Construction Research & Analytics data for existing commercial real estate. Broomfield became a county in 2001, comprised of land from Adams, Boulder, Jefferson, and Weld counties. The impact from Broomfield County real estate is included in these four counties. 1. OFFICE DATA Per square foot (PSF) office operating costs were obtained from the Experience Exchange Report 2007 published by BOMA International (Table 27). BOMA reports PSF operating costs categorized by cleaning, repairs/maintenance, utilities, roads/grounds, security and administrative (Appendix F). For the purpose of this study, these categories were then grouped by services to buildings (cleaning, repairs/maintenance, roads/grounds, and security), management services (administrative), and utilities. Taxes have been included by BOMA in the administrative seg- ment of operating expenses. 31
  40. 40. BOMA segregated the data by three regions: Denver, Suburbs, and Boulder. Denver and Suburbs had similar cost estimates ($11.11 PSF and $14.19 PSF, respectively). Boulder estimates were much less ($6.45 PSF), since this analysis was performed at the county level and not the city level. 2. RETAIL DATA Per square foot retail operating expenses were provided in the Urban Land Institute’s Dollars and Cents of Shopping Centers (see Table 28). The PSF operating expenses were categorized by maintenance and housekeeping, advertising and promotion, real estate taxes, insurance, and general and administrative functions (Appendix I). For the purpose of this study, these categories were then grouped by services to buildings (cleaning, repairs/maintenance, roads/grounds, and security) and management services (administrative). 32
  41. 41. ULI data was segmented into five categories of shopping centers: Super Regional, Regional, Super Community, Neighborhood, and Convenience. A weighted average was calculated using the total area by type in Colorado, for total PSF operating expenditures of $9.84. 3. INDUSTRIAL DATA Per square foot industrial operating expenses were provided in NAIOP’s Industrial Income and Expense Report: 2001- 2002 (Table 29). This was the most current expense report detailing operating expenses for the industry; therefore expenses were inflated appropriately for 2006 using the Denver-Boulder-Greeley CPI (Table 30). The median operating expenses of $1.08 were applied throughout Colorado. 33
  42. 42. Table 30: Denver-Boulder-Greeley CPI Percentage Year Index Change 2001 181.3 - 2002 184.8 1.93% 2003 186.8 1.08% 2004 187.0 0.11% 2005 190.9 2.09% 2006 197.7 3.56% Source: Bureau of Labor Statistics, http://data.bls.gov/ 4. HOTEL DATA Per square foot hotel operating expenses were obtained from PKF Hospitality Research and were estimated at $46.98 per square foot. 5. MULTIPLIERS Regional Input-Output Modeling System (RIMS II) multipliers published by the Bureau of Economic Analysis were used to estimate the total output, earnings, and employment multiplier effects by industry sector by region in Colorado. RIMS II multipliers are segmented by industry sector and by economic region in Colorado (Appendix C). This study employs the multipliers with the impact of local government included. Multipliers are reported by output, earnings, and employment and impacts can be calculated as a function of output, earnings, and employment, or from output alone. For instance, if the utilities industry output multiplier is 2.1365 for the State of Colorado, then the impact of $1 million in utilities spending on Colorado’s economy is $2.1365 million ($1 million direct spending and $1.1365 indirect). Direct earnings can then be calculated using the direct earnings per dollar of sales to final demand multiplier, which in this scenario is 0.1808. Therefore, the $1 million in utilities spending equates to $180,800 in direct earnings. Similarly, employment can be calculated using the direct employment per million dollars of sales to final demand multiplier, which in this scenario is 2.2577, or 2.2577 employees for every $1 million in utility expenditures. Conversely, simple earnings and employment multipliers can be utilized if direct earnings and employment are already known. TENANT IMPROVEMENTS & CONSTRUCTION Tenant improvements and construction area and value were obtained from McGraw-Hill Construction Research & Analytics. This value does not include soft costs or site development. Soft costs for architectural, engineering, and construction management were obtained from RS Means CostWorks, while site development costs were obtained anecdotally from the Clayton Lane2 case. 2 The Clayton Lane case was prepared November 8, 2006 by David B. Agnew, Esq., and Thomas G. Thibodeau, Ph.D., as an analysis tool of a major redevelopment in Cherry Creek, Colorado. 34
  43. 43. HARD AND SOFT COSTS The economic value of construction spending to the Colorado economy can be separated into two components, soft costs and hard costs. Soft costs are defined as the initial spending on a construction project that include architects, engineers, development (land entitlement), land planning, legal services, land improvements, landscape architecture, and infrastructure improvements (Table 31). Hard costs are defined as direct outlays during the construction process and include both labor and building materials plus construction equipment costs. The labor spending represents the employment in the construction sector of skilled workers, including carpenters, steel workers, electricians, plumbers, building engineers, and heavy equipment operators. It also includes indirectly employed workers in such companies as raw materials producers of lumber, concrete, and steel. BUILDING OPERATIONS Buildings also contribute economically to the State of Colorado’s economy after construction is complete and the space is occupied. This contribution can be defined as the amount of money spent on an annual basis to operate, maintain, and clean the property; property management services used to bill and maintain relationships with tenants; the utilities that the building consumes; and financing costs that are received by lenders within the State of Colorado. TRANSACTIONS AND REFINANCING Two industries rely heavily on commercial real estate transactions: commercial real estate brokerage, and commercial mortgage brokerage and investment. Commercial real estate brokers make their entire profession from buying and selling real estate for investors and leasing of commercial space to and for tenants. Banks invest a large portion of their mortgage pools in commercial properties and draw significant fees from securitizing large portfolios of commercial mortgages into commercial mortgage-backed security (CMBS) pools. Transaction and refinancing values and area were obtained from Real Capital Analytics’ “Capital Trends Monthly”. This data encompassed all commercial transactions in Colorado over $2.5 million for the full year of 2006. Real Capital Analytics tracks the major metropolitan areas in Colorado: Denver Metro, North Front Range, and Colorado Springs. Total transaction and refinancing value were allocated to each county in these regions on a pro rata basis using square footage for each property type. Transaction and refinancing volumes for counties outside the Front Range were estimated in two steps. First, the square feet of commercial space that was either sold or refinanced was estimated using the same proportion sold or refinanced in the Front Range. We then used the average Front Range property price per square foot for actual transactions and refinancing (obtained from Real Capital Analytics) to estimate total transaction/refinancing volume. For Colorado’s Front Range, Real Capital Analytics estimated 2006 transaction volume at $6.5 billion and 2006 refinancing volume at $2.5 billion. For non-Front Range counties, we estimate 2006 transaction volume at $1.4 billion and 2006 refinancing volume at $610 million. 35
  44. 44. Appendix C: RIMS II Colorado Regions Region 1 - Eastern Plains Agricultural Bent, Cheyenne, Crowley, Elbert, Kiowa, Kit Carson, Lincoln, Logan, Otero, Phillips, Sedgwick, Washington Counties Region 2 - Southern Colorado Alamosa, Baca, Conejos, Costilla, Custer, Huerfano, Las Animas, Prowers, Rio Grande, Saguache Counties Region 3 - Pueblo Fremont, Pueblo Counties Region 4 - Colorado Springs El Paso, Teller Counties Region 5 - Denver Metropolitan Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Jefferson Counties Region 6 - Larimer-Weld Larimer, Morgan, Weld Counties Region 7 - Scenic and Resort Chaffee, Clear Creek, Dolores, Eagle, Gilpin, Grand, Gunnison, Hinsdale, Jackson, Lake, Mineral, Ouray, Pitkin, Routt, San Juan, San Miguel, Summit, Archuleta, La Plata, Montezuma Counties Region 8 - Western Slope Urban Delta, Mesa, Montrose Counties Region 9 - Energy and Mining Garfield, Moffat, Rio Blanco Counties Region 10 - State of Colorado Colorado Source: Bureau of Labor Statistics, Colorado State Demography Office 36

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