Inflation has made filling a gas tank or shopping cart more expensive. It’s also impacting portions of the valley’s construction and development businesses.
At Vail-based Triumph Development, Chief Operating Officer Michael O’Connor said one of that company’s projects, a housing development in Estes Park, has been hit hard.
That project, a 92-unit apartment complex, is similar to one the firm recently built in Glenwood Springs.
O’Connor said Triumph was able to find financing for the Glenwood project from the U.S. Department of Housing and Urban Development for 3.85%.
Financing through HUD for the Estes Park project was estimated at 4% in March. By June, the rates on those loans was up to 5.25%.
Adding further cost was the rising cost of materials and labor, which added about 25% to the Estes Park project between November of 2021 and March of this year.
O’Connor said Triumph did some “value engineering” on the project, and managed to cut roughly $2 million from the cost. The interest rate hike clawed back the entire $2 million.
Not every project hit
Triumph is currently building the Residences at Main Vail apartment project. The town of Vail is financing that project. O’Connor said the town borrowed money “at a very opportune time” to help keep costs under control.
While some developers are being hit, others continue working without much effect.
Erich Schmidt, the vice president of investment sales for Avon-based Fortius Capital, said that firm isn’t seeing much impact on the deals it’s working on.
Fortius is the listing broker for the Edwards RiverPark property, which is currently for sale.
“Interest in that is about as strong as I’ve ever seen,” Schmidt said, adding that he expects to see multiple offers on the property.
Schmidt noted that large projects like RiverPark are rare in the Vail Valley. That means they’re in demand.
Schmidt added that while financing today is more expensive than a year ago, it isn’t necessarily more difficult.
Fortius Director of Development Patrick Scanlan added that “demand is outrageous” for both residential and light industrial property.
“If there’s demand, there’s the ability to get stuff done,” he added.
East West Partners co-founder Harry Frampton said while the current economic climate is difficult for some businesses, it isn’t necessarily a bad thing in the long run.
Coming back stronger?
Frampton said he’s lived through four recessionary periods in his time in the Vail Valley. Every time, the valley has bounced back stronger, he said.
Those economic declines “got rid of the excesses in the market,” Frampton said, adding that most of those excesses were caused by greed, rather than politics.
A downturn, or rising costs, are more likely to make more marginal projects more difficult to finance, Frampton said. Those projects can then lie fallow, sometimes for years.
East West Partners recently closed on one such piece of property, just west of the Gashouse in Edwards. That parcel had been approved for a combination of housing and retail space in the early 2000s, but the heavy recession that began in 2008 short-cricuited the plans.
The property is now envisioned as a roughly 200-unit apartment project.
While inflation and lack of workers “is on everyone’s mind,” Frampton said there are some indications that inflation may have peaked, at least for the moment.
Lumber prices have fallen significantly off highs set six months ago, Frampton said, adding that fuel prices, while still historically high, have started to retreat from peak prices earlier this summer.
“One of the amazing things about the capitalist system is that it works,” Frampton said. “I think we’ll do fine.”