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DENVER-Over the last 10 years here, almost all of the multifamily rental buildings constructed in the metro area have been high-end, luxury apartments. They include such amenities as large swimming pools, health clubs as nice as most private ones, office centers, attached garages, and other resort-style amenities.

But with the softening economy, these apartments now sport the highest vacancies. And landlords increasingly are offering incentives to fill their units.

Eric Tupler, a vice president of L.J. Melody & Co.’s Denver office, says he expects to see more developers switch from fully market-rate units to affordable units.

Affordable units typically are built for people who earn 80% or less than the area median income.

Developers of affordable units can typically obtain more favorable financing than private, fully market rate developers, he says. For example, it’s possible to land 40-year, FHA-insured loans through HUD, sell tax credits and receive city, state and federal grant monies.

”You might have a developer who already owns the land, and fully market-rate units no longer pencil out,” Tupler tells GlobeSt.com.

While his land, construction and labor costs have stayed the same or risen, he must now plan for lower rents and higher vacancies, he says.

”Developers who still want to build and still maintain the economics of the deal, will look to build affordable as the market softens,” Tupler says.

Tupler has one client, for example, who wants to build about 100 units in the Five Points area in northeast Denver, which traditionally has been one of the most blighted areas of the city.

”Eighteen months ago, that deal penciled out, but it doesn’t’ pencil out today,” Tupler tells GlobeSt.com. ”He’s had to scale down his rental income and raise his projects for his stabilized estimated vacancy rate, while the cost of constructing the building have stayed the same or risen. He still wants to build it, and he’s a long-term holder, so he’s looking at making them affordable.”

Tupler notes that while the units won’t achieve the high rents of a booming market, at least a developer can count on one thing. ”If you build 100 units and it’s 60% affordable, you only have to worry about leasing 40 of the units.”

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