global capital providers . But even capital providers for whom Colorado real estate investments should be a slam dunk hesitate to make their money available for Colorado rental housing investments .
Consider Colorado ’ s Public Employee ’ s Retirement Association ( PERA ), a pension fund that manages $ 61.5 billion in investments for Colorado retirees . Under PERA ’ s well-publicized commitment to investing in Coloradobased companies , partnerships , and assets , the pension fund provides much needed investment capital to the communities in which many of PERA ’ s retirees live .
It is telling , then , that despite its commitment to local investments , PERA sends 97.2 % of its $ 10.5 billion in real estate-related capital outside of Colorado , according to the pension fund ’ s most recent annual report .
This reluctance is not unique to PERA . Rather , it reflects a broader caution among investors . Capital flows to opportunities where the rewards justify the risks . Unfortunately , Colorado ’ s policy environment often tips the scales in the wrong direction .
THE POLICY PROBLEM
Several factors contribute to hesitancy of capital to flow towards Colorado rental housing investments . Regulatory uncertainty looms large , and a patchwork of local ordinances and frequently changing housing laws create an unpredictable environment for developers and housing providers .
The prospect of rent control is another major deterrent . While intended to protect tenants , academic research has demonstrated time and time again that rent control policies drive risks up , returns down , and capital away .
Finally , increases in regulatory burden add to the cost of doing business . Developers of new housing especially must navigate a maze of permitting processes , zoning restrictions , and impact fees . Each additional hurdle makes Colorado a less attractive destination for capital .
Real Estate
Private Equity
Fixed Income
8.7 %
Alternatives
10.1 %
18.9 %
8.5 %
8.5 %
23.0 %
6.9 %
Cash and Short-Term Investments Actual : 0.4 % Target : 0.0 %
6.0 %
54.0 %
Outer circle represents actual allocations ; inner circle represents target allocations .
By increasing the risk of investing in Colorado ’ s housing market , many affordable housing policy remedies end up reducing the pool of capital willing to back local projects - with predictable and frustrating results .
The riskier development projects appear , the higher the returns developers must offer to attract capital to their projects . In a bitter irony for cost-burdened residents , the new projects that could ease rents get put on hold until , driven by scarcity , rents rise to meet the heightened risk . Policies designed to help tenants can end up harming them instead .
INCREASING HOUSING AFFORDABILITY
55.0 %
If Denver is to address its housing affordability crisis , it must position itself as a competitive destination for global capital . This requires creating a stable and predictable policy environment .
State and local governments should commit to regulatory consistency . Clear , long-term rules reduce uncertainty
Global Equity
AFFORDABLE HOUSING
ASSET ALLOCATION & 2023 TARGETS
As of December 31 , 2023
13.4 %
Net Rate of Return
Total Investments $ 61.5 billion
Real Estate Investments $ 62 billion
OTHER REAL ESTATE RELATED INVESTMENTS :
$ 172 million Global Equity ( Real Estate )
$ 4 billion US Government NBS ( Debt )
$ 86 million Non-Government MBS / CMBS
$ 10.5 billion Total Real Estate Exposure
$ 171 million ( 2.8 % of RE ) Re Investments In Colorado
and make the market more attractive to institutional investors like PERA . Policymakers should also carefully evaluate the unintended consequences of rent control and other tenant protections . While well-intentioned , these measures often drive away investment capital .
The stakes could not be higher . If Denver fails to attract the capital necessary to expand its housing supply , it risks deepening the affordability crisis that has already left too many residents struggling to find a place to call home .
Denver must compete — and win — in the global marketplace for capital . Achieving this will require thoughtful policy and a commitment to creating an environment where both residents and capital can find a home .
Teo Nicolais , CRE , CCIM , CPM , CAPS , is a Lecturer at Harvard University ' s Graduate School of Design ." www . aamdhq . org 21 | TRENDS JANUARY 2025