The construction industry cites excessive litigation as one of the causes behind Colorado’s dwindling number of condo developments.

Roughly 200 construction defects lawsuits are brought annually against builders in Colorado, according to a December report commissioned by the State Court Administrator’s Office. The resulting high insurance premiums and the high probability of a lawsuit has scared developers away from building larger and more affordable condo projects, Kephart architect Bobby Long said.

Following the passage of House Bill 1279, Colorado has raised the threshold required for suing developers, contractors and professional service providers like architects. Attorneys now need the approval of more than half of all homeowners in a condominium complex to begin litigation. Condo construction has increased nearly 20% compared to last November, a possible result of the bill.

With condos representing around 3% of housing starts in Denver, the hope among industry professionals is that the new law encourages construction.

“Once the legislation passed, it is debatable whether it helped or not, but the need and the pent-up demand is so large in Denver specifically that there are a lot of developers trying to find creative ways to bring something to the market,” Long said.

Unlike apartments, which focus on temporary living, condos are often a stepping stone for first-time homebuyers and mirror the permanency seen in the design of single-family homes. Condos rely on more traditional and timeless architecture, rather than following "wow-factor" trends that draw in renters, Long said. Emphasis is also placed on features like extra storage space, personalization and flexible layouts. Larger bedrooms and extra parking space is preferred over expansive fitness rooms and clubhouses.

As the condo market starts to thaw, developers have looked to improve their due diligence processes. Some developers are having third-party reviewers document the construction process to limit their liability, Long said. The goal for condo developers has been to stay under the radar using these preventive measures and keeping their developments small.

“Developers are really trying to be hypercreative to cover all ends,” Long said.

Many of the over 1,200 condo and townhome units in the city’s current pipeline are luxury projects that can absorb the risks and potential costs associated with construction defects lawsuits. But attainable projects are on the rise following the new legislation. Kephart is working on a handful of boutique condo communities with units aimed to hit the market with starting prices of around $400K.

House Bill 1279 also could help bring down the cost of insurance for multifamily projects and further promote more affordable housing stock.

As developers warm up to condo development, keeping tabs on changing design preferences is critical. Kephart works with developers to limit their risk from the design perspective.

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