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Page 4AA — COLORADO REAL ESTATE JOURNAL — January 21-February 3, 2015
Industrial
by Jill Jamieson-Nichols
More than a million square feet
of industrial real estate in Denver
changed hands as part of Colony
Financial Inc.’s acquisition of
Cobalt Capital Partners.
The $1.6 billion transaction
included 256 primarily light-
industrial assets comprising
more than 30 million sf across
16 major U.S. markets. There
were eight Denver assets total-
ing 1.13 million sf, according to
CBRE Executive Vice President
Jim Bolt, who handled the local
properties.
Bolt said there was consider-
able national and international
interest in Cobalt’s portfolio.
“Cobalt is a highly coveted
portfolio of strategically located
assets in high-growth markets,
well positioned to benefit from
a strengthening economy in the
next phase of the business cycle.
Moreover, it features strong rent-
al rates and a well-diversified
tenants base, underscored by low
capital requirements,” Thomas
J. Barrack jr., executive chair-
man of Colony Financial, said in
announcement prior to closing.
Lewis D. Friedland, who led
Cobalt’s management team, will
run day-to-day operations of the
business, including acquisitions,
and asset and property manage-
ment.
“We are pleased to have exe-
cuted this sale on behalf of our
investor partners, including our
longtime partner USAA Real
Estate Co. Our entire team has
done an excellent job over the
last 10 years building this busi-
ness into a leader in the indus-
trial sector. We’re excited to be
joining Colony, one of the real
estate industry’s premier com-
panies, and look forward to con-
tinuing to grow our portfolio,”
Friedland said.
All theDenver assetswere fully
leased. Among them, according
to a partial list compiled from
public records by John Winslow
of WinComps LLC, were:
• 445 W. 53rd Place, Denver,
201,500 sf on 11.41 acres, $10.09
million
• 14303 E. Moncrieff Place,
Aurora, 163,072 sf on 7.3 acres,
$8.44 million
• 1550 W. Evans Ave., Denver,
76,728 sf on 4.03 acres, $4.72 mil-
lion
• 11175 E. 55th Ave., Denver,
235,024 sf on 11.3 acres, $14.29
million
• 11600-11610 E. 51st Ave.,
Denver, 86,820 sf on 3.96 acres,
$4.68 million
• 11605 E. 55th Ave., Denver,
99,846 on 6.1 acres, $7 million
• 4865 Moline St., Denver,
98,304 sf on 6.1 acres, $5.35 mil-
lion
The buildings were construct-
ed from 1972 to 2008.
The entire portfolio, withmajor
concentrations in Atlanta, Dallas
and Chicago, is leased to more
than 600 tenants.
GECapitalRealEstatearranged
financing equal to approximately
70 percent of the purchase price,
with the balance of initial capital
funded through equity. The port-
folio is expected to achieve a sta-
bilized unlevered net operating
income yield of approximately
l7 percent and produce an initial
annualized return on equity of
approximately 10 percent.
“We believe this portfolio will
generate very attractive risk-
adjusted returns which we will
seek to aggressively enhance
through additional acquisitions,”
said Barrack.
Cobalt was represented in the
transaction by an Eastdil Secured
team led by Steve Silk and Jay
Borzi, the CBRE National Part-
ners team led by Jack Fraker and
Chris Riley, and Gannon Gerrity
Advisors, led by Kristin Gannon
and Kevin Gerrity. Locke Lord
served as Cobalt's legal adviser.
Other News
n Uhrig Holdings LLC paid $1
million, or $84.75 per square foot,
for an 11,800-sf, centrally located
industrial building on 1.16 acres
of land.
Rick L. Stayner sold the prop-
erty, which is located at 2801 W.
Mansfield Ave. in Englewood.
CBRE brokers Bill Thompson
and Nick Steitz were the listing
brokers.s
11605 E. 55th Ave. in Denver was among the 1.13 million square feet of local industrial properties acquired
by Colony Financial Inc.
I s Colorado getting
“high(er)” on marijuana?
I published an article in
November 2013 in the Colorado
Real Estate Journal with the title
“Is Colorado high on marijua-
na?” Since then, there has been
quite a bit of smoking (or eat-
ing) that is continuing to drive
the market. So how has this
impacted real estate in the last
year?
As a Colorado hard-money
lender myself (traditional banks
are still not engaging in this
market), I have witnessed first-
hand the impacts of the mari-
juana industry on commercial
real estate. The phrase Alan
Greenspan coined to describe
the dot-com bust, “irrational
exuberance,” best describes the
current impact marijuana has
had on industrial real estate.
This irrational exuberance is
being seen both in lease rates
and recent sales.
As most know, marijuana
production (both medical and
recreational) has been relegat-
ed to industrial areas. Indus-
trial properties are ideal since
many have heavy power, open
spaces and typically fit the
zoning requirements (setback
from schools,
rehab centers,
etc.).
With the
new marijua-
na gold rush
in Colorado,
how is this
i m p a c t i n g
both supply
and demand
of industrial
proper t i es?
First, the cur-
rent lease
rates are
unsustainable. Marijuana ten-
ants are paying three to four
times market rates. A tradition-
al tenant cannot afford the rents
that are being paid and, as the
supply and demand of marijua-
na converge, many marijuana
tenants will not be able to afford
the present rents as well. There
already is a push for consolida-
tion within the industry due to
the high overhead.
Along with overpriced leases,
many marijuana tenants are
buying up Class C/D proper-
ties. Many of these properties
are functionally obsolete due
to ceiling heights (12 feet or
less) and in less-desirable areas.
Many have been languishing
and sitting vacant prior to the
marijuana influx. These prop-
erties are ideal for marijuana
and many are converting old,
functionally obsolete buildings
into grow warehouses. Once
the gold rush is over, the vast
majority of buildings will be
functionally obsolete once again
(albeit climate controlled).
The large desire for marijua-
na space has increased prices
beyond reality. For example, I
recently was asked to finance
property on the Interstate 70
corridor that sold for $800,000
12 months ago and was just sold
again for $1.5 million. Nothing
had been done to the building
since it was bought. The price
was double what comparable
properties were selling for. The
prices are out of line withwhat a
normal user should pay both on
the sales approach and income
approach when compared to
nonmarijuana properties.
This craziness also is spread-
ing outside of Denver. I recently
was evaluating a building in
Pueblo and spoke with a com-
mercial Realtor in the area; of
the last five industrial sales
(many were sitting vacant for
years), four were marijuana
related.
The marijuana industry is rap-
idly evolving and is not immune
to basic economics of supply
and demand. Currently, there is
pent-up demand, but this huge
demand spike is not sustain-
able. There is finite demand
(not like everyone will start eat-
ing 12 cookies a day) that will
level off over time. Along with
demand leveling off, supply
also is increasing. According to
many in the industry, there is
more than 500,000 square feet
of new space coming on line
over the next 12 months on the
Front Range. Other states also
are coming on line (four states
allow recreational sales and 23
states have some sort of medi-
cal option), which will further
increase the supply. All of these
factors will help the supply and
demand come into balance.
Furthermore, in the long term
marijuana is an agricultural
product. It will inevitably be
produced more efficiently (out-
doors, in greenhouses, etc.). I
am currently seeing this trend
now with outdoor grows in
Southwest Colorado and mari-
juana tenants taking over green-
houses north of Denver.
Unfortunately there will be a
bad trip when the party stops.
The vast majority of improve-
ments to industrial warehous-
es are useless. For example, is
Denver going to become the
dry-cleaning capital of the U.S.?
(I can’t think of another indus-
try that could utilize both the
heavy power and water). Will
the Front Range be known as
the indoor tomato grow pow-
erhouse? (What else needs all
the climate-controlled space
to grow plants inside?) What
about all the fancy cameras and
other security? (I can’t even
think of another industry that
would require security moni-
toring and cash storage [safes,
etc.] like the marijuana indus-
try.) The Denver Front Range
will have the largest percentage
of overbuilt industrial space in
the entire country.
In summary, we have a bona
fide game of musical chairs, but
at the end of this game, when
the music stops, you don’t want
to be the last one with a chair –
in this case, the last one holding
a marijuana building that was
overbuilt and overpaid for.s
Glen Weinberg
Chief operating
officer, Fairview
Commercial Lending,
Denver
to service only 5 percent of
the nation’s population within
a day’s drive (or 500 miles) of
the metro area, Barrett said Den-
ver’s growth has attracted more
companies that want to serve the
Rocky Mountain region. “If you
want to serviceDenver efficiently,
you really have to be in Denver
from a distribution standpoint,”
he said.
Without being specific about
development plans, Barrett said
Prologis will continue to develop
new buildings in Denver to meet
demand from expanding and
new clients.
“We are lucky – in Denver, we
have land,” he said. “The market
has certainly gotten to the point
where rents have increased to the
extent that you can justify new
construction. We feel very posi-
tive about the rent growth that
we’ve seen locally and the expan-
sion of Denver. That’s why we’re
building buildings,” Barrett said,
referring to the warehouse/dis-
tribution buildings currently
under construction.
“We’re certainly looking at
building more product given the
success we’ve already had,” he
added.
Prologis has approximately
40 acres of developable ground
remaining at Stapleton Business
Center North and 175 acres at
Prologis Park 70, which is locat-
ed at E-470 and Interstate 70 in
Aurora.
“We feel like the land we have
is strategically located where we
can keep growing our portfolio
and satisfy our global custom-
ers in Denver, and across the
United States and around the
world,” Barrett said.s