Page 26 —
COLORADO REAL ESTATE JOURNAL
— June 15-July 5, 2016
Finance
H
ere we are closing in
on the middle of 2016
and the Denver real
estate market is hotter than ever.
Looking out of our office win-
dows toward Union Station, I
can see a half dozen or more
cranes actively working on sev-
eral thousand feet of new office
space, over 3,000 apartment units
and about 500 hotel rooms. That
does not count all of the cranes
to the east involved with projects
that I can’t see. This clearly repre-
sents themost active construction
cycle for commercial real estate in
Denver since the mid-1980s. The
question that keeps coming up
more and more is “how long will
this last?”
It seems historically that Den-
ver operates on a continual boom
and bust cycle with the only con-
trol being all real estate product
types must get overbuilt before
we know it’s time to stop. Usu-
ally that leads to several devel-
opers left holding the bag on
projects that missed the ideal tim-
ing for completion. For the office,
retail and industrial projects that
entered into strong lease con-
tracts early, that is not a problem.
The ones on the back end will
find that the market has dried
up and new tenants are hard to
come by. Although some observ-
ers think the end is coming for
this cycle in the near term, I think
there is another good wave of
activity coming over the next
three to four years.
The weird thing about these
real estate cycles is that they all
begin and end due to different
market forces. Some cycles have
been based upon energy industry
booms and busts, some related
to world security concerns and
some related to national financial
meltdowns like we experienced
in 2008 through 2010. The cycle
we are in today started with the
overall economic recovery in the
United States and the Federal
Reserve-induced policy of easy
money. It continues for these
same reasons even as the econ-
omy slows down somewhat but
has not fallen back into recession.
The policies of the Fed could be
all that is saving us but we have
no choice but to ride out the
wave.
Denver and the state of Colo-
rado have really benefited from
these national forces and we
seem to be doing even better than
most markets.
A big driver
for Denver is
the influx of
new residents
c o n s i s t i n g
primarily of
the millen-
nial genera-
tion, many of
whom come
here with or
without jobs
andwill inevi-
tably stay here
even if the job
they have goes away. The qual-
ity of life in Colorado is so much
higher than 90 percent of the rest
of the country, very few peo-
ple ever leave. The recreational
options in the Rocky Mountains,
the favorable (most of the time)
climate, and robust job growth
and employment opportunities
are enough to attract large num-
bers of this demographic and
keep the ones already here in
place. With the fact that on top
of all this Colorado is one of
only a few states with legalized
marijuana, it seems like we have
just about got all of the amenities
covered.
The apartment market really
seems to be the harbinger for
the continued health of our real
estate market looking out over
the next few years. Again, the
millennial generation seems to
hold the key. They appear to be
totally comfortable with apart-
ment living, content to postpone
starting families and not have
homeownership as a primary
goal. They have rewarding, inter-
esting, stable and well-paying
jobs and are attracted to living
closer to the downtown Denver
market and other centrally locat-
ed neighborhoods. Although the
delivery of multifamily units
will create a fairly large bubble
of oversupply as this year goes
forward, I believe this will be
short-lived and these units will
be absorbed by late 2017. More
newcomers will continue to enter
our market and they will initially
move into rentals as they become
familiar with Denver and get
acclimated to the area. This will
keep rents from falling much
below the projections going into
construction even though there
will be temporary concessions for
marketing purposes in the short
term. Contract rents should hold
firm but flatten out.
The completion of the light-
rail system line accessing the
Denver International Airport
is also a huge positive factor in
our continued growth. Prior to
this opening, the light-rail sys-
tem had limited value to only
a few people and served only a
handful of locations. This option,
especially from the Union Station
location, will open the system up
to a much larger portion of the
population. The transit-oriented
development sites will see a tre-
mendous flurry of development,
as these locations also will be
very attractive to the millennial
generation due to convenient
transportation. The completion
of the Interstate 225 portion of the
light rail will provide this same
benefit to residents and workers
in the Denver Tech Center.
Eventually, this cycle too will
wind down as building and
growth will continue until it
is obvious that it is time for a
breather. This generation can
only save us for so long. The
end of the current cycle, however,
should be relatively painless and
then we can get ready for the
next one.
s
Mike Jeffries
Principal, Essex
Financial Group,
Denver
ing will be allocated toward the
acquisition of the property.
Future floating-rate funding
will be used to convert the prop-
erty to creative office space.
Situated on 3.46 acres, 2323
Delgany is the northwestern
border of Denver’s central busi-
ness district at the corner of Del-
gany and Park Avenue West in
the rapidly redeveloping RiNo
mixed-use neighborhood.
Union Station, Coors Field,
the Colorado Convention Cen-
ter and Interstate 25 are within a
mile of the property. Originally
constructed in 1975 as a Twin-T
industrial warehouse, the bor-
rower plans to convert the asset
to a creative office property as
tenant leases expire in 2017.
“We are pleased to complete
this financing as it will signifi-
cantly enhance our ability to suc-
cessfully reposition this asset,”
said EverWest’s
Paul Andrews.
“First National is proud
to have been of service to
two very valued clients and
appreciates the opportunity,”
added
Jonathan Smith,
exec-
utive vice president of First
National.
s
FirstBank
