Office Properties

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July 2015 — Office Properties Quarterly — Page 9
A s memories of the Great
Recession can’t fade fast
enough, the Fort Collins office
market has strengthened and
continues to improve. A cur-
rent snapshot from Xceligent reports
the city has a 4.4 percent vacancy rate,
which is the lowest
in Northern Colo-
rado, and the rates
continue to decline
each quarter.The
asking rates average
$20.85 per square
foot triple net, which
is seeing a slow but
steady increase.
Sales of combined
investment and
owner-user proper-
ties to date in 2015
averaged $188 per sf,
according to CoStar.
While the market has both tenants
and owner occupants, most new con-
struction is for users, with speculative
construction limited and focused in the
prime locations.
The investor-driven market is wit-
nessing strong interest from investors
who are in 1031 exchange situations
or attracted by the improved market
trends, cash needing returns or low
interest rates. Cap rates on recent
investment sales are in the 7 to 8 per-
cent range for quality properties. And
many of these deals are occurring off
market and initiated by unsolicited
offers. For those on the market, when
appropriately priced, investment offer-
ings are clearing the market quickly.
Following are several good examples
of Fort Collins investment sales that
show the market’s diversity.The first is
363W. Drake Road, which includes five
office condominiums, totaling 6,113 sf.
The investment sold for $650,000, or
$106 per sf.The building was built in
1978, had recent exterior upgrades and
was fully occupied, with an average of
three years remaining on the leases.
The cap rate was 7.25 percent.The fact
that it was fully leased and had man-
agement in place attracted the 1031
buyer.The property was on the market
for approximately four months.
Another example is 400 E. Horsetooth
Road, a four-tenant office building
of 13,444 sf that sold for $2.5 million
or $186 per sf.The building was fully
leased with an average remaining term
of four years, and the cap rate was
7.6 percent. Built in 1986, the building
recently had significant upgrades to the
exterior and interior.The 1031 buyer
found the property’s condition, location
and tenant mix as solid support for the
price and return.This was a “pocket-
listing” and not openly marketed.
The 30,600-sf office property located
at 3528 Precision Drive, built in 2014,
sold for $8.45 million, or $276 per sf.
The second floor was in shell condi-
tion without finish.The seller is leasing
the first floor and the buyer intends to
occupy the second.The property was
available for lease but not actively mar-
keted for sale at the time of offer.
And finally, 2900, 3000, and 3030 S.
College Ave., three midtown office
buildings that total 75,522 sf, sold
for $8.38 million, or $111 per sf.The
buyer was completing a partial 1031
exchange and drawn to the portfolio
by the location and probable upside.
Vacancy was near 20 percent, gen-
erating an approximate cap rate of 8
percent.The buyer is upgrading the
interior and exterior.The properties
were not actively marketed at the time
of offer.
The improved market conditions
are permitting landlords to modestly
raise rents and limit concessions for
new leases, yet options remain avail-
able for good-quality credit tenants.
This is an excellent time to sell leased
investments to maximize value, and
buyers must be prepared to act quickly
and present attractive offers. Many
potential buyers have reduced their
targeted returns (cap rates) in order to
acquire quality properties. And lastly,
tenant finish is challenging due to the
long lead-time for permitting, lengthy
construction periods plus historically
high costs.
Fort Collins is a very desirable loca-
tion for businesses, investors and
residents alike. Because of our diverse
economy, a culture of innovation, a
very high quality of life and relatively
close proximity to Denver, the out-
look for of our office market is quite
positive.s
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Market Update
Annah Moore,
CCIM
Broker, Realtec,
Fort Collins
A four-tenant office building located at 400 E. Horsetooth Road sold for $2.5 million.