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— Office Properties Quarterly — March 2016
T
he Denver office real estate
market makes it easy for
us to feel like we are in the
right place at the right time.
Buyers, sellers and brokers
alike are experiencing benefits of
the unparalleled level of activity
unlike anything we have experi-
enced in the past. The most unique
finding in the current market is
the streamlined success across all
building types. In addition to office
buildings, multifamily, retail, hotels
and even land are all experiencing
major success.
We are experiencing commer-
cial real estate’s perfect storm. The
attributing elements to this storm
include the influx of people mov-
ing to Denver due to job growth, our
lifestyle, low unemployment rates,
cheap financing and the supply-
demand economics. In addition
to these elements, the daily stock
market fluctuation provides inves-
tors with an opportunity to diver-
sify their investment portfolios.
Drawbacks to the office market
are few, but include high demand
with limited supply of office prop-
erties to purchase, resulting in
decreased activity in the 1030 tax
exchange market. Another draw-
back is the slowing activity of dis-
tressed properties because opportu-
nistic buyers are seeking out other
property types, noncore assets and
properties in secondary markets for
higher yield potential. In summary,
there is an aggressive amount of
money chasing limited product.
The above-mentioned fac-
tors, which were
described as ele-
ments of the per-
fect storm, are
motivators of the
“greed factor” for
sellers in the office
marketplace. In
the 1987 film “Wall
Street,” Michael
Douglas’s charac-
ter, Gordon Gekko,
is a corporate
raider. Essentially,
greed drives him
throughout the
film to buy up underperforming
companies, break them down and
sell them for profit. In one scene,
Gekko appears at a meeting and
wants more shares, even though he
already owns some. He wants con-
trol, though his motives for doing so
are hidden. It is there that he deliv-
ers the speech that includes the
movie’s most famous line: “Greed,”
he states, “is good.”
I make the parallel between this
movie’s famous line and the cur-
rent Denver office market because
I have witnessed sellers who have
exercised the greed factor; for some
it worked as a benefit, but for oth-
ers greed was a hindrance. Is greed
good? I’ll let you draw your own
conclusion.
There were two recent office
sale transactions I was involved in
where the greed factor came into
play and resulted in two different
outcomes. In one transaction, an
office building was placed under
contract at higher-than-asking
price and fell out of contract. The
buyer, whom I was representing,
then put it under contract, also
above-asking price. We completed
all due diligence and were waiting
for the appraisal, which came in
at $100,000 under the sales price,
which was the original asking price.
After attempting to negotiate a
mutually acceptable resolution, we
were unsuccessful. The deal fell
apart because the seller had a price
expectation set in his mind and was
not willing to negotiate, and he lost
the deal as a result of the greed fac-
tor.
In another transaction, the greed
factor worked for the seller’s ben-
efit. The office building was under
contract. I represented the seller
this time and we knowingly listed
the office building at 10 percent
above our anticipated acceptable
sales price based on recent sales
comparables. Within a month of
listing the property, we received a
full price, all-cash offer. We accept-
ed the offer, all inspections and due
diligence went smoothly and we
closed 60 days later. My conclusion
to the question – is greed good – is
it can be good, but it also can be a
hindrance.
I have professionally experienced
four decades in the office commer-
cial real estate market and have
witnessed the market’s high and
low cycles. No one knows exactly
when the market will shift, but
given certain market conditions
and my experience, I believe that
we will see the unavoidable shift
approximately at the end of 2017.
It’s time to prepare to reinvent our-
selves as brokers because brokers
will need to evolve with the mar-
ket to withstand and find success
through the complete market cycle.
I recently brokered the sale of an
office building that boasted a 31
percent gain in just six months – a
situation where greed was good for
the seller. Investment-grade, loca-
tion-driven office properties always
will be in high demand no matter
what the economic climate. Insti-
tutions, pension funds, advisory
groups, foreign investors, real estate
investment trusts and astute buyers
will continue to gravitate to these
irreplaceable properties.
Adaptive reuse of properties is
leading the conversion of older
industrial and retail facilities into
hip new mixed-use office projects.
Today, buyers need to take advan-
tage of lower interest rates and
strong submarkets, including River
North, Brighton Boulevard, Ball-
park, Highlands and Sloan’s Lake, to
name a few neighborhoods where
this the greed factor phenomena is
prevalent.
Current market conditions remain
positive and commercial real
estate fundamentals continue to
be strong with a robust demand. It
seems almost daily that we set new
records for sales volume and prop-
erty prices per square foot. We are
still at the right place at the right
time – so enjoy the ride!
s
Phillip A. Yeddis
Senior broker,
Unique Properties/
TCN Worldwide,
Denver
Investment Market
