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— Office Properties Quarterly — March 2016
Achieve more in your world.
T:10.25”
T:7.25”
C
olorado continues to be at the
head of the pack in economic
growth nationally, and the
Denver metropolitan statisti-
cal area certainly is leading
that charge by all indications. The
future is bright for almost all indus-
tries in our state and commercial
real estate continues to bask in that
glow. It’s an ideal time to take a look
at Boulder’s various industries and
the challenges unique to each of
them, then identify how we can take
advantage of those challenges and
prepare our properties for the next
cycle.
Consider the commercial market
in Boulder. On one hand, it is one of
the most desirable places to conduct
business in the county. It has one of
the top three or four startup com-
munities nationally, a well-respected
university feeding those companies,
plenty of homegrown venture capi-
tal looking for the next big idea and
quality of life that is second to none.
However, there are significant chal-
lenges to creating a successful real
estate venture in Boulder. Not sur-
prisingly, some consider these chal-
lenges key to what makes the market
special and even, ultimately, creates
the protective bubble the market
enjoys during down cycles.
The startup community in Boulder
is an incredible machine. It cranks
out ideas many of us can’t compre-
hend at a breakneck pace. However,
when it comes to negotiating a lease
with these technology companies,
there is a clear disconnect between
the tried-and-true five-year lease
and the explosive uncertainty under
which most of these companies
operate. But if you want to lease
space in Boulder,
you’d better get
comfortable with
working under
these conditions,
figure out how to
best mitigate risk,
and parlay some of
the remaining risk
into premium eco-
nomics on the rest
of the deal. Addi-
tionally, landlords
must think long
term about their
overall industry
exposure, particu-
larly in this market, and consider
what will happen if (or is it when)
venture capital funding slows or
dries up all together. Depending on
the goals of the investor/owner, it
could be prudent to turn down a
stronger deal in favor of a safer, more
established credit tenant.
On the flip side, tenants who have
the benefit of stronger financials,
should realize the leverage it pro-
vides and come prepared to make
that argument at the negotiating
table. For owners who think through
the cost-benefit analysis of these
deals, this is both an exciting time to
have available space in Boulder and
an attractive opportunity to position
a property well for the future.
On a macro level, Boulder always
has been known for its local poli-
tics. And although the local leader-
ship has been a part of the ener-
gized business and real estate com-
munity that exists today, the civic
constraints that real estate profes-
sionals operate within certainly
provide unique challenges in almost
all phases of the industry.
On the other hand, many smart
and creative individuals and com-
panies have seized on these inef-
ficiencies as opportunities otherwise
unavailable in the market. For devel-
opers especially, this means that if
one gains the skills and expertise
to navigate the process, there are
opportunities to be rewarded. There
are many examples of a local devel-
oper or investor entitling a project
and then reaping the benefit of that
work with a lucrative sale to nonlo-
cal investors. It’s a telling trend that
indicates how little appetite those
who are unfamiliar with the process
have to undertake this effort, and
also assigns a real tangible value to
the act of bringing a project that far
in this market. Learning to deal with
these processes is a valuable skill
and an important part of being a suc-
cessful commercial real estate owner
or operator in Boulder.
For current owners, this also means
that the market has relatively high
barriers to entry and existing real
estate will continue to become more
valuable as government processes
continue to suppress the supply side.
From a more localized perspec-
tive focusing on downtown Boulder,
there is a real sense of community
that creates positive pressure, which
isn’t always felt as strongly in other
markets. The Boulder market is a
tight-knit, small-town community
and there still is a feeling of playing
nicely in the sandbox for the benefit
of the entire market. While all of
Boulder feels this more than a larger
market might, it is especially strong
downtown, and even more power-
ful on the retail side of things. Boul-
der’s commercial market is unique
and desirable because people like
to work and shop in a place that is
in itself unique and unusual: local
merchants, one-off coffee shops and
restaurants, historical buildings with
exposed brick and timber, and the
list goes on. But the tightrope that
landlords and tenants walk is what is
the breakpoint between capitalizing
on a red-hot real estate market ver-
sus biting the hand that feeds you.
Downtown Boulder’s experience
with large-scale, national merchants
largely has not been a positive one.
The pendulum quickly swung back
with a dip in the market and a return
to smaller and, often, local store-
fronts.
The real estate community must
determine where the edge of the cliff
is in order to allow smaller shops to
afford downtown Boulder and keep
it special, while balancing how land-
lords collectively can keep the market
active while doing what they need to
do to create valuable real estate.
This thought process will result
in landlords considering factors in
a negotiation that if the availability
were in a nondescript strip mall off of
Interstate 25, they would not need to
consider. The positive aspect to this
is that if landlords and tenants con-
tinue to believe that there is a greater
good to consider in every transaction,
the music should never stop.
The Boulder market has some of
the best real estate in the country,
and as with any market, there are
unique challenges to it. But those
challenges are not insurmountable
and can add to the attractiveness of
the market for all involved.
s
David Workman
Director, Real
Estate Services,
Unico Properties’
Boulder Portfolio,
Boulder
Market Update
