CREJ

Page 12

— Office Properties Quarterly — September 2017

www.crej.com

Blending the Generations

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Tenant Planning Services

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Investment Market

any of us have heard about

the foreign capital buying

up Class A projects in down-

town Denver and the south-

east market. Foreign capital

originating from Germany, Mexico,

Korea and Bahrain seems to be most

active in investing in Denver through

their domestic advisors. Features that

have attracted this foreign capital

include infrastructure improvements,

such as the “train to the plane,” strong

population growth of 1.6 percent every

year from 2010 to 2015, and the appeal-

ing climate and lifestyle of the Mile

High City.

But what about the office invest-

ments in the private capital arena

ranging from $2 million to $20 mil-

lion?Where is that money coming

from? CBRE Research in Denver looked

at office properties that have traded

in the past 24 months in the Denver

metro at this price point and found

that 49 percent of office investors in

this category are native to Colorado.

After that, California makes up 23 per-

cent. Other major out-of-state inves-

tors includeTennessee (5 percent),

Texas (5 percent) and NewYork (3 per-

cent), while our great northern neigh-

bor, Canada, accounts for investing in 2

percent of properties in this category in

the past two years.

It has been a remarkable trend to

watch. As brokers, we receive inquiries

from various investors throughout the

country and across the globe. Special-

izing in representing private capital

desirous of acquiring office assets both

nationally and internationally, I mostly

see real estate investment trusts, fam-

ily trusts, private equity firms and

wealthy individuals who want to own

property in Denver. Business owners

also are expressing

an interest in own-

ing their property,

with some investing

in vacant or partially

vacant properties to

house their business

and allow them to

grow into the build-

ing as their com-

pany grows.

The diversification

of private capital in

the sale and pur-

chase of properties

is not limited to the

office market.Tyler Carner and Jeremy

Ballenger focus on the industrial sec-

tor, selling to institutional and private

buyers.They too have noticed this

influx of private capital to these assets.

“The industrial buyer pool in Denver

is different than it was 10 or so years

ago,” said Carner. “Strong market fun-

damentals and the impressive e-com-

merce-driven growth story have drawn

more foreign and institutional capital

to our market than ever before.The

number of REITs and private buyers

have also expanded. Buyers in the $2

million to $20 million range overlap to

some degree with private buyers con-

sistently represented throughout. Pri-

vate buyers are increasingly based out

of state – buyers fromAlaska, Hawaii

and California are well represented –

and are among the most active and

aggressive as of

late.We

REITs, institutional and foreign capital

at the higher end of the range.”

For example, in the last 12 months,

the team sold 250,000 square feet

among three different deals for just

under $25 million total to aWestern

U.S. private investor who understood

Denver’s growth trajectory

and the healthy industrial

market fundamentals, said

Ballenger. “For real-time

insights, though, we have a

few listings on the market

currently that will trade

below $25 million and have

all received record-level

interest from buyers across

the board,” he said.

Out-of-state investors

also ring true in Denver’s

retail market. “We have

successfully transacted

with 86 unique buyers

since 2011, 65 percent of

which are based outside

of Colorado,” said Matt

Henrichs with CBRE capital

markets, national retail

partners.

The office sector invest-

ments that I have been

involved with recently

have been local buyers or

1031 exchanges needing

replacement properties. An example

is a property that recently was pur-

chased by a family trust from Con-

necticut.That asset had several medi-

cal tenants, therefore each tenant had

invested more construction dollars in

each suite, so the thought may have

been that those tenants would stay

longer at the property and would likely

renew their lease when it was up for

expiration. I represented the seller in

this transaction, which exceeded the

seller’s expectations.The competition

for quality assets has been strong, so it

is beneficial to have a broker represen-

tative watching the market for those

investors seeking to place private capi-

tal in our market. Some of these office

assets barely make it on the open

market.

The ramifications for property own-

ers are that if you own property in

Denver and are considering selling,

it’s important to know that the likely

buyer may not be a Coloradan inves-

tor.The buyer may be someone from

another state who has a 1031 timeline

ticking away, and your property may

be exactly what she wants in her next

investment. It’s important to engage

professionals who can help property

owners source and vet out-of-state

opportunities in addition to local inves-

tors. Ultimately, a little competition

from out-of-state investors hopefully

will help our Denver properties achieve

their maximum value.

Where is under $20Mprivate capital coming from?

Monica Wiley

Senior associate,

investment

properties, CBRE,

Denver