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Page 14 — Office Properties Quarterly — September 2017
Welcome to 50 FIFTY DTC...
The most elegant and sophisticated
achievement in architecture The DTC
has ever seen.
Make no mistake: This isn’t just
another office building. It’s a Class
AAA, 12-story office tower like
no other with beautiful lines and
amazing features. A visually stunning
mix of inspired design coupled with
the finest building materials and
technology available.
DETAILS
• Class AAA Office
Tower
• 12 Stories: 6 stories of
office over 8 stories of
parking
• 185,000 SF
• 30,500 SF column-free
floor plates
• Mountain views from
every floor!
• 100% covered, secured
parking below building
footprint at 3.5 spaces
per 1,000 SF
• Fitness Center
• Common Conference
Room
• Collaborative Lounge
and Work Space Areas
• Bicycle Storage
• Delivery Summer of
2018
For leasing
information
contact:
BILL WOODWARD | 720.274.8313
RANDY SWEARINGEN | 303.521.7354
5 0 5 0 S OU T H S Y R A CU S E S T R E E T | D E NV E R , CO 8 0 2 3 7 | CommercialRealEstateAdvisors
Investment Market
U ser-investor office acquisi-
tions are an increasingly
attractive option for a user
who is willing to become a
landlord and is looking to
enjoy the benefits of owning the
building he occupies as well as the
enjoyment of low-subsidized occu-
pancy cost from other tenant’s cash-
flow. As we witness a general increase
in the sophistication of investments
– and in real estate investment world,
in particular – and a new entrepre-
neurial momentum in the economy,
it only makes sense for business
owners to buy user buildings and, by
extension, user buildings with addi-
tional cash flow. There are negative
trade-offs for this strategy and it’s not
for everyone, but we’re seeing unprec-
edented interest in entrepreneurial
business owners diversifying into real
estate investing via the user-investor
office purchase.
Businesses big and small customar-
ily lease their real estate and focus
their capital on the business. The
general thought is to let the landlord
handle the real estate tasks, while the
entrepreneur can focus on her area
of business expertise: growing the
company.
It also is relatively customary for a
business to deploy its capital in the
ownership of the building it solely
occupies and handle real estate tasks
like maintenance and bills them-
selves. These businesspeople now
have two foci: their business as well
as managing and maintaining their
building.
What’s changing is that increas-
ingly business users are deploying
their capital in their business as well
as their building, but offsetting the
building expense
with income from
other tenants. This
dynamic of addi-
tional building ten-
ants requires the
owner to become
landlord in addi-
tion to all the tasks
associated with
investment owner-
ship. As business-
people become
more sophisticated
in investing in real
estate (owning the
buildings they occupy), it only makes
sense that, by extension, these busi-
ness folks would evolve into the
user-investor role – a businessperson
who owns the building she occupies,
with cash flow from other tenants in
a multitenant building. This isn’t a
brand new phenomenon but, I sub-
mit, it now is a more popular invest-
ment vehicle as entrepreneurs get
more sophisticated and more com-
fortable with real estate as a cash-
flowing investment.
As I alluded to above, this user-
investor role isn’t for everyone.
The user-investor must wear three
hats. An entrepreneur running her
core business, a property manager
maintaining the building, and an
asset manager/landlord in charge of
collecting rents, keeping books and
holding tenants’ hands. This presents
an opportunity for said user-investor
to become a jack of all trades and
master of none.
Still, many companies are deploying
this strategy as a diversification tool,
a way to offset occupancy cost and as
a strategy to acquire distressed real
estate at well-below replacement cost
with the utility only the user-investor
can enjoy.
One user-investor strategy is for a
company to build a new building that
is oversized and lease out the excess
space to offset occupancy cost. New
office construction costs are high, so
the excess space would necessitate
strong rental rates to maintain the
replacement value of the building. For
anything but the most high-end (e.g.,
medical) occupancies, it’s difficult for
this strategy to succeed for the user-
investor.
Another more common and more
successful strategy is for a buyer to
buy an unstabilized building with
some vacancy for well-below replace-
ment cost and occupy the vacant
suite.
Our team has sold eight user-inves-
tor office buildings in the last couple
years, and we’ve seen some trends
and benefits for sellers and user-
investors.
For example, a seller may have a
destabilized investment property
that’s 75 percent full and a 4.5 percent
cap on current net-operating income,
and the seller would like to sell it at
a pro-forma 8 percent cap. The pure
investment buyer sees this opportu-
nity and thinks the seller is keeping
upside to himself, and so it sits.
Would a user-investor pay above
what the property is worth to a pure
investor? I submit that it’s of value
for the user-investor to do so, because
he would benefit from the utility of
having space to occupy as well as the
benefit from additional income from
the other tenants to offset the occu-
pancy costs.
The liquidity offered by the user-
investor benefits the seller as well
by making a market for unstabilized
buildings that can’t be filled by value-
add investors alone. This new liquid-
ity also is beneficial for the commer-
cial real estate market as a whole.
These buildings generally sell for
below replacement cost and provide
an opportunity for business owners
to diversify their holdings. Further,
the new owner can monetize her
position by selling and leasing back,
which is a whole other topic.
There are distinct advantages for
the user-investor from a management
perspective as well. The owner is on
site so he can respond quickly to real
estate issues. It’s interesting to note
that of the eight recent user-investor
transactions we’ve been involved
with, none of the buyers hired a
third-party property manager. Some
of these buyers are new to real estate
management. I submit that the prox-
imity of the owner to the building
helps with management challenges,
which is another advantage in lower-
ing costs for the user-investor.
User-investor office acquisitions
are a great opportunity for a user to
become a landlord by owning the
building he occupies, enjoying low
subsidized occupancy cost from other
tenants’ cashflow and deploying the
benefits of investment real estate
ownership. It makes sense for busi-
ness owners to buy user buildings
with additional cash flow at below
replacement costs, and it benefits
sellers and the commercial real
estate market. We welcome this
nascent form of real estate owner-
ship and the new energy these non-
typical real estate buyers bring to
the table. s
John Becker
Senior vice
president, Fuller
Real Estate,
Greenwood Village