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Page 26 — Office Properties Quarterly — September 2017
Office Trends
Hospitality, a co-owner/co-developer
of The Dairy Block. “We saw an
opportunity to create something that
was much more integrated than just
having a traditional office building
next to a traditional hotel.”
At the Dairy Block, the hotel and
the office lobbies are connected and
designed to give the office building a
more upscale, lively feel, while also
drawing visitors’ eyes to the bar and
restaurant located in the hotel, he
said. Many of today’s office tenants
are attracted to the 24/7 environment
created by hotel guests visiting every
night of the year as well as custom-
ers visiting the multiple restaurants
and the retail that round out the
mixed-use development, he said.
This speaks to a broader trend
of people’s desire for reintegration.
“People want to be around other
people, and I think this integration
of uses facilitates that,” said Dan
Cohen, McWhinney senior vice presi-
dent of mixed-use development, and
co-owner/co-developer of the Dairy
Block.
The most straightforward appeal of
these projects is the efficiencies the
pairing brings to owners and tenants
alike. For example, the single envi-
ronment can easily support an office
tenant’s out-of-town clients and visi-
tors.
“The two uses are synergistic,
particularly when the hotel is a 4+
star property that has great meeting
space and appeals to business travel-
ers,” said Frank Cannon, development
director at Continuum Partners, lead
developer of A Block/Hotel Born.
Office employees can use their time
more efficiently as well thanks to
many of the shared amenities. Be it
having easy access to a café, gather-
ing at a convenient happy hour spot
after work, using the fitness facilities
on site or conducting business meet-
ings with catered-in lunches in one
of the hotel’s meeting spaces.
From an operational perspective,
there are intrinsic benefits as well.
Shared, often larger, amenities, such
as fitness centers, lobbies and res-
taurants, allow the developer to build
only one amenity to service both
uses.
Mechanical, electrical and plumb-
ing systems can be shared (but built
in a way that allows the owner to
meter the two separate uses differ-
ently at a later date, if so desired). At
Union Tower West, the two sides even
share an engineering team, which
cuts down on overhead, said Charles
A. Pinkham III, senior vice president
of development at Portman Holdings.
During construction, since it’s a
single building, regardless of how
many uses it will serve, there are
many ways to capitalize on shared
expenses. For example, the build-
ing only needs to connect to the city
water supply one time. Only one
crane is needed with only one hoist-
ing expense, and the general contrac-
tor can mobilize to a site one time
– instead of twice, Pinkham said.
Another benefit to this type of
mixed-use project is the diversifica-
tion it provides.
“From a pure financial standpoint,
when you mix the use types, it
really spreads the risk of the asset
and the exposure of that supply to
the market,” Pinkham said. “Instead
of delivering 200,000 square feet of
office – which will require some sort
of significant prelease or a pure spec-
ulative office play, which is a rela-
tively risky play – you deliver 100,000
square feet of office. You literally cut
your supply risk and your prelease
risk in half, and then you deliver 100
hotel keys, which has some level of
inherent occupancy that financing
institutions will accept by virtue of
the fact that occupancy will come
based on the market. And granted, it
has its own absorption risk, but it’s
much less risky from an occupancy
standpoint than an office building.”
Everett agrees. “You’re not putting
all of your eggs in hotel or office,”
he said. “Office tends to be a lower,
but more consistent return, looking
at it long term, and hotels tend to
be higher, but a more volatile, type
of cash flow stream, so it’s useful to
combine the two.”
However, even if the risk may
decrease with multiple uses, find-
ing financing for these projects is
one of the more challenging aspects,
because most equity investors and
lenders are single-product oriented.
Often the development team must
search out the right equity and lend-
er partners who understand all the
components for these projects.
“We have to find a lender who will
look at a hotel for this type of value
in this type of industry and will look
at the office in a different way, yet
blend it all together into one loan
package for you,” said Everett. “So
that is a smaller universe of equity
investors and lenders who under-
stand that and are willing to play in
that kind of situation.”
Other complications stem from the
physical layout of bringing these two
different uses under the same roof.
“The biggest single challenge is ver-
tically stacking different uses,” said
Pinkham.
Developers must take into consid-
eration the MEP systems. For exam-
ple, consider the different plumb-
ing and electrical needs from hotel
floors to office floors. On a hotel
floor, there might be 40 individual
bathrooms, each with multiple fix-
tures, while the office might only
require 10 bathroom fixtures for an
entire floor, he said.
Additionally, they must deter-
mine how to facilitate different
layouts within the same structural
grid, because wherever a column
is dropped in the office space, it’s
going to be in the same space for
the hotel (and in the same spot in a
garage, if that’s included in the proj-
ect).
They also must consider how to
properly accommodate different
floor plate needs. Office wants large
floor plate, while hotel floor plates
meet a maximum efficiency that is
much smaller, said Cohen.
Once all these complications are
handled and the property is open,
one looming challenge remains: the
fickle consumer market. “We don’t
have any specific predictions about
how office is going to look in 20
years and how hotel is going to look,
but we know it will be different,”
said Everett.
Because each of these projects
enjoys an ownership group that
maintains control over both uses,
they can manage the properties
holistically and make decisions
based on what’s best for the greatest
good. This agility to be flexible with
decisions affecting the long-term
health of the property will become
increasing important as the projects
inevitably make tweaks and adapt to
changing consumer needs.
However it may evolve, anticipate
more projects pairing office and
hotel in Colorado’s future, especially
as multifamily continues to flirt with
oversupply, potentially diminishing
its desirability as a mixed-use com-
ponent, according to one source.
“You can build a great hotel as
a standalone, and you can build a
great office as a standalone, but the
opportunity to do this type of proj-
ect more is something we’re super
excited about,” said Everett. s
The Dairy Block and Maven Hotel
Address: 1800Wazee St. (office tower); 1850Wazee St. (Maven Hotel)
Specs: 550,000 square feet of mixed-use development located on one city block, of
which roughly 260,000 sf is office, 66,000 sf is retail and restaurants, and there is
a seven-story, 172-room hotel.The project also features 392 underground parking
spaces, 23 outdoor terraces and a pedestrian-only alley with retail opening up to it.
Developers: McWhinney, Sage Hospitality and Grand American Inc.
A Block and Hotel Born
Address: 1881 16th St. (A Block); 1600Wewatta St. (Hotel Born)
Specs: 300,000 square feet of mixed-use space, including a 12-story, 200-room,
Kimpton-operated hotel, and a five-story, 51,000-sf office building, along with
about 11,000 sf of retail
Project Partners: Continuum Partners, Semple Brown, Boka Powell, GE Johnson
Cris Molina
Union Tower West and Hotel Indigo Denver Dowtown
Address: 1801Wewatta St., Denver
Specs: 100,000 square feet of Class AA office, 180-room boutique hotel, parking
garage and 10,000 sf of street-level dining and retail
Developers: Portman Holdings, Hensel Phelps Development
©John Portman & Associates