CREJ

March 2018 — Office Properties Quarterly — Page 21 www.crej.com www.allianceconstruction.com | 303.813.0035 INSPIRING PROJECTS ENSURING LASTING CLIENTS Low interest rates and high sales vol- ume facilitate capital improvements. Investors who usually purchase in coastal and tier-one markets recently turned to Denver, as the low unem- ployment rate and population growth garnered national attention. Trans- action volume increased from $1.4 billion in 2012 to $2.2 billion in 2017, and the average unweighted price per sf grew from $156 to $208, according to Real Capital Analytics. The price per sf for closed deals remains below the national average and 2017 cap rates were 20 to 30 basis points high- er, attracting greater interest from national investors. Stable cap rates began and ended 2017 at 6.9 percent. Buyers are facing difficulty finding value-add opportunities in decent locations. There are only seven well-located Class B properties larger than 30,000 sf and less than 80 percent leased for sale in the Denver market. Scram- bling 1031-buyers are on the hunt for off-market options in all asset types, leaving brokers with impatient money. Multifamily is an attractive cash destination, although the sector also is experiencing a lack of listings. Buyers are even turning to previously derided triple-net lease retail options. Denver’s record ascension pushes the region into new territory and prompts wary analysts to look to the horizon for signs of a bubble. How- ever, the economy is diversified far beyond its old energy sector roots. Any unemployment uptick is nega- tive, but, given the rapid population growth, it is understandable that new employment opportunities occasion- ally will lag. Coming interest rate hikes are likely to tolerably push cap rates up 50 basis points and may increase the number of sellers. “I do see our cycle sustaining for at least two more years,” said Rick Egitto, capital market groups princi- pal of Avison Young’s Denver office. “Repatriation of overseas cash may cause certain firms like Amazon and now Apple to invest in new facilities (commercial real estate benefit). Lots of money on the sidelines to invest bodes well to keep the market afloat for a while.” ▲ Manning Continued from Page 4 This light-rail accessed and highly amenitized building was leased to two tenants with long-term leases. It recently sold for just under $425 per sf and around a 6 percent cap. Orchard Point was constructed in the mid-1980s and recently traded for just over $145 per sf and close to 7.5 percent cap. Although this asset has great highway visibility, it’s not deep in amenities and will require a capi- tal investment by the new ownership. It’s a solid core-plus investment. Denver continues to be regarded as a top-tier market for capital invest- ment in office properties. Buyers are closely evaluating the risks associat- ed with each opportunity and apply- ing the appropriate risk-adjusted returns to determine their pricing. Investors are closely evaluating how well each asset will perform if there is a shift in the economy and pricing it as such. As a whole, it continues to be a great time be an investor in Denver office product. ▲ Devereaux Continued from Page 8 10-year Treasury and cap rates is not the only factor that has led to such strong transaction volume in Denver’s suburban office market. The second chart on Page 9 shows that suburban Denver office transac- tion volume in the private capital sector has remained well above pre- recession levels. This strong increase in volume is attributable to both a favorable investment environment detailed above and Denver’s attraction to buyers on a national level. The “live, work, play” mantra that Denver is well known for has attracted talented workers and major employers, driving positive commercial real estate funda- mentals and buyer demand. Denver’s national popularity will help offset some of the expected decrease in transaction volume derived from narrowing spreads, further augmenting expectations for strong suburban office private capi- tal transaction volume in 2018 and 2019. ▲ Wood Continued from Page 9 Anticipating continued residential demand from new millennial resi- dents, the company has closed two additional preferred equity transac- tions in Colorado over the last 24 months – one for the 267-unit, Class A UnionWest apartments in Lakewood (within the area’s highest concentra- tion of office and medical jobs) and the other for the 255-unit, Class A Ascent Westminster apartments being developed by Minneapolis-based Sher- man Associates as part of Westmin- ster’s new downtown master plan. Tracking market fundamentals and responding with the right mix of solu- tions is a tactic the local experts will continue to employ as the firm works to place GWLRA sourced capital into markets where supply is constrained and opportunities are ripe to expand the company’s U.S. footprint. This includes growing in existing markets and entering into new regions, par- ticularly key locations in the south- eastern U.S. At this stage in the real estate cycle, one of the most valuable of those solutions will be preferred equity or mezzanine debt. In addition to offer- ing strong premiums, preferred equity can serve as a defensive strategy for clients looking to positioning them- selves for the next phase of the cycle, which could require longer-term hold strategies. For EverWest, the infusion of inter- national capital comes at an optimal time in the market to identify sound real estate investment opportunities for clients on both sides of the U.S.- Canada border. ▲ Stone Continued from Page 10