CREJ

Page 2 — Office Properties Quarterly — March 2019 www.crej.com Contents Letter from the Editor W hile the office invest- ment pool continues to be active, minor changes are taking place to its makeup, I gathered after listening to the office panel at the Colorado Real Estate Journal Investment Forecast in February. There’s a thinning in the number of active investors for core assets, as well as in the value-add and private capital groups. One panel- ist said there are “buckets of capital still available”; however, all the capital is scruti- nizing potential deals carefully as investors become more cautious. For opportunistic investors, there’s concern about the length left in this cycle, as a two- to three- year repositioning plan could place them in an unknown economy at the time they’d like to resell the asset. Many of these buyers are transitioning to core-plus proper- ties, which offer potential but less risk. Meanwhile, although the private capital pool typically is thin at the top of a cycle, new buyers still are entering the market, said JLL’s Pat- rick Devereaux. Over 25 new buyers purchased office properties in 2018, often focusing on the suburbs. Another active group is mul- tifamily cross-over buyers, who generally are looking for small- tenant office buildings. This group accounted for almost half of the buyers for these assets in the last 18 months, said Newmark Knight Frank’s Dan Grooters. In terms of foreign capital, restrictions due to hedging is start- ing to tie up interest from Germany and Korea, while Chinese capital has experienced a slowdown glob- ally. However, capital from South America and Canada are filling some of those absences, said HFF’s Mark Katz. Assets using Commercial Prop- erty Assessed Clean Energy loans to finance energy improvements are beginning to enter the market. The biggest hurdle for these assets is that some lenders look at the financing and are concerned that they can’t be in the first position. So for these assets, finding the right buyer and right lender can be more difficult. Devereaux said that C-PACE limited the buyer pool and possibly extended the marketing for a few more weeks for a sale he worked on, but the asset did hit the price goal. The panelists were hesitant to predict a “recession,” but did acknowledge a potential future “downturn.” The cause most likely will come from something outside our market, possibly a geopolitical event, they said. Overall, there remains a lack of available space in the market and Colorado is considered a bargain compared to many core markets, the panelists said. The takeaway: Capital is still out there; it just is a slightly smaller pool than a few years ago. Michelle Z. Askeland maskeland@crej.com 303-623-1148, Ext.104 The changing investor pool 4 5 6 7 8 9 10 11 12 13 14 Growth drives opportunity in emerging micromarkets Chris Hart Northern Colorado’s office fundamentals stand out Ron Kuehl Light rail impacts various submarkets differently Jeff Wood Aurora seeks to transform its office market Yuriy Gorlov Community-driven approaches for a resilient future Tami Door General Services Administration leasing changes Chad Becker Landlords, tenants benefit with market-ready suites Katie Winter Project managers will usher in new office trends Megan Walsh Converting coworking space for one enterprise Katy Mercer Graphic installations update an entire office space Kelly Kettler Invest in solar to maximize available incentives Eliot Abel