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Page 12 — Retail Properties Quarterly — November 2016
I n 2015, Colorado retail invest-
ment sales volume approached
$1.3 billion, matching the his-
torical peak volume previously
set in 2006. Year to date, the
Colorado Front Range has yielded
approximately 120 investment-grade
net-leased retail commercial trans-
actions totaling
over $640 million
in value, excluding
regional mall sales.
While Denver and
surrounding com-
munities remain
a high-priority
investment target
for institutional
capital, higher total
number of transac-
tions and smaller
average transac-
tion size indicate
that private capital
investors are the
primary driving force behind the
retail investment transaction veloc-
ity along the Front Range.
As owners evaluate their capacity
to take advantage of rising values
(compressing cap rates) in the face
of global capital markets unrest, it
is critically important to understand
the variable factors driving invest-
ment decisions in an uber-competi-
tive marketplace.
• Private capital investors are the
primary driving force in the market-
place. Private capital investment
in the Colorado retail sector is
expected to increase year over year
for the fifth straight year, eclipsing
$500 million in total investment
for the second-consecutive year in
2016. The number of retail invest-
ment transactions closed by private
capital investors as a measure of
the total has grown from roughly 80
percent in 2013 to over 95 percent in
2016.
• Single-tenant net-lease sales
churning. Colorado single-tenant
net-leased transactions for 2016 are
setting record-low cap rates while
accounting for a larger share of
overall transaction volume in the
sector. Contributing factors include
increased competition among retail-
ers securing leases for stand-alone
units; enhanced pipeline of verti-
cal new development completions
being delivered to the marketplace;
competitive demand from time-sen-
sitive 1031 exchange buyers seek-
ing passive cash-flow investments
secured by credit-backed tenants;
and low yields in the bond market
continuing to make commercial real
estate an attractive tangible invest-
ment even at historically low cap
rates.
• IRS 1031 exchange laws encour-
age continued CRE investment. Many
retail commercial properties listed
for sale see offers from an investor
executing a 1031 like-kind property
exchange. The time-sensitive nature
of these investors often make them
an appealing option for sellers
looking for an efficient sale execu-
tion. The top-tier Denver invest-
ment brokers are importing active
and aggressive 1031 buyers from
around the country and, in some
cases, globally to purchase assets
in Colorado. Many of these buyers
are first-time investors to the state
and often are trading across asset
classes. Timing plays a crucial role
in executing with a 1031 buyer as
these investors often trade in and
out of the market on expedited tim-
ing intervals of 45 to 90 days.
• Capital outreach is key to driving
value. Since 2012 the CBRE Denver
Retail Investment Group has trans-
acted with over 90 unique investors,
70 percent of which were either
first-time buyers of retail property
in Colorado, based outside the state
of Colorado or both. While not as
skewed to outside investors as the
CBRE sale portfolio, the overall mar-
ket trend tracks a comparable tra-
jectory.
• Debt terms are a deciding factor
in value for private capital investors.
Average cap rates paid for strip
center and shadow-anchored retail
has compressed year-over-year four
years running. In 2016, cap rates for
these property types are approach-
ing 7 percent on average with best-
in-class assets trading at 5.75 to 6.5
percent. At these cap rates, the mar-
ket is approaching pricing in which
it is not possible for many leveraged
investors to achieve a positive lever-
age position over the initial term of
ownership. Outlier all-cash investors
continue to post record cap rates,
however, it is no coincidence that
Matthew
Henrichs
First vice president,
retail investment
group, CBRE,
Denver
Investment Market
Mike Laughlin, Vantage Point
A recently sold Centennial retail property located at 15795 E. Arapahoe Road
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