CREJ

Page 4 — Retail Properties Quarterly — August 2018 www.crej.com A swelling population, ris- ing wages and one of the nation’s strongest econo- mies have continued to strengthen a robust and sustainable retail landscape in Colo- rado. It’s no secret these factors have caught the attention of com- mercial real estate investors across the capital spectrum, demonstrated by continued confidence in Colo- rado’s retail investment property market throughout the first half of 2018. Year to date, Denver’s retail investment market has yielded about $460 million in transaction value for retail assets above $3 mil- lion, which is roughly flat year over year. The two largest transactions of the second quarter were the sale of Broomfield Marketplace, a King Soopers-anchored shopping center, for $21.8 million, and Thorncreek Crossing, a large- format power cen- ter, selling for $45 million. Small-format retail investment property sale velocity continues to be very strong. More than 40 retail properties valued between $1 mil- lion and $3 million sold in the second quarter, totaling over $76.4 million in value for the quarter. Investors in this space con- sist of high net worth individuals, family trusts and private opportu- nity funds. These private investors often are acquiring assets for capi- tal preservation, yield generation, investment diver- sification or tax strategy purposes. As private capital owners and inves- tors continue to evaluate the mar- ket for acquisition and disposition opportunities, it is markedly impor- tant to under- stand the factors impacting values in today’s supply constrained mar- ketplace. While investor demand remains healthy from institutional and pri- vate capital sources, the significant transaction velocity at smaller aver- age price points reveals the sizable influence of private capital inves- tors in the retail investment prop- erties marketplace. A consensus remains in this area of the market that the competitive environment in Denver and surrounding com- munities has resulted in a shortage of on market, investment-grade product available to satiate investor demand. Ample discretionary and 1031 exchange capital is seeking acquisi- tions in the $1 million to $5 million price range, which has resulted in a supply-demand imbalance. This disconnect continues to impact pricing levels, as assets with solid real estate fundamentals and strong lease terms continue to achieve pre- mium cap rate pricing. Scarcity of available well-located retail investment properties, his- torically favorable debt markets and a continued velocity of trades across all asset classes has driven aggressive equity capital to retail opportunities in Colorado. The single-tenant, net-leased, or STNL, and small-format strip center sec- tors of the retail investment market have been the primary benefactors of this trend. Many first-time buy- ers of retail assets along the Colo- rado Front Range are trading out of multifamily or industrial assets at historically compressed cap rates. These exchange investors have been attracted to the relative ease of ownership and cap rate arbi- trage opportunity that exists when trading into retail product. From a national perspective, Colorado has gained a reputation for being a safe haven growth market that caters to 1031 exchange investors who are able to achieve a yield that is unavailable from assets in their further supply constrained coastal markets. STNL properties remain a focal point in the market from an invest- ment perspective. There is consis- tent demand for these assets as they typically feature long-term leases and offer true passive income with little to no mainte- nance or management oversight for investors. Although cap rates have softened slightly in recent months with movement in the benchmark 10-year Treasury yield, recent mar- ket transactions indicate cap rate pricing still achievable in the 5.25 to 6.25 percent range for assets with high-credit tenancy with a long- term lease. Investors, both locally Private capital, limited inventory fuels demand Market Update Parker Brown Associate, Capital Markets National Retail Partners, CBRE Matthew Henrichs Senior vice president, Capital Markets National Retail Partners, CBRE Please see Brown, Page 27 CBRE recently executed the sale of Colorado Marketplace, a Safeway-shadow-anchored retail investment property, to a private capital investor – further signifying the demand of well-located retail properties for private, 1031 exchange capital.