Colorado Real Estate Journal - May 7, 2014
Large-block industrial space is coming to Denver’s central market with the sale of the landmark Sears Outlet and distribution facility at Interstate 25 and Sixth Avenue. Los Angeles-based Arc Capital Partners LLC acquired the 370,000-squarefoot property on 17.69 acres at 701 Osage St. for $16.25 million, or $44.90 per sf. It’s an exceptionally rare opportunity to make industrial space available to large tenants in a submarket whose vacancy rate is under 1.8 percent. “The ability to have a large block of space in the central Denver industrial submarket is really unprecedented. We just don’t have large blocks of space there,” said Drew McManus of Cushman & Wakefield of Colorado Inc., who handled the transaction with Sam Slaton, also of Cushman & Wakefield. Investors and developers have been chasing the asset for years. “It took years of pursuit and discussions with the Sears Real Estate Department to finally bring the opportunity to realization,” said McManus. “Ultimately the timing was right for Sears to monetize the asset, consolidate into their Brighton distribution center and take advantage of the improved market conditions.” It was Arc Capital Partners’ first acquisition in Denver. It engaged Denver-based Triumph Real Estate Corp. to acquire, upgrade and convert the 330,000-sf warehouse/logistics building and 40,000-sf outlet store into a multitenant retail/showroom and industrial park. “For the first time in over 50 years, this property will be open to tenants seeking a centrally located industrial, logistics or retail space in a submarket with less than 2 percent vacancy,” said Neville Rhone, managing partner of Arc Capital Partners. “Denver’s robust economy and growing population bodes well for the sustainable demand growth we seek in our real estate investments.” Central Denver always has been Denver’s tightest industrial submarket, and legalization of recreational marijuana is making it harder for traditional industrial users to find space. “There are some tenants who may be getting forced out of the central Denver market, and hopefully we can be a refuge,” said Triumph Real Estate President Paul Ruff. Ruff said the location is extremely strategic for “last-mile” delivery of goods to consumers in the urban core. “Opportunities to add industrial supply to the central Denver market are extremely rare,” he said. “The central market is extremely tight right now, and so we would welcome any of the users that are currently doing business in the central Denver market that are getting squeezed out or need to expand and want to stay in a similar location. The variety of tenants that encompasses is huge.” Rhone said it is not the company’s strategy to go after marijuana growers. Because that industry has consumed so much space, and redevelopment has taken other industrial properties out of play, the Sears property becomes the only game in town for traditional users, he said, adding there is strong interest from tenants for 50,000 sf and more.
Besides great visibility, the property has immediate on- and offramp highway access, as well as truck loading and trailer parking capacity that is rarely found so close to the CBD. Triumph Real Estate will improve the building and property to make it more appealing and orderly for multiple tenants. The warehouse was built in1954 and expanded in the 1970s and 1990s. The property could house tenants as small as 25,000 sf up to a single user. Rental rates will depend on size and location within the property, but will be consistent with the market, said Ruff. Arc Capital Partners is a boutique commercial real estate investment platform co-founded by Rhone and partner Quincy Allen to target middle-market investments ($10 million to $50 million in value) in high-demand employment centers expected to benefit from rapid growth of millennials and diverse populations. It focuses on value-add/opportunistic assets in the Western U.S. that are in need of recapitalization, repositioning or development capital. “Our general thesis is if we can cater to the growth in the next large wave of population – the millennials – we’ll do well over time regardless of property type,” said Rhone, adding the company also seeks retail, multifamily and office opportunities. Arc expects to make additional acquisitions in Denver.