Colorado Real Estate Journal - July 6, 2016
Denver is experiencing an impressive year-over-year run in investment sales volumes – from record prices per square foot to double-digit billion-dollar totals for the year ($10.3 billion in 2015, according to CBRE Research). While the numbers paint the facts of Denver’s investment sales market, they cannot represent the entire picture. Investment sales volume, while meaningful, is simply one manifestation of a palpable change occurring in our market – a switch in the way domestic and international investors perceive Denver. The attraction of our market in investors’ minds has improved significantly in recent years, and it is having a major impact on our commercial real estate market. One driver of our improved status is Denver’s infrastructure investment, which really is starting to pay dividends. The award-winning redevelopment of Union Station has brought exceptional attention to Denver, and the infill development taking place in Lower Downtown and Union Station has served as a phenomenal driver of capital into our market. National media coverage of Union Station and, most recently, the Regional Transportation District A Line expansion to the airport has positioned Denver as a hallmark example for other cities across the country to emulate. Other drivers have been our impressive population and job growth. In May, the U.S. Census Bureau released data showing Denver’s growth rate in 2015 was the No. 1 fastest among the 50 most-populous U.S. cities. Our growth also bumped Denver up in the rankings for the nation’s largest cities, surpassing Detroit to claim the 21st spot. Much of our in-migration is attributable to young people – helping Denver earn the title “mecca for millennials” in a recent Money magazine article. Our job growth is equally impressive, having expanded upward of 3.5 percent annually for three consecutive years. Comparatively, the U.S. annual payroll jobs growth rate in 2015 was 2.1 percent. Last year also was the fifth year in a row where metro Denver added more than 53,000 jobs. These factors, in addition to our quality of life, educated labor force and relatively affordable housing, are putting Denver on the radar of domestic institutional and international investors like never before. I had the honor of working on one of 2015’s most unique Denver investment sales – the sale of the CoBank Center in Greenwood Village to a Korean institutional investor. This transaction marked the first institutional Asian-based capital investment in the Colorado office market and provides a telling sign of Denver’s growing prominence in the international investment world. The current cycle has allowed Denver to further solidify its status as a top-tier investment target for domestic institutional capital and international capital. Looking to the future, real estate always operates in cycles, and although economic fundamentals remain very positive, no one expects it to last forever. However, several factors position Denver’s investment market to fare well in whatever lies ahead. For example, leverage strategies are very different from the last up-cycle, both in Denver and nationally. In 2006 and 2007, the market saw abnormally high loan-to-value ratios and extremely aggressive lending. Today’s market is one in which both equity and debt providers have practiced more discipline, learning from the previous cycle with significantly lower loan-to-value averages. The overall lower leverage of real estate positions landlords with a buffer to absorb some economic bumps in the road should they come to fruition. Also, Denver’s economy is continuing to diversify. While oil and gas remain a large and important part of our industry base, technology, financial services, health care, food/beverage and many other industries are choosing Denver as their home and seeing their businesses prosper. This is aided, in part, by the fact that Denver also is a target market for top talent drawn by a distinct and exceptional quality of life. As people continue to exercise more freedom in choosing where they live and work, the demand for Denver will only continue to rise. Overall, it’s hard to not feel really good about Denver’s investment future. In the last year alone, the Urban Land Institute ranked Denver No. 6 on its annual list of markets to watch, Business Insider ranked Colorado’s economy the third best in the country and Forbes named Denver the nation’s best place for business and careers. Record sales volume figures are great, but being able to show evidence of a real change in how the world perceives our market is what ultimately will have the biggest impact on attracting capital, raising prices and driving investment sales in the years ahead.