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Commercial real estate: 2009 down from 2008
Denver Business Journal - by Paula Moore
(This is an expanded version of a report published in the Jan 15-21 print edition of the Denver Business Journal.)
Commercial real estate sales and leasing were down in metro Denver for 2009 from 2008, with sales often driven by sellers’ need for cash to pay down debt.
Most selling prices for commercial properties last year were below replacement cost, or how much it would cost to replace the property, according to data from commercial real estate brokerage firm Cushman & Wakefield of Colorado Inc. in Denver.
Buyers, meanwhile, took advantage of the opportunity to get good-quality properties at bargain prices.
“The good news in Denver is that we’re a preferred market for investors, compared to markets we compete with like Phoenix and Las Vegas,” said Gene Pride, senior director and investment broker at C&W. “We don’t have too much [commercial real estate] supply … so it won’t take Denver as long to recover. We’re not doing well, but we’re doing better than most markets.”
Many lease transactions for office space in the metro area happened only because tenants faced expiring leases. But the industrial leasing market was buoyed by European and U.S. contractors of Vestas Wind Systems A/S that needed to be near the Danish wind-energy company’s Colorado operations.
Top ’09 property sales
The $134 million sale of downtown Denver’s 666,654-square-foot Seventeenth Street Plaza office high-rise was metro Denver’s largest commercial real estate deal of 2009. The skyscraper’s buyer was Newton, Mass.-based real estate investment trust HRPT Properties Trust (NYSE: HRP). REITs recently have been stockpiling cash for acquisitions.
Closed in the second quarter, the Seventeenth Street Plaza sale also was one of the largest commercial real estate deals in the country for that period.
Several of the metro area’s largest sales, though, happened late in the year. Buyers and sellers traditionally try to close deals by year-end for bookkeeping and tax purposes.
In one of this region’s biggest industrial sales of ’09, Panattoni Development Co. sold its 410,000-square-foot warehouse at 20900 E. 36th St. in Aurora in December for $32.35 million to Union Investment Real Estate GmbH of Hamburg, Germany.
Another major December industrial deal involved Denver-based ProLogis’ (NYSE: PLD) selling a three-building portfolio including nearly 500,000 square feet for a total of $18.5 million. The buyer was Cobalt Capital Partners of Irving, Texas.
Metro Denver’s two largest apartment sales happened last month, as well.
Los Angeles-based CB Richard Ellis Investors LLC picked up The Metro, a 415-unit property in downtown Denver, for $55 million cash, in the highest-priced metro-area apartment sale of last year. The seller was RREEF Funds LLC of San Francisco, which took a loss on the deal but opted to sell at this time partly to get some cash, according to brokers.
Private investor Trilogy Real Estate Group LLC of Chicago purchased the 360-unit Summitt Ridge apartments in Denver from UBS Realty Investors LLC for $22.7 million.
“With apartments, we’re seeing two types of sales — the fire sale where debt is an issue, but also the conventional sale where a property is performing well,” said Mark Favro, a C&W apartment broker.
Other significant ’09 commercial real estate sales, according to C&W, include:
• FlatIron Crossing, Broomfield — GI Partners LLC of Menlo Park, Calif., acquired 75 percent of this 1.4 million-square-foot regional shopping center for $116 million, providing a cash infusion to mall owner The Macerich Co.
• The Market at Southpark, Littleton — ACF Property Management Inc. of Studio City, Calif., partnering with Denver investor Gary Dragul, bought this King Soopers-anchored shopping center for $22 million. ACF and Dragul also bought the Broomfield Marketplace for $13.1 million.
• 24210 E. 19th Ave., Aurora 80019 — O’Reilly Automotive Inc./Ozark Automotive Distributors of Springfield, Mo., bought this 360,000-square-foot warehouse for $19.3 million for its own use.
• Terrace Tower, Denver — Private investor Alliance Commercial Partners LLC of Lakewood bought this 12-story, 241,200-square-foot office building in the Denver Tech Center for $18.4 million.
Top commercial leases
Major office-space leases were few and far between in ’09, and the handful that occurred generally were lateral moves — renewals, expansions and consolidations — rather than new leases, according to C&W.
“Last year was very challenging for office leasing,” said Steve Billigmeier, C&W associate director and office leasing broker. “The first part of the year, leasing was nonexistent, but in the second half, you had leases expiring, so tenants had to do deals. The larger deals got done in the fourth quarter.”
Minneapolis-based medical therapy provider Medtronic USA Inc. cemented one of the metro area’s largest office leases of ’09 in the fourth quarter, taking 108,362 square feet at Coal Creek Corporate Center in Louisville. The deal was a renewal and expansion.
Also in that period, Denver-based Catholic Health Initiatives took 97,000 square feet at the 198 Inverness Drive West building in Englewood’s Inverness office park for its new headquarters, expecting to occupy the space in June 2010.
Alternative energy companies dominated industrial leasing last year, followed by automotive, health care and food companies.
SMA Solar Technology AG of Germany, a maker of solar-power components, leased 153,000 square feet at Enterprise Park in Denver’s Stapleton neighborhood. “The SMA deal was the most significant industrial lease last year … and they plan to expand in the next year,” said Kirk Vanino, C&W associate director and industrial leasing broker.
Abound Solar, a Loveland-based maker of low-cost photovoltaic modules, leased all of the 126,384-square-foot manufacturing building at 9586 East Interstate 25 Frontage Road in Longmont. Property owner First Industrial Realty Inc. sold the building in December for $10 million to W.W. Reynolds Cos. Inc. of Boulder, partly because of Abound’s long-term lease.
Companies doing business with Vestas did major metro-area industrial leases, as well, including: Creative Foam Corp. (70,000 square feet), Hexcel Corp. (100,000 square feet), PMC Technology A/S (43,350 square feet) and SGB USA Inc. (12,600 square feet).
The first phase of retail space — 10,000 square feet — at the new Hilton Garden Inn on South Colorado Boulevard near Cherry Creek North has been fully leased by restaurants and stores, according to the Crosbie Real Estate Group of Denver, which handled the leasing.
“Tenants with good, smart programs can expand,” said Scott Crosbie, owner of Crosbie Real Estate Group Inc.
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