DENVER | Main Development Thread #7

[TakeFive]

Well Said

Originally Posted by wong21fr

That's a sensible view. Anyone who thinks the WFH revolution has finished playing out is being foolish. The wave is now going back out and the big question remains just how much less commercial office space will required for a office environment where the (most likely) scenario is a hybrid approach. Is it 10%? 30%? No one knows yet and a few years of additional runway is beneficial.

I also tend to agree that for many, a hybrid model will win the day. This allows tenants more flexibility as they assess their space needs.

Meta employees are back in the office three days a week as part of new mandate

Reportedly, Denver is still a favored tech town. That's a good thing. What has changed is that newer tech companies (if still growing) aren't leasing twice as much as space as they need so it will be there when they need it.


I dunno...

Originally Posted by laniroj

Not really. A long term Class A owner seeking a 10-15 year lease can have the space sit vacant for 2.5 years before taking that 75 cents. They are betting that a real return to office happens within the next 12 months and why wouldn't they. Class A office owners near and far are making that bet because most signs are pointing to company mandated RTO. We'll see where the dice fall.

My reference was more to Class B buildings (including Republic Plaza). Your point may be well taken for Class A space but consider:

There's currently ~650,000 square feet of new office space in three buildings putting on the finishing touches which include nice amenities in RiNo. Not far behind is 700,000 square feet of office space at 1900 Lawrence and don't forget that Block 162 still has 300,000 square feet they'd be happy to lease to you. Then there's Class A sublease space that's also available.

It's possible that holding out for higher lease rates may be a losing strategy.

[TakeFive]

Side Pocket Topic

Stressed CRE deals are getting creatively done.

Blackstone Sells Manhattan Multifamily Portfolio, Evading Foreclosure
August 30, 2023 - Bisnow New York City

Blackstone has sold the majority stake in 11 of its Manhattan multifamily properties, dodging foreclosure efforts from its lenders.

Atlas Capital Group shelled out $142.5M to acquire a 51% interest in the properties, a price that would indicate a sizable discount to its previous sale,

REPORT: Beleaguered San Francisco Landlord Veritas Poised To Sell $802M Mortgage Portfolio
August 31, 2023 - Dees Stribling, Bisnow National

Veritas Investments, San Francisco's largest apartment landlord, is poised to sell an $802M mortgage portfolio associated with 2,149 units in the city, the San Francisco Chronicle reports, citing anonymous sources familiar with the pending deal.

The reported buyer, Ballast Investments, would take ownership of 75 multifamily assets, thereby becoming one of the city's largest landlords in one swoop. In May, the properties as a whole reportedly had a 65% occupancy rate.

Interestingly, a Denver buyer

Carr Properties Sells New Bethesda Apartment Towers For $220M
August 31, 2023 Jon Banister, Bisnow

Three years after delivering one of the largest developments in Bethesda's history, Carr Properties is cashing out of the residential component.

The developer sold The Elm — a pair of high-rise apartment buildings totaling 456 units — to AIR Communities for $220M, according to documents posted this week to Maryland deed records.

Denver-based AIR Communities obtained a $155M loan that matures in September 2028 from Walker & Dunlop to finance the acquisition

[laniroj]

Originally Posted by TakeFive

...I dunno...

My reference was more to Class B buildings (including Republic Plaza). Your point may be well taken for Class A space but consider:

There's currently ~650,000 square feet of new office space in three buildings putting on the finishing touches which include nice amenities in RiNo. Not far behind is 700,000 square feet of office space at 1900 Lawrence and don't forget that Block 162 still has 300,000 square feet they'd be happy to lease to you. Then there's Class A sublease space that's also available.

It's possible that holding out for higher lease rates may be a losing strategy.

Yeah and if any of them take 75 cents on the dollar, none of them will be in business. They will wait out the storm. One thing Americans don't understand is the long term view. Most of the rest of the world (except maybe china) take an extraordinarily long view of real estate. I'm a numbers guru, trust me on the 2.5 years thing...

[TakeFive]

Originally Posted by laniroj

Yeah and if any of them take 75 cents on the dollar, none of them will be in business. They will wait out the storm. One thing Americans don't understand is the long term view. Most of the rest of the world (except maybe china) take an extraordinarily long view of real estate. I'm a numbers guru, trust me on the 2.5 years thing...

If the Nebraska Cornhusker beat my Colorado Buffaloes this Saturday in Boulder then I'll totally agree with you.

However, if Colorado wins the game then I'll continue to hedge my bets.

[laniroj]

Originally Posted by TakeFive

If the Nebraska Cornhusker beat my Colorado Buffaloes this Saturday in Boulder then I'll totally agree with you.

However, if Colorado wins the game then I'll continue to hedge my bets.

The odds are now on the side of the Buff. Hilarious. Schools are kind of like these big class A office owners I guess. Big bets, big risk, but maybe a big success! We'll see how the season goes - hottest ticket in town right now.

[bunt_q]

Originally Posted by laniroj

They are betting that a real return to office happens within the next 12 months and why wouldn't they.

Why wouldn't they? Hopeful fools. "Real return to office" is never happening. 2-3 day return to office is happening. Do the math on how long it will take to grow our way into/absorb Denver's current vacant space if every leaseholder drops their space by 40% on their next lease cycle.

I'll be in Boulder Saturday. Most excited I have been for a game in a long, long time. But there's more real about Coach Prime than there is a renaissance in commercial office.

[laniroj]

Originally Posted by bunt_q

Why wouldn't they? Hopeful fools. "Real return to office" is never happening. 2-3 day return to office is happening. Do the math on how long it will take to grow our way into/absorb Denver's current vacant space if every leaseholder drops their space by 40% on their next lease cycle.

I'll be in Boulder Saturday. Most excited I have been for a game in a long, long time. But there's more real about Coach Prime than there is a renaissance in commercial office.

The return to office mandate is happening far and wide, including now with government employees but to your point, even if it's a 4 day equivalent and/or 75% space requirement from pre-rona, that's a profound effect. We'll see what happens but I suspect the Class A space will be fine and the class B will convert to residential or suffer greatly. It only takes one ownership cycle to reset the economic clock though. Cities need to get ahead of this (they're already behind) and devise a significant incentive structure to repurpose and recapitalize office buildings of all types. I'm talking billion dollar investments in all downtowns over the next 10 years to keep those areas viable if they are currently devoid of residential - as Denver is. Instead we are spending all our time and resources treating the symptoms of not enough housing instead of producing more housing to prevent homelessness in the first place!

[wong21fr]

1801 Market Street is going before the LDDRC on September 7 for initial design review of massing and context. The current proposal calls for 12 stories of over 300 apartment units and ground floor retail along 18th Street.

It's basically a clone of 1800 Market.

[mhays]

A three-day requirement still uses the same amount of office space. Workers generally like the middle of the week, and managers like to have people around on the same days. That means old-style desks.

We'll see a drop in office demand, no question. Some companies are going full-remote or allowing the lower hybrid forms. This won't be overcome by standard absorption in an acceptable timeline.

The space excess is probably easier to fix with suburban lowrises that can be replaced by apartments vs. downtown buildings that tend to be overly expensive to retrofit and challenging to demo, if anyone can get reasonable financing for a project in a questionable district to begin with. Small non-historic buildings on the Downtown mixed-use fringes will also be reasonably easy to replace, if their purchase prices are basically land value.

[SirLucasTheGreat]

Here's the rendering of 1800 Market:

I'm really excited to see Market Street fill in

[bunt_q]

That is awfully —.

[wong21fr]

Originally Posted by bunt_q

That is awfully —.

True, but guess what bureaucratic entity doesn't like the plethora of arches?

[RyanD]

Reminds me of something that would be built in the D.C. area. I like it!

[TakeFive]

I'm neutral on the arches but is the idea for that part of the project to be office space and the rest will be apartments?

[mr1138]

The brick arches are — indeed! They remind me of the architecture at the NE corner of One City Block. I hope they're allowed to keep them.

I'm not so sure about all of those arches above the brick portion of the structure though - somehow it feels a bit cluttered and like it doesn't come together quite right.

[TakeFive]

This will never be confused with Bell Tower

but at least Kairoi Residential has financing in hand for 419 unit project in an Opportunity Zone and a three minute walk to a light rail stop.

Kairoi Metro Center
September 6, 2023 - Mile High CRE


Image courtesy Kairoi Residential

laniroj should find the financing arrangement interesting.

JLL Capital Markets recently arranged a 55% LTC construction loan and advised on the joint-venture equity placement for Kairoi Metro Center, a 419-unit Aurora apartment community. JLL represented the borrower, Kairoi Residential ... to secure the six-year, floating-rate loan through a two-bank syndication that JLL arranged.

“While the current capital markets environment continues to demonstrate signs of volatility, strong sponsorship and great locations can still attract capital,” said McBroom. “The thoughtfully designed project will transform the area and be highly complementary to the surrounding employment and amenity drivers.”

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Side Topic

Originally Posted by bunt_q

I'll be in Boulder Saturday. Most excited I have been for a game in a long, long time. But there's more real about Coach Prime than there is a renaissance in commercial office.

Talk about crazy.

Prior to the season the Pro's weren't buying the hype on Prime Time. The betting on under/over season wins for CU was 3 1/2. Colorado received more bets than any other college in the country and IIRC over 80% took the over. That's looking like a slam dunk now.

[rds70]

The latest proposal for the Denargo Market project located at the corner of Denargo and Delgany: 16 stories, 200 feet, 336 residential units and +/- 4,000 square feet of retail. Architect is Goettsch Partners.

[bunt_q]

Residential project? Or generic 1980s conference/airport hotel plucked straight out of Dallas?

[TakeFive]

Originally Posted by rds70

The latest proposal for the Denargo Market project located at the corner of Denargo and Delgany: 16 stories, 200 feet, 336 residential units and +/- 4,000 square feet of retail. Architect is Goettsch Partners.

Ah hah; a Golub & Co. and Formativ sighting? Given that large patch of dirt it's good to see them at least visualizing something real.

[laniroj]

Originally Posted by TakeFive

This will never be confused with Bell Tower

but at least Kairoi Residential has financing in hand for 419 unit project in an Opportunity Zone and a three minute walk to a light rail stop.

Kairoi Metro Center
September 6, 2023 - Mile High CRE


Image courtesy Kairoi Residential

laniroj should find the financing arrangement interesting.



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Side Topic

Talk about crazy.

Prior to the season the Pro's weren't buying the hype on Prime Time. The betting on under/over season wins for CU was 3 1/2. Colorado received more bets than any other college in the country and IIRC over 80% took the over. That's looking like a slam dunk now.

55% construction financing...yikes. I guess the new normal is being proud that you got ANY financing whatsoever! Sign of the times - le boom is le over, sadly.