DENVER | Main Development Thread #7

[TakeFive]

The 410

410 17th Street


Courtesy of Gensler




The Backstory

According to JLL

DENVER, July 11, 2019 – JLL announces that it has closed the sale and financing of 410 17th Street, a 436,455-square-foot, Class A office building in the Midtown East submarket of Denver’s central business district (CBD).

JLL represented the seller, Ivanhoé Cambridge, and procured the buyer, a joint venture between Rialto Capital Management and SteelWave, LLC. Additionally, JLL worked on behalf of the buyer to secure the five-year, floating-rate acquisition bridge loan through Ares Management.

The 410 made the foreclosure list last September 2023.

Cress Capital buys $113M mortgage for Denver office tower at “land value”
Apr 4, 2024 By TRD Staff -- The Real Deal

Cress Capital has snagged a $113 million loan tied to a 24-story office tower in Downtown Denver for the value of the land beneath it. The Newport Beach-based investor bought the mortgage for the equivalent of the land cost under the 439,000-square-foot building at 410 17th Street, Bloomberg reported. The seller was Ares Management, based in Los Angeles.

Cress picked up the mortgage at “a major discount” ... according to Ryan Parkin, managing partner of the firm. He declined to disclose the price. Ares declined to comment.

[TakeFive]

Lender takes ownership of X Denver 2 tower in Arapahoe Square
November 11, 2024 By Matt Geiger -- BusinessDen

Actually, it's not quite that simple

X Denver 2 -- 2130 Arapahoe St


Courtesy X Denver 2 -- CIM Group

California Lender Acquires Denver Apartment Property For $102M
November 12, 2024 By Jonathan Rose, Denver -- Bisnow

The high-end X Denver 2 high-rise apartment community near Coors Field appears to have been purchased by the development's California-based senior lender for $102M.

Four properties at 1021 21st St., 2120 Arapahoe St., 2126 Arapahoe St. and 2134 Arapahoe St. in the Five Points neighborhood were purchased by Los Angeles-based lender and developer CIM Group, according to documents filed with the city and first reported by the Denver Business Journal. Those addresses align with the X Denver 2 apartment community.

CIM Group has different division including a lending trust. I assume they were an 'equity partner' and merely stepped in via the loan and put the project into an investment division.

CIM Group loaned Chicago-based developer The X Co. $105.3M to build X Denver 2 in 2020, according to public-records reporting by Multi-Housing News. The senior note had a three-year term and variable interest rate, MHN reported at the time.

CIM Group owned several Denver multifamily and office buildings with about 750 units of housing and 225K SF of office space as of September 2022, according to company releases. In all, the company says it has a portfolio worth $28.6B that spans the Americas.

[TakeFive]

I'll call it Investor Roulette

True Story

Back during the Great Recession I became aware of an apartment that sold/had new ownership.

Was it a distressed sale? It didn't appear to be. The previous owner had roughly 50% equity and just decided to dump the project.

Why would they do that? I assume holding a property which had lost half its value and waiting for the market to come back would have been like watching paint dry.

Previous owner was a Boston investor who had also raised lots of fresh money for buying property at (or near) the bottom of the market. It's tons more fun to buy at the bottom and ride the wave up.

Moral of the story

It feels like 2024 was the year for owners to make an investment decision and often decided not to throw good money after bad and just default. Between downtown and the DTC it's amazing the number of owners who have defaulted. Likely this will carry over to 2025 but IMO -- "THIS IS A GOOD THING."

[mhays]

Foreclosures can have winners, sure. But why build anything if you can simply buy a distressed property for far less cost?

[TakeFive]

It’s a better time to be a renter in Denver as rates fall
Nov. 25, 2024 By Sarah Mulholland -- Denverite

Most Denverites have probably noticed all the apartment buildings being built in recent years. It turns out that those buildings are taking a while to fill — and that’s good news for renters.

The vacancy rate for apartments in the metro Denver area was 11 percent as of October, according to real estate data company CoStar. That’s roughly double the vacancy rate of a few years ago, according to CoStar, which also owns Apartments.com...

I had been wondering if/when this shoe would drop as I've typically reported up to 8 week free rent especially for projects recently completed.

Apartment landlords are offering up large concessions in order to fill up all those empty units, according to Jeannie Tobin, director of market analytics for Denver at CoStar.

“It’s an excellent time to be an apartment hunter,” Tobin said. “What's typical in a market during normal times is [that for] a property in lease up, they typically offer between two to four weeks of free rent. We've seen that go all the way up to eight weeks of free rent right now.”

Partly the strategy is to use incentives but not drop the rental rate - if possible. With still more new units yet to complete this vacancy could last awhile, hard to predict. Additionally, more 'work-force' units are being built and new construction may be doable if one targets more affordable rents.

[TakeFive]

Is this a Rhetorical Question

Originally Posted by mhays

Foreclosures can have winners, sure. But why build anything if you can simply buy a distressed property for far less cost?

I really am terrible when it comes to reading people's minds.

With respect to office buildings in downtown or the Denver Tech Center there's no need for any more (new) office buildings. Ideally downtown needs offices converted to apartments or a total redevelopment on some sites.

With respect to downtown, $570 million of bonding was recently approved for revitalization.

[TakeFive]

Why I think Denver is better off than some might think

I'm a number's guy.
Haha, no you're not.
Well maybe 'big picture' guy then.

Guess which city I am?

But a combination of continued inflation and ever-increasing tenant demands on amenities and sustainability mean that many office assets are in limbo — unfit for purpose as offices, but unable to be converted. “There are piles of secondary offices out there, either in the wrong locations or which just are not fit for purpose,”

.... with offices that aren't absolute best in class, values are, on a good day, half what they were. On a bad day, a quarter. It's staggering how much the value has collapsed,”

Perhaps few of you were thinking of going "across the pond" but like NYC, London was traditionally viewed as the Gold Standard. My how things have changed.

Consider the Emerald City

Seattle, along with Boston are two cities considered to be 'vibrant' with respect to office space development.

....according to the August report on office market trends from CommercialEdge, Current projects equal about 2.1 million square feet of office real estate, compared to 6.6 million in July of last year. Vacancy rates remain high, with nearly a quarter of the city’s downtown office space dormant, according to the report.

“We clearly have a lot of supply, and demand for new space is not significant in Seattle,” he said. “I don’t expect new office development from the ground up for the next five years.”

With respect to Denver

Over the last ~18 months between downtown and RiNo I'd guess less than 1.5 million square feet of new office space has been added with only Steel House with 300k square feet yet to complete. That's it, expect virtually no new office space in Denver for a few years.

Apples to Horses, whatever, yes it's hard to appreciate the proportionality. But a million square feet of new leases in Denver will make a notable difference.

[AHS1983]

Originally Posted by i4isoar

Haha. One day, when Denver builds a new tallest, we should order a similar cake to celebrate.

Does anyone have any ideas as to the probability that RP will be demoted to 2nd tallest?

40 years is a pretty long reign, but has the economic model for something taller now vanished? Residential tower maybe?

More broadly, will Denver ever get a supertall?

[mhays]

Originally Posted by TakeFive

Is this a Rhetorical Question


I really am terrible when it comes to reading people's minds.

With respect to office buildings in downtown or the Denver Tech Center there's no need for any more (new) office buildings. Ideally downtown needs offices converted to apartments or a total redevelopment on some sites.

With respect to downtown, $570 million of bonding was recently approved for revitalization.

Yes, it's rhetorical. Nobody would spend $100m and three years to build something when they can spend $50m for a similar building and have it after a short process. Developers and analysts are making this point often these days.

[mhays]

A residential supertall seems possible, but it would be a big bet given the extra cost per square foot.

An office supertall was always unlikely, not just due to work from home. They only make sense in (a) the densest cities, and/or (b) with the free-flowing, publicly-guaranteed money that was available in the 1980s. Developers prefer the lower risk of shorter towers with less space to worry about and a faster construction timeline. A supertall is too big a bet, and the long construction duration means they often miss the market.

A residential supertall, perhaps with a hotel at the bottom (so residents can access hotel services) might make sense. They key is tons of people willing to pay a premium to be in the core. Downtown Denver might support that, or Cherry Creek might pull too much of the high-end clientele away. Mountain views would be a plus, though a large percentage of the city can see them from lower down.

[AHS1983]

Originally Posted by mhays

A residential supertall seems possible, but it would be a big bet given the extra cost per square foot.

An office supertall was always unlikely, not just due to work from home. They only make sense in (a) the densest cities, and/or (b) with the free-flowing, publicly-guaranteed money that was available in the 1980s. Developers prefer the lower risk of shorter towers with less space to worry about and a faster construction timeline. A supertall is too big a bet, and the long construction duration means they often miss the market.

A residential supertall, perhaps with a hotel at the bottom (so residents can access hotel services) might make sense. They key is tons of people willing to pay a premium to be in the core. Downtown Denver might support that, or Cherry Creek might pull too much of the high-end clientele away. Mountain views would be a plus, though a large percentage of the city can see them from lower down.

IIRC, one of the reasons there's a ~700 foot "cap" downtown is because of Stapleton flight paths. One or more of the big three could have been taller I suppose when they were built.

Given that there wasn't an economic case for a taller office tower before COVID means that there's certainly not one for the foreseeable future, IMHO.

A residential supertall is about as equally unlikely for the time being, but in a decade or so, who knows?

[AHS1983]

Cool video I found on YT of window cleaning at the Republic Plaza. Interesting views.

[laniroj]

Originally Posted by mhays

Foreclosures can have winners, sure. But why build anything if you can simply buy a distressed property for far less cost?

Lots of reasons and chief among them is there is no market for the building's constructed use or recapitalization into a different use isn't financially or economically possible. If the elevator is going down, many might also choose to see just how far down it goes...who knows, could be an underground bunker! Also, have you ever seen how much it costs to run a large office building - like just keep the lights on and systems semi-functional?

[mhays]

That's a good argument to not buy a distressed building.

But that wasn't my topic. I'm saying that with cheap, hopeless office buildings available, we're unlikely to break ground on new ones.

(Except some special-needs new ones, like someone expanding their footprint onsite.)

[EngiNerd]

Originally Posted by TakeFive

I'll call it Investor Roulette

True Story

Back during the Great Recession I became aware of an apartment that sold/had new ownership.

Was it a distressed sale? It didn't appear to be. The previous owner had roughly 50% equity and just decided to dump the project.

Why would they do that? I assume holding a property which had lost half its value and waiting for the market to come back would have been like watching paint dry.

Previous owner was a Boston investor who had also raised lots of fresh money for buying property at (or near) the bottom of the market. It's tons more fun to buy at the bottom and ride the wave up.

Moral of the story

It feels like 2024 was the year for owners to make an investment decision and often decided not to throw good money after bad and just default. Between downtown and the DTC it's amazing the number of owners who have defaulted. Likely this will carry over to 2025 but IMO -- "THIS IS A GOOD THING."

A good thing...until the banks that back all of this can no longer absorb these hits.

[TakeFive]

That's a very good point, fair question

Originally Posted by EngiNerd

A good thing...until the banks that back all of this can no longer absorb these hits.

Afaik, it's complicated which is a good thing I think. I have tried to follow what's going on out there by reading (primarily) Bisnow articles.

The biggest risk for banks is among those that provide construction loans but at least those are on shiny new buildings so they have some value but how much??

I think it was the NY Fed which said it was getting concerned with the growing amount of "extend and pretend" loans.

There's been a handful of banks that have packaged loans together and sold them presumably for a loss in order to reduce their overall exposure.

Funny Story

Interestingly, Bank of the Ozarks has been a prodigious generator of construction loans. They have this 'magical formula' that has successfully printed money for years. They do split their risk among various like-minded small/medium sized banks.

Just for grins, I searched for who financed 1900 Lawrence St. (Btw, I love this new Google AI feature). The answer is:

The financing for the 1900 Lawrence office tower in Denver, Colorado was a collaboration between multiple parties, including:

• Riverside Investment & Development (the developer)
• Convexity Properties - A real estate investment firm that partnered with Riverside on the project
• Canyon Partners Real Estate - A Dallas-based real estate firm that partnered with Riverside on the project
• Bank OZK - Formerly known as Bank of the Ozarks, this bank provided a senior construction loan

Some office REITS - are running into issues because they likely had a portfolio of older properties. But I think in most cases they were not highly leveraged and used institutional sources other than banks (life insurance companies?).

For Example:
November 25, 2024 -- Matt Wasielewski, South Florida Bisnow

Office Properties Income Trust, a Massachusetts-based REIT with a nearly 20M SF portfolio, reached a deal to refinance debt that had threatened to push the firm into bankruptcy. OPI announced Monday that an ad hoc group of creditors had agreed to refinance $340M in debt set to mature in 2025, pushing the maturity date to 2027.

I believe I owned shares in this REIT for their dividends but that was maybe 15-20 Years ago.

[TakeFive]

Health insurer cutting 260K square feet at Cap Hill office building
December 2, 2024 By Thomas Gounley -- BusinessDen

Health insurer cutting 260K square feet at Cap Hill office building. This can't be good for the landlord's blood pressure. Health insurance firm Elevance Health, formerly known as Anthem, is cutting 70 percent of its space in a Cap Hill office building where it has been the majority tenant.

Anthem Building -- 700 Broadway


Courtesy CREJ

This property previously sold in January, 2017

A prominent office building in the Golden Triangle sold in an $80.65 million deal that represents a Chicago company’s entry into the Denver market.

BA Investment Advisors bought the 425,853-square-foot Anthem Blue Cross Blue Shield building at 700 Broadway in a joint venture with a subsidiary of Heritage Life Insurance Co. Anthem occupies 86 percent of the space on a long-term lease.

Health Insurance companies and providers have been changing their business model by intent and going to more of a work-from-home model. My Son's Mom, Linda works part time (4 hours a day) for Honor Health down here. Patients no longer call the doctor's office for appointments, instead they call a center that will both answer questions and make appointments for people. I also read recently (on Reddit) that's its much the same in Denver.

[laniroj]

Originally Posted by TakeFive

...The biggest risk for banks is among those that provide construction loans but at least those are on shiny new buildings so they have some value but how much??

I think it was the NY Fed which said it was getting concerned with the growing amount of "extend and pretend" loans.

There's been a handful of banks that have packaged loans together and sold them presumably for a loss in order to reduce their overall exposure...

I don't worry as much about a financial/banking collapse these days. We have new tools we didn't have just 15 years ago. The Fed alone can pretty much prop up liquidity in the entire banking system via quantitative easing...question is will they and how quickly. Given response to covid, I'm inclined to think the gov/feds will do it quickly.

[TakeFive]

ServiceCore moving from Lakewood to RiNo

ServiceCore Relocates HQ to The Current in RiNo
December 3, 2024 -- Mile High CRE

Schnitzer West, LLC has announced that ServiceCore, a leading provider of cloud-based business management software for the liquid waste and roll-off industries, has signed a lease at The Current in Denver’s River North (RiNo) neighborhood.

ServiceCore will move its headquarters to The Current, occupying 14,794 square feet on the 10th floor beginning in early 2025. The company is proud of its strong Employee Net Promoter Score (ENPS) of 70+ and is the 69th fastest-growing software company in the U.S. according to the 2024 Inc. 5000 rankings.

The Current -- 3615 Delgany St.




Images courtesy Swinerton

Recently

Fennemore Finalizes Lease at The Current in Denver’s River North
August 14, 2024 By Fennemore Editor

DENVER — August 14, 2024 – Schnitzer West, LLC, today announced that Fennemore, recognized as the fastest-growing Am Law 200 firm in the U.S., has signed a lease at The Current in Denver’s River North (RiNo) neighborhood. Fennemore will occupy two floors, bringing another high-caliber tenant to the property and contributing to the building’s vibrant atmosphere. This strategic lease signifies an exciting chapter for both parties and reinforces the building’s dynamic tenant mix.

Fennemore recently moved into the 35,000-square-foot space and will integrate employees from its other Denver office by September 1, 2024.

Note: Fennemore is taking over the space originally secured by Moye White which is winding down its business into Fennemore.

[TakeFive]

Originally Posted by laniroj

I don't worry as much about a financial/banking collapse these days. We have new tools we didn't have just 15 years ago. The Fed alone can pretty much prop up liquidity in the entire banking system via quantitative easing...question is will they and how quickly. Given response to covid, I'm inclined to think the gov/feds will do it quickly.

Brookfield Buys $925M CRE Loan Portfolio From Regional Bank
December 3, 2024 By Matt Wasielewski, South Florida / Bisnow

Brookfield Asset Management continued its portfolio acquisition string, this time with the purchase of a nearly $1B property loan portfolio. Valley National Bank announced Tuesday it sold a $925M property loan pool to Brookfield at approximately a 1% discount. The transaction adds to a growing list of acquisitions by Brookfield as the firm aggressively pursues real estate deals and frees up the balance sheet of the New Jersey-based regional bank at a time when regulators have increased scrutiny of the banking sector’s real estate exposure.

Valley National Bank will retain customer-facing responsibilities on the debt.

“Brookfield’s acquisition of Valley’s portfolio of high quality, performing loans is strategic for both parties and demonstrates our ability to step in as an alternative lender to provide creative, flexible capital solutions,” Bill Powell, managing partner for Brookfield’s credit business, said in a statement.