DENVER | Main Development Thread #7

[TakeFive]

Originally Posted by wong21fr

On the excavation front: Looks like the AMLI project at 8th & Broadway is getting closer to a ground breaking. AMLI switched contractors from Milender White to Swinerton in June along with applying for a shoring and excavation permit. Hopefully we will see construction commence in late Q3/early Q4.

Perhaps they're working to make the project pencil better?


Luxury Condo Building Proposed for Cherry Creek North
August 29, 2023 -- Mile High CRE

PMG, a national investment, development and asset management firm, is proposing the construction of a new 5-story, 172,000-square-foot luxury condo building at 185 N. Steele St. in Cherry Creek North.

Design documents submitted to the city in April indicate that the brand associated with the development is Waldorf Astoria, a luxury Hilton brand. The architect for the project is Shears Adkins Rockmore.

I knew I recognized the name

In July 2021, PMG and Toronto-based private equity and asset management firm Greybrook Realty Partners purchased the Denver7 building on the 2.3-acre site at 123 Speer Blvd. for $35 million.

--------------------------

Originally Posted by mhays

I said much of the money is going to rural areas rather than urban areas. I said nothing about red states. Though yes, they'll get a lot.

I gave you credit for not thinking we are talking about corn and grain elevators - so suburban as apposed to urban? Got it.

[mhays]

I said rural...right in the post you quoted, on this page.

[bunt_q]

Potato potahto. Ain’t no difference between ticky tacky suburbia and grain elevators. There be dragons...

Waldorf Astoria at 2nd and Steele? Pardon my language, but fuck me, man. What are we becoming.

[COtoOC]

Originally Posted by wong21fr

For a hybrid especially as they scream, "take my convertor!" given the higher concentration of metals in their units. Hopefully you're not street parking in CP either as that's a recipe for inviting theft.

It will be interesting see what vehicle theft options develop as EV market penetration increases. I'm planning to purchase an EV, but will wait until the Generation 5 batteries are available for vehicle models in 2026-2028 when the energy storage density will double and range anxiety disappears.

Never park on the street!! I don't get the people around here who refuse to use their garage (usually full of crap... I thought that's what basements were for?) but we always park in our garage. I had my cat engraved (probably little deterrent) but have been considering having it caged.

I've had the same thoughts on EVs. Just wait a few years for the tech to get better.

[TakeFive]

Well Done

Originally Posted by bunt_q

Potato potahto. Ain’t no difference between ticky tacky suburbia and grain elevators. There be dragons...

It occurred to me later the difference could be semantics.

Samsung's new site in Taylor TX NW of Austin fits. New Albany International Business Park which Columbus sees as a suburb is where Intel's new site is just a huge plot of land, so far.

It's fair to say the advantage of 'depending' on China was we didn't have to deal with the mess of building factories in the U.S. that gobble up large tracts of land. Soon new EV and battery plants will join the many Auto factories that have planted flags in the SE.

[laniroj]

Originally Posted by wong21fr

This is especially relevant to the discussion:

Brookfield pledged tens of millions in cash, future profit growth to refinance an iconic Denver skyscraper

Looks like Brookfield doesn't have a ton of incentive to lower lease rates given the structure. They have to maximize cash flow to meet the loan payments, not even mentioning the excess cash flow going to to the CMBS holders. So no lease rate reductions, but maybe improved tenant finishes given the pre-paid account?

Who knows. I suspect Brookfield is just trying to bridge the gap to better times. They are so big thy can sell performing assets to cover their office woes in the short term provided they think that leads to a promised land - which apparently they might. That said, it's not really a viable long term strategy.

[laniroj]

Originally Posted by bunt_q

...Personally, I won't shed a tear if they all lose half their value/go under. Will be better for the city to just get on with it, figure out who the couple winners will be, and let the rest fail dramatically and rapidly so we can look to whatever comes next.

I'm a bit more worried about than scenario than you. Downtowns broadly speaking are still all in somewhat disarray with these vacant office buildings and lack of warm bodies on the streets. Brookfield quite literally owns the nicest office assets in every large city and they're one of the largest most well capitalized owners on the planet outside maybe a Black Rock type. If they suddenly give up some of the best real estate around, it could be a trigger for owner's further down the ladder and lead to another mass downtown exodus a la 1950's...

[wong21fr]

Originally Posted by laniroj

Who knows. I suspect Brookfield is just trying to bridge the gap to better times. They are so big thy can sell performing assets to cover their office woes in the short term provided they think that leads to a promised land - which apparently they might. That said, it's not really a viable long term strategy.

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.

[laniroj]

Originally Posted by TakeFive

...75 cents on the dollar is still a hell of a lot more than empty space.

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.

[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 sexy.