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Investment in commercial real estate in metro area doubles over 2009 - The Denver Post
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Font ResizebusinessInvestment in commercial real estate in metro area doubles over 2009By Margaret Jackson
The Denver PostPosted:?12/26/2010 01:00:00 AM MST
After a few years of dismal commercial real estate sales, investors are snapping up property in Denver. (John Prieto, The Denver Post)
Investment in commercial real estate in metro Denver more than doubled this year over 2009, a sign that the market may be on the mend.
So far this year, investors have spent $1.01 billion on 54 office, retail and industrial properties, according to an analysis by Cushman & Wakefield. In 2009, they spent $448 million in 30 transactions. The data include only deals valued at more than $4.5 million.
"The spotlight is shining pretty brightly on Denver right now," said Peter Keepper, principal of Essex Financial Group. "Denver has consistently been in the top 10 markets for preferred investment."
Last year, about $52 billion worth of investment real estate traded hands nationwide, way down from its peak of about 
(The Denver Post)$500 billion in 2007, said Mike Winn, executive vice president of the capital-markets group in Cushman & Wakefield's Denver office. Up to $150 billion worth of real estate deals are expected to close by year-end.
"We expect the market to normalize to where transaction volume will be $200 to $225 billion in a year or two," Winn said. "We're not going to go back to $500 billion. That was just an unbelievable time in the market."
Though the number of deals closed may not near that of the buying frenzy of 2007, Denver investment properties are commanding record-setting prices.
The 500,000-square-foot 1800 Larimer building is expected to fetch more than $200 million, or $400 a square foot. That would set a record on a per-square-foot basis for an office building sold in Denver.
"That will be stellar pricing," said Mary Sullivan, executive vice president in CB Richard Ellis' investment-properties institutional group.
So far, the biggest deal to close this year was the sale this month of Granite Tower, a 561,691-square-foot office building constructed in 1982 at 1099 18th St. It sold for $149 million, or $265 a square foot, to KBS Real Estate Investment Trust II.
"For a building of that age, vintage and location, that is record pricing," Sullivan said.
Other big deals completed this quarter are the sale of Broadway Station to Walton Street Capital for $49.5 million and the Promenade Shops at Centerra in Loveland to New York private-equity firm DRA for $75.5 million.
"It's nice to see larger deals getting closed," Winn said. "It's just another indication that the market is much more liquid than it was one short year ago when it was frozen on an international basis."
The Promenade Shops went into foreclosure after lenders on the project decided not to extend or refinance the construction loan on the lifestyle center. The developers owed nearly $113 million on the $116 million loan.
The appetite for investment properties has been growing since the end of last year as pension-fund advisers and life-insurance companies scour the country for prime real estate.
But there were so few assets listed for sale during the first half of the year that buyers were paying a "scarcity premium" for stabilized assets, Sullivan said.
Now, as owners are seeing that there are plenty of potential buyers, properties are being offered for sale and investors are gobbling them up.
"Values are exceeding pricing that was paid at the peak of the frenzy," Sullivan said.
Most life-insurance companies nationwide have increased the amount they're allocating to real estate by as much as 50 percent for 2011 because alternative investments such as bonds aren't yielding high returns, Keepper said.
At the same time, loan originators that package commercial loans as mortgage-backed securities are starting to come back. Known as conduit lenders, they sell the packaged loans in the secondary market.
"They don't keep the loans on their balance sheet," said Ed Boxer, a principal at Essex Financial Group. "(Conduit lending) is coming back, which is good news. It will bring liquidity to commercial real estate."
At the beginning of the year, there were only about four conduit lenders originating loans, down from about 30 at the peak of the market, Keepper said. Now there are about a dozen.
"What we'll see next year is more institutional sales of core assets and more distressed sales from banks," Keepper said. "They'll finally cut bait on some of these loans where they should have taken the property back instead of giving the borrower an extension."
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
Top 5 commercial real estate deals by sector:
OFFICE
GRANITE TOWER, 1099 18th St.
Sale price: $149 million
Square footage: 561,691
Price per square foot: $265
RE/MAX INTERNATIONAL HEADQUARTERS, 5075 S. Syracuse St.
Sale price: $75 million
Square footage: 248,493
Price per square foot: $302
BROADWAY STATION, 900 & 990 S. Broadway
Sale price: $49.5 million
Square footage: 317,224
Price per square foot: $156
161 INVERNESS, Englewood
Sale price: $48 million
Square footage: 216,459
Price per square foot: $222
LOWRY MEDICAL CENTER, 8101 & 8111 E. Lowry Blvd.
Sale price: $30 million
Square footage: 112,155
Price per square foot: $267
RETAIL
PROMENADE SHOPS AT CENTERRA, Loveland
Sale price: $75.5 million Square footage: 504,670
Price per square foot: $150
MEADOWS ON THE PARKWAY, 4800 Baseline Road, Boulder
Sale price: $30.8 million Square footage: 207,641
Price per square foot: $148
EDGEWATER MARKETPLACE, 1711-1931 Sheridan Blvd.
Sale price: $22 million Square footage: 145,780
Price per square foot: $151
TINSELTOWN USA, Colorado Springs
Sale price: $15.3 million Square footage: 79,444
Price per square foot: $192
MISSION COMMONS SHOPPING CENTER, Arvada
Sale price: $14.4 million Square footage: 117,664
Price per square foot: $122
INDUSTRIAL
BROOMFIELD CORPORATE CENTER, Building 2, 11525 Main St.
Sale price: $12.9 million
Square footage: 92,800
Price per square foot: $139
DENVER BUSINESS CENTER Buildings 1-3, 11101-11111 E. 53rd Ave.
Sale price: $9.9 million
Square footage: 288,390
Price per square foot: $34
DENVER DISTRIBUTION CENTER, 11600 E. 56th Ave.
Sale price: $9.3 million
Square footage: 210,600
Price per square foot: $44
ROCKY MOUNTAIN BUSINESS CENTER, 13250 E. Smith Road, Aurora
Sale price: $7.8 million
Square footage: 136,828
Price per square foot: $153
CONCORD BUSINESS CENTER Phase II, Building 2, James E. Casey Avenue, Englewood
Sale price: $7.6 million
Square footage: 85,008
Price per square foot: $89
Source: Cushman & Wakefield
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