Real estate roundtable: Boulder land scarcity makes existing commercial buildings attractive

BOULDER — Outside institutional investors have been zeroing in on the commercial real estate market in Boulder over the past few years, ratcheting up the pace of deals.

“The Boulder market is super active … and cash is flowing in from new people, and that makes for a more feverish pace,” Realtor Becky Callan Gamble, president of Dean Callan & Co. Inc., said Tuesday during BizWest’s CEO Roundtable on Real Estate, Construction and Development. Low interest rates are accelerating that pace as well.

The scarcity of developable land and the city’s restrictions on new buildings limiting options for builders, buyers and leases are making existing structures attractive investments to outside buyers and also driving up prices.

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Industrial buildings in the city center are being converted to Class A office space, and those tenants are being driven farther east to find affordable locations. But the higher prices, including lease rates, in the center of Boulder are also driving industrial prices on the east side of town. Michael-Ryan McCarty, a senior broker associate with Gibbons-White Inc., said rates in east Boulder have increased 30 percent to 50 percent since 2009-10. He said many businesses that would like to expand are resigned to fit more people into the same amount of space.

“We can no longer accommodate industrial in Boulder,” said developer Lou DellaCava, owner of LJD Enterprises in Boulder.

“Today, you can sell anything you want, but this won’t last forever,” DellaCava warned, referring to how real estate works in cycles. Right now, commercial real estate in Boulder is at the peak of the cycle. None of the roundtable participants would predict when the cycle will begin to shift.

Paul Kresge, vice president and broker associate with Vista Commercial Advisors Inc., said the Boulder market is somewhat insulated from severe valleys. “There is a huge government employee base here and a large university (University of Colorado Boulder). This, along with a limited amount of product, adds to creating demand.”

On a worldwide scale, Jeff Wingert, a partner at W.W. Reynolds Cos., said the United States is a safe place to invest, and that “Boulder is a solid market to invest in.” Earlier this year, Wingert helped orchestrate a deal in which Boulder-based W.W. Reynolds sold 1.5 million square feet of commercial property in Boulder and Fort Collins to Seattle-based real estate investment company Unico Properties LLC for approximately $209 million.

Wingert said W.W. Reynolds is “reinvesting in Boulder,” having recently acquired three properties in the city in the past three weeks and has another deal in the works.

Kevin Brinkman, president/co-founder of Brinkman Partners, based in Fort Collins, which works along the Front Range, including Boulder, said height restrictions on new buildings with today’s building costs prohibit builders from delivering space that is affordable for many businesses.

“To make a 35-foot height-limit work, you need to charge more than $20 net per square foot,” Brinkman said.

On the residential side, Boulder’s housing market is scorching hot. The average sale price of a single-family home in Boulder is $975,894, up from $660,237 in 2010, according to D.B. Wilson, manager/broker associate of Re/Max of Boulder.

While that price makes most jaws drop, Callan Gamble said people she talks with in Palo Alto, Calif., say, “Boulder is a deal.”

While the prices are great for sellers and Realtors, “this is not a good time for buyers,” Wilson said. And it’s just not in Boulder. “We had a home in Westminster that had 171 showings and 30 offers. We’ve also have some buyers losing out 20 times.

If the federal government increases interest rates, sales could slow. “A 1 percent jump would take a lot of people out of the market,” Wilson said.

Construction of large-scale condominium projects, which could help dull the price point on homeownership, are far and few between because of the state’s current construction defects-law. Developers contend the current law makes building those projects too risky because of the ease with which they can be sued by a condo association.

Participants in Tuesday’s roundtable included: Kevin Brinkman, president/co-founder, Brinkman Partners; Cotton Burden, president/CEO, Burden Inc.; Lou DellaCava, owner, LJD Enterprises, Becky Callan Gamble, president, Dean Callan & Co. Inc.; Paul Kresge, vice president/broker associate, Vista Commercial Advisors Inc.; Michael-Ryan McCarty, senior broker associate, Gibbons White Inc.; D.B. Wilson, managing broker, Re/Max of Boulder; Jeff Wingert, partner, WW. Reynolds Cos. Sponsors: George Berg, Becky Rigo and Peter Schaub, Berg Hill Greenleaf & Ruscitti; Justin Dodge, EKS&H. Moderator: Christopher Wood, co-publisher/editor, BizWest Media.