Real Estate & Construction  August 4, 2006

They came from the coasts: out-of-state invasion

In the past six months, the Boulder Valley has seen commercial real estate deals worth $60 million, $45 million, $47.8 million and $41.7 million.

All those big sales, plus at least five other double-digit million-dollar purchases this year, came from out-of-state investors in New York, Texas, California and Illinois.

“I’d almost call it ‘The Colorado Land Rush,’´ said Geoffrey Keys, managing broker of Keys Commercial Real Estate in Boulder.

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“Out-of-state buyers are seeing a bigger picture in Colorado than the locals see,” he said.

The recent out-of-state investments are a mix of office buildings, flex space and apartment complexes.

New York-based FEIGA/Sandstone LP paid Circle Capital Partners LLC $60 million for a 450,000-square-foot building that houses Seagate Technologies Maxtor division at 2452 Clover Basin Drive in Longmont.

Houston-based Hines Interests LP spent $47.8 million on the 461,000-square-foot Mountain View Corporate Center in Broomfield.

San Diego-based BioMed Realty Trust Inc. spent $45 million on Array Biopharma’s 150,000-square-foot headquarters at 3200 Walnut St in Boulder.

And Chicago-based Equity Residential spent $41.7 million on Stonegate Apartments, a 350-unit complex near Interlocken in Broomfield.

Value-add investments

Colorado and the rest of the southwestern United States is a very attractive value-add market, said Chad Carpenter with Equastone Real Estate Investment Advisers. The La Jolla, Calif.-based company recently paid $35 million for 336,760 square feet of office space at 11800 and 11802 Ridge Parkway in Broomfield.

Value-add investors tend to look for vacant buildings, or holdings with short-term lease tenants – something there is plenty of in the Boulder Valley after the tech economy bust after 2001. The value-add investors bank on an improving market to raise lease rates and increase the profitability of the building. They then usually sell the investment once it’s fully leased and appreciated in value.

The Views were about 50 percent leased at the time of purchase, and Equastone recently signed a deal with (i)Structures to lease about 35,000 square feet. The rest of the space is being negotiated, and Carpenter said he expects the building to be full by the end of the year.

“We’ve done extremely well with our Colorado investments, and I’d love to invest another $100 million in the state this year, providing we can find the right buildings for sale,” Carpenter said. “If you can still buy buildings below replacement costs, and there are still barriers to new construction – keeping new supply down – then along with some growth in the economy, which increases demand for space, it’s a great deal.”

Deal or no deal

In relative price terms, out-of-state investors see a lot of great deals in Colorado, said economist Patty Silverstein, president of Littleton-based Development Research Partners.

“Our economic recovery was behind the rest of the nation … and real estate prices stayed flat,” Silverstein said. “Therefore the Denver metro area represents a bargain compared to other places where the prices continued to move upward.”

The answer to whether these investors are truly making a great deal relies on the local economy’s continued recovery.

“There’s a lot of potential,” Keys said. “All the infrastructure is in place, we just need to recapture the lost jobs.”

Silverstein said the Denver metro area has increased its jobs by 2.1 percent in the first half of 2006. Her office expects another 2 to 2.5 percent increase of jobs during the latter half of the year.

“That isn’t the 4 percent we saw in the mid-1990s, but that’s almost unsustainable growth. If we could get to that 2.5 percent job growth, that’s more sustainable,” she said.

“The wild card is the national economy,” Silverstein added. “We’re seeing some uncertainty in the marketplace due to higher energy prices, and a concern in the Middle East, and that could slow business expansion.”

Sellers’ motives

The ironic beauty in real estate is that while one group sees a great deal to buy, another group sees a great deal to sell.

Many sellers, mostly based in Colorado, feel like they are meeting their profit goals with the sales, said Andrew Freeman, a broker with Freeman Myre in Niwot.

“Some of these sellers are people who didn’t plan to sell for another five to 10 years,” Freeman said. “But if they can get the same return earlier, then they’re willing to move the sale up.”

Freeman, along with Keys, helped broker the sale of a 91,000-square-foot building in Louisville’s Colorado Technology Center for $5.8 million to a group of California investors. The same group is under contract to buy 70 acres at the CTC, and they’re still looking for other purchase opportunities, Freeman said.

Freeman added that the recent low capitalization rates around 5 and 6 percent are spurring some sellers to make deals.

Real estate investments frequently are valued based on a cap rate, which is calculated by dividing the net operating income of a property by its purchase price. Typically, sellers like to see a low cap rate – meaning that the sale price is relatively high compared to the building’s net income.

The less talked-about reason for some sales is that some landlords have struggled with vacancies, said Tom MacKenzie with Century 21 Metro Alliance in Louisville.

“They’re glad to find a buyer who can take those frustrations off their hands,” he said.

Contact David Clucas at (303) 440-4950 or e-mail dclucas@bcbr.com.

In the past six months, the Boulder Valley has seen commercial real estate deals worth $60 million, $45 million, $47.8 million and $41.7 million.

All those big sales, plus at least five other double-digit million-dollar purchases this year, came from out-of-state investors in New York, Texas, California and Illinois.

“I’d almost call it ‘The Colorado Land Rush,’´ said Geoffrey Keys, managing broker of Keys Commercial Real Estate in Boulder.

“Out-of-state buyers are seeing a bigger picture in Colorado than the locals see,” he said.

The recent out-of-state investments are a mix of office buildings, flex space and apartment complexes.

New York-based FEIGA/Sandstone LP…

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