Real Estate & Construction  July 27, 2022

Real estate sector navigates municipal delays, COVID effects

BOULDER — The Boulder real estate market is still robust, but frustrations dealing with municipal processes, the transition to hybrid work and supply-chain constraints all remain concerns.

That was the sentiment at the BizWest’s CEO Roundtable on Real Estate, Tuesday, conducted at the Boulder offices of Berg Hill Greenleaf Ruscitti LLP.

One thing on the top of CEOs’ minds were difficulties and delays in obtaining permits, advancing projects through planning and dealing with other municipal processes. Multiple CEOs said delays in getting permits to improve buildings have cost them tenants. 

“It’s nearly impossible to obtain permits with what the city is requiring,” said Michael-Ryan McCarty, vice president, brokerage, at the firm Gibbons-White Inc. “That has stalled or killed more deals than anything else in the market right now for us.”

Jeff Wingert, president of development and management company WW Reynolds Cos., agreed.

“It kills us on deals a lot of times because the city can’t get things done in time,” Wingert said. 

Stephen Tebo, CEO of Tebo Properties, brought up the difficulties his company faced trying to bring a Raising Cane’s restaurant to Boulder. After more than two years of working with planning staff through numerous roadblocks, it went before the planning board earlier this year with staff recommendation for approval — yet the planning board denied it anyway. 

“Now it’s more difficult than it ever has been,” Tebo said. “It’s just one thing after another.”

Becky Gamble, CEO of the brokerage Dean Callan & Co., said her company had a restaurant tenant who couldn’t open because it took nine months to transfer a liquor license. 

Scott Reichenberg, president of the brokerage The Colorado Group, said these issues are especially concerning in the wake of the Marshall Fire. 

“If my business burned down, typically business interruption insurance lasts 12 months,” Reichenberg said. “How could you possibly get a permit and rebuild your building in that time? What kind of world of hurt would you be in? Most commercial buildings lost in the Marshall Fire are just now getting permits. They’re not going to be ready in 12 months.”

Scott Sternberg, executive director of the Boulder Economic Council, said part of the cause of these issues was the period earlier in the year when the city did not have a permanent planning director. 

“That transition has been a challenge,” Sternberg said. “There seems to be a recognition of these issues. From what I understand, the backlog is so large, it has created a logjam.”

Besides the issues dealing with the municipality, executives are still trying to navigate the office real estate market amid the transition to hybrid work. Chris Jensen, president of the brokerage Vista Commercial Advisors Inc, said many companies don’t know how much office space they need because they don’t know how many employees will come in or when they will be there. That makes it harder to find them space, and companies are becoming more hesitant to sign long-term leases. 

“They don’t know when their employees will start showing up to the office again,” Jensen said. “How do you get a long-term lease that way?”

The competitive labor market also factors in. Demand for employees is higher than supply, and the companies competing for these people want to incentivize employees to come into the office. That means that companies shell out to upgrade their offices, something that is taking longer and becoming more expensive because of supply-chain issues. 

“Companies want to highly amenitize their new space because they’re having recruitment issues,” said Steve Kawulok, managing director of the Denver commercial market for brokerage SVN/Denver Commercial. “That is making costs skyrocket. That has stopped a couple moves when people really took into account all the costs of a move.”

Said Jensen: “We try to set expectations for potential at initial showings because both of us are being affected by the munis and by the supply chain.”

In other markets, life sciences remains hot with almost no vacancy after industry giant BioMed Realty LLC purchased 1 million square feet in Flatiron Park.

“The buzz is very real and active,” Gamble said.

Tech is also strong, but tech companies often want shorter-term leases that run against the current trend for longer-term contracts, McCarty said. That balancing act “has been somewhat challenging,” he said.

The residential market has cooled down from the frenzy of the past year, but the market still has less than three months’ inventory, said Dan Kingdom, managing broker and owner of WK Real Estate. 

“The impact of the Marshall Fire is similar to that of the 2013 floods,” Kingdom said. “It impacted the rental market first and foremost. The rental market really spiked. A number of people have purchased replacement homes. That has put a lot of extra demand on the market, but I think we’ve seen a lot of that being absorbed.”

Despite the beating that retail took during the COVID-19 pandemic, it is also doing well in Boulder, with very little vacancy. 

Overall, the market in Boulder remains robust despite those concerns because the underlying conditions that made it hot in the first place are still there. 

“Boulder is not going to change,” Gamble said. “The fundamental reasons for why people are coming here have not changed.”

Also attending the CEO Roundtable were sponsors Aaron Spear, Bank of Colorado; Giovanni Ruscitti, Juliana Massaro and Ashley Cawthorn, Berg Hill Greenleaf Ruscitti; and Jeremy Wilson and Bryan Howe, Plante Moran.

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