16 Market Square. Denver, Colorado. Project Type: Mixed-Use/Multi-Use. Case No: C Year: 2004

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1 16 Market Square Denver, Colorado Project Type: Mixed-Use/Multi-Use Case No: C Year: 2004 SUMMARY The 388,010-square-foot (36,047-square-meter) mixed-use project known as 16 Market Square is located between a 1980s urban renewal district and the revitalized Lower Downtown (LoDo) area. The building contains three levels of underground parking; 183,860 square feet (17,080 square meters) of Class AA office space on five floors; 23,498 square feet (2,183 square meters) of neighborhood shops and services; and 23 penthouse condominiums on the top two stories. It is the largest mixed-use commercial construction project in LoDo in the past 15 years. The developer, Continuum Partners, chose to build its first project on vacant parcels near a public transportation hub and within walking distance of major public venues such as Coors Field and the Pepsi Center. Continuum Partners, which owns 16 Market Square, provided its own equity during the financing and sees the project as a long-term investment. An unusual but effective leasing strategy allowed the office tenants to design interiors to their specifications. The building s sympathetic facade and a significant emphasis on high-quality streetscape design combine to create a pleasant pedestrian experience. FEATURES Infill project in historic area Transit-oriented development Commercial tenants and condominium buyers were able to tailor space to their needs Developer owned

2 16 Market Square Denver, Colorado Project Type: Mixed Use/Multiuse Volume 34 Number 10 April June 2004 Case Number: C PROJECT TYPE The 388,010-square-foot (36,047-square-meter) mixed-use project known as 16 Market Square is located between a 1980s urban renewal district and the revitalized Lower Downtown (LoDo) area. The building contains three levels of underground parking; 183,860 square feet (17,080 square meters) of Class AA office space on five floors; 23,498 square feet (2,183 square meters) of neighborhood shops and services; and 23 penthouse condominiums on the top two stories. It is the largest mixed-use commercial construction project in LoDo in the past 15 years. The developer, Continuum Partners, chose to build its first project on vacant parcels near a public transportation hub and within walking distance of major public venues such as Coors Field and the Pepsi Center. Continuum Partners, which owns 16 Market Square, provided its own equity during the financing and sees the project as a long-term investment. An unusual but effective leasing strategy allowed the office tenants to design interiors to their specifications. The building s sympathetic facade and a significant emphasis on high-quality streetscape design combine to create a pleasant pedestrian experience. SPECIAL FEATURES Infill project in historic area Transit-oriented development Commercial tenants and condominium buyers were able to tailor space to their needs Developer owned PROJECT ADDRESS th Street Denver, Colorado OWNER/DEVELOPER Continuum Partners, LLC 1430 Wynkoop Street, Suite 100 Denver, Colorado Fax: ARCHITECTS Hartman Cox Architects 1074 Thomas Jefferson Street, N.W. Washington, D.C Fax: QPK Design 450 South Salina Street Syracuse, New York

3 Fax: David Owen Tryba Architects 620 Logan Street Denver, Colorado Fax: STRUCTURAL ENGINEER John P. Stopen Engineering 50 South Salina Street Suite 401/P.O. Box 29 Syracuse, New York Fax: CONTRACTOR Turner Construction 1873 South Bellaire Street, Suite 1200 Denver, Colorado Fax:

4 GENERAL DESCRIPTION The first new office space built in downtown Denver in a decade, 16 Market Square also is the first major mixed-use office building outside of the central business district (CBD). Located at a major transportation node, the site abuts the 16th Street Mall, Market Street Station, and major access highways. In consideration of the historic area, the developer preserved an alley that now bisects the building; it also had to work within height limitations. The project contains 23,498 square feet (2,183 square meters) of retail space, 183,850 feet (17,080 square meters) of office space, and 46,000 square feet (4,273 square meters) of residential space in 23 units. All of the residential units were sold before construction began, and each has a large private outdoor patio with panoramic views of the Rocky Mountains and downtown Denver. The facade pays tribute to the historic area but is not a strict re-creation of period architecture. SITE DESCRIPTION The area now known as LoDo, which was settled by General William Lattimer in 1858, is the birthplace of the city of Denver. It began as a small cluster of buildings set up to support gold mining along the South Platte River. After a major fire in 1863, the city mandated that structures be built out of fireproof materials, a requirement that gave LoDo its signature orange-red brick look. The establishment of nearby railroad yards allowed the area to evolve into a bustling commercial warehouse district. In 1893, however, the repeal of the Sherman Silver Act drastically slowed government demand for silver and, in turn, slowed Denver s economy. Construction in LoDo virtually halted and, after World War II, the area devolved into a skid row. During the mid-1970s, preservationists fought to save the area from the bulldozer and established the Larimer Square historic district. From that success, the neighboring LoDo district was established in LoDo has become home to a hip mix of eclectic shops, coffeehouses, boutique hotels, and restaurants. It is close to the Cherry Creek bike path, the 16th Street Mall (a bus- and pedestrian-only shopping district), Coors Field, and the Pepsi Arena. The district s housing options range from million-dollar lofts to market-rate apartments. LoDo s designation as a historic district has allowed much of the district s historic architecture to be preserved. This designation includes height limitations and strict design guidelines for new construction and rehabilitation. Once a hodgepodge of parking lots and vacant land, the 16 Market Square site is located between 15th and 16th streets and Blake and Market streets. Lying at the center of a multimodal transportation hub, it is accessible via bus service that runs along the 16th Street Mall, close to train service at Union Station, and located between major highways that carry commuters to and from the surrounding suburbs. Half of all buses entering Denver drop passengers off at the nearby Market Street station, and half of all automobile traffic passing through Denver travels by the site along Market and Blake streets. It is a short distance from Denver s CBD, which underwent a major redevelopment during the 1980s. Large glass office towers were erected, while most of the older buildings were vacated or demolished. Denver s economic upturn during the early 1990s refocused attention on older areas of the downtown, and businesses began relocating in historic structures. DEVELOPMENT PROCESS Continuum Partners s mission is to accelerate the development of human habitats built according to the best practices of community design and ecological sustainability. The company seeks to build smart growth projects and hold them as long-term assets. Partners Will Fleissig and Mark Falcone, who established the firm in 1997, wanted their first project to be a sustainable, mixed-use project. They felt that a high-end mix of uses was a desirable and highly marketable concept for the site, which was in a prime location and of sufficient size to allow the project to work. They acquired the site in 1998 from three separate property owners and, over a six-month period, worked closely with the community s design review board, city agencies, the transit authority, and the transit mall management group to plan the largest new commercial building ever built in the historic district. The project was designed in concert with the Regional Transit District (RTD), the Downtown Denver Partnership s (DDP) Mall Management District, and the Lower Downtown District, Inc. (a neighborhood property owner association). The RTD provided funding to reconfigure the transit station side of the mall, and the DDP upgraded the sidewalk materials for 16 Market Square to establish a new standard for the mall. The project required the design approval of the Lower Downtown Design Advisory Board. Because of the cooperative efforts of these groups, and the City of Denver Planning Office, approval was achieved in only five months. This expedited approval process allowed Continuum Partners to meet the timing requirements of its lead office tenants and maximize the rents during a strong market cycle. Fleissig is a former Denver planning director, and his familiarity with the processes allowed for smoother permitting. The building is in a part of Denver recently zoned B-7, which permits complex mixed-use projects. FINANCING

5 Continuum Partners sees 16 Market Square as a long-term investment the company plans to hold the property for 20 to 30 years that could achieve the highest long-term revenue at a building cost that will retain value over time. The firm is the sole owner of the property and provided its own equity during startup. This strategy gave the developer more control over the project and the ability to overcome some of the financing obstacles typically faced by mixed-use projects. The project has proved extremely successful in its first year of operation, 16 Market Square achieved a 27 percent return on equity. Wells Fargo provided the construction loan. DESIGN AND CONSTRUCTION Ground was broken in fall 1999 and construction was completed in March The developer wanted 16 Market Square to stand out as a landmark property but also to blend into the neighborhood. It is an aesthetically sympathetic addition to the neighborhood and, at first glance, could be mistaken for a historic building that has recently undergone a facelift. Because the site is in a historic area, design review was mandatory. The developer was sensitive to the design requirements and went above and beyond them, which worked to its advantage when it came time to market the property. The building s exterior and interior both make use of materials native to the American West. Vaulted plaster ceilings required the work of retired artisans. The structure is at the maximum allowable height and floor/area ratio (FAR) for the district. Because 16 Market Square is an infill project, the site presented numerous challenges. One of the site s most difficult aspects was its location along the pedestrian- and bus-only 16th Street Mall and major commuter roads. During the construction process, workers had to be careful not to interrupt bus service on the 16th Street Mall and not to impede traffic flowing into and out of the city on the main arteries of Blake and Market streets. In addition, horizontal space constraints required the contractor, Turner Construction Company, to dig a 46-foot-deep (14-meter-deep) hole in the ground to accommodate 3.5 levels of parking, which total 100,000 square feet (9,290 square meters) and house 290 spaces. At the recommendation of the LoDo design review board, Continuum worked to maintain an alley that now bisects the building, because alleys are a standard feature in the neighborhood. When one looks at 16 Market Square from 16th Street, it appears to be two structures joined by a bridge spanning the alley, although it actually is one building. The mix of uses created some unforeseen problems. The restaurants on the first floor had to use special ventilation in order to keep food odors from wafting up into the residential and office units. The building is ecologically efficient and provides energy-saving lighting, heating, and cooling systems that consume less energy than those used in a suburban office building of equal size. The structure is designed to last at least 75 years longer than most typical office and apartment buildings. The edifice s varied size, scale, and materials create the effect of a collection of smaller structures rather than a single, massive one. Despite the fact that the building spans a complete city block, the assembly concept successfully integrates the project into its urban context. In 2001, 16 Market Square received the Denver Office Building of the Year award from the National Association of Industrial and Office Properties (NAIOP) and the Building Owners and Managers Association (BOMA). TENANTS AND MANAGEMENT At the time 16 Market Square was being planned, the existing office space in Denver s CBD had become less desirable than it once was, and tenants were looking for more flexible space nearer different amenities. Continuum Partners s unusual initial leasing strategy helped attract long-term tenants. The developer allowed interested tenants to design their own floor plates in exchange for signing long-term leases. Tenants were willing to vacate Class A office space on the top floors of downtown buildings in order to take advantage of this opportunity. The building also offers large floor plates (34,000 to 38,000 square feet/3,160 to 3,530 square meters); four custom, high-speed passenger elevators serving the five office floors; a decentralized variable air volume HVAC system with 1,200-square-foot (112-square-meter) zones; 24-hour security; and fiber optics from multiple telecommunications providers. Major office tenants include Accenture and Northern Trust Bank, and the building is 100 percent leased. Of the current tenants, 34 percent have 15-year leases; the average lease length is 11 years. Office rents average $30 per square foot ($323 per square meter) on a gross basis; first-year expenses are included in the rent and thereafter the tenants pay increases in expenses. Furthermore, 16 Market Square has a lively and eclectic mix of retail tenants, including Starbucks, Noodles and Company, and Title 9 Sportswear. The heavy foot traffic around the site enabled Continuum Partners to attract national tenants and, in turn, obtain higher rents. The project uses shared parking: The general public may park in the building at night, and revenues from the parking garage are estimated to be $550,000 per year. SullivanHayes brokered the leases and Cushman Wakefield manages the entire building. Retail rents along 16th Street exceed $30 per square foot ($323 per square meter) on a triple net basis. The penthouses were presold before construction commenced, and achieved the highest per-square-foot sales price of any residential project in downtown Denver. The residential units have an entrance separate from that used for the

6 office space and each unit is allotted two parking spaces. The residences and offices share a condominium arrangement in order to pay for common-area maintenance, associated energy costs, and the salaries of the security guards. Resale prices for the residential units reflect a 33 percent increase in value (from $300 per square foot/$3,230 per square meter in 2001 to between $400 and $425 per square foot/$4,306 and $4,575 per square meter in 2004) since the building was occupied. Originally, 25 units were constructed, but two tenants each bought two and combined them, leaving a total of 23 units. All of the condominiums feature modern finishes, hardwood floors, gas fireplaces, recessed lighting, and outdoor patios with views of downtown Denver and the Rocky Mountains. They range from 1,000 to 2,600 square feet (93 to 242 square meters) in size. Kentwood City Properties was the broker for the residential component. EXPERIENCE GAINED The developer sees 16 Market Square as a tremendous success and considers it a fortunate first project for the company. Working within historic district limitations on an infill site presented some construction and design challenges, but the ensuing popularity and financial success of the project made it well worth the effort. The developer s build-to-suit leasing strategy worked well for the office uses, but it should not have been applied to the residential units. While office tenants needs were relatively straightforward, the residential options offered were too numerous and subject to change. Essentially, the developer ended up building 23 custom homes. The residential component was, however, well received by the city during the permitting and review processes. The project s location within a historic district meant the developer had to carefully consider the effects of the building s relationship with the sidewalk. There were specific signage requirements for the restaurants, and the city mandated the installation of railings around the outdoor dining areas. But the tenants were amenable to these requirements and Continuum Partners s David Conger designed elegant, coordinated railings to surround the outside tables. Not only has 16 Market Square won design awards, but it also is held up as a model of mixed-use development, a key component of smart growth. Relatively few developers choose to pursue mixed-use infill projects because of the perceived risk and the lack of enthusiasm from lenders. Continuum s willingness to take the leap not only has provided the firm with a profitable venture and given downtown Denver an asset, but also has advanced the concept of developing mixed-use, efficient projects. Sixteen Market Square is a working model in its market, and lenders can be expected to see this as a basis for financing more smart growth projects.

7 PROJECT DATA LAND USE INFORMATION Site area (square feet/square meters): 36,000/3,344 GROSS BUILDING AREA (GBA) Use Area (Square Feet/Square Meters) Office 183,913/17,086 Retail 37,500/3,484 Residential 46,897/4,357 Parking and storage 119,700/11,120 Total GBA 388,010/36,047 GROSS LEASABLE AREA (GLA) Use Office net rentable area 183,850/17,080 Retail gross leasable area Area (Square Feet/Square Meters) 23,498/2,183 Residential (sold) 39,695/3,688 Parking and storage 8,000/743 Total GLA 255,043/23,694 LAND USE PLAN Use Percentage of Site Buildings 100 Total 100 OFFICE INFORMATION Percentage of NRA occupied: 100 Number of tenants: 14 Average tenant size (square feet/square meters): 14,228/1,322 Largest tenant size (square feet/square meters): 50,000/4,645 Rental range (per square foot/square meter per month): $2.25 to $2.66/$24.22 to $28.63 Average length of lease: 11 years Typical terms of lease: gross, with tenants paying increases in expenses over base year Office Tenant Size (Square Feet/Square Meters) Under 5,000/under ,000 10,000/ More than 10,000/929 9 Total 14 Number of Tenants RESIDENTIAL INFORMATION Unit Type Penthouse condominiums Floor Area (Square Feet/ Square Meters) Number Sold Initial Sales Prices (Per Square Foot/Square Meter) Resale Prices (Per Square Foot/ Square Meter) 1,000 2,600/ $300/$3,230 $400 $425/$4,306 $4,575 RETAIL INFORMATION (Figures below do not include the bank, which is included in the office data above.) Tenant Classification Number of Stores Food service 3 8,000/743 Clothing and accessories 1 2,534/235 Home appliances/music 1 1,272/118 Total 5 11,806/1,096 Total GLA (Square Feet/Square Meters)

8 Percentage of GLA occupied: 100 Annual rents (per square foot/square meter): approximately $25 $30/$270 $325 Average length of lease: 5 to 10 years DEVELOPMENT COST INFORMATION Site Acquisition Cost: $4,625,000 Construction Costs: $44,447,085 Office: $30,426,229 Retail: $4,206,600 Residential: $9,814,256 Soft Costs: $9,256,354 Total Development Cost: $58,328,439 DEVELOPMENT SCHEDULE Site purchased: 1998 Planning started: June 1998 Sales/leasing started: March 1999 Construction started: September 1999 Project completed: March 2001 DIRECTIONS From Denver International Airport: Exit onto Pena Boulevard and go 9.7 miles (15.6 kilometers). Merge onto Interstate 670 west via the left exit. At 9.6 miles (15.5 kilometers), take the Colorado 26/Brighton Boulevard exit (exit number 275B). Turn left onto Brighton Boulevard/CO-265 south and go approximately three miles (five kilometers). (Brighton Boulevard will become Broadway.) Take a slight right onto Larimer Street/CO-33 south. Then turn right onto 15th Street/CO-33 south and right onto Market Street. Driving time: Approximately 35 minutes in nonpeak traffic. Jennifer B. LeFurgy, report author Leslie Holst, contributing editor, Development Case Studies Julie D. Stern, interim editor, Development Case Studies David James Rose, copy editor Joanne Nanez, online production manager This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI the Urban Land Institute. Copyright 2004 by ULI the Urban Land Institute 1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington D.C

9 The first new office space built in downtown Denver in a decade, 16 Market Square also is the first major mixed-use office building outside of the CBD.

10 The turn-of-the-century design features a brick and stone cast exterior that pays tribute to the surrounding historic areas but is not a strict re-creation of period architecture.

11 The project is an aesthetically sympathetic addition to the neighborhood.

12 Large windows provide abundant natural light.

13 The office lobby features elegant stone floors and walls with vaulted plaster ceilings that required the work of retired artisans.

14 An office interior.

15 At first glance, 16 Market Square (at center) could be mistaken for a historic structure that has recently undergone a facelift.

16 Site plan.