1240 W. Bayaud Avenue

Transcription

1 Offering Memorandum 2018 Denver, CO

2 The Offering A fee simple, unencumbered interest in The prospective purchaser will be selected by the Seller in consultation with Avison Young on the basis of purchase price, funding discretion/capability, level of underwriting, anticipated closing date, experience in closing similar transactions and other relevant factors determined by the Seller. Investment Contacts For additional information, please contact: Sam Crowe, Associate sam.crowe@avisonyoung.com Jaimee Keene, MAI, Vice President jaimee.keene@avisonyoung.com 2

3 Table of Contents 01 Executive Summary Property Overview 6 Location Overview 12 Market Overview 16 Comparables 22 3

4 W. BAYAUD AVENUE SUBJECT PROPERTY S. PLATTE RIVER DRIVE 25 S. NAVAJO STREET W. CEDAR AVENUE W. BYERS PLACE 01 Executive Summary ALAMEDA AVENUE

5 The Offering Avison Young, as exclusive representatives for the Owner, is pleased to present this offering for the sale of the 100% fee simple interest in (the Property ), a 2-story, 9,610 sf single tenant office/flex property located on the west side of I-25 near the Baker neighborhood. W. BAYAUD AVENUE, DENVER, CO Sales Price $4,250,000 Price/SF $442/sf 5

6 W. BAYAUD AVENUE 25 SUBJECT PROPERTY S. PLATTE RIVER DRIVE S. NAVAJO STREET 02 Property Overview W. CEDAR AVENUE

7 Property Summary is a 9,610 square foot office building directly west of Interstate 25 in the developing Baker neighborhood of Denver. Constructed in 2010, the class B office asset offers lofted common areas, a rooftop garden and a flex component with roughly 750 sf of storage space and a drive-in door. The site enjoys immediate adjacency to Valverde Park and open green space along the South Platte River Valley. The immediate access provided by Alameda and Interstate 25 in conjunction with the flexibility of General Industrial District zoning will be coveted by users in several industries. Great access to I-25 and Alameda Avenue W. BAYAUD AVENUE, DENVER, CO Total Building Area 9,610 sf Asset Type Office/Flex Stories 2 stories; single tenant Average Floor Plate 4,800 sf Year Built 2010 General Industrial District Zoning Contemporary office build-out Overhead door to storage space Class Parking Land Area County Loading Class B 12 surface spaces 0.55 acres Denver One dock entrance Walk Score Very Walkable (55) Transit Score Good (59) Zoning Billboards I-B General Industrial District UO-2 Overlay District permits billboards This district is intended to be an employment area containing industrial uses that are generally more intensive than uses permitted in the I-A zone district. The overall purpose of the district is to promote industrial development and economic activity. No new residential uses may be established in the I-B zone district in order to promote and continue a stable employment base for the city. 7

8 Site Plan W. BAYAUD AVENUE S. NAVAJO STREET W. BAYAUD AVENUE S. PLATTE RIVER DRIVE 8

9 Floorplans 1st Floor 9

10 Floorplans 2nd Floor 10

11 Floorplans Roof 11

12 03 Location Overview

13 Office/Flex Location Overview The West submarket is comprised of over 11.3 million square feet of office space (msf ) in 267 buildings, and nearly 6.7 msf of flex space in 94 properties. The submarket extends west from Interstate 25 adjacent to downtown Denver, to the Rocky Mountain Foothills, encompassing Wheat Ridge, Applewood and Golden. Class B properties make up the majority of space in the submarket. Major industries include agriculture/mining/utilities, engineers/architects, government, computers/data processing, bioscience, health care, business services and manufacturing. Some of the area s major employers include the City & County of Denver, Enserca Engineering, Peak Power Engineering, Gambro, New West Physicians, National Park Service, Department of Veterans Affairs, Kinder Morgan Foundation, FirstBank, Terumo BCT Inc., and Tallgrass Energy Partners. The West Denver submarket recorded positive office net absorption of 19,162 square feet (sf ) in the third quarter, and flex recorded 20,552 sf. Over the past four years office and flex absorption have been positive annually. Absorption should continue this trend into There is currently one office building under construction. Meow Wolf broke ground in the third quarter of 2018, totaling 90,000 sf. The building will deliver in late 2019 and will mostly be occupied by the Meow Wolf company. The last office delivery in the submarket was in second quarter 2018, as the ground floor space of a storage facility. Office vacancy has steadily decreased since 2013 when it peaked at 15.3%, as a result of new product hitting the market. The third quarter 2018 vacancy rate declined 160 basis points from third quarter 2017, to 10.6%. Flex vacancy remains incredibly low, at 1.9% and has been below 5.0% since Overall asking office rates began to rise again in fourth quarter 2017, after declining in the previous two years. The office 2018 third quarter rate of $22.52 is 5.0% higher than Flex rent began trending upwards in 2012 and were at $11.94 in third quarter, near the historical high of $12.18 achieved in first quarter Additional absorption gains, stable vacancy rates, and strong rental rate appreciation are expected in flex and office space throughout

14 COLORADO BOULEVARD Location Aerial 6TH AVENUE SPEER BOULEVARD 25 CHERRY CREEK NORTH SHOPPING CENTER SUBJECT PROPERTY BROADWAY RETAIL CORRIDOR DENVER COUNTRY GOLF CLUB ALAMEDA AVENUE BROADWAY 25 WASHINGTON PARK 14

15 Broadway Corridor Location Overview The south Broadway commercial corridor, extending from Speer Boulevard south to Interstate 25, has undergone tremendous redevelopment since The opening of the Light Rail stops at Interstate 25 and Alameda improved accessibility to the bars, restaurants and retail along Broadway. In the past 18 years 153,000 sf of new retail space was added to the area, and it is 99% occupied. Retail has performed well along Broadway, at a time when brick and mortar operators are facing increasing pressure from e-commerce. Colorado s craft spirit industry has also been successful on or near Broadway. Stranahan s Colorado Whiskey distillery is now a local landmark along Interstate 25 and the industrial area between Broadway and Interstate 25 is home to several other craft producers. Branded Oak Brewing Club, Baere Brewing Company and TRVE Brewing Company are all operating along the northern stretch of Broadway, before Speer Boulevard, complementing the new bars and restaurants. Renovations and adaptive reuse have also brought new life to underutilized space. One of the biggest projects occurred in 2012 at 65 Broadway. Punchbowl Social, a restaurant and entertainment complex, was installed in a dilapidated retail building, utilizing 27,000 sf of renovated space. The Denver Health Administration just opened its new 300,000 sf facility near Speer Boulevard and Broadway. Office space along Broadway is in high demand, as employers seek locations that afford their workers convenient accessibility and options for dining and entertainment. The nearly 2.2 msf of office space is 95.5% leased. The Broadway corridor is a vibrant area, with a diverse array of businesses. Its proximity to downtown and multiple transportation access points contribute to its resurgence as a commercial area. 15

16 04 Market Overview

17 Denver 3Q 2018 Market Overview Increasingly, technology and software companies are bolstering demand in the Denver office market. Tech companies with recent office openings include Strava, Xero, Marketo, Gusto, Thanx, Granicus, SwitchFly, Accelo and OpenTable. Netflix opened a new office in Boulder, which now has 33.4% of its office space occupied by tech firms. This increased diversification points towards continued expansion in Denver s office market into early Market Facts 30,575 Net employment increase in the last 12 months ending in August, a 2.0% increase in employment. 3.3% Unemployment in Denver, lower than the national unemployment rate of 3.9%. 3.9 Million square feet of office space now under construction, with 29% preleased. 11.1% The Denver office vacancy rate decreased in the third quarter. Through the third quarter of 2018, improving vacancy rates and positive absorption indicate that recent deliveries are being leased. Absorption remains slightly dampened by tenants vacating Class C space, but positive absorption more than made up for these losses. Rents for Class C space continue to rise, while Class B rents are flat, causing some tenants to upgrade instead of renewing leases. Improvements in Class A occupancy were facilitated by slightly softening rents and increasing incentives, as landlords found themselves in greater competition. Hord Copeland Mackt leased 18,653 square feet (sf ) at 1800 Wazee Street, receiving six months of free rent and a nearly $100 per square foot tenant improvement (TI) allowance. Lewis, Brisbois, Bisgaard & Smith s 20,168 sf expansion at 1700 Lincoln Street included three months of free rent and a $50 psf TI allowance. Downtown absorption has been especially strong, despite large deliveries, due to large blocks being leased. Although still positive, Denver is experiencing slowdowns in economic and population expansion from the record paces set since the last recession. The vacancy rate declined 90 basis points from the previous quarter, to 11.1%. The decline in vacancy from 2017 is due to strong Class B absorption and slowing deliveries. However, the 3.9 million square feet (msf ) currently under construction indicates that there is still a substantial amount of product in the pipeline. Improving vacancy and flat or decreasing rental rates show that tenants are finding deals in the market outside of downtown. ADP renewed their lease at a low rate of $18.50 psf gross in Aurora and CBD Global occupied space at $12.00 psf NNN in Golden. 17

18 Market Overview Historical Vacancy & Rent Vacancy & Availability Denver s vacancy rate declined 90 basis points (bps) in the third quarter from the 3,000, % 2,666, % 14.0% previous quarter to 11.1%, due to absorption outpacing deliveries. The vacancy rate is still low by historic standards, and improving to its best rate since fourth quarter Square Footage 2,500,000 2,000,000 1,500,000 1,000, % 1,280,259 1,295,717 1,641, % 2,428,762 2,391,233 2,129,631 2,025, % 11.4% 10.9% 10.9% 1,031,314 1,265,951 1,173, , , % 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% Vacancy Rate Recent vacancy trends are similar in the Downtown, Southeast and Suburban markets. The Suburban market continues to have the lowest vacancy rates, due to its affordable rents and slower pace of deliveries. Several projects that delivered earlier in 2018 have leased large blocks of space. ATRIA, a 176,588-sf project, leased half of its space to Conga, and Civica Cherry Creek only has 500, , , , % 6.0% 28.4% of its square footage available th Street had one tenant obtain 58,000 sf, Slack signed for nearly 80,000 sf at 16 Chestnut, and WeWork committed to 50,801 0 YE11 YE12 YE13 YE14 YE15 YE16 YE17 Q % sf at HUB. Under construction projects are only 29% preleased, however third quarter Absorption Deliveries Vacancy lease-up performance proves that demand for speculative construction remains high. The vacancy rate is projected to rise slightly in 2019 due to new deliveries. Asking Rates Average asking rates in the Denver market contracted slightly in the third quarter, dropping 0.3% per square foot (psf ) to $27.49 psf gross. However, rates for Class A space in Denver s CBD built since 2010 increased to $43.31 psf gross. In the past five years, asking rates have grown at unprecedented levels due to new construction projects charging high premiums, particularly in the LoDo and Platte River submarkets, which resumed increasing after stalling in second quarter due to slow lease-ups. The frantic growth rate appears to be over, as landlords responded to rising vacancy offering increased incentives and slightly discounted rents. Rent forecasts are mixed, as new deliveries command premiums, while landlords of existing product begin offering discounts in an increasingly competitive market. 18

19 Market Overview Square Footage 3,000,000 2,500,000 2,000,000 1,500,000 1,000, % 13.1% 1,280,259 1,295,717 Absorption & Deliveries 2,666,160 2,428,762 2,391, % 2,129,631 2,025, % 11.4% 10.9% 11.1% 10.9% 1,641,770 1,031,314 1,265,951 1,173, , , % 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% Vacancy Rate Absorption & Demand Absorption totaled 1.0 million positive square feet (msf ) in the third quarter. Sublet space and Class C product accounted for approximately 100,000 sf of negative absorption. Tenants vacated 52,974 sf of sublease space in the third quarter, down from 220,061 sf leased last quarter. Denver s fossil fuels energy sector has historically been a major occupier of office space; however, its tenancy is dictated by the volatile energy market. Increasing rig counts and fossil fuel prices brought about a period of stability in energy office occupancy in Whiting Petroleum signed the second largest lease of the third quarter for 135,178 sf at 1700 Lincoln Street. Technology companies are increasingly drawn 500, , , , % 6.0% to the market by the lower operating costs. Broomfield technology company Conga announced it will consolidate its facilities from four states into a global headquarters 0 YE11 YE12 YE13 YE14 YE15 YE16 YE17 Q % in Broomfield, requiring space for up to 570 workers. Propeller Aero, a Sydney-based Absorption Deliveries Vacancy startup making drone software for construction and mining companies, moved its U.S.- based office to the RiNo area in July, with plans to double its Denver presence. Denverbased employment technology company Guild Education recently secured $40 million in Series C funding for its expansion plans. The major corporate development in the third quarter was VF Corporations announcement that it was moving its global headquarters to Denver. The Fortune 250 company will add over 800 new jobs to the local economy. 19

20 Market Overview Construction Approximately 485,000 sf of new construction broke ground in the third quarter and Denver s construction pipeline is 3.9 msf, with 29% preleased. Many tenants in the Denver market continue to make real estate decisions based on amenities available at newly built projects that improve recruiting and retention. The current development cycle represents the most construction to occur dating back to the mid-1980s. Three buildings delivered in the third quarter, totaling nearly 79,000 sf with 33% preleased. Construction activity is projected to remain elevated into 2019, although the rate of new groundbreaking is expected to slow. 3Q18 Building Deliveries DeLo (18,000 sf) Boulder Riverwalk South (35,000 sf) Parker/Castle Rock Flight (140,000 sf) Platte River Fossil Point (26,000 sf) West Construction Timeline 1,600,000 1,400,000 1,200,000 1,000, , , , , Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Available Preleased Corporate owned 20

21 Market Overview 3Q2018 Activity Stable cap rates and sales volumes, despite a lower number of transactions, show that the Denver investment market is still strong. Prime West, the developer of One Belleview Station, broke ground on another office building in the DTC West. Located at 6900 Layton Avenue, the building will add 382,000 sf to the market in late 2020 and be anchored by Newmont Mining. Capital Markets A Real Capital Analytics search states the average cap rate for office properties in the Denver Metro area is below 6.5%. Cap rates have been declining since third quarter and have not been this low in over two years. The average price per square foot has increased from previous quarters to approximately $260 per square foot (psf ). Yearover-year (YOY) change in sales drastically increased to 250%. This indicates the market for investment office properties in Denver remains strong. There were multiple high dollar value transactions during third quarter. The largest was UBS Realty Investors sale of 1670 Broadway, otherwise known as the TIAA-CREF building. This building sold for $240 million or $ per square foot and had an occupancy rate of 90.7% at time of sale. A number of multi-property portfolios were sold during third quarter. Northstar Commercial Partners sold Cherry Creek Place I and II to Pennybacker Capital LLC for a total of $39.7 million or $202 per square foot. Both buildings were over 93% occupied at time of sale. City Office REIT acquired the two building portfolio of Circle Point Corporate Center I and II. Northridge Capital sold it for a total of $59.8 million or $ per square foot. Both buildings had over 90% occupancy at time of sale. Amid the office leasing market softening slightly and the pending end-of-cycle reactions, Denver s capital market remain strong. When comparing prices to the Tier-One markets across the country, the price of office product continues to be attractive to buyers. Alpine Investments began clearing their site for a ten-story boutique office building in the Golden Triangle neighborhood at 955 Bannock. The 65,000-sf project is one of the first office redevelopments in an area that has mostly seen multifamily projects. The biggest lease signed in the third quarter was VF Corp s acquisition of 285,000 sf at 1551 Wewatta Street, occupying the entire building. Trends to Watch The price of oil was $60.37/bbl in January 2018, increasing to $75.30/bbl in September. Projections indicate it will continue rising into Most economic sectors reported growth in the last 12 months with Information (9.0%), Leisure and Hospitality (5.7%), Mining, Logging and Construction (3.4%), and Professional and Business services (2.9%) leading the way. Median single-family home prices are up by 5.2% from the previous year to $428,

22 05 Comparables

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24 Sales Comparables PROPERTY SALE DATE SIZE (SF) OCC. YOC SALE PRICE SALE PRICE/SF BUYER COMMENTS S. Gaylord Street Denver, CO April , % 1965 $2,900,000 $ Grant Real Estate, LLC Class B office E. Speer Boulevard Denver, CO May , % 1989 $3,400,000 $ AKBD4, LLC (Richard and Judy Anderson) Class B Office. Renovated in S. Cherokee Street Denver, CO March , % 1964 $2,500,000 $ Rees F. Davis Class B Industrial/Warehouse. Sale/Leaseback by Declaration Brewing Company with a 25 year lease Fox Street Denver, CO April , % 1967 $2,686,500 $ Archbrook Capital Class B Office. Renovated in N Speer Blvd. Denver, CO September , % 1943 $3,700,000 $ VHS Enterprises Class C Office. Renovated in Gaylord Street Denver, CO August , % 1915 $2,475,000 $ The Other Side Academy 1915 mansion retrofitted for professional tenants. The building is air-conditioned and features common conference rooms and kitchen, off-street parking and excellent visibility. 24

25 Sales Comparables Map SUBJECT PROPERTY

26 Lease Comparables 1 SUBJECT PROPERTY W Bayaud Avenue PROS CONS Ample parking Updated Rare opportunity Extensive remodeling needed on the first floor MetroPark W 2nd Avenue Rent: $20-21/sf NNN Occ. Rate: 0% CONS PROS Great location Impressive views of downtown Flex building Minimal parking Outdated interior and exterior Broadway Station II S Broadway Rent: $20.50/sf NNN Occ. Rate: 87% PROS CONS Immediate proximity to RTD Light Rail Highway signage Covered parking available Common space in need of updates Extensive traffic issues during typical rush hour times Broadway Station S Broadway Rent: $20.50/sf NNN Occ. Rate: 77% PROS CONS Immediate proximity to RTD Light Rail Highway signage Historic building Common space in need of updates Extensive traffic issues during typical rush hour times W Cedar Avenue Rent: $14.00/sf NNN Occ. Rate: 0% PROS Low rental rates Ample Parking New roof 201 Broadway Rent: $21-22/sf NNN Occ. Rate: 72% PROS Renovated Walkable neighborhood Surrounded by amenities 400 Santa Fe Drive Rent: $28.50/sf FS Occ. Rate: 80% PROS New building Full service lease In-house ownership 137 S Lincoln Street Rent: $18.00/sf NNN Occ. Rate: 100% PROS Flex building High ceilings Provides signage CONS Outdated building Low transit score CONS Minimal parking Low transit score CONS Difficult access Only small spaces available CONS Extremely outdated Minimal parking available 26

27 Lease Comparables Map

28 Denver, CO For more information please contact: Sam Crowe, Associate Jaimee Keene, MAI, Vice President avisonyoung.com 1801 California Street Suite 3750 Denver, CO Avison Young - Northern California, LTD. All rights reserved.