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Clarion Buys Pauls Industrial Portfolio

April 9, 2018



Clarion Buys Pauls Industrial Portfolio

Pauls Corp. sold more than $200 million worth of Class A industrial space in Gateway Park in what may be the biggest industrial investment deal ever in the Denver market. The Gateway Park properties, which public records show sold for $206.06 million – or $106.77 per square foot – comprise 1.93 million sf in 14 buildings in Aurora. Clarion Partners bought the essentially 100 percent leased assets as part of a 3.76 million-sf portfolio that also included industrial buildings Pauls developed in Las Vegas, Dallas and Atlanta. The acquisition makes Clarion Partners the third largest owner of industrial properties in the Denver market. The assets are located within the airport/ Interstate 70 industrial submarket. “This opportunity allows Clarion Partners to establish a significant light-industrial position in Denver within the premier submarket of Denver, where Class A assets are rarely traded,” said Dayton Conklin, managing director in Clarion Partners’ Dallas office. “With our occupancy, and with pricing the way it is, it was an opportune time for us to sell,” commented Pauls Corp. President Brian Pauls. “Clarion was great to deal with. CBRE did an awesome job on the execution. We’re very happy with the result.” Pauls developed the Aurora buildings from the mid-1990s through 2015. They are located near the Interstate 70-Peña Boulevard interchange in the 1,200-acre Gateway Park mixed-use development. Pauls continues to develop industrial product in the park with two buildings totaling approximately 600,000 sf currently under construction. “Our plan is to continue in the industrial real estate business both locally and outside of Denver,” Pauls commented. The Aurora buildings range from roughly 75,000 to 350,000 sf and house numerous national credit tenants, including Whole Foods, SSI Venture, Whirlpool, Simmons Co. and others. They are located predominantly along East 32nd and East 33rd avenues near Lewiston Street. A national team led by CBRE Executive Vice President Jim Bolt in Denver handled the transaction. Clarion Partners also owns four buildings totaling 1.18 million sf at Mile High Business Center in Denver. In addition, the company is developing an 855,000-sf build-to-suit for Amazon in Thornton in partnership with Trammell Crow Co. (Colorado Real Estate Journal)



Partial Sale Values Denver’s Second-Tallest Tower at $560M

An affiliate of a union pension fund has acquired a majority stake in Denver’s second-tallest building in a deal that values the structure at $560 million. Baltimore-based AFL-CIO Building Investment Trust paid $285.6 million on March 30 for a 51 percent interest in 1801 California St. in Denver, according to property records. AFL-CIO is made up of 55 labor unions that represent 12.5 million people, according to its website. The purchase was made through PNC Realty Investors, which manages real estate investments for the organization’s pension fund. According to the trust’s website, its holdings were worth $4.97 billion as of Dec. 31. An online portfolio does not list any other holdings in Colorado. The seller was New York-based Brookfield Property Group, which continues to own the remaining 49 percent interest in 1801 California. Brookfield purchased the building in December 2011 for $215 million and spent millions on renovations. Brookfield and PNC did not respond to a request for comment. CBRE’s Winn Richey team represented the seller. The 54-story, 709-foot-tall office tower was completed in 1983. It was briefly the city’s tallest building, before being surpassed a year later by Republic Plaza, which beats it by 5 feet. The building has 1.3 million square feet of office space and 23,400 square feet of retail space, according to Brookfield’s website. A $560 million valuation works out to about $426 per square foot. For comparison, the 30-story tower at 1660 Lincoln St. sold in March for about $237 per square foot. 1801 California is topped with signage for TransAmerica and Healthgrades. Other office tenants include technology companies SendGrid and Ibotta, law firm Fairfield and Woods P.C. and accounting firm BKD. Retail tenants include Ink Coffee and Guard & Grace steakhouse. (BusinessDen)



Economy Watch: Employment Growth Slows to 103K Net New Jobs in March

Total U.S. payroll employment edged up by 103,000 jobs in March, the Bureau of Labor Statistics reported on Friday. The increase in employment for January was also revised down by the bureau from 239,000 to 176,000, and the increase for February was revised up from 313,000 to 326,000. With these revisions, employment gains in January and February combined were 50,000 less than previously reported. Most of the sectors of the economy that affect commercial real estate absorption didn’t hire many more workers in March, including transportation and warehousing, information, financial activities, leisure and hospitality, and government. However, employment was up in professional and business services in March by 33,000, and has risen in that sector by 502,000 over the last 12 months. Workers are earning a bit more than previously, the BLS also reported, which might be good news for retail sales. In March, average hourly earnings for all employees on private payrolls rose by 8 cents to $26.82. During the last 12 months, average hourly earnings have increased by 71 cents, or 2.7 percent, which is a little ahead of inflation. The headline unemployment rate was unchanged in March, coming in at 4.1 percent. A year ago, the rate was 4.5 percent. The more expansive definition of unemployment, which the BLS calls U-6 and which also includes people who are working part time but who want full-time jobs, was 8 percent in March, down from 8.2 percent in February and 8.8 percent a year ago. (Commercial Property Executive)



CRE Valuations Are Trending Down, Green Street Researchers Warn

Commercial real estate investors can expect that property prices will trend downward in the near future, according to Green Street Advisors, a real estate research firm headquartered in Newport Beach, Calif. It’s a trend the industry is already starting to see. “Value appreciation has practically stopped in aggregate,” said Joi Mar, senior analyst at Green Street, in a webinar on Wednesday about the outlook for commercial property valuations. Green Street's Commercial Property Price Index dipped 1 percent in March and has seen little change over the past two years. However, there are variations among sectors. Industrial—especially last-mile industrial—has seen rising values, and malls have seen big losses, she noted. Prices on industrial assets recorded an 11 percent gain year-over-year, but mall valuations have dropped by 15 percent during the same period, according to Green Street’s Commercial Property Price Index. Two recent transactions in the mall sector—Brookfield Property Partners’ acquisition of General Growth Properties (GGP) and UnibailRodamco’s acquisition of Westfield Corp.—have dragged retail valuations down further, Mar said. While the Westfield deal suggested that mall cap rates were in the right ball park, the more recent GGP deal suggests that cap rates are 10 percent lower than thought, Mar noted. This caused Green Street to mark down its mall asset values by 5 percent on average. Overall, industrial and mall values have drifted apart 25 percent over the past 12 months. “That’s pretty unprecedented,” Mar said. Cap rates have been inching up over the past year for all sectors except industrial, according to Mar. The bid-ask spread has widened, investors in general have been more cautious and hesitant, operating fundamentals have softened a bit and there is a fear of rising interest rates. “All of this has created choppiness in the market,” Mar said. Transaction volume is also down, but Green Street believes the volume would be even lower if debt capital was not so widely available, the analyst noted. Today, investors can expect returns of around 6 percent, on average, for assets in most core sectors and a little bit higher returns for niche sectors, said Andy McCulloch, managing director at Green Street, noting that the firm’s return forecasts focus on unlevered returns for long-term holds. The property price indices of other firms reflect somewhat different findings. Real Capital Analytics’s (RCA) CCPI shows that prices rose nationally in February by 0.5 percent from January. Year-over-year, RCA’s price index is up 8.1 percent. The monthly pricing index released by Ten-X Commercial, an online real estate marketplace, also found that prices rose from February to March by 0.5 percent, which marks the index’s second gain in a row. Year-over-year, the index is 0.7 percent higher. RCA’s index shows that CBD office prices have risen by 1.7 percent year-over-year—the smallest annual increase among sectors. The growth leaders, according to RCA’s data, include apartment and industrial sectors, where prices rose 0.7 percent and 1.3 percent, respectively, from February to January. Ten-X data shows that the industrial sector was the only of five that saw pricing drop—by 0.5 percent—from February to March. (National Real Estate Investor/Mary Diduch)