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Newly Built 1401 Lawrence Sets New Record per sf

January 29, 2018



Newly Built 1401 Lawrence Sets New Record per sf

Pricing for newly constructed Denver office buildings continues to hit record highs – a trend that continued with the sale of 1401 Lawrence. The newest high-rise tower in downtown Denver, the 309,988-square-foot building reportedly sold for around $720 per sf. The previous record was the $677 per sf achieved by the Triangle Building near Denver Union Station. First Gulf Corp. developed and sold 1401 Lawrence, which was completed in late 2016. A Heitman LLC affiliate acquired the 22-story LEED Gold building. Neither returned phone calls about the deal, and no one involved in the sale would discuss pricing. But brokers said the building’s tenancy, location and quality drove very strong interest from a broad range of investors, including foreign capital. Anchored by law firm Polsinelli, the building is 98 percent leased to tenants that also include CoBiz Financial, Jagged Peak Energy and others. Mike Winn, vice chairman with CBRE Capital Markets, Institutional Properties, said, “1401 Lawrence is one of the most visible and stunning properties on Denver’s skyline. When you factor in the world-class construction, striking mountain views, strong tenancy and highly sought-after location, it created a truly irreplaceable investment opportunity.” Also, because it’s a new building, “Almost every single lease had a term longer than 10 years,” said CBRE Vice President Jenny Knowlton, who handled the sale with Winn, and CBRE’s Tim Richey and Chad Flynn. “It provided really strong cash flow,” she said, adding most investors that looked at 1401 Lawrence considered it as a long-term, legacy-type asset. The building is adjacent to Larimer Square and, according to CBRE, offers the best ingress and egress of any CBD office tower. Accommodating both traditional and collaborative office users, 1401 Lawrence features 10-foot finished ceilings with floor-to-ceiling windows, outdoor terraces and balconies, 360-degree views from every floor, state-of-the-art building systems and a seven-story, above-grade parking garage. While newly built downtown Denver office buildings such as 1401 Lawrence have garnered record prices in recent months, the trend also is playing out in the suburbs. Granite Properties recently sold the new Granite Place at Village Center in Greenwood Village for $423.78 per sf, surpassing the previous record in that market of $414 per sf. (Colorado Real Estate Journal)



Centennial Flex Building Changes Hands in $10.16M Deal

A group that took a Centennial office/flex building from cold-shell condition to 95 percent occupancy sold the property to a California buyer for $10.16 million. ME Landings LLC, made up of David J. Erb & Co. and Montex LLC, bought the 81,946-square foot Centennial Technology Place at 6912 S. Quentin St. from a lender in 2011. The previous tenant had gutted the two-story building, and it had no operating HVAC or electrical distribution systems, said David J. Erb of David J. Erb & Co. ME Landings completed the HVAC and electrical systems, and finished out a portion of the space for Laser Technologies, which has grown to occupy 66 percent of the building. Amerita and Alpha Recovery Corp. signed leases for approximately 12,000 sf each in 2015, bringing overall occupancy to 95 percent. “It took us six years to implement our program, but ultimately our program was successful,” said Erb. The buyer was 8542 Slauson LLC, a Long Beach family group. Dan Grooters and Riki Hashimoto of Newmark Knight Frank handled the sale of Centennial Technology Place, which was built in 1984. “David bought the building distressed and vacant, went in and really repositioned the entire building,” said Hashimoto. “Even though it’s an older vintage asset, he really brought it up to current market standards – new mechanicals, all new tenant finish throughout – and really turned it into a high-finish office building.” The building is located on the Arapahoe Road corridor, near Centennial Airport. It provides flexible floor plates, screened outside storage and 4.75 parking spaces per 1,000 sf. (Colorado Real Estate Journal)



Louisville Office Building Sells to Boulder Investor for $9M

Boulder real estate investor Stephen Tebo of Tebo Development Co. acquired a 41,478-square-foot office building in Louisville for $9 million. The Class A building is located at 400 Centennial Parkway. Uber occupies most of the space. CoBiz Bank also is a tenant. Occupancy was 90 percent at the time of the sale. A locally owned entity managed by Crestone Real Estate, CRE 400 Centennial Parkway LLC, sold the property, which was built for Cable Labs in 1993. The seller has owned the building, previously leased to Zayo Networks, in 2004. Geoffrey Keys and Ronan Truesdale of Keys Commercial Real Estate represented the seller in the transaction. (Colorado Real Estate Journal)



New Tax Laws Likely to Increase HNW Investment in Real Estate

For high-net-worth (HNW) investors in commercial real estate, the federal tax overhaul is practically a financial home run. Legal and tax experts say the law bestows several benefits that make it more appealing for HNW investors to buy properties. Broadly speaking, the tax law, enacted in December, represents a huge win for HNW real estate investors, says Jamie Byington, a tax partner in the Coral Gables, Fla. office of financial and management advisory firm Cherry Bekaert LLP. “It’s a great time to be in real estate from a tax standpoint. There is a definite leaning toward favoring real estate investments,” Byington says. One of the pro-HNW wrinkles in the new tax law is the 20 percent deduction for qualified net business income stemming from pass-through entities. Subject to some complicated limitations, this applies to owners of real estate via partnerships or LLCs and investors in both public and private real estate funds, says Steven “Sonny” Ginsberg, co-founder of Chicago-based law firm Ginsberg Jacobs LLC. Under the new law, HNW individuals will want to try to make real estate investments that are fully, or at least partially, eligible for the 20 percent deduction, says Allen Walburn, a real estate tax attorney at Los Angeles-based law firm Allen Matkins LLP. The deduction expires in December 2025. Abe Schlisselfeld, a partner at New York-based accounting firm Marks Paneth LLP, adds that the law enables a taxpayer to factor 2.5 percent of the original purchase price of a property into the calculation of the 20 percent deduction for pass-through income. This last-minute addition to the legislation will yield “significant savings” for commercial real estate investors, Schlisselfeld says. Potentially, an HNW investor could reduce real estate investments to an effective 29.6 percent tax rate, which is 10 points lower than it was in 2017, he notes. The tax law “essentially creates an incentive for investors to shift capital from equities to pass-through businesses, all other things being equal,” Ginsberg says. “This shift in capital should increase demand for commercial properties.” Another positive for HNW investors is the expansion of the Section 179 deduction for depreciation. Under the Section 179 revision, the new tax law lets owners of commercial real estate count the cost of improvements such as roofs, HVAC systems and security systems as a direct expense in the year they were installed, according to John Blake, a partner at Trenton, N.J.-based accounting firm Klatzkin & Co. LLP. “Under the previous law, these items had to be capitalized, and a small piece was expensed each year until the full cost was exhausted,” Blake says. This means an investor could spend, say, $50 million on an office building and then qualify for an immediate multi-million-dollar tax write-off tied to improvements, according to Byington. Unlike other parts of the law, she adds, the Section 179 change is retroactive to the 2017 tax year (Sept. 27, to be exact). “I never want to recommend anything to my clients where the tax tail wags the dog, but as long as it makes underlying economic sense, I would say this is a great place to create some deductions,” Byington notes. Another facet of the tax law that’s a boon for HNW investors is retention of tax-free 1031 swaps for real estate. HNW investors should be pleased that lawmakers didn’t yank 1031-exchanges for real estate, as they did for aircraft and other types of personal property, notes Ginsberg. Under the new law, in fact, 1031 trades are restricted to real estate. All in all, real estate represents probably “the most accessible way” for HNW investors to profit from the tax law, Ginsberg says. However, Walburn cautions that a number of “unanswered questions and gray areas” remain in the tax law, so it’s best for HNW investors to consult a tax adviser before updating their real estate investment strategies. Sean Aguilar, a Northern California-based private banker for real estate investors, recommends that in response to the law, HNW investors proceed “carefully and in a highly organized manner.” Ginsberg notes that without the impending shift in HNW capital based on the tax law, commercial real estate prices likely would have stalled in 2018, thanks to the upward movement in interest rates and the downward movement in cap rates. “Now, instead of talking about whether we are in the seventh, eighth or ninth inning with respect to commercial real estate growth, we are discussing how many extra innings will be played,” Ginsberg says. “Investors should keep in mind, though, that while the new tax law may increase after-tax return on commercial real estate, the law will not change the fundamentals for such properties. [It] will not cause multifamily or office rents to increase.” (National Real Estate Investor/John Egan)



Amazon HQ2: Wall Street Journal Weighs in on Denver's Chances

What are Denver's chances to land Inc.'s proposed HQ2 headquarters? Not so good, according to a recent prediction by the Wall Street Journal. The Journal today ranks all 20 Amazon HQ2 finalists into five tiers, with tier ones having the best shot and tier five having the longest. Denver and the 19 other finalists for Amazon's sprawling second headquarters were announced earlier this month. Denver's in the third tier, according to the Wall Street Journal, which came up with its rankings by criteria including: tech labor force, fiscal health, cost of living, college educated, culture fit and state tax rank. Using those criteria, Dallas and the Washington, D.C. area -- where Amazon picked three potential sites -- were ranked in the first tier. Denver was relegated to the third tier with Raleigh, North Carolina, Los Angeles and Indianapolis. Denver scored its highest in the culture fit criteria. In last place: Philadelphia, Pittsburgh, Nashville and Newark. (Denver Business Journal)