A high-profile Denver developer is extending its bet on the city's office market recovery, taking advantage of depressed valuations by extending its acquisition streak in one of the region's fastest-growing employment hubs.
Within months of its last purchase, Koelbel & Co. dropped another $22 million to close a deal for the Metropoint I and Metropoint II office buildings in the Denver Tech Center. The price tag represents just a fraction of the more than $81 million price tag the California State Teachers’ Retirement System last paid for the properties in 2006.
The deal, which closed late last month and was made along with joint venture partner Real Capital Solutions, is the latest in a lengthening string of acquisitions in which local or smaller firms across the country have scooped up struggling buildings at deeply discounted prices.
“It’s certainly telling for the type of climate we’re in as it relates to how the capital markets are looking,” Walt Koelbel, the firm's vice president of commercial real estate, said in a statement in regards to the widespread valuation declines unfolding across a majority of office markets in the United States.
He added that the portfolio price reflects the need for some maintenance and upgrades to the "marquee" pair of buildings, which need "a little improvement, a little renovation to bring it back to where it’s been historically."
The Denver Tech Center portfolio is roughly 60% occupied with a mix of tenants across the financial, technology, design and professional services sectors. The two buildings at 4600 and 4610 S. Ulster St. total about 433,700 square feet and have shared access to amenities such as a fitness center, on-site car wash and detailing, a conference center, bikes for tenant use, and a casual dining outpost.
The Metropoint deal lands just a few months after Koelbel purchased the roughly 229,000-square-foot Axis Tower property at 5613 DTC Parkway for $26 million, a 21% discount compared to the Tech Center property's previous acquisition price.
Depressed pricing
Similar to some other U.S. cities, Denver's office market has been hit by the combined impact of high interest rates, a record spike in vacancies and a widespread eagerness among sellers to close deals regardless of how low prices may be compared to their own investments.
Sales volume in and around the city has plummeted by about 60% over the past year compared to its five-year annual average, according to CoStar data. That marks the most dramatic slowdown in sales across any commercial real estate class.
While investors are still figuring out where pricing will ultimately settle, the small handful of deals that have closed in recent months indicate values have dropped by about 20%. Even so, the discounts are luring a growing cohort of smaller, privately-run buyers willing to bet on cities' recoveries and the growing momentum behind many companies' return-to-office pushes.
Along with Koelbel's recent acquisition streak, other buildings scattered across the Denver Tech Center have sold for far less than their previous price tags over the past several months. A joint venture between local real estate firms Westside Investment Partners and Knightbridge Capital, for example, paid a little more than $14 million for the properties at 8350 and 8390 E. Crescent Parkway, a short drive away from Koelbel's latest purchase. The East Crescent Parkway deal represented a discount of roughly 75% compared to the properties' earlier valuation.
Sales volume nationally has plummeted by more than 55% over the past year to $35 billion, according to CoStar data, a nearly 15-year low. Yet, on a quarterly basis, sales activity held steady throughout 2023 and even ticked up in the early months of 2024 as significant discounts pushed an expanding group of investors to take advantage of more deals, data shows.