Denver's latest office transaction shows how plummeting valuations are forcing property owners to accept deeply discounted prices in exchange for a quick exit.
That tradeoff took center stage in a deal Lincoln Property Co. recently closed to sell a pair of buildings on the outskirts of downtown for about 90% less than the real estate firm's original investment. Westside Investment Partners, a locally based firm, scooped up the Lincoln Crossing properties at 1775 Sherman St. and 1776 Lincoln St. for $10 million, according to county property records, substantially below the $95.25 million Lincoln paid for the portfolio in October 2018.
The deal, completed earlier this month, spans more than 476,300 square feet across the two 1970s- and 1980s-era buildings. Various brokerage marketing materials showed a majority of that space is available to lease, with nearly 92,000 square feet of the roughly 109,250-square-foot Lincoln Street tower currently advertised. More than 297,250 square feet is being marketed at the Sherman Street building, more than three-fourths of the property's 367,058-square-foot expanse.
Neither Lincoln nor Westside immediately responded to CoStar News' requests for comment.
Heavily discounted acquisitions are part of a theme that has played out across the nation, as property owners work to get financially stressed properties off their books.
The combination of depressed demand, stagnant leasing and the ongoing effects of flexible work has helped push the national office vacancy rate to a record high of nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 210 million square feet of move-outs since the start of 2020.
Those pandemic-induced factors have been exacerbated for a number of landlords across the country, and some — especially if they're facing maturing loan deadlines or mounting expenses — have been eager to offload underperforming properties, even if it means closing a deal at a deep discount to their initial investments.
That phenomenon has been especially pronounced in Denver, where absent demand has pushed the office vacancy rate up to nearly 17.5%, according to CoStar data, among the highest in the country. The average lease size in the third quarter last year was just 3,200 square feet, a more than 40% drop compared to deals signed about a decade ago.
Yet for some hopeful investment firms, the region's challenges and corresponding valuation drops have created a discounted opening.
Westside has been on a tear over the past several years in scooping up properties across greater Denver to bulk up the firm's regional portfolio ahead of what it is betting will be an eventual recovery.
It paid $14 million alongside joint venture partner Knightbridge Capital to acquire Prentice Point, an office property in the Denver Tech Center area that last sold for $35 million prior to the pandemic's 2020 outbreak.