A Denver real estate investment firm is staying close to home for its latest office investment, acquiring a property in one of the city's fastest-growing suburbs after spending a couple of years focused on expanding its out-of-state portfolio.
Kore Investments, an owner of office properties across the greater Denver and Chicago areas, scooped up the ParkRidge Four building at 10375 Park Meadows Drive in Lone Tree, an affluent area about 20 miles south of downtown Denver that has become increasingly popular among young professionals and large corporate tenants.
The roughly $18.3 million deal with seller Principal Real Estate Investors closed via CoStar Group's Ten-X auction exchange and represents a significant discount compared to the $42.2 million paid when the building last sold in 2015.
The purchase is part of an ongoing bet Kore has made in focusing its portfolio on neighborhoods located on the outskirts of major urban hubs. The firm already owns a couple of buildings in the Denver Tech Center area and plans to invest another $1 million to $3 million in capital improvements into the roughly 192,360-square-foot Lone Tree property.
The building, which was about 82% occupied at the time of the auction closing, includes a mix of insurance and financial services tenants such as Bank of America, CNA and Amica.
The deal for the ParkRidge Four building is another signal that, while the regional office market still has a long way to go to recover from its pandemic-induced losses, investors such as Kore are betting the opportunities will outweigh any looming risks — especially if those opportunities come at a bargain.
Discounted dealmaking
Similar to some other markets across the United States, 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 initial investment.
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 the data, marking 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.
Denver real estate investment firm Dunton Commercial, for example, acquired the Prentice Plaza building in the Denver Tech Center area earlier this month for $14.4 million. That is nearly half the $26.6 million that seller Granite Properties paid in 2013, CoStar News reported.
Those discounted deals have proven to be even more attractive if they're located in areas with strong residential demand.
In Lone Tree, for example, rising demand for housing in the region has pushed rents to some of the highest levels in the greater Denver area, according to CoStar analysis. That has helped drive rates for office space, too, as companies hunt for space closer to their employees.