Colorado: Real estate markets in Denver prove as well rounded as its championship football team.

After the Denver Broncos won the Super Bowl, 650,000 fans gathered in downtown Denver to cheer them. Real estate experts are just as enthusiastic about the entire spectrum of real estate. If you threw a dart at any sector of commercial real estate - apartments, hotels, industrial, land, office or retail - you would come up with a champion.

"Right after the Broncos won the Super Bowl, I started getting phone calls from companies all across the country,' says Jim Sullivan, chairman of Denver-based SullivanHayes Cos., a retail brokerage and development company that Sullivan says plays a role in 70% of the retail activity in the Denver area.

"I think their victory is going to help our immigration. More companies are going to choose Denver because of it, almost on a subliminal level,' Sullivan says. "The tag of being a runner-up city no longer applies to Denver.'

Of course, Denver's economy is even stronger than Broncos quarterback John Elway's arm. "I'm more bullish now than I was a year ago, because housing starts are stronger than people expected,' Sullivan says. "Retail always follows rooftops.'

Indeed, the Denver-area housing sales market - fueled by first-time and move-up buyers - already is on pace for a record year, shows a report by Perry & Butler, a local residential real estate firm. The strong home sales market and the commercial real estate market are being fueled by the same factors - a diversified economy, unemployment around 3%, quality of life, and even the new Denver International Airport, which continues to be a strong selling point for companies that need to easily travel anywhere in the United States and, increasingly, overseas.

"We are in the era of record dollar volume and record prices,' says Steve Miller, president of Moore Commercial, a locally owned brokerage. "It feels good. Denver historically has been counter-cyclical to the rest of the nation, but this time it is not the case. We're thriving along with most of the rest of the country.'

Commercial resurgence A report by Brad Neiman, a senior vice president at CB Commercial, shows that in 1997 a record $1.3 billion in office, retail and industrial properties sold. That's almost $500 million more than the previous record of $874 million in 1996. And Neiman expects that 1998 will do even better.

"The economic news just keeps getting better,' Neiman says.

Greg Morris, president of the Denver-based commercial real estate brokerage firm, Fuller and Co., agrees. Morris says the market's "red-hot pace,' continues, as does its "high-profile position nationally and internationally.'

One of the biggest economic coups in Colorado occurred in February, when Level 3 Communications Inc., a high-tech telecommunications company, chose the Denver area as headquarters for its $6 billion market cap company, for all of those reasons.

"DIA was critical,' in its decision, says Jim Q. Crowe, president of Level 3, a subsidiary of the Omaha, Neb.-based Peter Kiewit & Sons, a mining and construction company.

Level 3 will build up to a 1.2 million sq. ft. office campus in the Interlocken Business Park in Broomfield, between Denver and Boulder. It expects to create as many as 5,000 high-paying jobs in the near future. Because of the lifestyle and proximity to the University of Colorado-Boulder, it expects to draw electrical engineers, computer scientists and other high-tech professionals from around the country. Level 3 will be near Sun Microsystems office campus that is under construction. The first phase of Sun Microsystems' campus, which will open this year, will cover about 500,000 sq. ft. and eventually could grow to 2.1 million sq. ft.

Before choosing Denver over the Boston area, the high-tech corridor in North Carolina and the Silicon Valley, Level 3 polled college seniors and professionals with four to six years of experience, and found the Denver area had no negatives - only positives. But it's not just the suburbs that are booming. For the first time in a decade, downtown office buildings boast an overall vacancy rate in single-digits. But even more important, it has become an entertainment district.

Entertainment retail Lower Downtown, known as LoDo, has attracted more than 60 bars and restaurants since Coors Field opened, where the Colorado Rockies play baseball. At the other end of LoDo from Coors Field, the $160 million Pepsi Center is under construction, which will be the home of the Colorado Avalanche NHL team and the Denver Nuggets NBA team. But the biggest news as far as entertainment will be the opening this fall of the 350,000 sq. ft. Denver Pavilions, anchored by the Denver area's first Nike Town, Hard Rock Cafe, Virgin Records super store and other high-profile tenants.

"Pavilions is going to be dynamite,' says Doug Jones, who heads Jones Realty Group Inc., a management, consultant and brokerage firm.

"Downtown Denver is no different from most downtowns, in that it went through its period of decline,' says Bill Denton, developer of Pavilions. "But downtown Denver held on to a lot of its retail at a time when a lot of other cities lost their retail. In fact, not until Denver started to turn around did some of the better quality retailers start to close their doors.'

But Denton believes that will change when Pavilions opens. "Pavilions will be the catalyst for the renaissance of downtown,' he says. "Simply because of our pure size, as well as the quality of our tenants, it will mean better-quality retailers throughout downtown.'

Some skeptics say that entertainment developments will have a short honeymoon before they begin to go south.

"I would not disagree with them when they're talking about developers who have a theater and a couple of restaurants and a bookstore and call that an entertainment center,' Denton says. "But Pavilions is much more of a retail center with an entertainment flair. We're going to make Denver, if not quite a 24-hour city, a 16-hour city.'

George Thorn, president of Mile High Properties, a diversified real estate brokerage, management and development company, has been cautiously optimistic in years past. This time, he's dropping the "cautiously.'

"A year ago, I was concerned about a lot of the spec office space that either had been started or was on the drawing board,' Thorn says. "But the space has all gotten pretty well absorbed. And I look at the level of absorption and it seems to be in equilibrium with the construction still planned.'

Thorn is developing the Colorado Center, at one of the busiest intersections in the metro area - South Colorado Boulevard and Interstate 25. It's located between downtown and the southeast corridor, which is anchored by the Denver Technological Center and several other high-quality office parks.

Colorado Center, financed and owned by the Teachers Insurance and Annuity Association, will include a 12-story, 260,000 sq. ft. office building, the first new highrise in the metro area in about a dozen years. The building opens in January 1999. Hines, the Houston-based developer, also plans a Class-A highrise in the Denver Tech Center, but hasn't yet started construction. Colorado Center also includes a 50,000 sq. ft. Dave & Busters, which packs people in every night.

"It's going like gangbusters; one of their best openings ever,' Thorn says about the so-called "eater-tainment' establishment.

On May 15, the center also will sport a United Artists Theatre movie house with eight regular screens and a super-sized, IMAX-type screen. United Artists, one of the biggest movie theater companies in the country, is based in Denver.

Office and industrial Like Thorn, Mark Ballenger, a top broker and first vice president at CB Commercial, isn't worried about overbuilding.

"Quite honestly, overall, I am very optimistic,' says Ballenger, who was involved in the Level 3 relocation. "You look at who is filling the space, and it is all telecommunications companies.'

>From 1980-84, he notes, the two main office markets - downtown and the southeast corridor - both virtually doubled in size, going from about 10 million sq. ft. to more than 20 million sq. ft. At the same time of the overbuilding, Denver was heavily dependent on the oil business, which crashed, causing the office vacancy to soar to 30% downtown by some accounts, and twice that in some submarkets. Today, the overall office vacancy rate is in single digits.

"Last year, we only added a million sq. ft. of spec along the southeast corridor (and nothing downtown) and every time a building is built, it leases,' Ballenger says. "Everybody who is here today who was here back then freaks out a little bit every time they see a new building going up. But today, the absorption supports the construction.'

Sherman R. Miller, senior managing director of Cushman & Wakefield of Colorado Inc., says that Denver is still on everyone's radar screen for the often-stated reasons: the diversified economy, the state's central location and the quality and relatively low cost of living in Colorado.

"Five consecutive years of economic growth in Colorado continues to spur interest in the state's real estate markets by investors, developers and tenants,' Miller says. "The 'new' economy in Colorado is no longer dependent on the oil industry. The oil, gas and environmental engineering companies are still here, but the state has become better known for its telecommunications, financial services and technology-based companies.'

He pointed to Level 3 and Sun Microsystems as the type of companies being drawn to Denver. The state's ability to draw these types of brand-name, anchor tenants may explain why developers such as Industrial Developments International Inc., based in Atlanta, bought 18 acres of land in northeast Denver last December and is building 320,000 sq. ft. of speculative space, Miller says. It's IDI's first project in Colorado.

"Moreover, CarrAmerica, the Washington, D.C.-based real estate investment trust that has aggressively expanded throughout the West, is busy expanding an office park in southeast Denver," Miller says. "The REIT bought a suburban office building and land in the Panoramic Corporate Center (along the southeast corridor) a little more than a year ago, and is currently developing four buildings. When complete, Carr- America's stake in the Panoramic project will total 600,000 sq. ft.

>From an investment perspective, 1997 marked the first time this decade that a Denver property traded hands for more than its replacement cost, Miller says.

"Pacific Mutual Realty Advisors paid $165 per sq. ft. for a four-story, 82,257 sq. ft. office building in Denver's Technology Center, which was also the seller,' Miller says.

"The cap rate was a relatively high, 9.6% because the new building (completed September 1997), is 100% occupied and the income is fixed for six years,' Miller adds.

"By comparison, Honeywell sold an older office building at Inverness Business Park, which is a couple of miles south of Denver Tech Center, at a going-in cap rate of 6.5%. Stirred Realty of New York bought the building for $115 per sq. ft., figuring that the yield will increase as rents come due. Many of the rents in place are around $14 per sq. ft.,' Miller says. He also notes that three recent lease agreements were completed at the property at $19.20 per sq. ft., so Schroeder's bet already is paying off.

Stephen Clarke, principal of the locally based Prime West, is building, with financial partners, buildings along the southeast corridor, the Boulder-Denver corridor, and near DIA - the three major markets in the Denver area. He also builds in northern Colorado Springs to the south.

"Southeast, once an emerging market, now very obviously is a market to rival downtown in size, and bests it in occupancy and lease rates,' Clarke says.

"Buildings that have been built are being quickly pre-leased to anywhere from 30% to 80% in every case,' Clarke says. "There's a lot of pent-up demand. And the buildings are manageable in size. They typically are 100,000 to 120,000 sq. ft. and have fairly large floorplates, which is meeting the market need.'

Clarke says the Denver-Boulder corridor - the commercial base for bedroom communities such as Broomfield, Louisville and Westminster - is booming as high-tech companies such as Sun Microsystems and Level 3 stake out claims. The corridor also benefits from the city of Boulder's anti-growth measures, which makes it difficult for businesses to grow within the city limits, he and other experts note.

"The Denver-Boulder corridor has gotten a land supply constraint,' Clarke says. "There are really only three places to go - Church Ranch, Interlocken and Centennial Valley. We broke ground on a 150,000 sq. ft., Class-A building in Interlocken and it is all preleased.'

He, in partnership with a large land owner, Koelbel & Co., also plans a large office-industrial park in Centennial Valley in Louisville, just outside of Boulder. Clarke exhaustively researched the best "flex-space' parks in Silicon Valley and plans to incorporate the best features of those when Centennial Valley breaks ground later this year.

Beyond the city limits "Golden, on the west side of Denver, is one market that had been over-looked in the past by industrial users," says Esther Kettering, president of Golden Equities. Golden Equities is the real estate subsidiary of ACX Technologies, a spin-off company from the Coors Brewery. The brewery remains a limited partner in Golden Equities, which owns the 375-acre Coors Technology Center in Golden.

"The area between Boulder and Denver and to the west has never been more popular,' Kettering says. "The only thing I can conclude is that people want to live and work in the Foothills area. And land is limited. People are beginning to realize that. And that is driving prices up.'

Sullivan, the chairman of SullivanHayes, not only is bullish on the Denver area, but the rest of the state, too. To the north, the Fort Collins and Greeley markets are strong, he says. Retailers draw all the way from Wyoming, he says.

"Fort Collins could do a lot more retail, but they're becoming like a mini-Boulder with all of the anti-growth sentiments,' Sullivan says.

And Colorado Springs is strong by every measure, from apartments to land to retail. One sign of the strength in the Springs is that at least three "auto parks,' which could handle up to a dozen auto dealerships, are either under construction or on the drawing board.

Sullivan says that the ski resorts, which had undergone a huge consolidation, will thrive like never before. Vail Associates, owner of Vail and Beaver Creek, paid $320 million for the nearby Summit County resorts of Keystone, Breckenridge and Arapahoe Basin, although last year the Justice Department forced Vail to sell Arapahoe Basin, the smallest of the ski areas with no land to develop a resort at the base.

Lots priced at $1 million or more sell like hot cakes at Vail, which is in Eagle County, and it's not uncommon for homes to sell for in the neighborhood of $300 or more per sq. ft. in key locations at Keystone and Breckenridge. Homes in Vail can cost more than twice that amount. Now, the first-class retailers are ready to move into these resorts, Sullivan says. o

"There's a great opportunity for national tenants in Summit and Eagle County,' Sullivan says. "Vail Associates will change these resorts from ski resorts to year-round vacation spots.'

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