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German fund buys downtown office building

A downtown office building with a large concentration of oil and gas tenants sold to a Dallas investment adviser for $26 million.

Phoenix Property Co. bought 475 Seventeenth Street on behalf of LIC US Growth Fund, a German institutional fund. It was the fund’s first investment.

“Our interest in 475 Seventeenth Street was its core location in the Denver CBD. We also like the boutique nature of the asset and the opportunity to benefit from growing market fundamentals in Denver. It’s a boutique asset that we think has room to grow both its revenue stream and to realize value appreciation, which is consistent with our fund,” said Eric Horan, Phoenix Property director of acquisitions.

The 16-story building comprises 151,425 square feet of office, ground-floor retail and basement storage space. Colorado State University is the largest of 32 tenants, occupying 29,681 sf of the retail and office area.

Occupancy was 93 percent at the time of the sale, with a “very heavy concentration” of oil and gas tenants, said HFF Senior Managing Director John Jugl. Energy companies comprise 59 percent of the building, however, “Most of the oil and gas tenants in the building had been through many, many cycles. There was a real stickiness within the tenancy despite where we are in the energy cycle,” said Jugl, who handled the sale with HFF Senior Managing Director Mary Sullivan.

“It’s definitely something we considered,” said Horan, who added that the company reached a comfort level after interviewing and learning about the tenants.

“We’re optimistic that a lot of these tenants are going to remain in the building and have the financial strength to ride out bumpiness in the industry. A good majority of the tenant base has been in this building for more than 10 years,” Horan said.

Western Development Group and Jones Realty Group, which managed 475 Seventeenth Street for many years, sold the property.

“This is a really good base building. It has been under common ownership for a long time – very well maintained, a loyal tenant base,” said Jugl.

It’s also on the small side for a Denver CBD office building, which provided an entry point for many of the investors that considered the property. “The challenge in Denver is you have large towers trading – it requires a significant amount of capital,” Jugl said.

LIC US Growth Fund, likely to reach $300 million, is a diversified fund focused on acquiring assets in markets with strong growth characteristics. Its strategy is to buy predominantly office and multifamily properties with potential to grow their revenue streams and value over the hold period, said Horan.

Lincoln Property Co. will manage and lease 475 Seventeenth Street for the Phoenix Property Co.

“We have had a longstanding relationship with them, and their client is a firm believer in Denver,” said Lincoln Property Co. Director of Management Services Gregg Barker. “We think long-term it will be a good investment.”

Lincoln Property’s Scott Caldwell and Mark Homlish will handle leasing.

Photo by Steve Zavodny

Kris Oppermann Stern is publisher and editor of Building Dialogue, a Colorado Real Estate Journal publication, and editor of CREJ's construction, design, and engineering section, including news and bylined articles. Building Dialogue is a quarterly, four-color magazine that caters specifically to the AEC industry, including features on projects and people, as well as covering trends…