Research drives investors outside gateway markets

Broomfield’s 370 Interlocken Boulevard, a 150,656-square-foot Class A office building, was recently acquired by Equus Capital Partners

Brant G. Glomb
Vice president, acquisitions, Equus Capital Partners Ltd.

We recently acquired 370 Interlocken Boulevard, a 150,656-square-foot Class A office building located in Broomfield, on behalf of a value-added investment fund, Equus Investment Partnership XI L.P. Previously, our firm has been an investor in multifamily assets within the Denver metropolitan area; however, this acquisition marks the first commercial property we acquired in the Denver metropolitan area.

Kyle Turner
Vice president, director of investments, Equus Capital Partners Ltd.

As part of our investment strategy formation, we engage in in-depth research and analytics, targeting micro markets across the country that are poised to outperform due to macroeconomic demographic trends and micro market real estate operating fundamentals. This effort results in a subset of dynamic nongateway investment markets that are positioned to outperform. The referenced subject subset of investment markets often is overlooked even though statistical data would suggest they are better positioned to generate greater investment income and appreciation returns than the traditional gateway markets and experience lower volatility through investment cycles. This research has assisted in developing a rifle-shot investment strategy to acquire middle-market income producing properties in dynamic locations poised to capture long-term tenant demand and enhance net operating income over multiple market cycles. These growth markets are measured based on historical and forecast demographic and employment trends. In addition, their historical performance is compared against gateway markets. Based upon this analysis, we believe select markets offer better risk-adjusted returns at this point in the cycle and the Denver metro area compares favorably.

According to our research, demographics and employment trends continue to shift in favor of these select markets when compared to traditional gateway markets. Additionally, historic cap rates reflect a going-in yield premium in these markets relative to gateway markets. Ultimately, we believe the prospects for rental income growth in our target markets exceed those in gateway cities across property types, the evaluation subset are the multifamily, industrial and office sectors. With a prolonged economic cycle and the threat of increasing interest rates, we believe positive demographic and employment trends will assist in mitigating market cycle risks and provide the opportunity for outperformance.

We expect our target markets to continue to demonstrate greater population, employment, household formation and wage growth when compared to gateway markets; as a result, these markets are positioned to generate greater real estate investment returns. These markets have seen significant positive net migration, which includes a highly educated workforce. Millennials, in particular, are a driving force to this migration and provide demand for office utilization for the foreseeable future. As a direct result, primary nongateway markets have become more durable through market cycles, have consistently offered more affordable acquisition metrics and exhibit better fundamentals to grow and sustain rental revenue. Our focus is to acquire properties within the markets that are positioned to experience net operating income and appreciation growth while maintaining net asset value across market cycles.

Over the last several years, we have successfully entered into or taken investments through the entire life cycle in several of our target markets including Atlanta; Austin, Texas; Charlotte, North Carolina; Houston; Nashville, Tennessee; Phoenix; and Seattle.

We are excited with our re-entry into Denver, which has experienced favorable population and employment growth over the last 10 years. Our latest acquisition in Broomfield is positioned well for continued tenant demand due to its location in the heart of the path of growth between downtown Denver and Boulder. Broomfield’s unique location has attracted a diverse business environment from local start-ups to corporate headquarters. The U.S. 36 corridor and Broomfield are home to more than 20 corporate, national and regional headquarters, with a high concentration of technology and research development, including Level 3 Communications, Oracle and Webroot.

Interlocken Business Park is a 963-acre, advanced technology park that includes more than 3.7 million sf of commercial and mixed-use development. Interlocken’s high concentration of top technology and telecommunication tenants has helped draw positive comparisons with Northern California’s Silicon Valley given its attractiveness to a young and innovative workforce, quality of life, as well as its proximity to the city of Boulder and the University of Colorado, the intellectual and venture capital hub of the state. Surrounded by extensively landscaped parks and trails and easy access to Colorado’s Front Range, the area provides employers with an exceptional work-life balance capable of attracting national recognition to its unique location. Our acquisition is prominently located within Interlocken and has frontage along U.S. 36. Recently, Regional Transportation District’s light-rail system began servicing its B line, connecting Union Station in downtown Denver to Westminster, just south of Broomfield. Plans call for the extension of the line to Boulder and Longmont upon further funding. One of the proposed light-rail stations (Flatiron) is located adjacent to the Interlocken Business Park.

Featured in CREJ’s September 2018 Office Properties Quarterly

Edited by the Colorado Real Estate Journal staff.