The Union Station wing office buildings – often referred to as One Union Station and the IMA Building – exemplify many of the trends the Denver office property market is witnessing. A large part of both buildings’ success – each sold for over $600 per square foot to GLL Real Estate Partners, a German-based international asset manager in 2014 – can be attributed to the old motto that real estate is all about “location, location, location.”
“Because of its reinvention as an intermodal transit hub with rail, light rail to Denver International Airport and buses, Union Station has really become the “new center” of Denver and the two buildings that we purchased sit directly adjacent to that transit hub; there are no two other buildings that can boast the location that these buildings enjoy,” said Eric Ramm, acquisition officer for GLL Real Estate Partners. Ramm said the renovation of Union Station is one of the most appealing transit-focused developments in the country.
Across the city, most Class A office properties are experiencing record prices, however the price paid per sf for the two wing buildings set Colorado office property records by nearly $160 per sf, said Chris Frampton, managing partner for East West Partners. East West Partners was one of the master developer partners for the whole project, and developed One Union Station (the south wing building).
Frampton said he believes the entire Union Station area will move in the same price direction. “The train station has made us attractive to foreign capital, and foreign capital is a huge deal,” he said. “We are getting compressed cap rates as a result of it. People view this submarket as a core market, or close to it, so we’re getting a great value of our land and we have great tenancy too. For foreign buyers who are looking for good, safe investments, they look at the train station and think this is a safe, valued investment.”
However, while the location is an important part of the buildings’ success, other elements also contributed to the top-dollar price tag. The buildings, like much of Denver, are 100 percent leased and occupied.
“I think there’s a lot of other intangibles that created value in these two products,” said Robert Cohen, chairman and CEO of The IMA Financial Group Inc. “Yes, another building two blocks from here can be just as beautiful and just as classy and have long-term tenants, but its not on the 50-yard line of Union Station. Or it could be right across the street at the 50, but not have a long-term tenant. I think for the buyer to get all of that, and to have a buyer who’s not in the market who wanted to come into it, helped accelerate the price.”
GLL entering the Denver market is an example of the increased interest from domestic and foreign capital that now views Colorado as an ideal market. From January to November 2014, there have been 27 office transactions above $15 million. Of those, 14 acquisitions were with new investors to Colorado, and nine were with a foreign capital source, according to Patrick Devereaux, executive vice president, capital markets, JLL.
“Denver is a market that we’ve been interested in for a long time,” said Ramm. “A component of our overall investment strategy includes employment growth and, by all measures, the Denver metro market clearly has been performing well.”
The submarket location of the two buildings – defined by Cherry Creek and Speer Boulevard to the west, Platte River to the north, Coors Field and 20th Street to the east, and traditional historic Lower Downtown product to the south – is relatively compact, said Ramm.
“There is 1.5 million square feet of office and retail existing or planned for that submarket and all the land is spoken for; once it is fully built out, that’s it,” he said. “Additionally, we are one of the only places in the LoDo submarket where tenants can get brand new, energy-efficient product with larger floorplates and everything else one would expect from a new building, because much of the LoDo product is older, historic buildings with functionally challenging space.”
The two office buildings – designed to look like cousins, rather than identical twin sisters – are part of the historic landmark district development. When designing the buildings, it was important that they complement, rather than contrast, their surroundings – the historic Union Station, the brick warehouses of LoDo and the contemporary redevelopment with the high-tech transit solutions, said Andy Nielsen, the principal in charge of the projects with AndersonMasonDale Architects.
“We tried to pick those up and meld them together so the buildings could mediate between the historic station and the historic warehouse context but also be contemporary in their expression,” he said.
One of the major aspects of the master development plan for the Union Station project was to create an urban environment in which employees would feel like they have everything at their fingertips. This desired city vibe goes beyond the classic definition of a mixed-used environment that offers retail on the bottom and office above.
“It’s a perfect symbiotic relationship,” said Frampton. “It’s truly a neighborhood and truly a city. We do have retail on the bottom, but we have a true urban setting on the bottom. It’s well beyond just having Subway. You can drive down Arapahoe Road, and you’ll see that all the office buildings have retail in them. It’s not that. It’s an authentic urban experience.”
This new take on a mixed-use environment is a trend that Denver is seeing more and more. Large warehouses in the River North district are embracing the community aspect with large success.
“I certainly hope the projects that develop will have some of the same characteristics that make the whole Union Station development work, and that’s the use of pedestrian active areas on the ground plane,” said Nielsen. “Making sure there’s a sense of amenities along the street that give people a reason for being there, and keep people coming and going so there’s vibrant activity – that urban feel – there’s lots going on and lots of choices.”
The desire to embrace the urban environment is often associated with the influx of millennials moving to Denver and joining the workforce. More than 25 percent of Denver’s population growth since 2000 has been millennial, said Devereaux.
“These two buildings are in a very strong submarket (LoDo), which is definitely on the upswing as a live-work-play neighborhood attractive to millennials (and therefore to employers) and which has some unique characteristics that make it very appealing from an office investment point of view,” said Ramm.
“Everybody is moving to cities, and it’s partly for jobs, but it’s also partly for the appeal,” said Frampton. The ability and desire to have a true community experience, rather than the suburban experience, is attractive to many. “People, for whatever reason, more than ever, want that,” he said. “That’s why you see so much growth around here.”
This communal aspect of the development is in large part attributed to the Wynkoop plaza area. To incorporate the plaza into the buildings, the IMA Building features indoor-outdoor areas, which are a highly sought-after amenity for new office buildings. The idea of bringing the indoors outdoor is very much part of the Colorado lifestyle, Cohen said.
The building features balconies on each floor, as well as a private plaza area on the ground floor connecting to the public plaza and a terrace on the top floor. “When you’re downtown working, you rarely get outside in the middle of the day to have a meeting, and now we can do that,” he said.
Additionally, both buildings offer many of the considered must-have office amenities – a third-space environment, collaborative areas, workout facilities, security, parking, and convenience for employees who bike or use public transit to get to work.
Another feature all generations are demanding more of Denver properties is a conscious effort toward sustainability and the importance of LEED certification. “It was very important to us,” said Cohen. “We have an environmental department here, we have a younger millennial workforce here, and I would say that to most of them, that matters.”
Both wing buildings are LEED Gold certified. Nielsen said there is mandate for state projects that buildings meet LEED certification, which is driven by public’s demand for it.
“Developers are finding that there’s a benefit, at least for certain LEED certifications,” he said. “People like the idea of supporting sustainable design. If you’re going to put your name on the outside of a building, you like the idea that it’s got a LEED plaque that goes along with it.”