THE WHEELHOUSE REPORT: April 2019 · 2000-08-31 · contemporary buildings. Tired of being upstaged by the younger generation of architecture, what’s a 30-something building to

» 30-SOMETHING BUILDINGS: STARING AT A MID-LIFE CRISIS

» OFFICE MARKET ANALYSIS, Q1 2019

» WHEELHOUSE COMMERCIAL BEGINS FIRST C-PACE PROJECT

In This Issue 30-Something Buildings: Staring At a Mid-Life Crisis

THE WHEELHOUSE REPORT: April 2019

COMMERCIAL PROPERTY MANAGEMENTOffice • Retail • Industrial • Mixed Use

Wheelhouse Commercial • 574 Santa Fe Drive, #300 • Denver, Colorado 80204 • www.wheelhousecommercial.comA proud member of the Wheelhouse Family of Companies: Wheelhouse Commercial • Wheelhouse Construction • Wheelhouse Apartments • Boutique Apartments

ABOUT USWheelhouse Commercial is a full-service

commercial property management

company, headquartered in Denver,

Colorado. Our tight-knit team offers our

clients best-in-class services, strategic

guidance and real estate expertise.

Zvi Rudawsky, CPM®

Managing MemberMark W. Kennedy, RPA

President

Brian LantzyVice President

Contact us regarding our comprehensive property management services:

[email protected]

With our monthly publication, The Wheelhouse Report, our mission is to bring you

important information on all segments of Denver’s commercial real estate market,

to help you operate your properties profitably and efficiently.

THE WHEELHOUSE REPORT

Over 30 percent of all office buildings in the Denver Metro market were built

before 1989. These buildings, now well into their 30s, are just not as shiny

and sprite as they used to be, and their tenants are attracted to the more

contemporary buildings. Tired of being upstaged by the younger generation

of architecture, what’s a 30-something building to do? Buy a new Corvette?

It’s a real mid-life crisis. Like many of us who have celebrated the Big 3-0

(some many years ago), how do we age

gracefully? Do we get a makeover, go to

the gym, eat more vegetables?

The hunter-green-and-pink bathrooms,

the wood décor, and the huge lobbies

are no longer chic. And the brass

“accessories” look dated. These

“millennial” buildings are sporting

things like more efficient floor plans,

energy-efficient lights, modern, sleek

lobbies, better control systems and more amenities. For the 30 Somethings to

be competitive, they need to focus on three key areas; design trends, upgrading

aging building systems and sustainability practices.

By Mark W. Kennedy, RPA, LEED GA

President

(continued ...)

WHEELHOUSE COMMERCIAL

Wheelhouse Commercial • 574 Santa Fe Drive, Suite 300 • Denver, Colorado 80204

www.wheelhousecommercial.com • 303.518.7406

THE WHEELHOUSE REPORT: April 2019

A NEW WAVE OF DESIGN UPGRADESSmall changes in a building’s style and design can go a long way in looking

more youthful, particularly in lobbies. As the lobby is the face of the interior

of a building, an outdated-looking lobby is a hard impression to overcome.

Brass, wood and bold pastels have given way to stainless steel, clean lines,

lighter color palettes and more intimate lobbies. Even something as simple

as new furniture can create a modern and current feel to an office building.

Changing building directories to touch-screen monitors and updating tenant

and building signage are relatively inexpensive and effective upgrades.

Restrooms can be another cost-effective face lift. Replacing 80s-era pastels, tile

counters and brass trim with contemporary color palettes, stone counters, and

touch-free faucets and soap dispensers, can easily modernize their look, while

changing out toilet flush valves combined with low-flow technology can help

minimize water waste.

HVAC & LIGHTING IMPROVEMENTS OFFER A NEW LEASE ON LIFEThe biggest challenge 30 Somethings have to face is aging building systems,

which eventually show the aches and pains of wear and tear. The biggest

issue is HVAC systems, followed closely by roofs, boilers, elevators, plumbing,

windows and parking lots.

The useful life of HVAC systems range from 15-25 years, depending on the type

of system and the quality of the maintenance. HVAC systems are the second

largest energy consumers in office buildings, after lighting. Modern HVAC

systems are far more energy-efficient than their older counterparts. New

systems are also much less harmful to the environment through the use of

new, EPA-required refrigerants.

Building Automation Systems (BAS), also known as Energy Management

Systems, control the building components as a part of an integrated system, and

have improved dramatically along with the growth of computer technologies.

Gone are the “dual floppy disc” operating systems, replaced by cloud-based

computing, with remote monitoring and control capabilities. Building

Automation Systems can now manage everything from lighting, heating,

cooling, ventilation, and even building access. A well-designed, integrated

BAS can reduce energy consumption up to 30%. In most Denver-area office

buildings, this can equal a fifty-cent per square foot reduction in operating

expenses.

(continued ...)

30-Something Buildings: Staring At a Mid-Life Crisis (from previous page)

Changing building directories to

touch-screen monitors and updating

building signage are relatively

inexpensive and effective upgrades.

Contact us regarding our comprehensive property management services:

[email protected]

LED lighting technology, automatic

dimming, electronic ballasts, and

occupancy sensors all reduce

energy consumption.

WHEELHOUSE COMMERCIAL THE WHEELHOUSE REPORT: April 2019



30-Something Buildings: Staring At a Mid-Life Crisis (from previous page)

Lighting control technology has also advanced tremendously since the days of big shoulder pads and poufy hair. Lighting

typically uses around 40% of a building’s total energy consumption. The advent of LED technology, automatic dimming,

electronic ballasts and occupancy sensors all reduce energy consumption.

THE SUSTAINABILITY PLAYLISTSustainability is big with the New Kids on the Block. LEED and Green Buildings are more desirable in the market. In addition

to energy efficiency improvements, there are some simple ways to integrate sustainable practices into daily property

management, and increase your “cool” factor. “Green Seal” janitorial products contain far fewer harmful chemicals and use

paper product standards such as chlorine-free paper production, biodegradability requirements and use of recycled content.

Offering recycling services can also generate environmental benefits at a relatively low cost. Property managers certified

through LEED are more able to identify opportunities to reduce the environmental impact of an office building.

FINANCING YOUR BUILDING’S COMEBACKLike a Little Red Corvette, mid-life crises are not cheap. But what is the cost of doing nothing? If not properly maintained,

buildings may become obsolete in the market and lead to a “Flight to Quality,” resulting in lower occupancy, reduced lease

rates and decreasing asset value.

What are the benefits of updating and upgrading a building? First and foremost, you have to stay in the game. You want

to attract the strongest and best paying tenants. You can’t do that by looking old and run down. Building upgrades and

modernization can, and usually will, result in more energy-efficient operations, lower operating expenses and better

operating buildings.

Now the biggest challenge: How do you pay for all this? Junk bonds are out. Traditional bank loans are available, but there

is a new loan program in Colorado that can make building upgrades almost entirely cost-free. C-PACE is a Colorado State

program that finances energy-efficiency upgrades for commercial properties through loans paid for by a new mill levy on

the property. The increase in property taxes is offset by the reduction in energy costs; sometimes the result is a net decrease

in operating expenses. The improvements are financed 100% and the debt does not add to the individual property’s balance

sheet. Depending on the lease types, these upgrades can be paid by the tenants through CAM charges. In our opinion, this is

the best approach to finance those desperately-needed upgrades to stay competitive in the market.

30-Something buildings face many challenges against their younger counterparts. Staying abreast of current styles, upgrading

to energy-efficient building systems and embracing sustainability will keep the older (and wiser) buildings hip and in the

game for decades, just like U2 or Bon Jovi.

For more information on how your older office building can benefit from a makeover by Wheelhouse Commercial’s LEED-

certified property managers, please contact us at: [email protected].

Mark W. Kennedy is the President of Wheelhouse Commercial in Denver, Colorado. For more information about how

Wheelhouse Commercial can help manage your properties, please call 303.518.7406.




Office Market Analysis: Denver Metro Q1 2019

The table and graphs below report some of the key market indicators of the class-B office market, and overall office market

(class A, B, & C), in 24 submarkets across the metro Denver area.

OFFICE MARKET DATA: DENVER METRO Q1 2019*

CLASS B SUBMARKET STATISTICS OVERALL OFFICE MARKET

SUBMARKETS NUMBEROF BLDGS

TOTALRBA

VACANCYRATE

YTD ABSORPTION

MARKET RENTPER SF

VACANCYRATE

MARKET RENTPER SF

ANNUALRENT GROWTH

Arapahoe Rd 37 1,075,295 3.2% 1,513 $22.69 7.3% $22.23 2.1%

Aurora 172 6,397,415 9.6% (45,286) $19.84 8.8% $21.23 3.9%

Broomfield County 71 3,176,748 7.3% 39,948 $23.06 5.6% $26.81 3.8%

Capitol Hill 153 3,100,669 6.3% (71,583) $27.07 4.9% $24.48 2.2%

Central Business District 68 7,408,103 13.9% (10,399) $28.63 13.3% $33.21 6.2%

Centennial 69 2,558,727 8.0% 3,448 $20.78 5.8% $22.40 2.3%

Cherry Creek 67 1,609,831 10.5% (20,454) $31.87 9.6% $35.32 2.6%

Colorado Blvd/I-25 106 3,133,201 9.0% 29,291 $23.91 9.2% $24.71 2.4%

Denver Tech Center 53 3,356,656 15.9% 12,314 $24.19 15.7% $27.37 2.3%

East Hampden 78 2,387,668 7.7% (8,665) $17.04 11.0% $19.36 1.3%

East I-70/Montbello 47 2,031,550 5.0% 873 $19.42 6.2% $23.88 3.3%

Glendale 56 3,149,198 8.0% (11,314) $24.95 8.5% $24.94 2.9%

Greenwood Village 99 4,869,494 15.7% (64,992) $23.85 13.1% $26.42 2.1%

Inverness 85 3,295,919 13.2% (547) $22.01 16.5% $24.34 2.4%

LoDo 110 3,898,217 9.6% 35,517 $36.15 8.7% $36.92 3.7%

Meridian 13 596,626 11.5% 2,278 $24.91 16.3% $27.22 2.4%

North Denver 110 3,702,350 8.3% (8,620) $24.75 6.8% $24.39 3.6%

Northeast Denver 65 1,040,583 8.1% 4,227 $21.43 4.3% $21.74 2.7%

Northwest Denver 210 3,402,444 6.3% (16,986) $19.63 9.6% $21.44 2.6%

Panorama/Highland Pa. 32 1,535,994 15.9% 14,101 $23.53 10.1% $26.31 2.2%

Platte River 41 1,047,078 15.9% 22,464 $33.33 9.4% $39.28 5.7%

South Midtown 72 1,494,469 2.0% 7,845 $28.13 1.7% $24.68 2.6%

Southwest Denver 296 6,642,921 10.5% (25,253) $18.21 9.2% $20.09 2.0%

West Denver 367 10,515,449 7.6% 190,106 $22.65 6.9% $22.73 4.5%

* Source: CoStar. The information contained in this newsletter is obtained from sources deemed reliable; however, Wheelhouse Commercial cannot guarantee the accuracy of the information provided.

(continued ...)




Office Market Analysis: Denver Metro Q1 2019 (from previous page)

MARKET RENTSThe Metro Denver office market continues to trend positively during Q1

2019. Market rents for Class-B product ranged from $17.04 full-service gross

(fsg) along the East Hampden corridor, to over $36.00 fsg in LoDo. Every

submarket we track maintained positive year-over-year rent growth (for

Class A-C properties) ranging from 1.3% (East Hampden) to 6.2% (CBD).

Rent growth in the CBD has been extremely strong for the past two years

and has rebounded completely from the oil-and-gas downturn in 2015/2016.

The Platte River submarket, which contains the RiNo District, is experiencing

strong rent growth due to the influx of top-tier, new-construction deliveries.

VACANCYVacancy rates also continue to be considered very ‘healthy’. Vacancy for

Class-B product, range from 2.0% in South Midtown submarket to 15.9% in

the Platte River and the Panorama/Highland Park submarkets. It should be

noted that in all three of these markets, vacancy rates dropped again from the

last quarter (Q4 2018). In other words, submarkets that were already tight are

getting tighter; and submarkets that seemed to have relatively high vacancy,

mostly due to construction deliveries, have absorbed the new product. With

the amount of new construction delivery that has occurred over the past 5+

years of this cycle, it is difficult compare and analyze submarket vacancy

(and even rents) against one another.

FORECASTA large amount of new office deliveries are expected in late 2019 and early

2020. CoStar analysts believe that in Q1-Q2 next year, vacancy will begin to

increase fairly rapidly from a low-point in the current cycle of 9.5% market-

wide, to nearly 12.0% by mid-2023. As naturally follows, market rent increases

will begin to flatten, then decrease, and may turn negative at the end of 2020.

Considering that we are currently flirting with the longest economic recovery

in U.S. history, this scenario seems very plausible.

(continued ...)

The Metro Denver office market

continues to trend positively during

Q1 2019.

Denver office submarkets that were

already tight are getting tighter,

and submarkets that seemed to have

relatively high vacancy, mostly due

to construction deliveries, have

absorbed the new product.




Office Market Analysis: Denver Metro Q1 2019 (from previous page)

Wheelhouse Commercial Begins First C-PACE Project

Wheelhouse Commercial is embarking on its first C-PACE project. The 6-story, 1970s vintage office building located in

Denver County, is getting a much needed major renovation, including two new 20-ton rooftop HVAC units, a new roof,

new building automation system for heating, cooling, and lighting, LED lighting retrofit for the entire building, and

incorporating the existing baseboard heat system into a Building Automation System. Best of all, the owners’ out-of-pocket

costs are $0. C-PACE is a state of Colorado sponsored program to fund energy efficient building upgrades. It offers property

owners the opportunity to finance major upgrades with little to no out-of-pocket expenses. To see if your property

qualifies for C-PACE, contact Wheelhouse Commercial.

Documents

THE WHEELHOUSE REPORT: April 2019 · 2000-08-31 · contemporary buildings. Tired of being upstaged by the younger generation of architecture, what’s a 30-something building to