In Colorado Springs, commercial real estate markets move in predictable cycles. We get a decade or so of prosperity, as rents rise steadily and prices follow.
New entrants flood into the markets, brokers show up for work, answer their phones, write offers, collect commissions and move on to the next deal. Owners cackle with glee as their net worth increases, tenants complain mildly as rents skyrocket – but not too much, because business is booming. Let the good times roll! Life is good!!
Until it isn’t.
Every twenty years, a new generation of brokers and investors get inducted into the Hard Knocks School of Colorado Springs Real Estate.
Businesses founder, rents plunge, banks foreclose, equity evaporates, and investors who find themselves miraculously solvent during market chaos are positioned to make money – lots of money.
Let’s consider the Chase Bank building at 6 N.Tejon, at what was once, and may still be, the city’s prime downtown corner. It’s priced at $7.25 million, or $56 per square foot. It’ll need some updating to attract new tenants, and retain the cachet of a class A office building, which might add another $2.5 million or so to the price.
A new owner would then have, for a total investment of less than $10 million, a trophy downtown building. When the local and national economies revive, whoever owns the building will see substantial appreciation. Who knows?-it may even get back to its original 2007 asking price of $14 million.
Meanwhile, the city of Colorado Springs, apparently unaware of such investment opportunities, just paid $19 million and change for the top five floors of the building at 27 South Tejon, which the United States Olympic Committee will occupy next spring, as soon as G.E. Johnson completes $2 million + in tenant finish. That’s a total of $265 per square foot, more than twice the PSF price for a renovated Chase Bank building.
Conclusion: someone is going to make a lot of money buying downtown real estate, but it won’t be the taxpayers.
As broker Andy Oyler (who’s listing the Chase Bank building with Grubb & Ellis/Quantum Commercial Group) said this morning, reflecting upon today’s challenging commercial real estate market, “It blows your mind how quickly markets change.”
True enough, Andy – but just wait for the upside move!