Terrace Tower at 5619 DTC Parkway in the Denver Tech Center
An office tower south of Denver is being sold to two Colorado-based commercial real estate companies.
Louisville-based Real Capital Solutions and Greenwood Village-based Dunton Commercial bought the Terrace Tower at the Denver Tech Center for an undisclosed amount on Oct. 9. The companies said they got the office tower “at a fraction of the replacement cost.”
“The repricing of office real estate continues to create attractive opportunities for investors with the capital and experience to be selective,” RCS Chief Acquisitions Officer Adam Abeln said in the statement. “We focus on quality assets with long-lasting cash flows that can be obtained below replacement cost. Terrace Tower is a strong example of the opportunity we are pursuing.”
Built in 1984, Terrace Tower is a 243K SF office building at 5619 DTC Parkway. It was last sold in 2012 for $37.8M to Sun Life Assurance Co. of Canada, according to Arapahoe County property records. The county estimates the office tower at $34M this year, property records show.
The 12-story Class-A office building is undergoing a $10M capital improvement in 2021, including a new roof and updated lobby, fitness center, tenant space, conference room and building systems.
Terrace Tower was 72% occupied at the time of purchase, similar to the occupancy rate in metro Denver. The average lease on the building is 7.2 years, RCS and Dunton Commercial said in a statement. Tenants include branches of the US General Services Administration, Vitesse Energy and Holmes Murphy.
Dunton will oversee the leasing, operations and management of Terrace Tower. This is Dunton’s sixth office purchase in the Denver area. The company owns and manages about 5M SF of office, retail and industrial space in Colorado.
Terrace Tower is RCS’s 15th office acquisition starting in 2024. The company has acquired about 900K SF of office space in the Tech Center corridor in the past two years, including the $20M Belleview Tower, 116 Inverness Drive E. and the $22M MetroPoint I and II.
The purchase of Terrace Tower is part of RCS’ investment strategy and comes as the company targets $400M for its first investment fund. Capital from the fund will be used to acquire discount office properties in the US, according to RCS. CEO Marcel Arsenault put up $50M to start a new fund earlier this year.
The office market’s recovery from the pandemic has been uneven and varied by location and asset class. Overall US office vacancy is at 18.3%, according to CBRE’s second quarter office report. Denver’s office vacancy hovers between 22% and 28.8%, according to a new report from Marcus & Millichap and CBRE. The vacancy rate in the southeast suburban office market, including the Denver Tech Center, is about 20%, according to TRE.
Vacancy rates, rising interest rates and impending foreclosures are causing some Denver office buildings to sell at a discount. In late September, the Regency Plaza building at 4643 S. Ulster St. sold for about $57M, about 20% less than what the previous owner paid for the 335K SF building in 2019. Last year, two office towers at 1625 and 1675 Broadway sold for about 97% less than what the previous owner paid in 2013.