June 2016 — Health Care Properties Quarterly —
Page 11
MECHANICAL ADVISORS
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MECHANICAL
SERVICE STEEL ENERGY WATER ELECTRICAL MISSION CRITICAL
Broker Insights
C
olorado’s commercial real
estate market has defi-
nitely had one unbelievable
rebound in the last few years
in all market sections: exist-
ing residential development and
sales; multifamily development;
retail development; and office
development in Denver, Boulder
and Fort Collins.
We have yet to see new spec office
buildings being built in Colorado
Springs, however, we have seen
some speculative industrial high-
cube space being built in the south
end of Colorado Springs.
Where do medical office buildings
stand?
There were several sales of
medical office buildings last year
and there are multiple MOBs on
the market presently in Colorado
Springs. Last year’s prices do not
correlate to this year’s prices. The
cap rates on the buildings sold last
year ranged from 6.75 percent up to
roughly 8 percent. Most of the prod-
ucts being offered now have occu-
pancy greater than 90 percent, with
some being 100 percent occupied.
Building owners are trying to sell
around a 6.5 percent cap rate and
there is not a lot of movement at
this particular point. Nothing that
I am aware of has traded hands.
The overall occupancy level on the
north end of Colorado Springs is
less than 12 percent. There are very
few large blocks of space for lease,
and the only place for a new tenant
to go would be a build to suit. The
rents, unfortunately, are not driving
up the price of new
buildings. Rental
rates for Class A
office space in
Colorado Springs
range between $14
and $22 per square
foot triple net, with
the majority of
these spaces being
second generation.
There is very little
shelf space avail-
able under 50,000
sf as of May.
For building own-
ers of MOBs to take
advantage of this
market cycle, cap
rates will need to
rise above 7 per-
cent. We have seen
a surge of purchas-
ers of ambulatory
surgery centers in
the Denver metro-
politan area. These,
of course, will sell
at less than a 7
percent cap rate
but typically have
seven-, 10- and
15-year leases in place.
For instance, in Colorado Springs
within the last two years, there
have been only two transactions of
MOBs between $5 million and $15
million that sold at a 7 percent cap
rate – 595 Chapel Hills Drive sold
for $8.7 million and 1633, 1625, 1644
Medical Center Point sold as a pack-
age deal for $26 million.
In Colorado Springs, very few of
the buildings being offered have
tenants that have signed new
10-year leases. Most are in the
middle of a 10-year lease and have
anywhere between three and five
years left. The good news is there is
going to continue to be a demand
for second- and third-tier medical
office buildings. Not everyone can
afford to be on campuses and the
large hospital systems do not want
everybody there. Until rental rates
consistently break $20 per sf, we
are not going to see construction
of new medical office buildings. If
you are an owner of a MOB, you can
take the money and run during this
cycle or take your chances on rene-
gotiating your tenants in a two- to
three-year period when their leases
are up.
s
Ted Link
Broker/owner,
Cascade
Commercial Group,
Colorado Springs
David Schroeder
Broker associate,
Cascade
Commercial Group,
Colorado Springs
Powers Professional Campus II at 6160 Tutt Blvd., just south of the St. Francis Medical
Center North, has only two vacancies and is being marketed for sale.
