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— Property Management Quarterly — February 2015
L
ast year certainly flew by,
and it was a year of strong
sales and improving market
fundamentals in many, if
not all, segments of the real
estate industry, including the mul-
tifamily, office and industrial seg-
ments. Of course, with all the posi-
tive indicators from the real estate
market, I had to wonder, what could
make this great feeling go away?
And then I thought, property taxes
– argh!
Record prices were paid last year
for apartment complexes, office
buildings, hotel properties, indus-
trial properties and others. Coupled
with increasing rents, income and
occupancy, and decreasing capital-
ization rates, we believe that the
actual values placed on properties
by the assessing community will be
increasing and, in some segments,
increasing significantly.
Multifamily segment.
In the multi-
family segment, the largest per unit
transactions, including Commons
Park West, Verve and Cadence-
Union Station, took place in Lower
Downtown and the Central Platte
Valley. These transactions will be
the springboard for the Denver
Assessor’s Office to increase values
for all, or at least most, multifamily
properties in the area.
There also was significant trans-
action activity in Boulder, Denver
West, Westminster and the Denver
Tech Center that will allow the
Adams, Arapahoe, Boulder, Broom-
field, Douglas and Jefferson coun-
ties’ assessor’s offices to increase
multifamily properties in their
county as well.
Sales prices on
a per-unit basis
and per-square-
foot basis will
drive values in the
multifamily seg-
ment, because the
Colorado Revised
Statutes only
allow counties to
assess properties
using the market
approach to value
or using a gross
rent multiplier. As
the gross rent multiplier is derived
from similar market transactions,
the market approach is really the
only valuation methodology avail-
able to the assessment community
to value these properties.
Office segment.
We also saw signifi-
cant changes in the office market
dynamic, whether the property was
a single-tenant property outside of
Denver’s central business district
or a multitenant property, either in
the CBD or in one of the suburban
submarkets. As many real estate
surveys reported, overall rents
were increasing and vacancy was
decreasing for all office classes. In
addition, there were a significant
number of office buildings delivered
to the market, and more than 1.7
million sf of office space is under
construction as well as more in the
planning stages.
The positive dynamics led to
acquisitions that our assessing
community will gravitate toward.
In Denver’s CBD and LoDo submar-
kets, these transactions include
the astonishing acquisitions of the
Union Station “wing” buildings,
located at 1705 17th St. and 1615
Wynkoop St., as well as Millen-
nium Financial Center and Park
Central Office. Outside downtown
Denver, there were remarkably
high sales prices per sf in many
counties. Adams County saw high
sales prices for medical office
buildings; Arapahoe County (DTC)
for multitenant and single-tenant
office properties; Douglas County
saw high sales prices around the
Parkridge area and in Meridian; and
lastly, Jefferson County office sales
were strong for buildings in West-
moor, the Union Boulevard corridor
and in Golden.
Industrial segment.
In the indus-
trial segment, similar to the office
market, rents are trending up for
warehouse/distribution properties
and for research and development/
flex product, while vacancy and cap
rates are trending down for these
property types. There were a num-
ber of large-space tenants, such as
CareTek/Colorado Timberline, Lars-
en Warehousing & Distribution and
Magna Bestop, that took occupancy
in early 2014 prior to the end of the
18-month base period June 30, 2014.
2013 and 2014 also saw some
healthy levels of investment sales
as well as owner/user sales activity.
This activity remained elevated at
prerecession levels, if not surpass-
ing the 2007 levels. There were a
couple of notable sales, including
the United Natural Foods transac-
tion at around $84 per sf and a
transaction in Inverness where a
R&D/flex building sold for over $95
per sf.
In all three real estate segments,
market conditions are providing
evidence that a significant increase
in actual and assessed values is
probable. To what extent the various
county assessors will increase these
values will vary based on the sub-
market and micro-market specifics,
but increases in value will happen
throughout the Denver metro area.
Shifting gears, as most everyone
knows, the actual property “tax”
comprises the assessed value and
the mill levy. While market condi-
tions are showing signs of value
increase, taxing jurisdiction budgets
typically are limited by the Tax-
payer Bill of Rights amendment. Of
course, there are many jurisdictions
that have “de-Bruced” and are no
longer governed by TABOR, includ-
ing the city and county of Denver,
which went to the voters in 2012
and received approval to de-Bruce.
In Denver, there is much discussion
over the antispiking provisions that
were included in the discussions,
and how they are going to be inter-
preted when values are increasing
as significantly as we expect them
to in 2015.
It is our opinion that the values
for most multifamily, office and
industrial properties will be increas-
ing at, or near, double-digit pace,
while the mill levies will be pared
back in most locations. However, we
believe that the mill levy decrease
will only be in the single digits. 2015
will be interesting and we will know
more when the values are released
May 1, and even more when the tax
rates are known in January 2016;
stay tuned.
s
Taxes
MatthewW.
Poling
Principal, Ryan,
Greenwood Village
