Long haunted by the economic mood swings of the oil and technology industries, Denver's office market is at last experiencing steadily increasing demand fueled by healthy population gains and job growth.
By 2015, the city's population is projected to swell by 18% to more than 3 million due primarily to employment growth. This year alone, the region is expected to gain 31,600 jobs, a 2.6% increase over 2005.
Recognizing the region's potential, area voters in 2004 approved a sales tax increase to fund FasTracks, a $4.7 billion plan to construct at least 10 new rail lines in Denver over the next decade. All totaled, the mammoth project calls for 119 miles of light rail and commuter rail and 18 miles of bus rapid transit.
Planners consider the project vital to alleviating traffic congestion and connecting workers with the city's growing aerospace, energy, bioscience, financial services and technology industries.
In short, FasTracks is creating development opportunities around the system's 57 planned rail stations. Future phases will expand the network to include 93 stations.
The centerpiece of the massive rail project is Denver Union Station, the crown jewel of the city's transit-oriented development plan. In the heart of the famed Lower Downtown (LoDo) district, Denver's hottest office and condominium market, the century-old rail station will serve as the region's transit hub.
Of the 11 development teams — including real estate tycoon Donald Trump — that submitted proposals to redevelop Union Station, two are still in the running: The first team is Union Station Partners LLC, led by Cherokee Investments of Raleigh, N.C. and Phelps Development of Greeley, Colo. Denver development firms Continuum Partners and East West Partners spearhead the second team.
For more than a year, both groups have refined strategies to finance and build a transit hub that integrates light rail, commuter rail and bus routes with existing Amtrak service and the Ski Train, which transports skiers to the Winter Park resort.
Both teams say the $215 million in public money available for the project is insufficient, and both are lining up additional funds to implement their plans. Union Station Partners needs another $300 million and Continuum/East West is still short $85 million. The risk is great, but the reward — authority to develop nearly 20 acres surrounding the 125-year-old Union Station — is even greater. The project is projected to generate more than $1 billion in private investment.
The competing proposals are radically different. Union Station Partners would spend about $515 million on transit and an additional $1 billion on vertical development, including a 46-story tower in the historic district of a city that traditionally has preserved its mountain views by proscribing high-rise buildings. Cherokee would lead the land development and sell off tracts to vertical developers including its partners, Trammell Crow Co. and Sage Hospitality.
As part of the Union Station redevelopment, Union Station Partners proposes building about 250,000 sq. ft. of retail space, two hotels with a total of about 600 rooms, 1 million sq. ft. of offices and 900 residential units.
Its rivals, Continuum and East West, are long-term landholders that together own an additional 13 acres surrounding the site, enabling them to build less obtrusive buildings without sacrificing square footage. The team proposes 732,500 sq. ft. of offices, 246,100 sq. ft. of retail, 783,400 sq. ft. of residential and 1,980 parking spaces.
“The question is: What can you build and deliver by 2011 with the resources you have?” says Tom Gougeon, Continuum's chief development officer. Denver's executive oversight committee is expected to select a master developer by the end of October. The committee includes representatives from the four agencies that own the station and surrounding land: the Regional Transportation District, the City and County of Denver, the Colorado Department of Transportation and the Denver Regional Council of Governments.
Even though redevelopment of Union Station won't begin for more than a year, three national developers have already announced speculative office projects just blocks from the site.
Seattle-based pension-fund adviser Kennedy Associates will build a 300,000 sq. ft. tower, and Hines plans a 260,000 sq. ft. office building. Opus Northwest plans a mixed-use development with 300,000 sq. ft. of offices.
“Right now, the LoDo office market is the best office market in the city,” says Ferd Belz, president of Cherokee Denver. “And the residential market in that neck of the woods is some of the best in the city.”
East West isn't ignoring opportunities beyond the Union Station redevelopment, either. The company developed the adjacent Riverfront Park neighborhood with hundreds of condominiums and townhouses. The firm is even said to be close to a deal with Starwood to open a posh W Hotel in the neighborhood by 2008.
The company took on Riverfront Park based on proximity to two light rails, according to Chris Frampton, an executive with East West Partners. The Santa Fe, commonly known as the Southwest Corridor, opened in 2000 and follows Santa Fe Drive; T-REX, the city's southeast line, is slated to open in November.
“The Santa Fe and T-REX plans were already in place when we started,” Frampton says. “Our location is a TOD [transportation-oriented development], but it's also an urban location. We're within walking distance of four major sports teams and the second largest performing arts center in the country.”
The number of large developments indicates Denver is coming into its own, says Ann Sperling, senior managing director of Trammell Crow's Denver office. “Looking back over the last few decades, we're emerging as a primary market, whereas previously investors saw it as a secondary market,” she says. “From a price-per-pound perspective, it's still a reasonable value proposition.”
Several projects are in the works at stations along T-REX, which connects downtown and the southeastern part of the metro area. For example, Continuum is jump-starting development at the southeast line's station at Interstate 25 and Belleview Avenue.
The Bansbach family, which has owned the 50 acres surrounding the station since the 1880s, selected Continuum to develop about 2.3 million sq. ft. of retail and office space on 18 acres of a former golf course. Ultimately, the $1.5 billion project will involve several developers and provide 5 million sq. ft., including 200,000 sq. ft. of offices and about 1,900 homes.
“This is really the premier site of all the light-rail stops on the I-25 corridor because it's the largest single-ownership property around any of the TOD stations,” says Roger Pecsok, development director and principal at Continuum. “The other stops have [multiple] landowners, so it's hard to put together a retail plan that works for the whole project.”
Over the last five years, Cherokee has been working on a plan to transform 50 acres surrounding the former Gates Rubber Co. plant at I-25 and Broadway into a $1 billion mixed-use neighborhood with 6 million sq. ft. of development. Cherokee is selling off pieces of the property at the convergence of the two lines to vertical developers.
Other projects along the southeast line include the 110-acre Village at Arapahoe Station. Developed by Koelbel and Co., the project includes 3.37 million sq. ft. of residential, 660,000 sq. ft. of retail, 1.57 million sq. ft. of office, 220,000 sq. ft. of hotel and 254,000 sq. ft. of cultural uses on 110 acres.
On the same line is Orchard Station, a $160 million collection of 251 residential condos and 168,000 sq. ft. of retail space delivered by developer Zack Davidson of Tulsa, Okla.
T-REX is just one feeder into the Union Station hub. When FasTracks was first approved two years ago, developers started queuing up for a piece of the action. “I have a couple of clients with land who are trying to see if they can get a station and others who are trying to move stations closer to their land,” says Chris Coble, senior associate of corporate services with the Denver office of CB Richard Ellis. Coble is marketing seven TOD sites for sale and is working with a dozen buyers seeking sites. “A lot of out-of-state groups are trying to come to Denver to do mixed-use projects.”
Ray Pittman, senior vice president of LNR Corp., has been trying to convince the Regional Transportation District to place a station in the heart of High Point, an 800-acre site he's assembled near Denver International Airport. The agency is in the process of evaluating whether the first station outside the airport should be within the project or at its edge.
“Our primary goal is creating walkable neighborhoods around transit whenever possible,” Pittman says. “On the periphery, it ends up being an easy engineering solution, but not necessarily a good economic development or community solution.”
Detailed plans are pending the transit agency's decision, but Pittman says they will include a $165 million, 500-room conference center hotel north of the station and a mixed-use neighborhood with about 500 homes to the south.
The 10.5 million sq. ft. of commercial space will include about 500,000 sq. ft. of retail close to the station. Total investment is likely to be about $1.5 billion over 25 years.
Follow the leader
Much of the focus in the region is on large-scale developments, but smaller communities also are readying themselves for rail traffic. Light rail service to Arvada, northwest of Denver, is still eight years away, but Landon Enterprises broke ground in August on an $8 million office and retail project in the community's historic Olde Town, just a few blocks from the planned rail stop.
The Regional Transportation District serves as a partner in the TOD planning process, which is typically led by the local jurisdiction, but it's up to developers to assemble property and obtain necessary approvals. “We purchase land for stations, parking, platforms and drop-off areas — not TOD,” says Bill Sirois, manager of transit-oriented development for the Regional Transportation District (RTD).
RTD does work with private developers and will alter its plans to help achieve a better design, but only if the change doesn't add to its cost or delay the project. “We're trying to emphasize that you need to look at TOD early, during the environmental impact process, not during final design,” Sirois says. “With T-REX, the level of interest wasn't seen until dirt started to turn.”
A slow education process
The transit aspect of Denver's building surge is likely getting more attention than it deserves, says Buz Koelbel, president of Koelbel and Co. The bigger picture is how developers are creating a sense of place, such as Continuum's award-winning Belmar mixed-use development in Lakewood, or Forest City's transformation of Denver's old airport into Stapleton, a master-planned community that is the largest infill project in the country.
Transit-oriented development is practically a foreign concept to cities in the Northeast such as New York and Boston, long accustomed to good transit systems.
“It's really a Western phenomenon,” says Marilee Utter, president of Citiventure Associates LLC, a Denver mixed-use and TOD consulting firm. “You go to the Eastern cities like Boston and Philadelphia and they don't even know what you're talking about because they're all built out.”
While developers try to respond to the market, few have developed the sophistication to plan an entire district. “Developers are thinking about the project, building an apartment building or a condo tower, rather than creating a place,” Utter says.
“I really think of TOD as an organizing principle. It gets you to pay attention to a space and think of it differently,” Utter explains. “TOD is really an excuse to do what we ought to be doing anyway, which is place-making.”
Transit-oriented development makes a bigger difference in the suburbs than it does in the city, Utter says. A good example is a 125-acre tract that Terry Erwin owns at the end of a planned light-rail line to the Denver suburb of Thornton.
“It's rolling hills, there's cattle grazing, and the fact is, every inch of it has been purchased and zoned for large-lot sprawl except where they're putting the transit station,” says Utter, who's working with Erwin on a new plan. “It's big enough to do something transformational. That would never have occurred to [Erwin] if that transit station weren't there.”
Englewood City Center, the region's first TOD completed in 2002 for $120 million, has provided a strong sense of place. It includes 438 residential units, nearly 700,000 sq. ft. of retail space, municipal offices and outdoor community space. Collaboration between RTD, the City of Englewood and developer Miller Weingarten has made it a model for public/private partnerships.
Denver is projected to gain about 250,000 residents within a half-mile of the city's transit stations over the next 50 years, Utter says. “It's a question of supply, not demand,” she says. “It's what consumers want. It gives us an opportunity to reshape the whole region.”
Margaret Jackson is a Denver-based writer.
DENVER - BY THE NUMBERS
METRO POPULATION: 2.6 million
Source: Metro Denver Economic Development Corp.
UNEMPLOYMENT RATE: 4.7%
Source: Colorado Department of Labor and Employment
- Qwest Communications
- King Soopers
Source: Metro Denver Economic Development Corp.
METRO AREA VITAL SIGNS
14.8% vacancy, 2Q 2006
17.3% vacancy, 2Q 2005
$17.33 rent per sq. ft., 2Q 2006
$16.65 rent per sq. ft., 2Q 2005
Source: CB Richard Ellis
6.9% vacancy, 2Q 2006
8% vacancy, 2Q 2005
$813.30 avg. effective rent, 2Q 2006
$793.93 avg. effective rent, 2Q 2005
Source: Apartment Association of Metro Denver
5.9% vacancy, 2Q 2006
6.6% vacancy, 2Q 2005
$15.91 rent per sq. ft., 2Q 2006
$14.61 rent per sq. ft., 2Q 2005
Source: CB Richard Ellis
7.6% vacancy, 2Q 2006
8.9% vacancy, 2Q 2005
$5.48 rent per sq. ft., 2Q 2006
$4.99 rent per sq. ft., 2Q 2005
Source: CB Richard Ellis
64.9% occupancy, July 2006
62.8% occupancy, July 2005
$87.18 average daily rate, July 2006
$79.49 average daily rate, July 2005
Source: Smith Travel Research
Denver Union Station, the crown jewel of the city's transit-oriented development plan, is at the center of a contest between development teams vying for the right to build on 19.5 acres surrounding the historic building. The teams must solve the transit issues, as well as present a plan for vertical development.
Cost: $1 billion (estimate)
Developer: To be determined
Cherokee Denver LLC is cleaning up and redeveloping a 50-acre site formerly owned by the Gates Rubber Co. The project, the city's biggest redevelopment of the former Stapleton airport, will be rebuilt into a booming retail and residential district next to a light rail station at Interstate 25 and Broadway. When finished, the project will contain about 6 million sq. ft.
Cost: $1 billion
Developer: Cherokee Denver LLC