15
Jul

Centre Point Properties buys Sherman Center, Starts Lease-Up

by Jill Jamieson-Nichols
COLORADO REAL ESTATE JOURNAL

Within two weeks of buying Sherman Center, Centre Point Properties leased up 11,000 square feet – a sign of demand for office space in the Capitol Hill neighborhood.

“We have a two- to three-year leasing strategy, which we think we’re going to beat,” said Centre Point’s Tucker Manion.

Centre Point Properties affiliate Sherman Point Ventures LLC bought the shiny gold 100,774-square-foot office building at 789 Sherman St. for $9.95 million, or $98.74 per sf.

“We own 1905 Sherman, so we’re familiar with the market in this area, and right now, given the competitive landscape, it’s tough to find buildings of this quality at the basis we were able to achieve,” said Manion.

That basis allows Denver-based Centre Point to offer space at $19.50 to $21 per sf full service, while competing Class B buildings are in the $22- to $23-per-sf range. The building was only 61 percent leased at the time of the sale, and with the area’s vacancy sitting around 4 percent, there is tremendous upside in improving occupancy. Plus existing rates are 27 percent below market.

The Sherman Center’s location is attractive to tenants seeking value and proximity to downtown and Cherry Creek. It also brought investors out in full force.

“It was crazy. We had over 70 inquiries and I would say the majority of those – more than 90 percent, were out-of-town buyers,” said Ben Gilliam of Coldwell Banker Commercial Alliance, who represented the seller with partner Jon Treter.

“I think it’s because of the location. A lot of the interest we had was buyers that were either institutional or the next level – private but with big funds – that couldn’t get into LoDo or downtown, or Cherry Creek,” he said, adding the Sherman Center represents a good-quality investment between those two submarkets.

The area also is attractive to tenants because employees – especially millennials – can live, work and play in the neighborhood, said Centre Point Properties’ Alan Bruno. Restaurants and bars are within walking distance, and one of the new apartment buildings going up within a block will have a Black Eye Coffee shop. A lack of surrounding high-rises allows for city and mountain views.

Widely recognized for its gold exterior, Sherman Center is a six-story building that was built in 1973. It has covered parking plus four surface lots and a common conference room. The previous owner upgraded the first two floors, and Centre Point Properties plans to improve the common areas on the third through sixth floors. It has move-in-ready space and also plans to “whitebox” suites.

Colorado Nonprofit Association occupies the entire second floor. Most of the other tenants are in the 3,000- to 4,000-sf range. Contributing to the building’s vacancy was Denver Public Schools’ move from about 13,000 sf at the end of 2014.

Centre Point, which will move its offices to the building, sees opportunity in the vacancy and in providing hands-on management, said Bruno. “We’re obviously going to start marketing the property pretty heavily,” Manion added.

“Our overall strategy with all of our properties is tenant retention,” he said, adding the basis will allow Centre Point Properties to keep the property affordable over the long term.

Karen Kerman of Wells Fargo arranged acquisition financing for the property, which was sold by a private family fund called 789 Sherman Street LLC.