Opinions mixed on future of commercial boom


It’s scarcely news that Colorado Springs and the Pikes Peak region are in the midst of an unprecedented real estate boom.

“I have never witnessed a market like we are currently experiencing,” said veteran real estate broker Harry Salzman of Salzman Real Estate Services in an email earlier this week, “and the end just isn’t in sight.”

Salzman specializes in residential real estate, where Colorado Springs is close to the tip of the spear in a nationally heated market. As National Association of Realtors economist Lawrence Yu explains, the residential boom is rooted in a classic demand/supply squeeze.

“The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said. “While the good news is that buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last year’s pace. It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The same kind of frenzy has ignited the local commercial/industrial real estate market. The growth in new apartment complexes in northern Colorado Springs has been particularly pronounced, as both national and regional development groups seek to position themselves in the Colorado Springs market.

“[North Colorado Springs] hit all of our criteria that we search for,” said Matt Griffin, the chief operation officer of the Indiana-based Garrett Companies. “We’re looking for great school systems, strong growth in the job market, very strong single-family residential home prices and proximity to great, growing retail.”

According to the Colorado Real Estate Journal, Garrett plans to break ground this spring on a high-end complex on the city’s Northside.

A coincident boom in medical facilities has also affected the market.

“There’s almost a billion dollars in medical space planned or under construction,” said Andy Oyler, a commercial broker at Quantum Financial. “All this construction here and nationally is driving up building costs and creating labor shortages. It’s very expensive to build new, so both investors and owner/users are buying existing buildings and renovating them. The results can be interesting. There was a building that had been listed for $600,000 a few months before we made an offer of $525,000. The owners countered at $750,000! It’s crazy.”

Tim Leigh, who co-founded the commercial brokerage firm Hoff & Leigh three decades ago, has long specialized in marketing and renovating smaller properties that fall beneath the radar screens of national investors. In September 2017, an LLC linked to the firm acquired a 1982 three-condo office building at 312 S. Weber St., paying $695,000 for the three properties.

Leigh’s daughter Holly and her husband R.D. Trinidad are now in charge of the company’s operations.

“R.D. puts the deals together and Holly does the renovation,” said Leigh. “When we started, we thought we might get rents of about $12 a [square] foot — now we’re shooting for $17.”

According to Red Rock Realty broker Amanda Miller Luciano, small warehouse space is particularly sought after.

“Buyers want easy access to I-25, and that’s getting harder to find, with downtown and North Nevada space becoming unavailable, or being converted to different uses. Space on the Westside off 21st Street south of Highway 24 is now a good option, especially with the new Cimarron/I-25 exit. You can go down 21st, turn right and you’re at the interstate in a few minutes.”

Demand in the area is strong. A 6,000-square-foot 1995 warehouse at 1305 Pecan St. sold late last year for $765,000, up from $500,000 four years earlier. Similarly, a 4,200-square-foot 1999 warehouse on nearby Robinson Street that had previously changed hands for $389,900 sold for $560,000 in October 2017.

“The market there is now around $120 to $125 per square foot for small properties that include finished offices,” said Luciano, “so they’re ideal for small businesses and owner/tenants.”

Oyler agrees that “down and dirty” industrial buildings are in high demand.

“There’s so little product out there,” he said, “and the prices still aren’t high enough to make new construction an obvious option. There’s also a shortage of small lots for building, and that’s across all markets.”

Although prices are increasing, they still haven’t caught up with the cost of new construction.

“I’d love to have 10 or 20 small warehouses listed for sale,” said Oyler. “They’d sell immediately, but if I were an investor looking to build, the bank would see that these properties have typically sold at $75 a [square] foot, and building new costs $150 [a square foot]. So I’d have to put a lot of cash into construction, and I could get killed in a downturn. If prices stabilize a little higher and interest rates stay low, then we’ll see a lot of new construction.”

Oyler suggested that 1970s and ’80s office buildings along North and South Academy Boulevard may be candidates for renovation, especially for larger users.

“You take these old defense contractor buildings in the area,” he said, “they may not be the most attractive, they may not be in the coolest area, but affordability is hard to find in this market.”

Does the market have legs? Opinions differ. Leigh, who has endured every market downturn since the 1980s, thinks this boom will continue.

“I travel around the country all the time,” he said, “and we’re latecomers here. We’re in the middle of a paradigm shift, and we don’t understand value as well as people from the outside. That’s why there’s so much investment coming here.”

Oyler is skeptical, especially about apartment construction.

“The cap rates are so low that investors are counting on appreciation to make the deals work,” he said. “When the next recession comes, that may not work.”

Luciano is more sanguine.

“I think it may take five years for housing supply and demand to equalize,” she said, “and that should keep apartment demand high.”

But while most local investors may be focused on affordable renovation opportunities, there are larger transactions in the works.

One historic property that has been available since mid-2017 is the 45-acre, six-building complex that formerly housed the Nazarene Bible College near South Academy and East Fountain boulevards, offered by Mark Useman at Cushman & Wakefield. The price: $8.6 million. It includes the 18.55-acre campus, with buildings containing 73,157 square feet as well as a 23.44-acre vacant lot. It’s currently under contract to a Colorado Springs-based nonprofit.

“The buyer is in the process of raising money for the purchase,” Useman said, “so we should be closing in another few months. It’s not an educational use, and they have some very significant backers. The property is really in remarkably good shape, even though most of the structures were built in the 1960s and ’70s. The Nazarenes were really good stewards.”