A Capitol Hill office building owned by Colorado’s Public Employee Retirement Association has sat unoccupied for about a decade, The Denver Post has learned — an irresponsibly long time that represents millions in lost potential revenue, real estate experts say.
The 40,000-square-foot, five-floor building, which sits at 1300 Logan St. near the Capitol, would be worth about $8 million in a sale, according to a city appraisal, and is being shopped for lease at $29 per square foot, or about $1.2 million annually.
PERA manages the retirement fund for some 600,000 current and former public employees and retirees. Its portfolio has suffered of late, losing $1.8 billion on investments in 2018. Any loss costs the workers who pay into PERA and the retirees who receive benefits.
“There’s no reason whatsoever” for the building to languish so long, said Stephen Tebo, a Boulder-based real estate tycoon who owns more than 200 properties. “The market’s been extremely strong. It’s definitely a waste of money sitting there, because it just deteriorates.”
The building is one of three owned by PERA, along with its main office on Pennsylvania Street in Capitol Hill — it’s right next to the Logan Street building — and a smaller facility in Westminster. PERA used to have employees at Logan Street, but no one has worked there in about a decade, according to Tara May, spokeswoman for PERA.
After moving employees out, PERA used some of the building for storage, May said, and has been “aggressively” looking for a tenant for 2.5 years, to no avail.
“The building has not been actively used in about 10 years, (but) … this has not been a property that has lain idle without significant marketing behind it,” May said. “If we have people that are interested in that building, we’d like to know who they are.”
RELATED: Colorado state employees and retirees both taking hits with PERA change
May said she was not authorized to disclose whether PERA has had prospective tenants in the 2.5-year period since Cushman & Wakefield was retained to market the building.
The Logan facility was built in 1976 and, May said, will potentially require significant work to accommodate whichever group or business does eventually occupy it.
“The property is sort of unique in that it’s somewhat antiquated,” she said, adding, “it’s not in the most desirable location.”
Capitol Hill doesn’t have the highest demand in the area, but it’s plenty hot. For the second quarter of 2019, the vacancy rate for office buildings in the submarket was 8.8%, according to data collected by CBRE — well below the metro market average of nearly 12%.
Tebo rejected the notion that the building’s location or age could keep it empty for so long.
“If I have something vacant for a year, I go in and start remodeling or do something to try to figure out what’s wrong, to get it rented,” he said.
Ron Throupe, who teaches real estate at the University of Denver and conducts a quarterly real estate survey for the state, said his “mental limit” would be five years.
“With that length of time in an up market, someone’s missed a good opportunity,” he said of the 10 years without occupancy. “They really need to figure out what the highest and best use is.”
Larry Stark, CEO of NVC Inc., the largest real estate valuation and consulting firm in Colorado, said the commercial occupancy rate “in all of midtown Denver is stronger today than it’s been pretty much in history.”
The extended emptiness at 1300 Logan St., he said, “is nearly unprecedented, it’s very peculiar and it doesn’t make sense.”
Related Articles
PERA maintains that it has been responsible in its handling of the potentially lucrative asset. May said real estate professionals have advised PERA to rent the building out before trying to sell it, as an occupied facility would look more attractive to buyers.
PERA is tax-exempt, so the building hasn’t been as costly to hold on to as it would be under an owner who had to pay real estate taxes. May said PERA spends “virtually nothing” on upkeep of the building.
But there are still costs associated with keeping an unoccupied building. At a minimum, buildings need to be heated enough to ensure pipes don’t burst in winter, and that typically costs between $1 and $2 per square foot each year.
