Parking Lot Premiums: Denver Developers Pay Record Amounts for Surface Lots
Cleared Sites Provide Fewer Building Obstacles
Developers are snapping up parking lots in downtown Denver for record prices. Greystar is planning an 11-story complex at the site of this former parking lot at 1800 Market that it bought for $20.7 million this year.
Rising demand for commercial real estate and a scarce supply of available land is driving surface parking lots in downtown Denver to sell at record prices as developers seek projects that won't be restricted by existing buildings.
In some cases, investors eager to develop ground-up apartments to capture growing interest from renters are paying higher prices for empty parking lots than they are for existing multifamily buildings outside the downtown core.
"There’s a trend line of price increases based on demand, and that demand is focused on the urban core," said Chris Cowan, a Denver-based vice chairman at ARA, A Newmark Company, who specializes in land sales for multifamily development.
Denver is just one example of a parking lot demand across the country. With available development plots becoming increasingly scarce in nearly every major U.S. city, parking lots are seen as prime locations for development that capitalize on the levels of activity and walkability, real estate professionals said.
Companies that deploy capital want to go where the demand is and that means following millennials and active adult populations who are drawn to busy urban areas across the country, including Denver, Cowan said.
Most recently, the sale of a 1.15-acre parking lot at the corner of 18th and Market streets in Denver’s Lower Downtown area sold for $20.7 million, or $413 per square foot, according to CoStar.
At that price, the lot sold for about $35 more on a per-square-foot basis than Westend, a 390-unit apartment complex at 3500 Rockmont Drive, roughly a mile away.
The lot at 1800 Market was purchased by South Carolina-based apartment developer and manager Greystar, which has plans to construct an 11-story complex there. And just on the other side of Market Street, Elevation Development Group in 2017 purchased a similarly sized lot for $22 million with plans to build a mixed-use project.
Parking lots are attractive to developers for a simple reason, Cowan said: They offer the path of least resistance.
With a surface parking lot, it’s much easier for developers to extrapolate what the construction costs and eventual return will be than it is when there’s an existing building on the property. Unlike existing buildings, parking lots offer no existing leases to buy out, no historic preservation possibilities and no potential surprises during demolition, he said.
And as the land around Denver Union Station in downtown has been snapped up following the redevelopment of the historic transit center in 2014, prices for the few parcels that are left have climbed rapidly, Cowan said.
In less than 10 years, he said, typical prices for land near Union Station shot up from about $100 per square foot to $450.
While parking lot sales and prices are rising, investors' interest in existing properties still outpaces the market for parking lots. An affiliate of real estate investment management firm Heitman purchased an office building at 1401 Lawrence St. in the downtown area in December for a record $723 a square foot, according to CoStar.
Apartment development in the Denver area, particularly in areas like the historic district of LoDo, local shorthand for Lower Downtown, skyrocketed after the recession and has remained consistently high for several years as young workers are increasingly trying to find places to live close to their offices instead of commuting from the suburbs.
In the downtown and Cherry Creek submarkets of Denver, more than 8,000 units have delivered since the beginning of 2015, and more than 6,500 units are currently under construction, according to CoStar data.
And, driven by increased demand and an influx of new product with high-end finishes and amenities, rents have shot up as well, making apartment development an attractive prospect.
Between 2007 and 2017, average rents in the Denver apartment market increased 52.1 percent, according to a recent report from commercial real estate firm Avison Young.
And while there has been talk among brokers in the Denver market about slowing in the multifamily sector, Avison Young’s report, as well as one recently released by CBRE Group Inc., indicate that the correction coming to multifamily will lead to a "soft landing" rather than a crash, meaning that Denver’s unassuming parking lots could remain the target of developers well into the future.