By Carrie Rossenfeld
NEWPORT BEACH, CA—In many coastal California markets, there is a tremendously deep investor base focused on California, often resulting in pricing that has outpaced fundamentals, Buchanan Street Partners’ president Tim Ballard tells GlobeSt.com. As we recently reported, the firm has purchased a 224,000-square-foot transit-adjacent office tower in Denver’s largest office submarket and is eyeing other markets outside of California. We spoke with Ballard about what is drawing the firm to these other markets and what their buying strategy is for these other regions.
GlobeSt.com: What is attractive about investing in markets outside of California?
Ballard: We are focused on markets that offer a combination of strong local economies and pricing levels that offer attractive risk-adjusted returns. The challenge in many coastal California markets is the tremendously deep investor base focused on California, often resulting in pricing that has outpaced fundamentals.
There are two important trends that I believe are causing this. Foreign capital continues to increase its investment in US markets. However, as we have seen in past cycles, this capital rarely moves beyond the coasts. Combine that with the continued growth of mega real estate funds that have $2 billion to $15 billion of equity that are primarily focused on the largest markets where they can deploy capital into large assets, and you can see the result of all of this capital pushing into the California coastal markets. We are concerned that this is not sustainable over the long term.
GlobeSt.com: What attracted you to 5613 DTC in Denver?
Ballard: There are three primary attributes that make Denver and this recent purchase an attractive investment. First, the region continues to have strong job growth, which results in tenant demand. Next, we have a value-add strategy for 5613 DTC. This is a vintage 1980s building that we purchased at approximately half of replacement costs. It has not had the necessary capital to compete with newer, class-A product in the region. We intend to improve the building significantly to bring it up to class-A standards. Lastly, one of the most attractive attributes of this building is that it is transit oriented and situated in an excellent location. 5613 DTC is adjacent to a light-rail station in one of Denver’s premier business parks. The immediate office submarket is the largest in the Denver metro and anticipates completion of a $1.5 billion mixed-use project that will continue to increase the attractiveness of this location.
GlobeSt.com: Which other markets are you eyeing, and why?
Ballard: There is still a lot of opportunity to find quality assets at good prices where we can execute a business plan that adds value to the investment. While we are still active in some California markets, we continue to look for additional opportunities in Texas, Phoenix, Denver and Salt Lake City.
GlobeSt.com: What else should our readers know about your investment strategy for 2017?
Ballard: As we enter into our 18th year, Buchanan Street continues to innovate and seek new investment opportunities for our diverse investor client base. In addition to direct acquisitions, we continue to look for bridge-lending opportunities in the West in the $5-million-to-$25-million range. We fill a void for transitional properties or assets that need rapid execution. We will also be more active in the multifamily investment space in Salt Lake City and Denver.
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