Editorial —
Two adjacent skyscraper office buildings in downtown Denver located at 621 and 633 17th Street recently sold for $3.2 million. The buildings have nearly a million square feet of office space combined. Six years ago, the buildings were valued at $200 million – a 98% drop in value.
The purchase indicates the buildings were essentially worthless as office space. With a cost basis of $3.2 million, the buyer, Los Angeles developer Asher Luzzatto, could rent office space at extremely low rates and seemingly make a great deal of profit. But no, apparently there is almost no major market for rental offices downtown at virtually any price. Instead, the buyer is going to spend tens of millions to turn the buildings into 700 residences.
This developer is not the first one in Denver to come up with this idea. It was announced recently that the historic Petroleum Building will be converted from office space into residential units. The building was given its name as it was housing a myriad of businesses in the oil and gas business. No need to worry about such use as Governor Polis and the legislature have killed the oil and gas industry in Colorado in the name of preventing global climate change.
The problem is that there is no data out there indicating that people are dying to move to downtown Denver for residential purposes. In fact, Channel 7 in Denver recently ran a story entitled “Data shows people are actively avoiding moving to Denver” citing data from a MoveBuddha study. Moreover, as our front-page story indicates that apartment rental rates in Denver are going down reflecting lowering of demand.
At one time Denver could count on an influx of monied people from California but no longer. Why move from misgoverned Los Angeles and California to misgoverned Denver and Colorado. They are heading to red states such as Texas and Idaho.
So what in the world is the developer Asher Luzzatto thinking? Back in the Chronicle’s May 2024 edition we prognosticated in an editorial titled “No Mr. Mayor, the Woes Of Downtown Denver Will Not Be Saved By A Half Billion Dollar Retrofit Boondoggle” that proposed new Downtown Denver BID assessments would end up in the pockets of downtown office owners to help convert their buildings into residential properties. Rest assured that some of the bond proceeds from the just passed “Vibrant Denver” bonds will end up in the same pockets.
We assume that Asher Luzzatto is nobody’s fool. Most of the money to convert the two office buildings will come from governmental entities. If the project fails, the developer will lose very little money but if it succeeds the developer will very handsomely profit.
But what does the super bargain basement sale say about Denver’s economy? At a minimum the city’s budget will soon be in major trouble. Assessments for commercial property in downtown Denver will plummet, which will lead to a commiserate drop in property tax revenues.
Similarly, revenues from the head tax that Denver imposes on people who work in Denver will similarly drop.
Perhaps the proposed Burnham Yard redevelopment that includes a new Broncos Stadium will create some economic growth along with short-term boost from the newly approved Vibrant Denver bonds.
Ultimately reading the tea leaves, Mayor Johnston’s administration is betting on the farm downtown Denver becoming a residential hub through the conversion of office building into residences paid for by the government. If that bet fails hard times will likely await the Queen City of the Plains.
— Editorial Board
