Denver’s vertical village bet

Denver is about to test one of the riskiest bets in the office-to-residential playbook.

City officials are backing a first-of-its-kind conversion of two distressed office towers into a so-called “vertical village” — a dense, self-contained mix of housing, retail and amenities that has rarely been attempted in the U.S. and never at this scale.

Asher Luzzatto, whose Los Angeles-based Luzzatto Company is developing the project, acknowledged that, as a first, High Fidelity Plaza has the potential to become a template, or a cautionary tale. He expects the project to draw scrutiny, and welcomes it.

“With great risk comes great reward,” Luzzatto told The Real Deal.

The project will put even more eyes on Denver, a city whose nearly $600 million effort to revitalize its downtown in the wake of the pandemic has drawn national attention over the last year.

Although cities across the world have adopted the concept, only a handful of vertical villages exist in the U.S. Rarer still is a vertical village by way of adaptive reuse, especially at the scale of Luzzatto’s project, which aims to convert one million square feet of high-rise office space into more than 700 new homes, bars and restaurants, a daycare, movie theater, market, cafe and library.

Converting a traditional office tower into housing presents costly challenges that span from ensuring the new homes have enough natural light to refitting the plumbing for private bathrooms. The challenges become magnified when converting the offices into an array of uses. However, Luzzatto and Denver officials expect High Fidelity Plaza to pencil out thanks to two uniquely local factors.

The Denver office market became so distressed following the pandemic that Luzzatto was able to purchase the 385-foot and 434-foot towers for $3.2 million — combined. The government is also prepared to finance 20 percent of the project’s cost with a low-interest loan.

Last week, the Downtown Denver Development Authority, a quasigovernmental board that decides how to invest $570 million of tax-increment financing funds into downtown revitalization projects, approved a $63 million loan for High-Fidelity Plaza. It marks the largest loan since the authority began investing in downtown projects last year.

Douglas Tisdale, chair of the development authority board, told TRD the vertical village idea would bring the sort of downtown reactivation that Denver needs.

As with all expenditures over $500,000, the Denver City Council still needs to give final approval, and the city’s governing body has yet to deviate from the development authority’s decisions. The authority will not spend the money until the Luzzatto Company has secured its entire capital stack and a building permit.

“This could make a big splash and be a real template for the viability of residential conversions,” Bill Mosher, the city’s chief projects officer, told TRD.

The Crosstown Concourse in Memphis is the lone stateside example of a vertical village conversion. That project reenvisioned a 10-story Sears warehouse into 265 apartments with medical facilities, grocery store, restaurants and retail. Other vertical village projects, such as Manhattan’s Radio Hotel and Tower, and the Malabar Residences, have been built from the ground-up.

The project does not, as of yet, rely on institutional financing. Luzzatto said institutional money is unlikely to come easily when it comes to an unprecedented development in a recovering market.

“They like to wait to see someone else do it first,” Luzzatto said. “But to be the first in anything, there is a first mover advantage.”