Cress Capital Pays $113M for Mortgage on Denver Office Tower

Cress Capital has snagged a $113 million loan tied to a 24-story office tower in Downtown Denver for the value of the land beneath it.

The Newport Beach-based investor bought the mortgage for the equivalent of the land cost under the 439,000-square-foot building at 410 17th Street, Bloomberg reported. The seller was Ares Management, based in Los Angeles.

Cress picked up the mortgage at “a major discount” for a “level approaching or at the pre-COVID land value” of the property, according to Ryan Parkin, managing partner of the firm. He declined to disclose the price. Ares declined to comment.

The building, known as The 410, was built in 1977 and stands near the Colorado state capitol building. The newly renovated tower has a new fitness center and a wine bar in the lobby. Its vacancy rate was not disclosed.

Cress expects to invest $1 billion over the next 12 to 18 months in office buildings across the U.S. during a “a historic opportunity” to buy well-located, quality properties at steeply discounted prices, Parkin said.

Buying properties on the cheap allows a new owner to offer lower rents to draw new tenants or convert a building to apartments or another use.

“When they’re trading at land value, there are multiple options you can pursue,” Parkin told Bloomberg.

Owners of office buildings have tried to sell properties as prices fall after a shift to remote work.

Prices of office buildings in U.S. downtowns fell 30 percent in the year through February, nearly twice the decline for U.S. offices overall, according to MSCI Real Assets.

In Downtown Denver, more than 37 percent of offices were available for lease at the end of last year, compared to 29 percent for greater Denver, according to a Savills fourth-quarter report. At the same time, available offices for sublease have been falling, which means the market may be stabilizing.

In June 2019, Rialto Capital Management and Steelwave bought The 410 for $127.25 million, according to the Denver Post. They then borrowed $113.5 million from Ares Commercial Real Estate; the loan matured in January last year.

Ares initiated foreclosure in July, saying the owners had defaulted on the loan due to “the failure to make timely payments of principal and interest when due.” As of August, the building was 37 percent leased, according to CoStar, with another 12 percent available for sublease.

Cress Capital, founded by Parkin in 2012, has acquired more than 2 million square feet of industrial and office buildings, according to its website. The “contrarian firm” focuses on “overlooked and often mispriced opportunities.”

— Dana Bartholomew