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DENVER-This is shaping up to be the second-best year ever for commercial investments, reports Gene Pride, an investment broker and director at Cushman & Wakefield’s Denver office. Pride, who formerly worked at the Denver office of Marcus & Millichap, is projecting $1.95 billion in office, retail and industrial deals in the Denver area this year.

That’s 35.4% more than $1.44 billion in properties purchased in 2003, Pride notes. And the number of transactions is up by 45% from 100.

The only year that was better was 1998, when $2.215 billion in buildings were purchased. But that year was an anomaly because there were so many huge deals, such as two regional malls, Park Meadows and Southwest Plaza selling for $270 million and $113 million respectively, and Mack-Cali paying $185 million for Pacifica Holding Co.’s industrial portfolio. If those three transactions were taken out of the equation, this year would even top 1998, he notes.

And while the number of transactions is up dramatically, the 145 sales he anticipates this year makes 2003 “just an average” year for sales, Pride says. He’s estimating the average transaction size at $13.4 million this year, compared with $14.4 million last year.

This year, he anticipates 56 retail sales, compared with 33 last year; 36 industrial sales, compared with 28 last year; and a big boost in office sales, with 53 this year, compared with 39 in 2003.

Denver is a microcosm for what is happening across the US. Pride notes there is increased competition from buyers, with institutional, public and private sector very active. Typically, he says, usually at least one of the investor types is largely sitting on the sidelines. But in an unusual confluence, institutional investors such as insurance and pension fund advisors, REITs, and private investors such as individuals and families, are all competing for properties.

One reason is that with interest rates that had hit a 46-year low, there is an abundance of equity and sources for debt. Also, real estate has become more transparent. In the past, real estate was considered a very local, labor-intensive asset, so institutional investors typically liked to keep it a relatively small portion of its portfolio, he says.

With the stock market ending up the year about where it began, and with rising interest rates threatening the bond market, there’s a significant capital chasing a relatively small supply of real estate, Pride says. He notes that has led to the lowest cap rates in years, as investors are adjusting to lower yields. Cap rates, Pride notes, are at the lowest rate ever, even as the fundamentals are the worst they’ve been in Denver in about 15 years. “There’s been downward pressure on cap rates and return expectations,” Pride says. “Investors and lenders are willing to accept modest returns.”

Pride, however, says it is unreasonable to think this hot investment market won’t cool off. Indeed, he expects it to start to lose some steam next year.

“But a lot of people think it will be because of rising interest rates,” Pride tells GlobeSt.com. “That will be part of it. But what will start to drive cap rates up more is investors putting more money back into the stock and bond markets as they improve.”

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