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DENVER-Investors likely will continue to aggressively search for income-producing properties in the Denver area in 2006, just as they did in 2005, according to a recent report from the Denver office of Grubb & Ellis Co. But investors may increasingly be searching for the “off-market” deals, which are not being aggressively listed to a large number of potential deals. Indeed, sometimes these off-market deals are not even officially on the market.

“One new trend for the coming year is the likelihood of larger number of off-market deals as investors grow increasingly frustrated with the auction system of purchasing, especially among so many competitors,” notes the report. “Several of the top deals during 2005 were off-market purchases, including the purchase of 16 Market Square–by Koll Bren Advisors from Continuum Partners for $60 million–for more than $300 per sf. This intense competition for trophy properties is pushing some investors to consider other property types, including R&D/flex product, hotels, niche multi-housing product and self-storages facilities.”

In 2005, the “rising tide for most commercial property types in Denver, coupled with the saturation of buyers in many key national cities, has opened the metro up to a large number of national investment funds who see Denver as a market with available high-quality properties,” the report notes.

Both value-added and long-term investors flocked to Denver in 2005, the report notes. While much of the spotlight has been on trophy office buildings and retail properties, industrial properties also are in demand, Grubb & Ellis notes. “Denver is one of eight markets showing the greatest price increases on a per-sf basis, although overall, 50% of markets have seen at least some level of increased prices,” Grubb & Ells notes.

Grubb & Ellis notes that high returns in 2005 for real estate investment trusts, as well as less volatility with brick-and-mortar investments compared to equities, has also fueled investment interest. “Buyers in Denver are counting on continued improving returns from forecasted increases in lease rates,” Grubb notes. “Some recent buyers have purchased with pro formas projecting office rental rates to increase by $4 per sf or more in some submarkets.”

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