Colorado-Real-Estate-Journal_528354

INSIDE Grocery-anchored retail centers bring together today's strongest drivers Grocery-anchored Clear communication between owners, architects and subcontractors is essential Renovation projects PAGE 15 May 2026 PAGE 6 Fully expensing qualifying components materially shifts after-tax income Bonus depreciation PAGE 11 H eading into the second half of 2026, retail continues to be in the strongest funda- mental position in com- mercial real estate, driven by product scarcity and strong lend- ing capacity in the capital markets. National retail vacancy sits at 4.4% with net asking rent growth up 19.5% over the past five years and negligible new supply – less than 0.5% of existing inventory is under construction nationwide. Den- ver sits at the tighter end of that national picture, with vacancy at 4.5% and availability at 4.8% – both below the market’s 10-year aver- age of 5.1% – and leasing velocity compressed to 7.3 months from 10.5 pre-pandemic. Retail inventory in Denver has grown just 4.6% over the past decade against 9.2% popu- lation growth. There has been a continuation of an imbalance of retail proper- ties available for sale and buyer demand. The scar- city of properties on the market has resulted in insti- tutional investors and REITs chasing middle market properties ($5 mil- lion-$30 million) that historically have been outside their investment criteria box, such as well-located, unanchored strip centers in good demographic infill locations. Pri- vate investors are frustrated with this relatively new competition that often has a lower cost of capital combined with the ability to pur- chase all cash. The scarcity factor has been a circular problem for transaction activity. It’s benefiting retail owners as cap rates haven’t been rising in tan- dem with higher interest rates but also influencing owners to hold because they can’t find suit- able properties to reinvest in. Denver retail investment volume totaled approximately $500 million over the past 12 months, with roughly 60% of transactions involv- ing private buyers. Life companies remain the pre- ferred lending source for the major- ity of property types, excluding Class B/C malls, offering the widest variety of loan terms at the lowest rates, with partial to full-term inter- est-only optionality for low to mod- erate leverage. Some life companies have become overexposed in retail in select markets, but there is plen- ty of capital with others. Banks have become more aggres- sive on loan proceeds and spreads, and some are quoting nonrecourse to well-capitalized and experienced borrowers. The trade-offs relative to life company nonrecourse execu- tion include more stringent loan covenants and structuring with cap- ital reserves along with potential for a required deposit relationship unrelated to the loan encumbering the collateral. Banks are anticipated to capture more market share on value-add deals as the cost of debt fund capital is 200 basis points higher on average. They’re also well positioned to capture market share for shorter term loans (three to five years) on stabilized properties where borrowers want to extend their exit strategy with prepayment flexibility. Securitized lenders (CMBS) have been active on larger transactions where banks won’t offer nonre- course and on transactions with investors that don’t qualify for alternative bank or life company loans. CMBS structuring with ongo- ing reserves and cash flow sweeps designed to mitigate major tenant rollover risk often make their terms uncompetitive for experienced borrowers that want to avoid cum- bersome reporting and potential for operational challenges with their business plan due to lender approval requirements and delayed response times. Debt funds are lending on retail, but the majority have minimum loan sizes of $20 million. Heavy- lift, value-add mall redevelop- ments into open-air mixed-use properties are examples of where they’re most competitive. Although debt funds have the highest cost of capital, they offer the highest proceeds, which often results in a lower weighted average cost of Peter Keepper Senior vice president, BWE Please see Keepper, Page 17 Retail remains resilient despite facing constraints Summer McSwain Analyst and transaction manager, BWE