> ## Content Index > Fetch the complete content index at: https://www.brianmccririe.com/llms.txt > Use this file to discover other available public pages before exploring further. # Denver Office at $90/SF: Underwriting the Basis Reset - URL: https://www.brianmccririe.com/denver-office-basis-reset-underwriting/ - Published: 2026-09-17T12:01:00.000Z - Updated: 2026-09-17T12:01:00.000Z - Description: Denver office is trading near $90/SF, below replacement cost. Here's what that basis actually asks you to underwrite: lease-up, WALT, capex, and the exit. - Author: Brian McCririe - Tags: Investment & Capital Markets, Denver Office Market, Cost ## What are you actually buying when Denver office trades near $90 per square foot? You are buying a basis, not a return. In June 2026, Lycan Capital acquired Inova Corporate Center I and II in Englewood, a two-building campus of 187,087 SF of renovated Class A, for $16.08M per SKLD Information Services, roughly $86/SF, at 82% leased with 3.8 years of weighted average lease term (Colorado Real Estate Journal, August 5 to 18, 2026). The sellers had paid $19.11M in 2017 per Arapahoe County records. That is a $3.03M gap on the sell side, before renovation spending, and a real margin of safety on the buy side, because nobody is building Class A office in Denver anywhere near that number. But the discount only pays if the building leases and holds. The trade lives in the 18% you have to fill, the rollover sitting inside the 82% you inherited, and the capital plan that is not in the offering memorandum. Two southeast suburban office deals closed this summer, both reported in the Colorado Real Estate Journal's August 5 to 18 issue. Lycan Capital bought Inova Corporate Center I and II in June at roughly $86/SF, 82% leased. UCHealth bought One and Two Greenwood Plaza in July, 198,560 SF, $19.36M, roughly $97/SF, as an owner-user. Similar basis. Two buyers, buying two different things. The owner-user is purchasing occupancy cost certainty for the next 20 years. The investor is purchasing a lease-up, and has to be paid for the risk of executing it. If you are the investor, the headline price is the easiest number in your model and the least useful one. ## The seller's loss is your basis, and your basis is not your return Land, hard costs, and soft costs for new Class A in this metro run a multiple of $90/SF. That is why the 708K SF under construction across Denver is roughly 73% concentrated in Cherry Creek, where Class A vacancy is 1.8% and rents hit $68.32/SF, and why essentially none of the pipeline is commodity Southeast product. That is the margin of safety, and it is worth having. Nobody delivers a new building across the street and undercuts you. Be precise about what the price gap tells you, though. Selling for $3.03M less than a 2017 purchase price, after more than $5M of renovation spending, is a fact about 2017 underwriting and nine years of ownership you cannot see into. It says nothing about whether yours is right. Buyers talk themselves into deals by anchoring on the previous owner's pain... the previous owner's pain is not an input to your returns. The useful version: at roughly $86/SF you have room to spend real capital and still sit below replacement cost. The question is how much of that room the lease-up consumes before you get paid. ## The 18% you have to lease is the whole trade Eighteen percent of 187,087 SF is roughly 33,700 SF of vacancy. You are not filling it in a vacuum. You are filling it against every other landlord in a Southeast submarket that CBRE puts at 26.4% total and 23.4% direct vacancy, with direct asking rents at $29.50/SF (CBRE, Q2 2026). Three costs land before dollar one of new net operating income. - **Downtime.** Underwrite months of vacancy per suite, not a blended assumption that space absorbs on schedule. In a submarket above 26% vacancy, the tenant sets the pace. - **Concessions.** In the deals I am seeing, Denver is clearing at roughly one month of free rent per year of term plus an elevated TI allowance. On a seven-year deal that is about seven months free before the improvement dollars. Face rent survives that. [The gap between face rent and net effective rent](https://www.brianmccririe.com/face-rent-net-effective-rent-denver-office/) is where your yield goes, and it is the line most acquisition models understate. - **Leasing commissions** on both sides of every deal, paid up front, on space that has not produced income yet. No rent growth sits underneath those costs, either. Metro asking rents are $34.07/SF full service, down 0.8% year over year (CBRE, Q2 2026). If your model leases the vacancy at asking inside twelve months on a light TI package, you do not have a model. You have a hope with cells around it. ## In-place NOI on a short lease term is a wasting asset The 82% is not a number. It is a schedule. Pull the weighted average lease term and the year-by-year expiration stack. If a third of that rent roll rolls inside 36 months, you are not underwriting 18% vacancy. You are underwriting 18% plus whatever does not renew, at the same concession load, in the same submarket. Then run renewal probability honestly. Every tenant in that building has options and knows it. That is what roughly 27% metro vacancy (major brokerages, Q2 2026) means from the landlord's side of the table. Check in-place rents against market while you are in there. Above-market rent on a commodity Southeast building is a liability wearing an NOI costume: it flatters year one, then reprices down at every expiration. Same math that decides [whether DTC vacancy is a value play or a trap](https://www.brianmccririe.com/dtc-office-vacancy-value-play-or-trap/), and it turns on the rent roll, not the submarket label. ## Renovated is where the capital plan starts, not where it ends Renovated Class A helps. It does not stop the spending. You inherit elevators, rooftop units and chillers, roof, garage, restrooms, and life safety systems, and none of it stops aging at closing. Price the building's actual capital schedule, not a per-foot reserve pulled off a template. Then price the leasing capital separately, because in a 27% vacancy market a commodity building competes on capital. Spec suites, a conference center, upgraded common areas... the buildings winning Denver deals right now are the ones a tenant can occupy in 60 days without running a construction project. Cherry Creek Class A sits at 1.8% vacancy and $68.32/SF. The Southeast submarket sits at 26.4%. Tenants are not short of options. They are choosing on quality of space and quality of deal, and both are bought with capital. ## Your exit needs a buyer, not a cap rate assumption Answer three questions before you sign: who buys this from you, at what basis, and on what evidence. The realistic bid list for stabilized commodity Southeast office is another private investor, an owner-user, or an institution if you have genuinely stabilized it. The owner-user bid is live, which is the useful thing the UCHealth trade tells you at $97/SF. The institutional bid for this product is not back yet. Read the capital markets data carefully, because the averages lie. Denver logged $222M of office investment volume in Q2 at an average of $174/SF, up from $101/SF in Q1 (CBRE). That jump is mix, not appreciation. 255 Fillmore traded at a record $941/SF in the same market where renovated Southeast Class A clears at $86/SF. Two asset classes sharing a metro, and [where Denver office cap rates actually sit](https://www.brianmccririe.com/denver-office-cap-rates-2026/) depends on which one you are holding. If your exit assumes cap rate compression, say it out loud. You may be right. Just do not bury a market call inside a spreadsheet and call it an assumption. The exit that works on its own merits is simpler: you sell the lease-up. A building at 92% with a weighted average lease term past five years is a different asset than the one you bought at 82% with rollover in front of it. That difference is the return. Not the discount. ## The demand side is stabilizing. That is not the same as a floor. The case for buying now sits on the demand side, and it is legitimate. Denver office tenants took roughly 119,700 SF more than they vacated in Q2 (Cushman & Wakefield), the strongest quarterly net absorption since Q1 2022, which ran nearly 282,000 SF. Leasing hit 1.7 to 1.8M SF, also the best quarter since Q1 2022\. Metro sublease is down 24.6% year over year to roughly 3.9M SF (CBRE) and has now declined five straight quarters (Cushman & Wakefield). Downtown improved 20 basis points to 38.6% on CBRE's read, the first improvement of this cycle. The counterweights are just as real. Year-to-date absorption is still negative, between -79K and -144K SF depending on the firm. Metro vacancy is roughly 27% and the direction is contested: CBRE has it down 20 basis points on the quarter, Cushman & Wakefield has it up 10\. National office vacancy is around 20.1% (Cushman & Wakefield, Q2 2026), so Denver runs well above national and downtown runs roughly twice it. And Southeast sublease went the wrong way, up 76K SF quarter over quarter to 1.5M, all of it Class A, landing on the exact submarket where these basis-reset trades are clearing. Nationally, distressed office has been trading well below prior loan balances, with private buyers taking the majority of that volume. The discount by itself is not the Denver story. What makes Denver different is that the discounts are arriving alongside positive absorption and the strongest leasing quarter in four years, rather than into a market that is still falling. Still in recovery, shifting toward stabilization. That is the honest read, and it is not a floor call. Anyone telling you the floor is in does not have to underwrite your lease-up. ## Frequently asked questions **Is $90 per square foot below replacement cost for Denver office?** Yes, by a wide margin. Land, hard costs, and soft costs for new Class A run a multiple of that number, which is why the metro's 708K SF construction pipeline is roughly 73% Cherry Creek (Class A rents there are $68.32/SF) and essentially none of it is commodity Southeast product. Below replacement cost means no one delivers new competing supply at your basis. It does not mean the building leases. **What vacancy should I underwrite in Denver's Southeast submarkets?** Use the submarket figure, not the metro figure, and the district figure if your broker can get it. CBRE puts the Southeast submarket at 26.4% total and 23.4% direct vacancy with $29.50/SF direct asking rents (Q2 2026), and conditions vary building to building inside it. Metro office vacancy of 26.6% to 28.7%, depending on the firm, is the backdrop, but your lease-up competes against the specific corridor the building sits in. **How much do concessions cost in a Denver office lease-up right now?** In the deals I am seeing, the market is clearing at roughly one month of free rent per year of term plus an elevated TI allowance, with leasing commissions on both sides on top. On a seven-year lease that is about seven months of free rent before improvement dollars. Model the net effective rent, because face rent holds up in this market while the economics behind it do not. **Has Denver office hit bottom?** No one can make that call responsibly, and the Q2 data cuts both ways. Quarterly net absorption turned positive at roughly 119,700 SF, leasing was the strongest since Q1 2022, and sublease has declined five straight quarters. But year-to-date absorption is still negative and the two largest brokerage houses disagree on whether vacancy rose or fell. The accurate framing is a market still in recovery, shifting toward stabilization. **Why did one Denver office building trade at $941 per square foot while another cleared at $86?** Because they are not the same asset class. 255 Fillmore is prime Cherry Creek product in a submarket where Class A vacancy is 1.8% at $68.32/SF rents. The $86/SF trade is renovated commodity Class A in a Southeast submarket running above 26% vacancy. Denver office is a barbell right now, and a metro average blends two markets that have almost nothing to do with each other. The discount is not the thesis. Buying renovated Class A at roughly $86/SF gives you room a 2017 buyer never had, and that room is only worth something if you spend it deliberately: on downtime you actually modeled, concessions at the real clearing price, capital that keeps the building competitive, and an exit that does not need the market to do you a favor. Get those right and the basis does its job. Get the lease-up wrong and you bought someone else's problem at a discount. --- **If you are underwriting a Denver office acquisition at a reset basis, I will pressure-test the lease-up with you: submarket competition, the real concession load, the rollover buried in the in-place rent roll, and who your exit buyer actually is.** [**Schedule time with me.**](https://www.brianmccririe.com/meet-with-brian-mccririe/?utm%5Fsource=blog&utm%5Fmedium=cta&utm%5Fcontent=denver-office-basis-reset-underwriting) --- **About Brian McCririe** Brian McCririe is Executive Managing Director of SVN | Denver Commercial and National Council Chair for Occupier Services across the SVN network. After 25 years representing tenants and investors across global markets, he now focuses on the Denver Metro area helping companies navigate leases, acquisitions, and the gap between what landlords offer and what occupiers deserve. He leads one of the metro's top tenant rep practices and writes about the deals, decisions, and market shifts that matter to corporate real estate leaders.