Downtown Denver Challenges Push Another Office Building to Foreclosure
According to Katie Burke at CoStar News, "A record amount of vacant space and a limited pool of occupants willing to fill it has pushed another downtown Denver office property into foreclosure.
Proceedings kicked off earlier this week for the 24-story tower at 700 17th St., marking the fourth downtown building to enter foreclosure since the onset of the pandemic sent the city's downtown market into a downward spiral. The property — purchased by local investment firm Toma West for $32 million just shy of a decade ago — has faced a steep occupancy drop from 90% in 2016 to its current rate of about 60%, according to loan documents.
The $21 million loan, issued by New York-based Benefit Street Partners to finance Toma West's acquisition, was set to expire in June 2026. However, Toma West fell behind on payments and defaulted earlier this year, leading to last month's appointment of a receiver to oversee the building and its associated financial obligations. There was still a balance of about $19.2 million in principal on the loan as of last week, according to public filings.
Neither Toma West nor Benefit Street Partners immediately responded to CoStar News' requests to comment.
Similar to some other markets across the United States, Denver — and especially its downtown neighborhoods — is still struggling to stitch itself back together after the COVID-19 pandemic landed blows to the region's office sector. The area has one of the highest vacancy rates among any other U.S. market, a figure that has soared to 17% and is expected to climb even higher as leasing volume remains just a fraction of what it was in the years leading up to 2020.
While tenants are showing signs of a willingness to commit to space for the long term, a majority of companies are downsizing their spatial requirements, according to a CoStar analysis, signaling that high levels of vacancy will likely remain a sticky issue as landlords struggle to fill their properties.
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Leasing volume has remained largely flat since 2021, according to CoStar data, averaging about 10 million square feet annually, or about 25% less than Denver's pre-pandemic, five-year annual average.
All of that, combined with the economic hurdles facing office landlords across the country, have added pressure to owners staring down maturing loans and other financial responsibilities. In Denver alone, the owners behind the Denver Energy Center at 1625 and 1675 Broadway, The 410 tower at 410 17th St. and Trinity Place at 1801 Broadway have all faced foreclosure proceedings since the pandemic's outbreak.
Those do not include a handful of other properties for which owners have defaulted but the lenders have decided against initiating foreclosure proceedings, at least for now."
The increasing office vacancies across the nation, as illustrated by the situation in downtown Denver, are having a profound impact on property taxes and local economies. The case of the Toma West-owned tower at 700 17th St. in Denver, which has seen occupancy plummet from 90% in 2016 to about 60%, highlights the financial strain on property owners. As more office spaces remain vacant, the potential for foreclosures rises, which can lead to significant decreases in property values. This, in turn, affects the tax revenue that municipalities rely on to fund essential services.
When a property enters foreclosure, as seen with the Toma West tower and other buildings in Denver, its assessed value often drops. This decline in value directly impacts property tax assessments, leading to reduced revenue for local governments. Cities like Denver, already grappling with high vacancy rates (17% in this case), face a compounding problem: the more properties that enter foreclosure, the greater the decrease in property tax revenue.
This issue isn't isolated to Denver. Cities across the country are experiencing similar challenges as the pandemic has fundamentally altered office space demand. Companies are downsizing their spatial requirements, leading to prolonged vacancies. With leasing volumes remaining flat and well below pre-pandemic levels, the trend is expected to persist. This continued pressure on the office market could result in further foreclosures, a decline in property values, and a subsequent reduction in property tax revenue.
The decrease in property tax revenue can strain municipal budgets, forcing cities to either cut services or find alternative revenue sources. In some cases, this may lead to higher tax rates on remaining properties or increased fees for services, which could further burden businesses and residents. The ripple effects of office vacancies thus extend far beyond the commercial real estate market, influencing the broader economic health of cities across the nation.