Denver Lends $63M to Convert Distressed Office Towers into Apartments

Why is the city lending millions to turn empty office towers into apartments, and why should a neighbor in Grand Junction care about a deal in downtown Denver?

The short answer is that the commercial real estate market in downtown Denver is in distress. It’s not just a local hiccup; it’s a structural shift with some of the highest office vacancy rates in the country. Rents are flat. Dozens of buildings are in or facing foreclosure. But for investors, this downturn has turned a liability into a potential gold mine.

The city of Denver is betting big that it can fix the hollowed-out core by turning offices into homes.

Take The Luzzatto Company. A year ago, in April, they paid $3.2 million for two skyscrapers at California and 17th streets. To put that in perspective, those same buildings sold for $112 million in 2008. That’s about 3 cents on the dollar.

The plan is to convert nearly one million square feet of underused office space into High Fidelity Plaza, a 700-unit apartment complex. It’s not just housing, either. The design includes a bodega, a childcare center, and a bookstore. It’s also right next to a light-rail stop.

But converting offices to residences isn’t cheap. It’s going to cost the Los Angeles-based investors about $315 million. To make that number work, they’re relying on a low-interest $63 million loan from Denver’s Downtown Development Authority (DDA).

“We had to make a calculated risk that the DDA’s appetite for funding office-to-residential conversions would be attracted to this project in particular,” Asher Luzzatto, the DDA’s president, said in an interview. “We were betting that if DDA was serious about funding these conversions, ours would be, had to be, at the top of their list — A, because of the scale and B, because of the location and C, because of the programming and design we plan to bring to it.”

The DDA took the wager. It’s a quasi-governmental entity tasked with financing downtown improvements, and it’s already approved three other multimillion-dollar loans to private developers for similar conversions. The High Fidelity project was seen as vital to infusing vitality back into the area.

The question for locals watching the broader economic picture is whether this model scales. If downtown Denver can turn its distressed office inventory into residential assets, it stabilizes the tax base and brings people back to the urban core. That stability ripples outward. It affects transit usage, retail viability, and the overall health of the metro area that connects to the rest of the state.

Luzzatto’s bet hinges on the idea that the DDA’s funding appetite is real and that their specific project is prime real estate for that funding. They aren’t just hoping for a loan; they’re positioning themselves as the safest, most attractive option for the money.

The math supports the strategy. Buying for $3.2 million what once cost $112 million gives you a massive margin of error. Even if the conversion costs $315 million, the entry price was dirt cheap. The low-interest loan from the DDA further reduces the carrying costs during the build-out phase.

It’s a high-stakes play. If the conversion fails, the city holds the bag on the loan. If it succeeds, you get 700 new residents, a revitalized block, and a precedent for how to handle the next wave of office vacancies across the Western Slope and beyond.

As Luzzatto puts it, they’re not just building apartments. They’re building a case study. And if the DDA’s recent lending spree is any indication, they’re winning the argument.