The Denver Downtown Development Authority (DDA) is set to acquire the Denver Pavilions mall and two adjacent parking lots for a total of $60 million. Because the DDA is a tax-exempt entity, these purchases will remove the properties from the city's tax rolls, resulting in an annual loss of more than $2.2 million in property tax revenue that currently funds public schools and municipal services.
The acquisitions are part of a larger, voter-approved initiative to revitalize Denver's struggling downtown core. However, the move highlights a direct financial trade-off between long-term development goals and immediate funding for essential city services.
Key Takeaways
- The Downtown Development Authority (DDA) has agreed to purchase the Denver Pavilions for $37 million and two nearby parking lots for $23 million.
- As a tax-exempt organization, the DDA's ownership will eliminate over $2.2 million in annual property taxes previously paid on these properties.
- Denver Public Schools, which receives about two-thirds of the city's property tax collections, will be the most affected by the revenue loss.
- The purchases are funded by a $475 million bond authorization approved by voters to combat high downtown vacancy rates.
- Both acquisitions still require final approval from the Denver City Council.
A $60 Million Investment in Downtown Revitalization
The Downtown Development Authority's board has approved two significant real estate transactions aimed at reshaping a key area of the city. The first is a $37 million purchase of the Denver Pavilions, a prominent downtown mall currently owned by Gart Properties. The DDA board voted on this acquisition last week.
In a separate deal agreed upon in July, the board committed $23 million to buy two parking lots located behind the mall on 15th Street from real estate firm Brookfield Properties. Together, these acquisitions represent a $60 million investment into the DDA's mission to rejuvenate downtown Denver.
These actions follow a decision by voters last fall to expand the DDA's boundaries and authorize it to issue up to $475 million in bonds. The funds are designated for projects intended to transform a downtown area challenged by high office vacancy rates and the lingering effects of the pandemic.
Why the DDA is Buying the Pavilions
According to Denver Chief Projects Officer Bill Mosher, the decision to purchase the Denver Pavilions was a proactive measure. The mall's current owner, Gart Properties, had defaulted on an $85 million loan, and the DDA stepped in to prevent the property from being returned to the lender. The authority's goal is to control the property's future as part of its broader revitalization strategy rather than leaving it to a financial institution.
While the DDA board has approved the expenditures, both the mall and parking lot purchases must be formally approved by the Denver City Council before they can be finalized.
The Financial Consequence for Public Services
The most significant consequence of these acquisitions is the removal of the properties from Denver's property tax rolls. The DDA, while operating with city oversight, is an independent authority and is exempt from paying property taxes.
Laura Swartz, a spokeswoman for Denver’s finance department, confirmed the DDA's tax-exempt status. This means the substantial tax revenue generated by these commercial properties will cease once the DDA takes ownership.
Annual Tax Revenue Lost
- Denver Pavilions: Approximately $1.7 million in property taxes, plus an additional $95,000 in related fees for the current year.
- Brookfield Parking Lots: Approximately $475,000 in property taxes for the current year.
- Total Annual Loss: Over $2.27 million.
This revenue is critical for funding local services. According to Swartz, the distribution of property tax revenue in Denver is heavily weighted toward education.
"Denver Public Schools receives about two-thirds of property taxes collected in Denver," Swartz stated. The remaining one-third goes to the city to fund various municipal services.
Based on this allocation, Denver's schools stand to lose approximately $1.5 million annually, while the city will see a reduction of about $750,000 in its budget from these two properties alone.
Understanding the DDA's Tax-Exempt Status
The DDA's ability to operate without paying property taxes is a key aspect of its structure, designed to allow it to invest fully in development projects. However, this status creates a different outcome than a standard commercial foreclosure.
Tax Obligations in Foreclosure vs. DDA Purchase
When a private company defaults on a loan and a lender takes ownership of a property, the tax obligation remains. The new owner, whether a bank or another entity, is still required to pay property taxes.
A clear example of this is the Denver Energy Center, a downtown office complex. After a foreclosure in 2022, JPMorgan Chase took ownership and was responsible for its $2.2 million property tax bill this year. The bank is now under contract to sell the property to a private developer, who will also be required to pay property taxes.
In contrast, when the DDA acquires a property, the tax obligation is completely extinguished. This shifts the financial burden from a private owner to the public sector in the form of lost revenue for schools, infrastructure, and other city-funded programs.
The Broader Strategy for Denver's Future
The DDA's recent acquisitions are the first major moves under its expanded authority. Last year's voter approval significantly increased its scope, which previously was limited to the area around Union Station and the Market Station project.
The central goal is to address the economic challenges facing downtown Denver. High office vacancy rates and reduced foot traffic following the pandemic have prompted city leaders and the DDA to seek transformative projects. The $475 million bonding authority provides the financial power to acquire key properties, initiate new developments, and reshape public spaces.
The purchase of the struggling Denver Pavilions and the adjacent lots is seen as a strategic step to gain control over a large, centrally located parcel. Proponents argue that such direct intervention is necessary to spur new investment and create a more vibrant urban environment. However, the immediate cost will be felt in the annual budgets of the city's schools and public service departments.
