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May 2015 — Retail Properties Quarterly — Page 27
by Ryan Gager
In the current real estate market,
whether it’s the industrial, office
or retail market, sometimes you
have to get creative when it comes
to space that your business will
operate out of. That is the thinking
behind the Denver office of G.J. Gard-
ner Homes, a custom homebuilder,
when it moved into a retail store-
front along Tennyson Street in the
Berkeley neighborhood.
“It is unusual to have a retail
design center storefront on such a
walkable street like Tennyson,” said
Doug Backman, managing director of
DB Marketing. “At the same time it
is an innovative real estate idea for
this product, and also speaks to the
popularity of custom homes.”
G.J. Gardner is a franchise concept
that began in Australia and landed
in the U.S. in 2005. The company
recruits local custom builders to
work under the brand and provide
tools and processes to help the fran-
chisee be successful. G.J. Gardner has
nine design centers across the Front
Range, but the one in Berkeley is the
first highly trafficked retail concept.
“The storefront is an easy way for
us to get our name out there and
be seen, so people realize that this
option exists,” said Dave Pagano,
owner and builder of G.J. Gardner
Denver. “We have a model home
that we can walk to from this store
to see a finished product, but then it
is nice to come back here in a more
professional setting to go through
the contracts and processes.”
G.J. Gardner Denver sells the prod-
uct with standard finishes in it, and
then the client can go to the retail
store, which is a design center, and
change whatever he wants. It is
up to the client how much or little
he customizes the home with tile,
countertops, fixtures, paint color and
more.
The operation falls between a large
production builder and small mom-
and-pop operation, which is why
the employees feel like having an
800-square-foot retail space works
well for them. Pagano and his staff
build homes throughout Denver
County, but feel like the retail store-
front will work only in select loca-
tions, and Berkeley is one of them.
“Berkeley is unique because it fits
our demographic for clientele, and
in and around this neighborhood
we are pretty recognizable,” said Jeff
Veronie, new home consultant with
G.J. Gardner Denver. “To be able to
meet people in our retail store and
interact with the community goes
along well with what we are doing
and our style of building.”
One benefit of the retail storefront
that Pagano and Veronie have seen
repeatedly is how much time their
clients save. “We try to have clients
come in here and get everything
done in two or three meetings,” said
Pagano. Because customers can see
everything from cabinets and tile,
to plumbing and light fixtures in
the store, it simplifies the process
and saves time traveling to several
different places. “The difficult part
for other custom homebuilders or
remodelers is not having everything
right in front of you to be able to
compare the cabinets to counter-
tops or tiling to fixture options,” said
Backman.
Since this concept is new for both
G.J. Gardner and customers, Pagano
and Veronie are unsure how much
daily, weekly or monthly foot traf-
fic they will get, especially since it
isn’t typical retail, but they say their
experience so far has been positive.
“Usually people don’t just wake up
one day and get the idea that they
want to build a custom home,” said
Veronie. “But this is a great place to
introduce them to it and get them to
realize they can do pretty much any-
thing. When they see the store and
come in it plants the seed, and then
when they see other houses go up
in the neighborhood it starts making
more sense.”s
Franchise Spotlight
G.J. Gardner is a custom homebuilder that utilizes a heavily trafficked retail storefront.
at Stapleton, which was purchased
for $52.25 million at a 7.1 percent
capitalization rate. The 269,580-sf
power center includes the follow-
ing tenants: Ross, PetSmart, Party
City and Office Depot. The property
is shadow anchored by Walmart,
Sam’s Club and Home Depot, which
were not included in the sale.
Moving forward, we expect it to
remain a seller’s market unless
and until there is a sizeable jump
in interest rates in a short period
of time. At the moment, interest
rates remain near all-time lows,
with the 10-year Treasury rate near
2 percent. However, as interest rates
rise, capitalization rates will rise
with them. Cap rates will not nec-
essarily increase in lock-step with
interest rates, as current spreads
being charged by lenders are signifi-
cantly greater than they were before
the economic downturn, so there
appears to be room for spreads to
compress if competition heats up
among lenders in a further improv-
ing economy. The biggest threat
to the seller’s market is a sudden
spike in interest rates, which will
inject a layer of uncertainty into
the market, put upward pressure
on cap rates and make buyers more
cautious. Higher interest rates
also will make other investment
vehicles more viable for investors
chasing yield. If the Federal Reserve
is able to thread the needle and
slowly increase interest rates over
time, coinciding with an improving
economy, the impact on invest-
ment properties will not be as great
as decreasing vacancy rates and
increasing rents should offset some
of the value lost due to an increase
in cap rates.s
forecast. But ENR forecasts a 52 per-
cent increase in commercial con-
struction for Colorado Springs this
year – an increase that would take
the city from $530 million in 2014 to
$809 million in 2015. While most of
the construction is forecast to be for
users and not speculative construc-
tion, an increase in commercial
construction of this magnitude will
be good for jobs and income and,
perhaps most important, will give
physical indications that the mar-
ket is improving, which will give
consumers more confidence in the
market and drive up retail sales.
With positive first-quarter indica-
tors in overall commercial space
absorption and leasing, positive
gains in retail absorption and leas-
ing, opportunity in retail invest-
ment properties, positive forecasts
for commercial construction and
new leadership for the city (Colo-
rado Springs will have a new mayor
after a runoff election), Colorado
Springs is poised for a successful
year in the retail sector of its com-
mercial real estate market and the
overall economy.s
Total absorption of office, retail and
industrial space for first-quarter 2015 was
237,425 square feet – a 79 percent increase
compared with first-quarter 2014’s total
absorption of 132,307 sf.