Colorado Real Estate Journal - November 19, 2014

Joblon starts at top with apartment tower

Matt Joblon’s company, Cherry Creek-based BMC Investments, is developing the most expensive apartment tower in Denver’s history.

The $108 million, 218-unit Steele Creek apartment tower that is under construction at First Avenue and Steele Street in the heart of Cherry Creek North costs more than $400,000 per door.

It is projected to get blended rents averaging the highest in Denver at about $3.50 per square foot, with penthouse units getting far north of that amount.

It also is the 33-year-old Joblon’s first development.

”You really started at the top of the ladder,” said Cary Bruteig, owner of Apartment Appraisers & Consultants, when he introduced Joblon as a development panel member at a recent Colorado Real Estate Journal multifamily conference.

As big as it is, Steele Creek is not the only development on Joblon’s real estate plate.

He also has a $68 million, 155-room hotel going forward in Cherry Creek North in a partnership with Sage Hospitality and a $70 million,12-story, medical office that will have approximately 200,000 sf planned near the Anschutz Medical Campus at Fitzsimons.

Steele Creek, which already is 10 percent preleased, may be at the top of the Denver apartment food chain, but Joblon has focused on the other end of the apartment spectrum since arriving in the Mile High City just a few years ago.

Since 2011, BMC (which stands for Building Management Co.), has purchased 3,489 apartment units for $227.7 million in the Denver area. Of that, $164 million was in debt and about $64 million was in equity.

“They were all 1970s era apartments,” Joblon said from his office in Cherry Creek North, where about a dozen people work. BMC has a total of about 70 employees, most of them in its property division.

Joblon, who is incredibly analytical and risk-averse, was bullish on the Denver market from the get-go, based on the same metrics that everyone likes, such as demand fueled by Denver’s quality of life, job growth, its magnetic role for millennials and the difficulty or indifference of young people to buy a home, pushing them into the rental market.

And until the latest building boom, there was a lack of supply of apartments to meet the growing demand, as construction had come to a standstill during the Great Recession.

“But even I’ve been surprised just how strong the apartment market has been,” he said.

It may seem like he had the Midas touch, given that his timing was so good.

Joblon, however, said his path has not been without missteps.

“I made 1,000 mistakes along the way,” Joblon said.

However, a great market made up for all of his mistakes, he said.

Even more importantly, he learned from his errors and engendered trust in his investors, helping him to attract even more people willing to write him checks with many zeroes.

“I took full responsibility for all my mistakes and owned up to them,” Joblon said. “I was ridiculously transparent.” He didn’t have to be.

His investor pool includes well-heeled real estate developers and investors from New York City.

“Honestly, these guys don’t look at the closing documents,” where they might have discovered his momentarily lapse of good judgment.

One of his “doozies” was in his first deal, an 81-unit building purchased for $4.1 million.

He realized he only had $600 in an account for an operating cushion, in case they needed more money for any unforeseen problem.

“I sent my partners a memo and told them it was my mistake and I wasn’t going to come back to them for a capital call,” asking them to pony up more money, he said.

Instead, he said he would put up the money personally at a zero percent interest rate.

Only one problem.

He didn’t have any money.

Somehow, though, he managed to get a $60,000 line of credit that he was willing to put into the account, which got drawn down to $200.

Cash flow after the closing was so strong that he never had to kick in the money.

“I tell you, I couldn’t sleep at night,” during that period, he said.

BMC already has sold 1,000 of the units, primarily the smaller apartments.

The returns are so big that some investors have gotten spoiled, he said.

“Our investors doubled their money,” said Joblon, who with his prematurely graying hair bears a striking resemblance to movie actor Richard Gere, if Gere sported a neatly trimmed beard.

He arrived in Denver after seven years in Los Angeles, working for a New York-based developer.

In 2009, Joblon married Alissa Alpert, daughter of prominent Denver land developer Lee Alpert. Lee and his brother have developed tens of thousands of acres in the Denver area.

In 2010, Alissa Alpert was pregnant.

“I told her there was no way I wanted to raise a child in L.A.

and we could either move to Denver, where you are from, or Boston, where I am from. She chose Denver,” he said.

The Alperts are not investors in his real estate deals, he said.

Joblon wasn’t planning a career in real estate.

He was planning to join his family business, the Brittany Dyeing and Printing Corp. in Bedford, Massachusetts, which, among other things, makes uniforms for men and women in military service.

“I was passionate about the business,” Joblon said.

“I did everything there from being a janitor to being an executive,” he said.

When he was 12 or 13, he was a janitor.

“It was a big union shop and I punched a clock like everyone else,” he said.

When his fellow janitors realized he was the boss’ son, “They left some surprises for me in the restrooms to clean up. It was disgusting.” He complained to his father, Kenneth, who told him he understood and if he never wanted to work there again, that was his choice.

But he wasn’t going to step in.

“There was no favoritism,” Joblon recalled.

Working with the blue-collar workers was a great experience and he became friends with those who initially hazed him.

“To this day, I can talk to and relate to anyone,” Joblon said.

His father told Joblon that he could join the family business, but first he had to strike it out on his own to get some outside experience.

When he was a senior at Babson College in Wellesley, Massachusetts, where he received a degree in entrepreneurship and real estate finance, he struck up a conversation with a guy he met while on vacation on St.

Barts.

He turned out to be a bigtime New York-based developer and real estate investor.

After college, Joblon headed out to Los Angeles with a college buddy, who coincidentally had attended Cherry Creek High School.

“I moved out to L.A. with no job and took the first one I got,” he said.

He became a financial adviser for UBA Financial Services in Beverly Hills, earning his Series 7, 66 and insurance licenses.

“I did it for two years and hated every single moment of it,” Joblon said.

However, he had committed to two years and he is a man of his word.

“Most importantly, I learned a ton about that business, which has been important for the way I manage my own finances,” he said.

Joblon didn’t forget about the guy he met while on vacation.

“I left him messages for a year,” Joblon said.

Joblon’s persistence paid off and he got the developer’s attention.

“He must have seen something in me, so when he would come to L.A. from New York, we would get together,” Joblon said.

“We made a handshake deal and he said he would pay me if we ever did a deal together,” he said.

Joblon brought him the Gucci building on Rodeo Drive in Beverly Hills.

It was a home run and it was sold soon after they closed on it for a big profit.

“He kept his word and paid me,” Joblon said. “He was a big New York developer and I was a nobody. He could have screwed me, but he didn’t.” Instead he hired him and Joblon worked on more than $200 million in deals during his tenure in California.

“But I wasn’t the guy” who was calling the shots, he said.

“But I got a tremendous education. I learned about zoning, entitlements and all of the steps required to get a building out of the ground.” That has proved to be invaluable at Steele Creek.

He learned about the site from a cold call from an apartment broker.

When the broker asked him if he was interested in the property, which was in foreclosure, Joblon initially decided he would pass.

The broker persisted and the more he looked at it, the more Joblon liked it, especially since the ‘70s product he had been buying were getting insanely expensive.

“I’ve walked away from hundreds of deals,” he said, because the numbers didn’t pencil out.

There was also a lot of competition for the Cherry Creek North site.

“There were 40-plus bidders for it,” he said.

Still, he wasn’t initially sold on developing it himself.

“We looked at it from every angle,” Joblon said.

With his background in Los Angeles, he figured he could clean up the zoning deficiencies and other problems with the site.

He also calculated that if worse came to worst, they could sell the land and return the money to his investors.

Or they could bring in a fee developer or sell it outright to a developer.

“There were a lot of options,” he said.

“Then, in 2012 and 2013, the market really started to go nuts,” he said.

“We realized it would make sense to do it ourselves,” he said.

While there were plenty of banks and insurance companies willing to supply debt, there was a dearth of equity investors.

His investor pool had agreed to put in $10 million, but they needed double that amount to get a loan.

Because of his lack of a track record in development, investor after investor turned him down.

“Equity investors want to know what you’ve done before and I hadn’t built anything before,” Joblon said.

They also were spooked that no apartment tower in Denver had ever cost north of $400,000 per door to build and no one was getting the rental rates they were projecting, he said.

He hired CBRE of Los Angeles, which put together a slick, detailed 114-page report on the potential of the property.

CBRE pitched it across the country and throughout the world.

Ironically, the money ended up coming from Joblon’s backyard.

UDR, a real estate investment trust based in Highlands Ranch, stepped up to the plate.

Thomas Toomey, CEO of the $7.7 billion market cap REIT, in a recent conference call with analysts said that UDR had issued about $100 million in equity, which primarily will be used to fund its “accretive $92 million Steele Creek participating loan.” Joblon said UDR understood the dynamics of Cherry Creek North better than others from outside of the area.

“UDR has been a great partner,” Joblon said. “I would gladly do a thousand deals with them.” Joblon said two economic fundamentals are key to all of his investments.

The first is the power of compounding.

“Everyone has heard of Donald Sterling,” who was forced to sell the L.A. Clippers basketball team after making racist comments.

“He bought the team in 1981 for $12.5 million and sold it this year for $2 billion,” he said.

“That’s a 16,000 percent return, or about 16 percent each year. It really shows you how powerful compounding is.

That’s how people get rich – by earning 13 percent or 14 percent or 15 percent each year.” The other lesson is that if you lose 50 percent of your investment “you have to make 100 percent just to return to where you started.” Before he came to Denver, he saw investors who were overleveraged get hammered during the national downturn.

“I hated what it did to people’s lives but it was a great lesson for me,” Joblon said.

“If you walk around our office, you will never hear people talk about what a killing we will make, or how much money we will make. You will hear people ask about what are the risks, what are the downsides, how can we get screwed?” Every investment Joblon makes is based on risk-adjusted returns.

He underwrites everything conservatively, based on current incomes with inflation adjustments not on big rent increases that would jack up internal rates of return and net operating income projections.

Projections on rent increases, he notes, can always be wrong.

But he applauds those who take the kind of risks he did when creating BMC.

“I just spoke to an entrepreneurial class at DU,” Joblon said.

“I did it because the idea of starting up a business really excites me. I told the class that I am no different from you. My dad didn’t help me. He would have, but he didn’t know anybody in real estate. He only knows people in his little textile world. He didn’t give me any money; I was on my own.” If Joblon isn’t working, he knows how he wants to spend his time.

“I work a lot, so what little free time I have I really want to spend with my wife and two baby girls,” he said.

He also likes to hit the ski slopes.

“I learned to ski on the icy slopes of the Northeast, so the worst day here is better than the best day there,” Joblon said.

He also likes to read, but not novels.

“I can’t read fiction,” he said.

Instead, he likes to read everything he can on business, from real estate publications to biographies of business people.

“I love a good story,” Joblon said.

One of his favorite books is Zeckendorf, about the life of New York City real estate developer William Zeckendorf.

Zeckendorf lost much of his fortune by developing Zeckendorf Plaza along what is now the 16th Street Mall, at Tremont Place and the mall.

Zeckendorf Plaza has been described as the first major development in the U.S. to incorporate a hotel (Hilton), a department store (May D&F) and a plaza.

“It’s interesting that Zeckendorf’s grandchildren are in the real estate business, but they won’t do highly leveraged deals because of what happened to their grandfather,” Joblon said.

Going forward, Joblon said he will always be looking for opportunities as they arise, which is why he is doing a hotel on the former U.S. Post Office site in Cherry Creek North and a medical office complex by Fitzsimons.

“I know what I don’t know,” Joblon said. “The hotel industry is unbelievably complex, so I’ve teamed up with Walter Isenberg of Sage Hospitality on a truly trophy site. And if you look at everything that is happening at Fitzsimons, that is just an unbelievable market for medical office buildings.” Joblon plays down the fact that he bought almost 3,500 apartment units in just a few years.

“Honestly, we should have bought 10,000 units,” Joblon said. “I didn’t have the right people in place, so I was doing everything myself.” That has changed, he said.

“I am now surrounded by great people,” he said. “It all comes down to people, people, people.”