Colorado Real Estate Journal -
Holliday Fenoglio Fowler, better known as HFF, recently arranged $230 million in financing for the 1,523-unit Breakers Resort apartment community near Lowry in Denver. It is believed to be the largest refinancing ever for a multifamily community in the Denver area. “It has to be, because The Breakers is the biggest apartment community in Denver,” said Jeff Hawks, a principal of the Denver office of ARA. HFF arranged the financing on behalf of its owners, the Bascom Group LLC and its original developer, Buz Koelbel. Koelbel and his former codeveloper, Al Feld, sold it to Bascom in 2006 for about $190 million in what was the largest apartment deal ever in the Denver area. Feld was bought out of the deal in the sale to Bascom, but Koelbel remains as owner. “I think this is our third or fourth refinancing, but we have always retained an interest in it,” Koelbel said. As part of the refinancing, General Electric, the original institutional investor partner with Bascom, was bought out, Koelbel said. “GE is now out,” said Koelbel, adding that he retains a “meaningful interest,” in The Breakers. He said GE wanted them to sell The Breakers. “We took a run at selling it last year, but we were not completely satisfied we were getting its true intrinsic value,” Koelbel said. However, the effort to sell it helped them arrive at what a fair price that GE’s stake in The Breakers would be worth, he said, based on what it would have received in an arm’s-length, thirdparty sale. “All of these big institutional investors have certain time frames for their holding period and GE had reached that time when it wanted to sell,” Koelbel said. “These big investors are not as nimble as we are,” Koelbel said. “We can walk in a room and make a decision, while every decision big institutional investors make needs to be discussed by committees.” Koelbel said that he and Bascom made a joint decision to refinance and take out GE, rather than sell.“Really, it is the market that allowed us to do it,” Koebel said. “Interest and financing terms are so attractive, it made a lot of sense. Plus, if we sold it, we would have to deploy our capital someplace else. Where would we put it? It seemed to make more sense to refinance.” The HFF team secured a $165 million first mortgage, a $26.25 million mezzanine loan and $38.75 million of preferred equity. The $165 million first mortgage was a floating-rate loan and included a threeyear term with two, oneyear extension options. It was provided through Bank of America and CIBC. The mezzanine loan and preferred equity were provided by Prudential Real Estate Investors’ $805 million U.S. Real Estate Debt Fund. Proceeds were used to refinance the existing mortgage and mezzanine loans that HFF had secured for the ownership in 2011; buy out GE, the existing institutional equity partner; and provide capital for future renovations. The 127-acre community at 9099 E. Mississippi Ave. is near Cherry Creek, as well as being close to Lowry. The community is 95 percent leased and includes six interconnected communities, each with their own clubhouse, surrounding a 55-acre recreational lake. The project has an “attractive low density” of 14 units to the acre and has a master clubhouse featuring a large fitness center with views of the Rockies, a restaurant, business center, community room and private theater, according to HFF. The property has 50 one- and two-bedroom floor plans averaging 1,019 square feet each. Also included is an 18.23-acre apartment development parcel entitled for 628 units, which is one of the best remaining infill apartment sites in Denver, according to HFF. The HFF team representing Bascom was led by directors Charles Halladay and Mark Erland of HFF’s Orange County, Calif., office. The HFF team also included Josh Simon and Jordan Robbins of Denver and Lee Redmond in its Orange County office. “Bascom was able to access mezzanine and preferred equity capital available in today’s market and obtain financing on The Breakers Resort by adding an additional parcel of developable land as collateral, resulting in a blended cost of capital of less than 5 percent and a combined debt yield of 6.25 percent,” said Erland. Halladay had this to say: “The overall structure limited the mezzanine financing, making it necessary to fund the remaining portion with preferred equity. The Bank of America, CIBC and Prudential lending teams did an outstanding job of closing the loan. Koelbel said he remembered when he and Feld first started looking at developing The Breakers in 1989 and starting construction a year later. “The market was still pretty squirrely,” Koelbel said, as it was still suffering from the downturn in the energy business, which led to overbuilding and an exodus of jobs. “People looked at us like we were smoking something that is now legal in this state,” Koelbel joked. “People thought we were nuts,” he said. “Nothing of this size of magnitude had ever been attempted before.” Nor is anyone ever likely to attempt an apartment community of such magnitude again, Hawks said. “I think The Breakers is great,” Hawks said. “It is an asset that no one could ever build again. Having 1,523 units is like owning a city.” Because it has so many units, “They can have things like a $2 million clubhouse and a 50-acre lake with wind surfing and a guard gate,” Hawks said. “The only way to do something like that today is to build all of the amenities up-front and it would be so expensive that it would take too long to recoup your costs,” Hawks said. “No one would do that today. You couldn’t get financing, even if you wanted to.” In its early years, The Breakers was a magnet for professional athletes. One of its well-known renters was Shannon Sharpe, the former tight end for the Denver Broncos. Mike Tyson also reportedly spent time there while training for a boxing match in Las Vegas. “I hadn’t heard that, but I’m not surprised,” Hawks said. “The Breakers has such an incredible workout facility that it would be very appealing to athletes. Plus, with its guardhouse, they would get privacy. The general public can’t just drive around there.” Koelbel said that at different times a lot of the Colorado Rockies stayed there during the baseball season and then moved back to their hometowns during the off-season. However, not as many professional athletes call The Breakers home anymore. “When we first opened, we were the only game in town,” Koelbel said. “We were really alone as far as luxury, size, quality and amenities,” he said. Since then, he noted a lot of Class A apartments have been built. “Many of them are in downtown or very close to downtown and they are a lot closer to where they play,” he said. Would he ever consider converting some of the units into condominiums as an exit strategy? “That’s an interesting question,” Koelbel said. “We have two communities, Boundary Bay and Winter Beach, that would be ideally suited as condo conversions,” he said. Boundary Bay, with 208 townhome-style units, include two-car garages and Winter Beach, with 254 units, has attached garages, making them good candidates to be sold as condos when that market returns. “It’s not part of our current financial business plan, but it might be something we would consider in the future,” Koelbel said.