Colorado Real Estate Journal - August 5, 2015
CWS Capital Partners added to its Denver-area portfolio by paying $72.5 million for the 301-unit Yards at Denargo Market at 2797 Wewatta Way in RiNo, in the biggest apartment community sale so far this year in the increasingly popular River North neighborhood. The sale equates to $240,864 per unit and $286.64 per square foot. CWS bought it from the developer, Austin-based Cypress Real Estate Advisors. CWS has renamed the five-story building as the Marq at RiNo. “It’s practically the only one in RiNo to sell,” said Terrance Hunt, who sold the Yards at Denargo with fellow ARA Newmark brokers Jeff Hawks, Doug Andrews and Shane Ozment. The only other large RiNo apartment sale was Block 32 at RiNo, which last year sold for $43 million, Hunt said. “So this is the biggest,” Hunt said. He said they received five or six offers for the Yards at Denargo Market, which is fewer than they often receive for urban Denver communities. “Just like anything in Denver, there was a lot of interest in it,” Hunt said. “But for some out-of-state institutional investors, RiNo is still a little hard for them to get their arms around,” Hunt said. It is much easier for out-ofstate investors to understand the Union Station area, for example, than RiNo. “If you look at RiNo from afar, it’s a little hard to understand just how quickly that area north of downtown is evolving,” Hunt said. One group, though, that is welcoming the new additions to RiNo are young, professional millennials. “Renters love RiNo,” Hunt said. “They love that it is only minutes from downtown, but still it kind of a gritty neighborhood. The grittiness is part of RiNo’s appeal.” RiNo apartments also rent for less than new communities by Union Station or Lower Highland, he noted. Cypress, which is building a 300-unit project next door to the former Yards at Denargo, decided it was a good time to sell and take advantage of the strong market, he said. “Their cost basis was really low, because they were the first ones in the neighborhood and they got a great price for their property,” he said. Simpson Housing and others also are planning apartment communities in RiNo, he noted. Some developments, however, have been delayed because of the shortage of subcontractors, especially framers, he said. Hunt said he isn’t worried about overbuilding in RiNo as in other infill, Denver neighborhoods. “If you based everything on historic facts of absorption, it would be alarming,” Hunt said. “But the demand factor right now in Denver is so great that everyone has been surprised,” Hunt said. “The supply is being absorbed faster than anyone had predicted and at higher rates,” he said. A lot of the new product in and around Denver, and to a lesser extent in the Denver Tech Center, will come on line this year and in 2016. Maybe that is when the other shoe will drop and occupancies and rents will fall. But maybe not. “It is really hard to say,” Hunt said. “People were projecting a big slowdown in 2014 and as we entered 2015, but it didn’t happen. Even if you look at the U.S. 36 corridor in Broomfield, a ton of new stuff opened and units have never leased faster or at higher prices,” he said. Meanwhile, with the purchase in RiNo, CWS owns more than 1,000 apartment units in the Denver area. “They are very bullish on Denver,” Hunt said. “Most notably, they own the Marquis at the Parkway, which is right off Speer by the King Soopers,” near West Colfax Avenue. The Marquis at the Parkway, at 1170 Galapago St., is its biggest single holding with 460 units. It also owns the 283-unit Marquis at Town Centre at 1001 E. First Ave. in Broomfield. The Marq at Ridgegate, which ARA Newmark recently sold to them, has 243 units. Other News n In another deal handled by the ARA Newmark team of Terrance Hunt, Jeff Hawks, Doug Andrews and Shane Ozment, Steadfast Apartment REIT paid a total of $91 million for two apartment communities. Steadfast paid $53.4 million for the 360-unit Hearthstone at City Center at 932 S. Helena Way in Aurora and $37.6 for the 303-unit Bella Terra at City Center at 15400 E. Evans Ave., also in Aurora. The Hearthstone sale equates to $148,333 per unit and $169.71 per square foot. The Bella Terra sale equates to $124,092 per unit and $183.75 per sf. “Denver and its surrounding cities are experiencing solid economic fundamentals compared to other national cities,” said Ella Neyland, president of Steadfast Apartment REIT. “This includes employment, population growth and renter demand,” he continued. “Strong employment is a key driver in Steadfast’s acquisition strategy and Denver’s unemployment rate fits into Steadfast’s target markets when acquiring apartment communities. “Additionally, limited new apartment construction in the Aurora submarket should keep demand healthy for Bella Terra at City Center and Hearthstone at City Center for the foreseeable future,” Neyland said. Bella Terra at City Center was constructed in 1980 on nearly 10.6 acres. It includes 15 two- and three-story garden-style buildings. The average size of a unit is 676 sf and the average monthly rent is $917. Amenities include a clubhouse, fitness center, swimming pool with spa, business center, outdoor basketball court, playground and a picnic area with barbecue stations. Bella Terra at City Center is currently 98 percent occupied. Hearthstone at City Center is two miles from Bella Terra and was built in 1984. Hearthstone units range from 720 sf to 1,501 sf. The average monthly rent is $1,038. Amenities at Bella Terra include a fitness center, swimming pool, business center and a playground with a basketball court. Both properties will undergo a moderate revitalization strategy to unit interiors and exterior common areas. Bella Terra at City Center and Hearthstone at City Center are near the Denver Tech Center area, with 40 million sf of office space. They also are near the Anschutz Medical Campus and the Fitzsimons Life Sciences District, which cover 578 acres. The communities also are expected to benefit from the FasTracks opening of rail lines, including those to Denver International Airport, Union Station in downtown and the T-Rex southeast light-rail line. Dallas-based Mill Creek Residential plans to break ground later this month on a 275-unit, luxury apartment community near the University of Denver. Mill Creek purchased a 2.08- acre site at 1911 S. Josephine St. for the development it is calling Modera Observatory Park. Modera is scheduled to be completed in the first quarter of 2017. The land sales price was not revealed. Modera is being designed by Studio PBA. The site is on the southwest and southeast corners of South Josephine Street and East Jewell Avenue in Observatory Park. Formerly a surface parking lot and five single-family homes, the site will be developed into two five-story apartment buildings. “With visibility from I-25, light rail within walking distance and surrounded by some of the highest-value homes in Denver, this opportunity was one that Mill Creek understood immediately,” said Chris Cowan, who sold about half the property to Mill Creek Residential with fellow ARA Newmark team members Steve O’Dell and Julie Rhodes. That 1.03-acre site was listed by ARA Newmark at $4.5 million, or about $100 per sf. Mill Creek also bought an adjacent 1.05-acre site directly from the owner, Cowan said. “(Modera) will be unique as it fronts both sides of Josephine Street, allowing Mill Creek to create a strong streetscape,” Cowan said. He said there is one 11-story apartment building in the area, “but most of the rest of the new construction has been smaller boutique apartments, so I don’t think the area is overbuilt,” Cowan said. Mill Creek will benefit from its proximity to students at the University of Denver, he said. “It’s also almost equidistant between the Cherry Creek Shopping Center area and Cherry Hills, which are two super-high demographic, high-income areas,” Cowan noted. The median sales price of a home in Observatory Park is $840,000, according to COhomefinder.com. He said he thinks Mill Creek will be able to command rental rates of “north of” $2 per sf at Modera. “The average size of a unit probably will be less than 1,000 square feet, so I would guess that a typical monthly rent would be in the $1,600 to $1,800 range,” Cowan said. “We were attracted to the Observatory Park neighborhood for many reasons, including an easy commute to both of Denver’s employment centers while being close to some of Denver’s best amenities and transit,” said Brian Wynne, a managing director at Mill Creek. “We plan to develop a very high-quality community with top-level finishes, a luxury pool deck and more,” at Modera, he said. “We’re very excited to become part of this neighborhood.” n An unidentified buyer paid $2.83 million, or $141,500 per unit and $118.67 per sf, for a 20-unit apartment building at 833 Dexter St. in Denver. Matt Lewallan and Kevin Calame, both senior advisers with Pinnacle Real Estate Advisors, represented the buyer in the transaction. “The buyer owns a few other properties around the block and is really excited to add another Denver property to his portfolio,” Calame said. n An unidentified buyer paid $1.71 million for the 12-unit apartment building at 1444 St. Paul St. in Denver. That is slightly above the asking price of $1.7 million for the building listed by Kyle Malnati and Greg Johnson of the Madison Co. The sales price equates to $142,083 per unit and $169.52 per sf. It sold for a cap rate of 3.26 percent. The seller had paid $790,000 for the property in 2006, according to public records. n An unidentified buyer paid $650,000, or $92,857 per unit and $161.25 per sf, for the seven-unit Barnum House apartment building at 303 Hooker St. in Denver. The property was constructed in 1929. Josh Newell, a senior adviser at Pinnacle Real Estate Advisors LLC, represented the local buyer and seller in the transaction.