Colorado Real Estate Journal - October 21, 2015
Developer Mark Falcone has a 1,000-foot litmus test for helping determine whether to invest in properties. Falcone, the CEO and founder of Denver-based Continuum Partners, will walk 1,000 feet in various directions on a site in his crosshair to get a sense whether there is something nearby that makes the site compelling. The 1,000-foot rule didn’t make sense to Falcone when he walked what was then the Villa Italia Mall site about 15 years ago in Lakewood. “It’s interesting,” Falcone said. “We did walk it. I would say that on its own, the intersection of Alameda and Wadsworth at that moment in time was not overly compelling.” Yet Continuum did buy the property, raze the Villa Italia Mall and replace it with Belmar. Continuum was a minority owner of Belmar, which recently sold for slightly under $300 million, making it the largest commercial deal in the Denver area this year. Falcone said he had faith in the property because of its size and not because of its geography. “The thing was, with 104 acres, we felt there was enough acres, enough land, that we could create our own environment,” Falcone said. He also was impressed by the vision of Mike Rock, who at the time was the city manager for Lakewood and wanted Belmar to serve as the de facto downtown for the sprawling city, which lacked a government and retail heart. Falcone noted that values of retail, apartments and offices in Belmar far exceed the value of properties around it. Not that Belmar wasn’t without its challenges. In 2006, Falcone brought in GF Properties Group, the investment arm of the Southern Ute Indians, as a 50 percent partner. In 2010, during the Great Recession, “We recapitalized in the context of the post-credit crisis and GF Properties became the majority owner,” he said. “It was a complicated ownership structure,” Falcone said. “ “We had 50 percent of one part and 10 percent of another fund and so we were about a 25 percent owner, maybe a bit less,” he said. It was GF Properties' decision to sell. “But we did not disagree with the decision,” Falcone said. “It was the right time to sell and take advantage of market conditions.” Last spring, GF Properties hired the CBRE investment team of Mike Winn, Tim Richey and Brad Lyons to market Belmar and in June it went under contract to Starwood Capital Group. Starwood, which manages more than $45 billion in assets, closed on the deal in late September. “Winn and Richey really understood the public financing aspect of Belmar,” said Pat Vaughn, president and chief operating office of the GF Real Estate Group. CBRE’s research showed that the household income within a 1-mile radius of Belmar is $62,556 and within 3 miles it is $68,389. Some 73,000 vehicles pass Belmar daily on Wadsworth Boulevard and 37,000 pass it on Alameda. “The deal was underwritten with a 10-year hold period, and we were involved with it for nine years,” Vaughn said. “The market conditions were so strong and Denver is an especially high-profile market, we felt it was the right time to put a truly unique property on the market,” Vaughn said. The 1.1 million-square-foot Belmar includes: • Retail: 871,000 sf of that is 96 percent leased to tenants that include Whole Foods, Dick’s Sporting Goods, Best Buy, Nordstrom Rack, 24-Hour Fitness and a 16-screen Century Theatre; • 282,000 sf of Class A office space that is 100 percent leased; and • 171 Class A apartment units that are 97 percent leased. Vaughn sold Belmar not only because of market conditions, but also because he wanted to diversify its real estate holdings by geography, so the risk wouldn’t be over-weighted to one part of the country. “With Belmar, probably 50 percent of our holdings were in the Denver area and without Belmar, it is probably 20 percent,” Vaughn said. GF owned 100 percent of the apartment units, 90 percent of the rest of Belmar and Continuum was a 50 percent partner in the public financing portion of it, he explained. Despite the big sales number, the return on its investment wasn’t huge, he said. “Belmar gave us a satisfactory return,” Vaughn said. “We weathered the Great Recession, but again, it wasn’t a great return. We made a nice, nominal dollar profit, but we did buy into it in 2006 and again in 2009-2010, which was not a good time in the market. But it did recover nicely.” Belmar almost certainly would have gone back to lenders if not for the Southern Ute tribe, he said. “I think the Southern Ute Indian tribe really helped Belmar during a really rugged time,” Vaughn said. “We came to the rescue,” Vaughn said. “It very likely would have gone into bankruptcy if we had not stood by them. But that is just how the tribe is. It actually is very refreshing that we truly take a long-term view and will not just walk away.” The tribe also kept the Spire office condo tower out of bankruptcy, by investing in it during the recession, he noted. Vaughn said there was quite a bit of institutional interest from prospective buyers. Both he and Falcone noted that mixed-use properties such as Belmar rarely hit the market, not only in the Denver area, but also anywhere in the U.S. Scott Wolstein, CEO of Starwood Retail Partners, said he is thrilled by the purchase. “We think it represents a great opportunity and that better days are ahead of it,” Wolstein said. The demographics are great, he said. “We love Denver. We love the direction Denver and the surrounding area is going in,” Wolstein said. The purchase represents Starwood Capital’s biggest investment ever in Colorado. “It is one of the bigger deals in retail done this year in the country, I would think,” he added. “Overall, Belmar is a very sound investment and is in a prestigious area in a growing market. “Particularly, given our retail expertise, we think we will be instrumental in really bringing Belmar to the next level.” He said while “I think it is off to a good start,” as far as its tenant mix, “We can certainly attract more high-volume restaurants and I think there is an opportunity to advance its central plaza and take advantage of its proximity to the movie theater,” he said. He plans to bring in some strong, national players, but also would love to bring in local “farm-to-table” restaurants. “Personally, I always love to have these regional players involved in our projects,” Wolstein said. “I think that makes for a terrific, more intimate experience for consumers. So we will certainly be looking for those types of operators to give it a real local flavor. At the same time, we will bring in some very productive chain restaurants.” Another thing they likely will do is reduce the size of the Dick’s Sporting Goods store, allowing for other users in that building. “Dick’s Sporting Goods took over the Macy’s building and that space is much larger than its prototype,” Wolstein explained. “We’ll be working with Dick’s Sporting Goods to bring its size more in line with its prototype size and reclaim some of the space in that building for other uses,” he said. Also, they will move some of the tenants around in Belmar. He said some of the tenants are in the wrong part of Belmar, given their uses, and they will move stronger retailers into prime space. He said he would love to make other investments in the Denver area. “If some other retail opportunities would arise, we would pursue them,” Wolstein said. But it has to be big. “We would not be interested in anything less than $100 million in value,” he said. Falcone said that every project he has tackled since Belmar – including Continuum’s involvement in Union Station, the former University of Colorado Health Sciences Center at East Ninth Avenue and Colorado Boulevard and Bradburn in Westminster – has incorporated lessons learned from Belmar. “It is kind of bittersweet,” passing the baton on Belmar, Falcone said. “It was the right time to sell, and the sale shows it was a great success, but still, after 15 years, it’s tough not to be waking up to Belmar every day,” Falcone said, while looking at investment opportunities in Los Angeles. He said he used to think that Belmar was the most complex, development he has ever been involved with. “Now, I think that Union Station might have knocked Belmar off its pedestal,” he said. Still, he would jump at another opportunity to create something of the magnitude of Belmar. “I would love to have the opportunity to do another Belmar,” Falcone said. “It was a great project”