Colorado Real Estate Journal - December 16, 2015
In April 2014, California based TruAmerica made its first apartment community acquisition in Denver by paying $55 million for the 564-unit Tamarac apartment community. Recently, TruAmerica sold the community on a 25.16-acre site at 3300 S. Tamarac Drive to another California company, Gelt Inc., for $74 million. It also was Gelt’s first purchase in Denver. The sale price represented a 34.5 percent increase in the price that TruAmerica paid less than two years ago. Gelt, based in Los Angeles, paid $131,206 per unit, while TruAmerica paid $97,516 per unit for Tamarac, which was built in 1977. “I think TruAmerica made a good buy and I think it was a good deal for Gelt, too,” said Pamela Koster, who listed the property with fellow Moran & Co. broker David Martin. “We exit Tamarac after meeting our five-year investment objectives in just 18 months,” said TruAmerica President and CEO Robert E. Hart. “It is a large, well-located asset that still offers additional upside for an experienced operator like Gelt,” Hart added. Gelt had been looking to get a foothold in the Denver area market for the past two years. “They had been aggressively bidding for a number of properties for the past couple of years and they finally had the winning bid with Tamarac,” Koster said. There was a lot of interest from prospective buyers for this value-add property, she said. “I would say half of the prospective buyers were local investors and about half were coming from out of town,” Koster said. “Interestingly, about four of the guys, including Gelt, had never been in Denver before,” Koster said. She said the sale is a good microcosm of what is happening in the Denver-area market on a number of levels. “What this sale tells you is that Denver is still a really strong market,” Koster said. “With interest rates still low and you combine that with our rent growth, Denver remains one of the strongest apartment markets in the country,” Koster said. She said many national pundits who think the Denver multifamily market is becoming overbuilt don't truly understand the local market. “I was just putting a chart together today, looking at the last three years,” Koster said in early December. “If you look at the empirical data, our market is not in danger of overbuilding and I see no slowdown as far as investor interest in our market.” While much has been made about all of the units under construction or in the pipeline, it is nothing new, she said. “For the last three years, we have had 20,000 units in some stage of planning each year,” Koster said. “Yet our vacancy rate is still 4 percent and our net rents are growing by double digits,” she said. “What that tells me is that we need these units under construction as well as the older, workforce housing like Tamarac,” Koster said. The Denver area is adding 40,000 to 45,000 jobs a year and almost all of those new hires are renters, she said. “No condos are being built and a lot of people can't afford $580,000 single-family homes,” Koster said. “Plus, there are only about 5,000 homes listed on the market, so even if you want to buy, there is nothing out there,” Koster said. “In 2007, there were about 30,000 homes on the market.” She said that value-add deals like the Tamarac community are especially popular among investors. “TruAmerica had already spent close to $4 million on capital improvements to the property,” she said. “And Gelt will continue where they left off and finish the renovations of the units and upgrade common areas.” The more-than-$3.7 million TruAmerica spent on the improvements for about 200 units paid off handsomely. According to Gelt’s website, TruAmerica was able to realize an increase of $120 per month in rent on the renovated units, which equates to a 24 percent annual return on investment. The purchase was in Gelt’s wheelhouse, according to Koster. “Gelt kind of specializes in workforce housing,” Koster said. “Tamarac is not in the Denver Tech Center, but it is near the tech center,” Koster said. “It is a great location,” she said. “And when you compare Tamarac to a lot of the newer product in the Denver Tech Center, a lot of renters can’t afford to pay $2 or more per square foot for the new product, but can afford the $1.40 or so at Tamarac.” Tamarac was not only the first apartment community Gelt purchased in Denver, but also its single largest purchase to date, both in terms of price and number of units. “Thirty Three Hundred Tamarac checked all the boxes for our acquisition criteria,” said Jeff Harris, director of acquisitions with Gelt. “The asset is strategically located in an infill submarket with immediate access to major transportation, key employment centers and an array of retail options,” Harris said. As Koster said, Harris noted that it would continue the value-add, capital improvements started by TruAmerica. “We see continued upside through renovation of the remaining classic units and the addition of new amenities such as a bike room, additional storage and an outdoor recreation area,” Harris said. Damian Langere, partner of Gelt, noted there has been a “tremendous transformation” in the area during the past few years, including a Whole Foods two blocks away and a Target across the street. “The asset’s stellar location ensures a long-term competitive advantage for apartment housing in the local market,” Langere said. The 15-building, pet-friendly property offers studios, one- and two-bedroom units ranging from 450 to 1,035 sf. Units have private balconies or patios, fireplaces and extra storage. Amenities include three outdoor swimming pools, a clubhouse, barbecue grills, fitness centers, a racquetball court, business center and lounge area. “We like the Denver region for investment as it has diverse economic drivers, impeccable migration statistics as a result of job growth, great quality of life and a growing population of millennials. All of these key fundamentals are driving a healthy apartment market,” said Keith Wasserman, a partner with Gelt. Hart said TruAmerica continues to see Denver as an attractive market for multifamily investment as demand for affordable, quality apartments far outpaces supply. In September, TruAmerica acquired the Cherry Creek Club, a 561-unit community, for $71 million. With the sale of Tamarac, TruAmerica’s Denver portfolio totals 1,675 units.