Colorado Real Estate Journal - August 3, 2016
There was a lot of interest from lenders to provide the construction loan for the 288-unit Elements at Prairie Center apartment community in Brighton, said Josh Simon, a managing director for the Denver office of Holliday Fenoglio Fowler LP. HFF arranged $39.45 million in construction and preferred equity financing for the development of the community, which not only is one of the largest in Brighton, but also is likely the most energy-efficient. The Elements at Prairie Center will even boast geothermal heating and cooling when it opens in the third quarter of 2017. HFF placed the loan with a large, national bank. The loan provides $31.55 million for construction and $7.9 million in preferred equity financing. Not that HFF didn’t have challenges in landing the lender for the community, which is being developed by a joint venture of Colorado-based C&A Cos. and Delaware-based The Commonwealth Group.
“There was a lot of interest, however, the construction loan market, in general, is very challenging today in the multifamily market,” Simon said. Banks, he said, are increasingly worried about their exposure to loans made for new apartment communities. Apartments, of course, have been the hottest sector for income-producing real estate since the market rebounded after the Great Recession. “It is more of an exposure issue than concerns about the perceived risk” of the potential of overbuilding in certain submarkets, he said. At the same time, the Elements at Prairie Center benefitted from its location in Brighton, and not, say, downtown Denver or surrounding neighborhoods. “Definitely, that was an advantage,” Simon said. “There is very little new development going forward within a 7- to 10-mile radius,” Simon said. “There are significant challenges for construction lending, primarily due to exposure, but a lot of that is tied to pockets where there has been a lot of new construction,” Simon said. “Banks look at their exposure in certain areas in certain markets,” he said. The Brighton location meant a “larger audience” from prospective banks. “Banks look at their exposure in submarkets and this particular bank had very little exposure in the Brighton area,” Simon said. The average size of a unit at Elements at Prairie Center will be 919 square feet. The community will include 12 3-story buildings. They are being constructed on a 16.56-acre site in the Prairie Center master-planned community at Eagle Boulevard and South 27th Avenue. The Elements at Prairie Center is about a mile from Interstate 76 and Barr Lake State Park. It will include geothermal heating and cooling systems for all units. The geothermal heating and other sustainable features don’t have much impact on getting the construction loan, Simon said. “However, when it comes time to take out the construction loan and replace it with permanent financing, green buildings can usually lock in better rates,” Simon said. He noted that both Fannie Mae and Freddie Mac offer special programs for green and sustainable buildings. “Also, their utility costs usually are quite a bit lower when they have green features like geothermal heating,” Simon said. That is a selling point for prospective tenants, he noted. The preferred equity portion of the financing arranged by HFF is typical, he said. In most cases, the preferred equity investors are paid off when the construction loan is replaced with permanent financing or the loan is refinanced, he said. However, the investors typically have the option to stay in the deal, if they wish, he added. Amenities at the Elements at Prairie Center will include: • A resort-style swimming pool with cabanas; • 24-hour fitness facilities; • A children’s playground; • Dog park; • Clubhouse; and • Community garden. The developers of Elements at Prairie Center are familiar with the Brighton market. The community will be 2.5 miles southeast of Solaire Apartments, a 252-unit, Class A community completed by the same developer in 2014.