Colorado Real Estate Journal - September 21, 2016
Jackson Square Partners recently paid $166.75 million for two Denver area apartment communities in the latest sign of how bullish the San Francisco-based company is on the local multifamily market. It bought both communities from Fairfield Residential. In by far the bigger of the two acquisitions, it paid $98.5 million for the Fairfield Legend Oaks, a 488-unit community built in 1997 at 1250 S. Dayton Court in Aurora. In the other deal, it paid $68.25 million for the 300-unit Skye Crest at 7846 W. Mansfield Parkway in Lakewood. With these two acquisitions, and including three communities it owns in a partnership with another San Francisco-based company, Jackson now owns 4,398 apartment units in the metro area. That makes it the second-largest owner of apartment units in the Denver area. Legend Oaks is Jackson’s single-largest acquisition in the Denver area, both in terms of the number of units and the purchase price. In an interesting twist, the community was initially developed by Fairfield and had sold multiple times before Fairfield repurchased it, with different partners, in 2011 for $47.1 million. David Martin and Pam Koster of Moran & Co. represented Fairfield. Moran & Co. first came to Denver to help raise financing to develop the community, Koster said. Fairfield sold the property to Jackson Square for 72.56 percent more than it paid. However, that does not include the cost of the extensive upgrades to the community by Fairfield. “We saw a little bit less interest in this property for two reasons: First, it was a close to $100 million sale, which is a big deal in and of itself, but it is really a big deal for this vintage of a property,” Koster said. The second reason is that Fairfield had renovated 85 percent of the units, so it had less interest to value-add buyers than would have been typical. “Only 73 of the units had not been renovated,” Koster said. “So there was not a ton of meat on the bone,” she said. A smaller value-add deal in the area in the $50 million range would have drawn far more bids, she said. “That’s everyone’s sweet spot,” Koster said. However, Jackson Square was astute in realizing the value in the community, given its proximity to the Denver Tech Center and Cherry Creek. “Residents here don’t pay the $3 per square foot like in the new product in Cherry Creek,” she said. And with the typical rent in the community around $1.40 per sf, it also is less than in the tech center, where rents are around $2 per sf, she said. It also is close to the Anschutz Medical Center and the giant Amazon warehouse. She isn’t surprised that Jackson Square had the winning bid, beating out five competitors. “They are very bullish on Denver and have become one of our largest landlords,” Koster said. Jackson Square paid $90,278 per door, far below the replacement cost. Jackson Square paid $227,500 per unit for the Skye Crest. Fairfield sold it for about 57 percent more than the $43.5 million it paid for it in 2013. Once again, Fairfield had renovated most of the units before the sale. “It was less than a value-add deal, given that most of the units already were upgraded,” although there are still value-add opportunities with the units not renovated, said Jordan Robbins, who listed and marketed the property with fellow HFF broker Jeff Haag. Properties on the west side are always sought after, he said. “Investors really like the west side,” Robbins said. “There isn’t much land to develop, so that limits the amount of new development,” which would compete with older communities, he said. At the same time, there are not enough units in Lakewood, Golden, Wheat Ridge and Arvada to meet demand from renters, he noted. The entire Jefferson County area benefits from strong employers such as Lockheed Martin, MillerCoors, CoorsTek and Ball Corp., he noted, as well as its proximity to Denver and the mountains. “If you live on the west side, you are that much closer to getting away to the mountains, but you are also very close to downtown Denver,” Robbins noted. He agreed that Jackson Square is bullish on Denver. “They’ve sold some of their older properties while buying others; Jackson Square really likes Denver.”