It may be Denver’s commercial real estate investment deal of the year, at least as far as a percentage return.
The rumor on the street is that the Denver-based Broe Real Estate Group last year paid about $8 million for downtown’s Denver Club building, which it recently sold to Lowe Enterprises for about $20.25 million.
The price Broe paid for the 231,458-square-foot building at 518 17th St. can’t be found in public records, because Broe purchased it as part of a $400 million-loan portfolio that it paid cash for in 2010. The privately held company neither confirmed nor denied the $8 million price-tag, but knowledgeable observers said that the $8 million price tag is in the ballpark of what they have heard.
In any case, the deal is a testament to Broe’s investment savvy and to the attractiveness of the downtown market to institutional investors, according to experts.
“It reflects well both on Pat Broe (who heads his namesake company) and Denver, especially downtown Denver,” said Brad Neiman, executive vice president of Denver-based Capital Real Estate. Neiman has known Pat Broe since he started his namesake company in the 1970s.
“Broe is certainly, and has been, a major player in the Denver market,” Neiman said. “They certainly, over the years, have purchased a number of assets and have added value to them, which clearly is the case in the Denver Club building.”
Jim Crawford, senior associate at Broe Real Estate, said that after acquiring the building through the portfolio of non-performing loans, it completed 44,000 square feet of lease renewals “and quickly decided to bring the property to market to capitalize on the recent uptick of investment sales in downtown Denver. We continue to work through our current debt portfolio and are on target to purchase another $500 million of non-performing loans through 2012.”
The portfolio of non-performing loans it purchased last year included about 50 non-performing assets from California to Virginia, with a large concentration of buildings in the Midwest.
When groups such as Broe buy these portfolios, they pay a discount to the unpaid principal amount of the loans, which in this case was $400 million (the total of two different purchases.)
“These portfolio deals include a different set of risks than buying a building outright,” Neiman said. “And as the Denver Club deal shows, they also can have a huge reward. These portfolio deals are only for the most sophisticated investors.”
Previously, the building has been owned by the Denver-based Corum Real Estate Group, which had completed a very nice renovation, said Dan Grooters, who sold the building to Lowe with fellow Grubb & Ellis broker Riki Hashimodo.
The Denver Club building helped shape Denver’s modern skyline.
“Class B” building in “A” location
Grooters described Denver Club as a “Class-B building in an ‘A’ location.” He said a lot of headlines spotlight “trophy” buildings in huge demand from institutional buyers, but this sale illustrates that even better percentage returns can be far greater for older buildings that fulfill a niche and are well located.
“Small tenants really like this building,” Grooters said. “For tenants who don’t need much space or can’t afford the rent in a Class-A building, but want a great location, this building is very attractive.”
It was the first Modernistic office buildings constructed after World War II in what was designated Denver’s Historic District in 2000. It was built in 1954. It was designed by Raymond Ervin & Associates.
“I thought it was a very good opportunistic sell for Broe,” Grooters said. “Unfortunately, the prior developer (Corum) got stuck in the part of the real estate cycle, and wasn’t able to hold on to it.”
Lowe purchased floors one through 16, he said. The sale did not include the old Denver Club space nor another two floors that have other owners, he said.
Also, Lowe purchased the building below replacement cost and has about two floors it can lease, so it has a lot of value-added potential, too, Grooters said.
“Quite honestly, this was a good value for Broe because the were able to take advantage of the market conditions, and it is still a good deal for the buyers. It still has a lot of upside potential.”
Contact John Rebchook at JRCHOOK@gmail.com