- RedPeak lost a competitive advantage because of lawsuit.
- Thousands of more units are coming on line.
- RedPeak no longer has the land under contract.
If RedPeak Properties had been able to develop the three luxury apartments in the heart of West Highland when it initially planned, the 147 units would be opening in about six months.
Under that timetable, the units would have been among the first of a new breed of buildings in the area, which are commanding record rent levels, in some cases north of $2.50 per square foot.
However, because of a lawsuit filed by 10 neighbors against the Denver City Council and the landowner regarding the zoning of the trio of parcels near West 32nd Avenue and Lowell Boulevard, the development not only faces 1,011 units recently completed in the area, but another 2,243 under construction.
In addition, there are another 2,308 units on the drawing board, according to an in-depth appraisal report conducted by the Denver office of National Valuation Consultants Inc.
The appraisal listed the value of the three parcels at $6.5 million, or $104.55 per square foot and $43,333 per unit for an estimated 150 new units on the sites.
Three limited liability companies headed by Tom Wootten paid $3.75 million in 2007 for the three sites, with a total of 62,150 square feet.
Wootten’s group then spent about $1 million razing some buildings and remediating asbestos from them.
Appraisals not public information
The appraisal offers a rare glimpse of the behind-the-scenes look at projections on investment properties, as appraisals are seldom released.
The appraisal, completed last June and ordered by CoBank, the lender on the parcels at 3241 Lowell Boulevard, 3220 Meade Street and 3483 W. Moncrieff Place, was submitted as evidence in the three-day zoning trial that ended last month, thus becoming part of the public, court records.
In the lawsuit, 10 neighbors are charging the land was illegally spot zoned as U-MS-5, because the area is in an “area of stability” of under Blueprint Denver and Tom Wootten’s group that owns the land, benefitted from the rezoning.
The city argued that the zoning dispute is nothing more than a dispute from the 10 neighbors and the District Court does not have the power to rezone the land. The lawyer that represented Wootten noted that the parcels were rezoned as part of a massive rezoning of all of Denver in June 2010 and Wootten did not instigate the zoning change. He indicated that it would be unprecedented to find spot zoning under such circumstances.
The judge who presided over the three-day bench trial, has set a deadline of 5 p.m. this Friday to get written arguments from both sides.
Judge Robert L. McGahey Jr. also ruled that if the plaintiffs win, the zoning would revert to its previous zoning of R-4, which allows 75-foot tall buildings on each site, or the equivalent of about six stories. Laura Goode, founder of the grassroots opposition group, No Highrises in West Highland, would appeal the R-4. During the trial, neighbors testified that while R-4 is not ideal, they prefer it to U-MS-5.
The plaintiff’s attorneys argued that U-MS-5 would also allow such uses as gun shops, tattoo parlors, liquor stores, and auto-emission stations.
None of those uses are being proposed.
RedPeak had proposed building a four-story building on Moncrieff and a five-story building on each of the other two parcels.
The Lowell building also would incorporate a part of what was originally built by the Beth Eden Baptist Church in 1930.
Highest and best use
Keeping the church building contributes to the “highest and best use” of an improved site, according to National Valuation Consultants.
“If the subject were to be developed with four-to-five story apartments, the top of the new structures would still be slightly below the this church structure, thus, giving the new structure ‘massing’ and context so they would not appear as ‘intrusive’ as they might without the church structure,” according to the appraisal.
“This decision is also likely influenced by the local neighborhood groups desires not to have any substantial vertical structure in their area,” it continues. “By leaving the church in place, the proposed subject effectively remains below the current height of the church.”
During the trial, however, the plaintiffs argued a building could be taller than the church’s apex and that the church building seems less massive because of the sharp pitch in the roof line.
A main reason there is so much construction in the area, which the analysis included Lower Highland, Jefferson Park and even some new apartment communities in the Ball Park District in downtown, is because demand from young professionals and an increasing number of empty nesters has been so strong.
Supply and demand
Demand far outstrips the supply in a market that is as tight as any in the metro area.
“The subject’s submarket vacancy rate in 1Q 2013 was reported at 0.0% by AAMD (Apartment Association of Metro Denver), down from 3.2% one year earlier,” according to the report.
“While the 0.0% rate might be slightly erroneous or misleading, it is clear that the submarket is very tight with favorable fundamental for development.”
Still, being late to the construction party doesn’t mean the community has no chance of competing with other units coming on line during this real estate cycle.
“While a considerable number of units are currently under construction in the submarket, with additional planned or proposed projects as well, the subject’s unique location should enable it compete well and differentiate itself from much of the market,” according to the appraisal.
Wootten’s group initially had the land under contract to a luxury condo developer.
“However, after the financial crisis began to materialize in late 2008, the condo business plan was reportedly scrapped,” according to National Valuation Consultants.
One thing that remains unclear, at least publicly, is the role that RedPeak would play if the neighbors lose the court battle.
“Reportedly, the assembled parcels had been under contract until very recently, when the developer allowed the contract to expire,” according to the report.
Walking away from time and money
“The developer walked not only from non-refundable earnest money, but also from up to two years of time and money spent on predevelopment costs and meeting with neighborhood groups; thus, the reason for allowing the land purchase contract to expire are unclear.
“The developer’s decision to let it expire could be strategic based on the current uncertainty of the lawsuit…Thus, it is very possible that the same developer will execute another contract to purchase the subject site, pending the outcome of this litigation.”
The authors of the report went on to say they are unaware of any other transactions involving the properties during the past three years.
“To our knowledge, the owner does not have the property officially listed for sale.”
More interested in buying than renting in West Highland? Please visit COhomefinder.com.
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