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Boutique sells apartment for record prices

Highlights:

  • Denver-based Boutique Apartments sells portfolio.
  • Portfolio sells for $41.7 million.
  • Institutional investor strategy new to Denver.
The Shambhala.

The Shambhala.

In one of the more unique and successful apartment portfolio sales in Denver, locally based Boutique Apartments, a real estate investment company, recently sold nine of its apartment buildings in central Denver neighborhoods for record-breaking prices.

The total sale price was $41.7 million. That equates to an average sales price of $269 per square foot. Boutique rents and renovates what it calls “cool, hip and eco-friendly” apartments. Its mantra is summed up in three words: community, sustainability and livability. Many of its renters are young, single, professional women with dogs.

The prices for these properties is about 162 percent above the average selling price of $166 per square foot of comparable buildings sold in 2013 in the central Denver market, according to Boutique, headed by Grant Barnhill and Zvi Rudawsky.

The buildings are primarily 1960s era, a style that dominates the Capitol Hill, Congress Park, Uptown, and West Washington Park neighborhoods.

Most of the sales prices, either in terms of price per square foot or price per unit, represent the highest level ever achieved for vintage properties in Central Denver. The sales cap rate averaged 5.4 percent based upon current income. A cap, or capitalization rate, is the rate of return on a real estate investment property based on the expected income that the property will generate. In short, the lower the cap rate the higher the price.

Timing not great for buying

Boutique Apartments originally purchased the nine properties between 2004 and 2008, just before the Great Recession. Only recently have the prices of apartments in Denver eclipsed where they were at during the previous peak of the cycle in the mid-2000s.

“When we first bought these apartment buildings, they were all in various stages of neglect and deferred maintenance,” said Barnhill, CEO of Boutique Apartments.

“By completely renovating them with our themed brand, and providing exceptional customer service we built a successful style to serve our customers and investors,” Barnhill said.

Terence Hunt, Shane Ozment, Justin Hunt, Andy Hellman and Robert Bratley of ARA Denver  listed and marketed the  Metropolis, Shambhala, Red Fort and Rocket.

They were purchased by the Chicago-based Laramar Group.

“We saw ample interest in this portfolio, both as one-off deals and as a complete portfolio, however, a larger more institutional buyer (the Laramar Group) recognized the opportunity to obtain multiple deals in a very tight submarket in one transaction,” Terrance Hunt said.

“This is another example of a larger buyer looking to obtain multiple buildings and run them as one,” he continued.

Institutional investors have recently bought portfolios of older properties in other major cities, but this is a new trend in Denver, he said.

“This strategy is popular in larger cities like Los Angeles, San Francisco and Chicago, and we are now seeing it in Denver.” The interest is another sign that Denver is considered a top choice for institutional investors seeking to buy apartment communities, he said.

Impossible to replace

The Metropolis.

The Metropolis.

The properties would be impossible to replace at today’s construction costs, said Justin Hunt.

“The older central Denver product is an attractive alternative to new construction, especially when you consider the cost to build in Denver is well north of $200,000 per unit (depending upon the product-type),” Justin Hunt said.

“We anticipate values to continue to climb in central Denver as long as interest rates remain low and pricing stays under replacement costs.”

Laramar will upgrade and rebrand each property under Laramar management.

“Acquiring these buildings in desirable neighborhoods surrounding the Denver central business district builds on our strategy to invest in urban areas close to major employment centers,” said Keith Harris, chief investment officer of the Laramar Group.

“Denver has vibrant urban neighborhoods and a fast-growing population of people who value a walkable lifestyle and easy access to public transportation,” Harris said.

Laramar’s multi-billion dollar portfolio includes more than 30,000 apartment units nationwide, including properties that it owns or manages.

Kevin Calame and Matt Lewallen of Pinnacle Real Estate Advisors listed and sold the Le Cirque, Lodge, Prana, Route 66, and Works to various buyers.

PropertyAddressYear BuiltUnitsSales PriceGross Square FeetPrice per unitPrice per square foot
Metropolis1011 Colorado Blvd.197171$11.39 million39,563$160,423$288
La Cirque1010 E. 13th Ave.190445$6.3 million22,892$140,000$275
Shambhala1355 Pearl St.195560$6.0 million20,740$100,000$289
Red Fort136 S. Pennsylvania St.196936$4.985 million18,917$138,472$264
Works1302 Columbine St.196218$3.3 million14,030$183,333$235
Rocket1778 Gilpin St.196324$2.96 million11,996$124,792$250
Prana550 Logan St.196215$2.256 million8,760$150,412$258
Lodge 1443 Elizabeth St.196618$2.25 million9,011$125,000$250
Route 661345 High St.196617$2.2 million9,011$129,412$244
Total/Average304$41,676,178154,920$137,093$269

Source: Boutique Apartments

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