Colorado Real Estate Journal- by John Rebchook
July 16, 2014
The Denver area is strewn with old, small neighborhood strip shopping centers often without national retail anchors. For the right buyer, given their price points and locations that are often on busy thoroughfares, they can make attractive purchases.
One of the latest examples of such a transaction was am Idaho-based buyer that paid $3.15 million for the Shops at Colfax & Kipling on 4.4 acres at 9797 W. Colfax Ave. in Lakewood, at the northeast intersection of West Colfax Avenue and Kipling Street.
The 40-year-old, 44,247-square-foot center was purchased by 9797 W. Colfax LLC.
“They had been looking at the Denver area for quite some time and this was their first purchase,” said Troy Meyer of Sperry Van Ness, who represented the seller, along with fellow Sperry Van Ness brokers Dean Corey and Kevin Matthews. “They liked the location and they like the price point,” he said.
The center had been under contract before, but that deal fell through and the Idaho group stepped in to purchase it, he said.
“They not only really like the center, but they like everything that is happening along the West Colfax corridor, such as the redevelopment of the old St. Anthony hospital site,” Meyer said. The St. Anthony site is to the east, near Sheridan Boulevard and West Colfax Avenue in Denver. “They are very bullish on the entire corridor and wanted to be part of it,” Meyer said.
The Property was 94 percent occupied at the time of the sale. While it doesn’t have any national tenants, it is anchored by Disguises, costume store that has been there since 1978. Disguises recently extended and expanded its lease. “Disguises really is the leader in the costume business and is a really well-known destination for people looking for costumes,” Meyer said.
Other tenants include Tast of Philly, Cakes by Karen, Canine College and 4 Paws Animal Clinic.
The demographics are quite strong for the area. There is a population of 280,831 within a five-mile radius and the average household income is $63,688. An average of 66,295 vehicles pass the center daily.
The site includes an 18,000-sf parcel on the west side-that could be used for another pad.
Despite everything it had going for it , it also had its challenges, Meyer said.
“There was a loan on it of approximately $2.31 million that had to be assumed” as the prepayment penalty was so onerous it wouldn’t have made sense not to assume it. The loan, with about three years remaining, has an interest rate of 6.5 percent, higher than today’s market rate of 4 percent or lower. “You have a lot of buyers of these older strip shopping enters who want to pay cash” Meyer said.
A number of owners of older centers that refinanced their loans during the Great Recession got loans either from insurance companies or collateralized mortgage securities from Wall Street and they typically have prepayment penalties, he said. “The insurance company had to approve the buyer because they wanted to assure the new owner could pay the mortgage,” Meyer said. “In this case, the insurance company was very easy to work with,” he said.
However, eliminating the cash buyers and those that would like to take advantage of today’s low interest rates reduced the potential number of buyers, he said. “Surprisingly, there was quite a bit of interest in it,” Meyer said. “We had over five offers on it. During our marketing process we received a lot of interest from both local and out-of-state investors, which was a testament to the demand for commercial real estate in the Denver metro market.”
The buyer, he said, liked it for its current cash flow and as a value-add opportunity. “They like that it is a stabilized property with over a 90 percent occupancy rate, as well as being a value-add opportunity,” he said. The buyer paid $71.19 per sf for the center. “I would say that is below replacement cost, as construction and material costs keep rising,” he said.
He said he expects the new owner to phase in some improvements. “It is a 1970s asset, so I think they will take some steps to spruce it up and modernize it a bit,” Meyer said. “There is a little bit of deferred maintenance, but overall it is in pretty good shape,” he said. But given its location and everything happening along the West Colfax corridor, there is a lot or upside, he said. “Over time, I think they would like to put in some national tenants in the center” Meyer said.