Koelbel & Co. began buying land near what was then the Lowry Air Force Base in the late 1970s and early 1980s.
“It was a B-minus or a C-plus location,” recalled Walter “Buz” Koelbel, president of his namesake, family owned real estate development dynasty.
The 190-acre site, around a large, but hidden, lake became the site for the Breakers Resorts.
Last month, the apartment community sold for a staggering $350 million, blowing past the previous record of $255 million for an apartment community in the Denver area.
Indeed, only an apartment sale in Manhattan can boast a higher price tag anywhere in the U.S. this year.
“It was an amazing feat to build the Breakers,” said Jeff Hawks, part of the ARA Newmark team that sold the community.
“It was really the first of what I would call an institutional-quality apartment community in the Denver area,” said Hawks, part of the ARA team that also included Terrance Hunt, Doug Andrews, Shane Ozment, Anna Stevens and Amanda Meldrum, which fielded more than 20 offers for the colossal community.
Before the Breakers, apartment developments were projects, not communities.
Units had low ceilings; the clubhouses, if they existed, were small and tucked away; and they lacked high-end finishes. Few of the projects even had central air, depending on air-conditioner units in the windows, Hawks noted.
The Breakers changed everything.
“Really, everything that has been built since the Breakers has been influenced by what happened there,” Hawks said.
Koelbel remains a minority owner in the 1,523-unit community.
The new majority owners are Pensam Residential and its partners, BH Equities LLC and Wafra Capital Partners.
The Breakers marks the first acquisition in the Denver area for Pensam and BH Equities. Wafra specializes in structuring Shari’ah-compliant leasing and real estate products, according to its website.
More than 20 groups were interested in buying the Breakers, despite its stratospheric price.
Koelbel said the seller, and the majority owner, the Bascom Group, had a 10-year hold period and decided now was a great time to sell, not only because it had owned for a decade, but also because apartment sale prices have never been higher. “I agreed,” Koelbel said.
However, as the sale process continued, Koelbel decided he wanted to keep a piece of the Breakers as a legacy investment for his family.
“I realized and my family had been involved with this so long, 38 years from when we first stared acquiring the land, that I was so emotionally tied to it, I wanted to stay involved with it and keep it as a generational asset,” Koelbel said.
He said it is especially important to him now that his three sons are working for Koelbel & Co., which has been developing properties in the Denver area since his father, Walter, founded the company in 1952.
It is extremely unusual for institutional investors to permit the original developer to remain as a partial owner, Hawks said.
“Typically, they can’t because of the way they are structured,” Hawks said.
“I would say that more than half of the groups that wanted to buy it would not have allowed Buz to retain an interest in the Breakers. They simply could not because the way they are set up,” Hawks said.
“To their credit, Pensam not only allowed it, but they thought it was a great idea,” Hawks said.
When Koelbel first started acquiring the property, he had no inkling that he would be helping to shape the future of apartment development in the Denver area.
In fact, he wasn’t even initially planning rental units on the property.
“When we first started buying the land in the late ’70s and early ’80s, Denver was a hot market,” Koelbel said, with the economy being fueled by rising oil prices.
At the same time, for-sale condos were just starting to take off as an investment alternative to consumers who had trouble affording a single-family home.
“We were zoned for high density and we were getting ready to develop a large condominium community,” Koelbel said.
Population growth was predicated on oil rising to $65 a barrel.
Instead, oil prices crashed, at one point falling to less than $10 a barrel.
“With the oil crash, there was an exodus out of Denver and there was virtually no use for our land,” Koelbel said.
Then, in 1987 or 1988, he was attending an Urban Land Institute meeting in Atlanta and toured a rental community with about 1,700 units.
“All of a sudden a light went off in my head and I thought maybe there was an opportunity to take it in a completely different direction,” Koelbel said.
He had gotten to know a former apartment broker with Grubb & Ellis, Al Feld, who had traded his brokerage hat for that of a developer.
“Al was a pretty good visionary and very detail-oriented,” Koelbel said.
He was also unimpressed by the apartments he had been selling.
“Apartments in Denver were kind of blah; there was no sizzle,” Koelbel said.
A big part of that was institutional, merchant builders had templates for apartments, he said.
It didn’t matter whether they were built in Denver, Phoenix or Atlanta.
They knew what models they could build, lease and sell for a profit.
Koelbel learned that firsthand, when he interviewed a number of national, institutional builders and came away unimpressed with what they had in mind.
“They had their playbook and built the same product in every city,” Koelbel said.
“They just rubber-stamped the floor plans for their units and their design,” he said.
Koelbel took Feld to see the land they had acquired.
“It was around a 60-acre lake, the second largest in Denver (after Sloan’s Lake). Al had grown up six blocks from it and never knew it was there.”
Feld immediately knew the site was something special and needed an exceptional community to do it justice.
“We wanted to do something that was really state-of-the-art, on what, frankly, was a pretty marginal site at the time,” Koelbel said.
“We were young enough and naïve enough to think it might actually work,” he said.
It also was a time when lenders had drawn a big red line around Denver as a place to avoid.
Through a connection, they met a financial adviser out of Florida who represented pension fund money looking to place some “contrarian” money.
That is, he was willing to invest money in something that was out-of-favor with a high-risk, but potentially providing a high reward.
However, the pension fund investor wanted to limit his risk as much as possible.
So he required that all of the building permits be issued and plans approved before he gave them any money.
That meant that Feld and Koelbel had to put up money upfront with no assurance they would get the $10 million in seed money.
But the investor came though.
Thinking outside of the box, the first thing Koelbel and Feld did was build a box – a 30,000-square foot clubhouse on the lake, before the apartment buildings were constructed.
“That was truly remarkable,” Hawks said.
“That couldn’t be done today,” he said.
“It would be like building a super Walmart on a field where there are no houses within miles. You might know it is a great site for a Walmart in 10 years, but the carrying costs would be too great to build it and wait for the rooftops.
You would buy the property and land-bank it until there were enough homes to support it.” The gamble paid off for Koelbel and Feld.
“If you look at Cary Bruteig’s graphs and charts, between 1990 and 1997, the Breakers accounted for 50 percent of all the apartment units leased in the six-county area,” Koelbel said.
Some of them were leased to professional athletes.
Mike Tyson, for example, lived there when he was training for a fight with Evander Holyfield in Las Vegas.
“Over the years, we’ve been a magnet for a lot of the Nuggets, some Broncos and quite a few members of the Rockies,” Koelbel said.
Athletes were drawn to the Breakers because it was a gated community, by the size of the units and its location, he said. It also was one of the first communities to sport exercise rooms with the latest in equipment.
“They liked that they were living behind a gate, so groupies couldn’t stalk them,” Koelbel said.
“We have some good-sized townhome-style units with two car garages and as professional athletes they could afford them,” he said.
Athletes aside, the Breakers caught a sea change break in the mid-1990s, when Lowry was decommissioned as an Air Force base.
Since then, it has often been described as one of the most successful redevelopments of a military base in the U.S.
That was followed by the redevelopment of Fitzsimons and the relocation of the University of Colorado Health Sciences Center from Ninth and Colorado to Fitzsimons.
“All of these things really repositioned the entire geography of our site and made what initially had been a pretty marginal location into something really special and a sought-after address,” Koelbel said.
“We also benefit by being so close to Cherry Creek and not burdened with the pricing you find in Cherry Creek,” he added.
In 2006, the Bascom Group and General Electric bought the Breakers for $190.5 million.
Koelbel remained an owner, while Feld’s interest was bought out.
“Al wanted to take his chips off the table,” Koelbel said.
“He wanted a bit less risk, so he cashed out,” he said.
GE’s holding period was five years, so in 2012, it was bought out. Bascom and Koelbel & Co. were then the sole owners. Koelbel said he and Feld never thought that they were shaping the future of apartment development in the Denver area with the Breakers.
“Honestly, we never gave that a thought,” Koelbel said.
“But like my father used to say, if you are patient and own real estate long enough, people will say you are a genius.”
