David Schwartz may be on the ground floor of what could become a trend in some of Denver’s hottest neighborhoods.
Schwartz is in the early stages of looking at selling all of the for-sale infill townhomes he developed near Sloan’s Lake to one buyer.
The buyer likely would convert the units into rentals.
The idea may not work out for his latest development at 1265 Xavier St. – for a good reason.
Sales picking up
Several of the units in the development have gone under contract since his colleague, fellow investor and lender Daniel Simon, first contacted me less than a month ago.
“We have a couple units under contract and have had a lot of action,” Schwartz said last week. “The market is still slow but seems to be warming up a good amount.”
He think the units are perfect for young professionals who want to be close to downtown but can’t afford downtown prices.
“It’s a little five-unit project in very cool, trendy, millennial-focused area in the West Colfax neighborhood,” Schwartz said.
“I think the neighborhood might be slightly overbuilt at this point, but it is being transformed quickly and is a much more affordable alternative to LoHi,” he said.
The development is four blocks from Sloan’s Lake and two blocks from light rail.
The four-bedroom, two-bathroom units, with about 1,425 square feet, are priced at about $450,000.
Months of inventory almost doubled
While a year ago that would have been considered the sweet spot for buyers, the unsold inventory is growing rapidly.
For condos and townhomes between $400,000 and $499,000, there was a 4.5-month supply of inventory at the end of January, according to the Denver Metro Association of Realtors.
The MOI in that price range has rocketed 93 percent from a year earlier, according to DMAR.
Schwartz, who first invested in real estate when he was studying economics at the University of Colorado Boulder by buying distressed homes during the Great Recession, takes an analytical view of micro and macro trends.
A case could be made, he said, that an investor could buy one or all of his units and rent them out at $2,800 a month. Or, an owner-occupant could potentially make twice that by renting them on Airbnb, he added.
California 1031 investor?
In addition to local investors, “I could see them being attractive to a 1031 investor from California,” Schwartz added.
Schwartz grew up in Littleton and went to Chatfield High School.
But his father grew up in the West Colfax Avenue area.
“That has been a traditional Hasidic Jewish community where the synagogues would bring in Jewish families,” Schwartz said.
He has had some talk with some synagogues about buying the units that could then be rented or provided to families they bring to Denver.
Selling in bulk, not throwing in the towel
If he did find a bulk buyer for his development, Schwartz doesn’t think he would be throwing in the towel.
“It would be almost like doing a build-to-suit,” Schwartz said, if he sold all of the units to one buyer for a bit of a discount to the retail price.
“To me, there is a lot of value in saving time and the certainty of selling to one buyer,” Schwartz said. “It’s less risk and I could use the proceeds to move on to the next project.”
But even more important than the ultimate buyers of the units on Xavier Street would be if he could do it again. And again. And again.
“Doing a one-off deal is nice, but the real value would be if I could identify a system that I could repeat,” Schwartz said.