Rocky Mountain Real Estate Challenge: A look back & forward

Denver Mayor Michael B. Hancock speaks at a kickoff in February for this year’s Rocky Mountain Real Estate Challenge. The challenge will take place May 2. (NAIOP Colorado)

Richard Morgan
Senior vice president
Academy Bank

This year marks the 17th annual Rocky Mountain Real Estate Challenge presented by NAIOP Colorado, the capstone case study competition between graduate students in real estate from the University of Colorado and the University of Denver, which culminates in each school presenting at Colorado’s largest commercial real estate gathering of the year.

Through the years, hundreds of students have participated in the Rocky Mountain Real Estate Challenge alongside architects and hundreds of industry experts serving as judges and volunteers. Countless hours of work from all participants have been dedicated toward this competition. Testimonials from past competitors overwhelmingly stated that the exposure and experience of the Rocky Mountain Real Estate Challenge propelled them in their real estate careers.

Jeff DeHarty
Vice president
NorthMarq Capital Debt & Equity

However, a common question often surfaces from our supporting NAIOP Colorado members: What ended up happening at all those previous project challenge sites, and have student ideas been incorporated into the actual redevelopment plans?

With this curiosity as a backdrop, we revisited the inaugural 2003 Rocky Mountain Real Estate Challenge site of the former Gates Rubber Co. plant along Broadway at Interstate 25. The site is about 50 acres, bisected by two freight train lines, and includes the picturesque 3.25-acre Vanderbilt Park west of Santa Fe Drive. To compare and contrast, we reviewed the development proposal from Horizon Development, the challenge-winning team from the University of Colorado and also spoke with Lisa Ingle, development project manager for Broadway Station Partners, which provided historical context and details on current site development.

In 2003, Horizon Development, represented by Drew Haydel, Brad Pickels, Justin Wells and Kiely Wilson, presented its vision for Platte River Station to 150 attendees at then-Invesco Field at Mile High. Horizon’s feasible development plan tackled the financial objectives of 1. maximize densities relative to the infrastructure, 2. implement a develop-market-sell investment strategy and 3. utilize public financial resources in order to provide as much quality product to the neighborhoods and city while also providing an acceptable risk adjusted return for its investors. Among other assumptions to form a baseline financial foundation, the all-in cost of demolition and remediation was $40 million and the rights to the Regional Transportation District parcel were obtained in exchange for building a parking garage and other improvements at a cost of $15 million.

The Horizon Development master plan suggested the site could accommodate 1,850 apartment units, 1,205 condominium units, 2.87 million square feet of office and 389,600 sf for retail.

One of Horizon’s key design features was creating a Main Street through the heart of the development that fronts Broadway, which was intended to define the character of Platte River Station. Main Street would be a mixed-use urban setting that combined retail, residential and office space. Horizon conceived of a five-segment development: a 5-acre South Parcel for residential; the RTD Station inclusive of office; The Riverfront containing for-sale condos; an Office Campus containing 2.2 million sf of office; and the Lake Front for luxury for-sale condominiums linked via a pedestrian bridge across Santa Fe Drive.

Horizon utilized four different methods of public financing options, including Denver Urban Renewal Authority bonds, metro districts, public improvement fees and use taxes levied on building materials. Altogether, total public financing for roads, bridges, landscaping, etc. was projected to raise $72.2 million. With a primary object to maximize return on equity and minimize risk, Horizon’s plan generated a net present value of $165 million when discounting cash flows at 10 percent.

The project also represented a modified internal rate of return of 14.6 percent based on a finance rate equal to the construction loan rate of 5.25 percent, and a reinvestment rate of 6 percent. Total build-out was estimated at 14 years. One other interesting takeaway: It was assumed that each phase was built with construction loan financing rather than equity. A curious assumption, to be sure.

In actuality, Ingle explained, Cherokee Investment Partners announced in 2003 plans to redevelop the 40-acre brownfield site, which had been abandoned since the mid-1990s after Gates moved manufacturing operations overseas.

However, Cherokee’s remediation and redevelopment plans stalled due to the financial constraints of the Great Recession, causing Wells Fargo Bank to take back the note. Ultimately, Gates repurchased the note in 2008 from Wells Fargo due to environmental liabilities and continued forth with remediation at the site per the Voluntary Clean-Up Plan (VCUP).

In 2014, managing members of Frontier Renewal acquired the site from Gates through the formation of Broadway Station Partners. Broadway Station Partners indemnified Gates and modified the VCUP. Remediation efforts continued, focusing on ground water contamination and asbestos removal during building demolition.

In 2016, Broadway Station Partners’ master planning efforts were realized in the successful approval of the infrastructure master plan, which replaced a previous general development plan. In 2017, Denver City Council approved the second-largest financing package ever, totaling $137 million, with 65 percent coming from tax increment financing and the balance coming from metro districts.

The IMP master planned district, known as Denver Broadway Station, is the largest transit-oriented development project in Denver, encompassing over 50 acres, which not only includes the former Gates site, but also roughly 10 acres of RTD’s Broadway Station. The Broadway Station light-rail and bus facility is RTD’s second busiest after Union Station. Over $40 million has been invested in demolition and remediation, with another $150 million investment planned for infrastructure improvements, including roads, utilities, public plazas and pedestrian promenades. Horizontal development will be funded by TIF dollars, with repayment via the Broadway Station Metro District mill levy.

The Denver Broadway Station overall vision is made of five components; four smaller subdistricts, defining character and land use across the site, which are tied together and integrated by a network of bridges and connections. The site has an overall development capacity of approximately 4.5 million sf, comprising 1.5 million sf of office, up to 2,800 residential units and approximately 200,000 to 300,000 sf of active ground-floor retail. Additionally, over 9 acres of green space is planned, including Vanderbilt Park. Full build-out is expected to take approximately 10 years.

Although there are clear differences with the Horizon Development plan, interestingly, the CU students were not too dissimilar from a land-use strategy.

Recently, a major milestone was reached in the Gates redevelopment with the announcement that Endeavor Real Estate Group and Legend Partners have purchased a 7.5-acre site at Denver Broadway Station for $32 million ($97.95/sf).

Endeavor’s managing principal, Charlie Northington, said the companies plan to build five or six structures at the site. The current thinking is that two of the buildings will be office, rising about eight stories each, while three or four buildings will be apartment communities. All buildings will incorporate ground-floor retail, activating the street level.

It may have taken two real estate cycles to get to this point, but seeing the iconic Gates site be redeveloped is quite the accomplishment. Everyone associated with the inaugural 2003 Rocky Mountain Real Estate Challenge can feel proud.

Don’t forget to join NAIOP Colorado Thursday, May 2, for the 2019 Rocky Mountain Real Estate Challenge, “The Denver Shops,” with project sponsor Conscience Bay.

Special thanks to Lisa Ingle, Broadway Station Partners, for her valuable contributions to this article.

Featured in CREJ’s April 3-17, 2019, issue

Edited by the Colorado Real Estate Journal staff.