Thomas W. Toomey, the longtime CEO of UDR, one of the nation’s largest apartment REITs, early this year confessed, “We missed it,” as far as staking out a big claim in the company’s Denver backyard.
Toomey, CEO of Highlands Ranch-based UDR, with a market cap of about $10.5 billion, said he had been telling his board members for the past six years that there were too many apartments being built in Denver and a correction was coming.
“Eventually I will be right,” he quipped last January, while sitting on a panel at a conference sponsored by ULI Colorado.
Well, Toomey, who not only has been the CEO of UDR since 2001 but also is the current global chairman for ULI, didn’t miss an opportunity to make the biggest apartment deal ever in Denver by a number of metrics. (Toomey declined to comment for this article because UDR, as a publicly traded company, “does not comment on any potential transactional activity on an intra-quarter basis unless a press release has been publicly disseminated.”
He even outbid a Hollywood mogul in his record-shattering deal for the Steele Creek apartment tower in Cherry Creek.
UDR paid $141.5 million for the 12-story, 218-unit Steele Creek at 3222 East First Ave.
That equates to a record $649,083 per unit. Even if $17 million is subtracted from the total to account for the value of the Matsuhisa restaurant and other retail on the ground floor, it was a record price by a longshot, noted Terrance Hunt, part of the ARA Newmark team that listed and sold the trophy tower on behalf of Matt Jablon’s BMC Investments.
“I believe this is the single biggest deal so far this year,” Hunt said. “I think there have been a couple in the $120 million range, but I can’t think of another one over $140 million.
It’s not just the price that makes UDR’s purchase stand out.
“A lot has been made about the record price per unit, but it also was a record price per square foot,” added Hunt, who listed the property with fellow ARA brokers Jeff Hawks, Doug Andrews and Shane Ozment.
It sold for $680.50 per sf, including the retail.
“Excluding the retail, it sold for over $600 psf and that is $100 more per sf than the next biggest deal,” last year’s $120 million sale of the Joule, now called 1000 Speer by Windsor.
And when compared to nearby real estate, arguably UDR didn’t overpay.
“The Pauls Corp. is selling condo units just down the street at the Laurel for $1,000 per sf, and Steele Creek has condo-quality units with a sushi restaurant on the ground floor operated by a world-famous chef,” Hunt said.
In fact, one of the three offers for Steele Creek came from a “billionaire Hollywood producer guy,” who is a personal friend of “chef Nobu” of Matsuhisa, who opened his only Denver restaurant at Steele Creek.
Not surprisingly, Hunt can’t confirm the identity of the Hollywood mogul.
“I can confirm it was not Harvey Weinstein,” Hunt said, when I asked him about the movie executive who was fired from his namesake company after the New York Times reported he had made cash settlements to at least eight women for making inappropriate and unwanted sexual advances.
The fact is, restaurants and retail often detract from the selling price of an apartment community.
“A lot of apartment guys aren’t retail guys and they look at retail space as something they will probably have to replace and spend a lot of money on tenant improvements,” Hunt said.
“So if you had an apartment building in not such a desirable place and the city required it to have retail, there’s probably a good chance that a coffee shop isn’t going to make it,” he explained.
But Cherry Creek is the Rodeo Drive of Denver.
“You have the only chef Nobu concept in Denver, in the strongest retail market in Denver. And residents at Steele Creek have their own separate entrance to Matsuhisa, so it is a great amenity for them.”
Also, some penthouses in Steele Creek command rents of $5.27 per sf, or $7,000 per month. “And I think right out of the gate, they combined two penthouse units,” with a monthly rent of about $15,000 each month, according to Hunt.
“They’ve had professional athletes and CEOs living at Steele Creek,” which is more than 90 percent occupied, he said.
Hunt thinks the sale will represent the high-water mark for quite some time.
“It’s a tall building with fantastic views of the skyline and mountains in Cherry Creek, where there are a lot of barriers to entry, and it is getting the highest rents in Denver,” Hunt said.
“I just don’t see the opportunity in the near future for any sale to eclipse the price per unit and per sf,” he said.
UDR made a $90 million construction loan on the property.
“UDR was intimately knowledgeable about every aspect of the building,” Hunt said.
Hunt and the ARA team gave about 24 tours of the tower, but not to Toomey and others at UDR.
“They were familiar with it from the times when you needed a hard hat to get on the site,” Hunt said.
All of those who toured the property wanted to buy it, but they couldn’t put together the financing because institutional investors were more interested in buying Class A suburban properties in Denver than urban properties, he explained.
“You can make a case that we need more units, but the problem was this huge supply of the same kind of luxury product was coming on line at the same time in the same place” in neighborhoods in and around downtown, he said.
But then, the first-, second- and third-quarter absorption numbers came in that showed that properties were being leased and the rent concessions weren’t as drastic as many feared.
“UDR really was the perfect buyer,” Hunt said. “I felt like it was kind of in the back of the mind of Tom (Toomey) that he didn’t want to let this one go. UDR is going to be a long-term owner and I think they will be very happy with their purchase.”