Woodspear Properties decided it was time to sell The Orchards shopping center in Greenwood Village.
And Woodspear ended up selling the prized 73,904-square-foot center in a novel way. But more details of that later.
The Orchards, at 5926 S. Holly St., at the key intersection of Orchard Road and Holly Street, is the type of grocery-anchored centers that never are out-of-favor with investors.
The Orchards is especially attractive because it is not only anchored by a 53,264-sf King Soopers, but Woodspear owns the building that houses the grocery store. Often, King Soopers owns the real estate of the shopping center it anchors.
The Orchards also is in the heart of one of the highest demographic areas in the metro area.
The median household income within a 1-mile radius is $113,328, according to CoStar.
So why sell?
“It’s the only retail property we have in our (Denver-area) portfolio,” explained Craig Lessard, director of acquisitions at Woodspear
Woodspear, however, owns about 2,000 apartment units in the metro area and more than a million square feet of industrial space, he said.
Woodspear truly is a long-term owner of real estate.
“We first bought The Orchard in 1995 or 1996,” Lessard said.
“We knew we wanted to sell The Orchards and exchange it into an apartment building,” Lessard said.
“We just felt we were more comfortable owning a good, solid apartment building over the next 20 years, rather than a shopping center, especially given everything that is happening with retail,” he continued.
Woodspear hired Brad Lyons, Mike Winn and Tim Richie of CBRE to sell the Orchards.
They found a buyer for The Orchards, Principal Real Estate Investors.
Principal agreed to pay $38 million for the shopping center.
Almost always, then Woodspear would have found an apartment community to buy from someone within the prescribed time period to get the tax-deferred benefits of a 1031 Exchange.
It turned out, at the same time, Principal was looking to sell the 176-unit Eagles Landing at Church Ranch apartment community in Westminster.
Eagles Landing was also listed by CBRE, the team of David Potarf, Dan Woodward and Matt Barnett
Eagles Landing, built in 1995, was just what Woodspear was looking for.
“It was a newer property, 22 years old, but not something built in the ‘60s, and had a great, suburban location,” Lessard said.
“And so we bought it,” for $43 million. “We literally did a swap of assets,” Lessard said.
Principal has upgraded about half of the units in the community, a process that Woodspear will continue.
“It has a value-add component,” Lessard noted.
Like everyone else, Woodspear expects to get a higher rate of return from the improved units than from the total acquisition.
“And The Orchards also is a bit of a value-add opportunity,” he added. “I think Principal will do very well with it.”
The buyer and seller swapping properties is a rare event.
“It’s like a once-in-a-career type of a deal,” Lyons said. “The stars certainly aligned for both parties.”
Potarf had a similar reaction.
“I think this is the first time in my career I have ever seen this happen,” Potarf said.
The deal not only was unusual but also raises a question I examined in an earlier Rebchook Real Estate Corner column.
What happens if the 1031 Exchange is eliminated under the pending tax law overhaul expected to be tackled by Congress?
When I spoke to Potarf, Lessard and Lyons, the fate of the 1031 Exchange was unclear. But they agree that the industry needs the exchange to keep commercial real estate deal estate deals happening.
“I think if 1031 Exchanges were eliminated, it would have a profoundly negative impact on the industry,” Lyons said.
“To give you an idea, in a typical year, probably 60 to 75 percent of our deals involves 1031 Exchanges. If they eliminate it, owners, especially private owners, will be less inclined to sell.”
He also noted that often times when a property is acquires a new property through a tax-deferred exchange, the new owner pumps new capital into the property.
In other words, reducing the number of deals, also will impact the economy, as fewer people will be hired to upgrade properties.
Woodspear isn’t a big seller of properties.
But eliminating the 1031 Exchange is a bad idea, Lessard agreed.
“This deal would not have happened,” if the 1031 Exchange did not exist, he said.
“To me, it is a no-brainer. It’s not a good idea to eliminate the 1031 Exchange. I suspect everyone in the industry feels the same way.”