Financing in Place for Denver Rental Property Acquisition, Rehab

Los Angeles-based commercial real estate investment banking firm George Smith Partners has arranged financing to permit its client Bruckal Properties Inc. to acquire and rehabilitate the high-rise Wellshire Arms Apartments, a rental community situated on South Colorado Blvd. in Denver.

Denver—Los Angeles-based commercial real estate investment banking firm George Smith Partners (GSP) has arranged financing to permit its client Bruckal Properties Inc. to acquire and rehabilitate the high-rise Wellshire Arms Apartments, a rental community situated on South Colorado Blvd. in Denver.

The successful financing transaction was announced by Malcolm Davies, GSP vice president, who was assisted in the deal by GSP vice president Michelle Lee. The transaction included $10.9 million in debt and $4.3 million in equity.

The rehabilitation by Bruckal Properties will elevate the property to Class A status. It will give the 12-story building new elevators, roofing and exterior paint. The building’s units and common areas will be renovated as well.

The 50-year-old Wellshire Arms Apartments features 107 one-, two- and three-bedroom apartments ranging from 800 to 1,500 square feet in size.

It is in need of substantial improvements, and the rents collected at the property are well under market value. Both of these factors were critical in convincing GSP of the potential for a significant return on investment.

“We are seeing opportunities from sponsors in particular regional markets,” Davies tells MHN. “Denver [is] a market where we have seen significant capital activity over the past 12 to 18 months. This particular asset had never traded before. We felt that the capital markets would be attracted to the value add opportunity. We were proven correct with the successful funding of the project.”

The senior, non-recourse loan closed at one-month LIBOR +575 with a 6.5 percent floor for 36 months. It included an amortization of 25 years, with a two-year IO and a 74 percent loan-to-close ratio, GSP reported.

The transaction’s prime challenge was the speed of execution required. “From start to finish, the project was funded in approximately a 30-day time period,” Davies recalls.

“We had significant interest from East Coast private equity firms. However, due to the speed to close, [they] just couldn’t get the boots on the ground fast enough, even though they liked the asset and opportunity.”

The rehabilitation of Wellshire Arms will significantly upgrade the asset to a higher class level apartment community, Davies says. “Yet, the rental pricing is still lower than comparable high-rises in Denver,” he adds. “Renters will benefit from the ability to be in a high-rise property with the amenities of a Class A property, without paying the same occupancy costs as those assets.”

Myles Bruckal, president of Bruckal Properties Inc. applauds GSPs efforts. “I commend Mr. Davies and his team at George Smith Partners for being able to put this deal together with tight time constraints,” he says.

“GSP’s network produced several great options, and we believe we ended up with the right fit. We are excited about this opportunity, and appreciate the cooperation of the sellers, who built and have owned this landmark building since 1962. We are looking forward to continuing the legacy of this great property.”