RiNo Warehouse 1031 Transaction

The subject property was a 90-year old brick, single story warehouse that occupied the entire 50,000 square foot block from Walnut Street to the alley. The south half of the building floor was elevated with dock high doors. It had 17’ clear height. The north side had ground level floors into which trucks could enter. It was 24’ floor to ceiling.

The owner had operated a sheet metal distribution and assembly business for thirty years from the site. Since there was very little traffic there for years, the area on Walnut Street was treated like his own private parking lot. However, as the redevelopment of RiNo accelerated, the owner realized that his business operation would have to change. In addition, his business was growing rapidly and would soon require more space.

The Listing

I listed the property on Costar for $6 million and received 12-offers, many of which wanted to put it under contract and not close for a year while they decided what to do with the property and to conduct their architecture and engineering studies. I sold this property in 2014 and at that time RiNo land was selling for $30-$50 psf. We decided to push the price limits to see what we could get and sold this piece for $100. Today in the same area the price is over $200 psf.

All the offers came in within the first week and varied from $5.5 to $6 m. We wanted an experienced buyer who understood the Denver market, its trends, and the potential uses of the property. The out-of-state buyers worried the seller. The common approach of many investors is to tie up the property without risking the purchase price, just the earnest money deposit of $100K. Since the Colorado purchase and sale agreement favors the buyers so disproportionately, there is a risk of them not closing. We thought that a Denver investor would not be afraid of the deal; they would know its worth and what to do with the property

The Offer

We accepted an offer from a very well-known developer in Denver with over 150 years of total experience. They were not 100% confident in what they were going to do with the asset but, because of who they were, their offer, and their timeline for closing (90-days) we were confident we could get to closing.

Their due diligence efforts included Phase 1 and Phase 2 environmental reviews that disclosed contaminated soils. Denver Hardware, on the east side of Walnut, had somehow contaminated the ground water on our site. Since the origin of the contamination was on another site the Colorado authorities decided we did not have any remediation requirements.

During this deal I learned something about commercial real estate brokers. First, they are reluctant to let you know who their buyer is, and second, they are not above going straight to your client to negotiate the deal. In this case my seller respected my relationship with him and the buyer agent reluctantly agreed to face-to-face meetings with his buyer-client. At those meetings we were able to diminish our concerns about the buyer’s intentions, the proposed contract period, possible contingencies, and their financing method.

After we signed the purchase and sale agreement, I found another site that suited the needs of my client. He was using a 1031 Exchange to purchase the new property and after the closing on Walnut Street he had six months to close on his new warehouse.

The buyers of the Walnut Street warehouse held it for two years and sold it for $10.9 million and rumor has it that the purchaser was an indoor climbing gym. Can they pay those type of rents? $35 NNN would generate a 16% cap rate.

RiNo is still appreciating, especially the residential segment. Arkins Court on the north end will become RiNo Promenade with new high-end residential development

Where is the next RINO? Globeville, National Western Complex, West of I-25 and north of 38th Avenue? Sunnyside, west of the lite rail tracks? We are focusing lots of attention on emerging areas.

Take-aways:

  • Take the time to know the parties to your transaction. Learn their intentions and financing capabilities and don’t have a knee jerk reaction to environmental issues.
  • Spend the time to learn the economic drivers behind emerging areas
  • Listen to your broker on negotiating strategies.

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