Colorado Real Estate Journal - November 19, 2014

NY group pays $104m for Denver West

A New York private equity firm paid $104 million for Denver West Office Park and will spend another $14 million to $15 million improving the 21-building property.

The acquisition is HighBrook Investment Management LP’s largest investment to date and its first in Colorado. Brian Carr, who led acquisitions for Morgan Stanley Real Estate Investing for 17 years, and David O’Connor, who operated hedge fund High Rise Capital Management LP and has 25 years of experience in real estate and securities, founded the company in 2010.

HighBrook retained Davis Partnership to design exterior and interior upgrades to the 1.44 million-square-foot Denver West Office Park and will spend the next two years renovating lobbies, corridors and restrooms; replacing roofs; painting the buildings a lighter color; redoing signage; upgrading overgrown landscaping; and adding amenities such as fire pits and barbecue areas that encourage employees to gather. It also plans to invest in the fitness facility, said Director of Asset Management Ed Gargiulo.

“We think we can bring some real value through improving overall operations of the park, and we intend to invest a significant amount of capital in order to turn it around,” said Gargiulo.

“We know that a lot of people have the perception that Denver West has been this antiquated property that hasn’t been touched in decades. We are going to change that within the next 24 months,” added Gargiulo, who doesn’t expect anyone to take his word for that.

“People are going to need to see it. They can’t just be talked to about it,” he said.

“We are going to aggressively partner with and show the brokerage and tenant communities that real change is happening.” Stevinson Automotive founder Chuck Stevinson and his son, Greg Stevinson, started developing Denver West Office Park, which is situated along Cole Boulevard between West Colfax Avenue and Interstate 70 in Lakewood, in the early 1970s. Most of the buildings were completed by the early 1980s, with the last construction occurring in 1996This is the first time the Stevinson family, which has had a minority interest in the office park since 2001, is not part of the ownership.

“We are staying on as a tenant, which is part of our commitment to the park,” said Greg Stevinson. “We think Denver West is only going to get better under the new ownership.” Stevinson said he is “absolutely thrilled” with HighBrook.

“I have spent some time with them and they are the perfect owner of the park. They are bringing a lot of capital to the park to reinvigorate it. The park hadn’t been maintained the way my dad and I used to maintain it,” he said.

Denver West Office Park’s two- to four-story buildings occupy a heavily landscaped site interspersed with ponds, waterfalls, fountains, sculptures and walkways. The park adjoins the Denver West Village retail center and is across the street from Colorado Mills mall and the Promenade at Denver West. Gargiulo is interested in exploring the possibility of a shuttle to make the abundant restaurants and retail more accessible to office park employees.

Denver West Office Park’s occupancy was 62 percent at the time of the sale. Gargiulo said it “is probably generating less than half the net operating income it was generating three to four years ago” due in part to the loss of a couple of large tenants. The National Renewable Energy Laboratory has downsized, but still occupies approximately 100,000 sf.

Other existing tenants include HomeAdvisor, which has approximately 130,000 sf; the U.S. Bureau of Indian Affairs, at about 57,000 sf; Renal Ventures Management, 33,000 sf; and Catamount Constructors, 22,000 sf.

Numerous small companies also are among the park’s 150 or so tenants.

A joint venture partnership that included The Pyne Cos., Stevinson family members and other investors sold Denver West Office Park. The deal included an undeveloped, sixacre site that could accommodate 183,000 sf.

Gargiulo said HighBrook Investment Management is a well-capitalized firm that acquires underperforming assets at a favorable cost basis and adds value through operations and capital infusion. “We don’t pick certain markets and go deep,” he said. “We go after specific opportunities.” That said, “We like from a macro standpoint what’s going on in Denver. We think as some of the hotter submarkets continue to absorb and rental rates increase, obviously that will push out to the suburbs.” HighBrook retained Frank Kelley and Blake Harris of CBRE, along with longtime Denver West leasing agent John Wickliff, to market the office park. “John and his team bring a lot of experience to the park,” said Stevinson.

‘I have spent
some time
with them and
they are the
perfect owner
of the park. They
are bringing a
lot of capital
to the park to
reinvigorate it.’

Gargiulo said HighBrook will be paying cooperating brokers “more than what has historically been paid” in commissions.

Ed Anderson of Connexion Asset Group, which was involved in the sale, said it took 90 days to identify the buyer and close the sale “We are pleased with our ability to identify our buyer and close so quickly on a transaction of this scale,” he said.

HighBrook Investment Management, whose portfolio is approaching more than 7 million sf, owns properties across the country.

“This is our biggest equity investment, our most important investment to date, and we’re extremely focused on it,” said Gargiulo, who added that is being backed with significant resources to ensure Denver West Office Park’s success.

John Rebchook contributed to this article