Colorado Real Estate Journal - February 19, 2014
Stan Kroenke, who married into the Walmart family, is best known in Denver as the owner of the Pepsi Center and the teams that play there: the Denver Nuggets and Colorado Avalanche. Kroenke, however, also recently added to his real estate holdings in the Denver area. Kroenke’s real estate company, TKG (The Kroenke Group) recently paid $24.27 million for the Shoppes at Castle Rock, according to public records. TKG Castle Rock of Columbia, Mo., bought the 105,528-squarefoot center at the northeast corner of Interstate 25 and Founders Parkway from Denver-based Revesco Properties. Revesco bought it in September 2012 for $20.6 million. The sales price equates to a 17.8 percent return on the money after owning it for slightly more than a year, not to mention the income it received during its brief holding period. The center, built between 2005 and 2009, was not officially on the market. “They approached us,” said Rhys Duggan, president and CEO of Revesco. “It was an off-market deal,” he said. He said they sold it a bit quicker than anticipated. “We kind of ‘pro formaed’ to own it for two or three years before we sold it and our actual holding period was 15 months,” Duggan said. “It is nice when a deal goes better than anticipated,” he said. He said one of the “plays” on the Shoppes at Castle Rock was that one of its anchors, the 14,000- sf OfficeMax, had a co-tenancy agreement that basically allowed it not to pay rent. “We wanted to fix that problem and sell it,” Duggan said. He said his group was looking to replace OfficeMax, which had a 30-day period to either stay in the center and start paying rent, or to leave. “At the 11th hour, OfficeMax decided to re-up and stay,” Duggan said. Revesco also benefitted from low interest rates and a shortage of well-located, strong-anchored centers such as the Shoppes at Castle Rock. “We benefitted from cap rate compression,” Duggan said. “Looking back on our pro forma, our return was 50 percent higher than anticipated because of cap rate compression.” He said he thinks TKG liked the center for the same reason he did. “They liked it because of the combination of a strong tenant lineup, a great location and great demographics,” Duggan said. “They also improved Founders Parkway between us and the King Soopers across the street, so the location is even better than before,” he said. In addition to OfficeMax, other tenants in the center include Sprouts, Michaels, Big 5 Sporting Goods, Dollar Tree, Starbucks, Chipotle and Jimmy John’s. It also is “shadow anchored” by a nearby Home Depot. The average daily traffic count along I-25 and Founders Parkway is 113,000 vehicles. Within a one-mile radius, the average family income is $90,264, and it rises to $115,878 within a three-mile radius. An official did from TKG did not return a call. The center was sold by the CBRE team of Brad Lyons and Ron Urgitus, which previously had sold it to Revesco. “I would agree that if it had gone out to the entire market there would have been a lot of buyers for it, given the lack of high-quality product out there,” Lyons said. He said there is a huge demand for well-located, well-anchored centers such as the Shoppes at Castle Rock. John Winslow, who was not involved in the deal, lives in the Castle Rock area and knows the center well. Records show that Kroenke’s group took out a $16.75 million loan from U.S. Bank in St. Louis to buy the center, for a 67 percent loan-to-value transaction, according to Winslow’s research. “They paid a high dollar amount for prime retail space,” said Winslow, principal of Winslow Property Consultants LLC. “Given its great location and the high quality of the center, I don’t think they paid an unreasonable price,” Winslow said. “I think they paid a market-rate price. Given that OfficeMax is now on the rent rolls alone may have justified the price they paid.” Duggan said Revesco will use proceeds from the sale to find other real estate investment opportunities. “We’re looking right now in Denver, Phoenix and Houston, which are our target markets,” Duggan said.