Rocky Mountain High: Four Seasons Sells Out

All 102 of the condos in the Four Seasons Hotel Residences Denver have been sold.

It’s mission accomplished for the über-luxurious condominiums in the Four Seasons in downtown Denver.

All 102 of the condos in the Four Seasons Hotel and Residences Denver — the most expensive residential real estate project ever constructed in downtown  have been sold.

“It’s pretty remarkable,” said Chris Norton, CEO of the Social Intelligence Group (formerly Fingerprint Strategies), which has been marketing the units in the 45-story hotel and condo project at 14th and Arapahoe Streets.

“The last one will close this week,” Norton said “The unit is under contract and is scheduled to close this Thursday.”

The 5,000-square-foot unit is selling at $2.25 million, the equivalent of $450 per square foot. Initially, it would have been priced at $3.9 million, or $780 per square foot, according to Norton.

When Denver developers Jeffrey Selby and Michael Brenneman started to plan the project a decade ago, they thought the condos would sell for an average of $1,080 per square foot.

Overall, thanks to a massive and complicated restructuring of debt involving lenders in the U.S., Europe and  Japan, as well as equity from Mexico, the average sales price has topped $530 per square foot, about a 50 percent haircut from the original projection, but still the high-water mark for downtown. The condos are in the top 31 stories of the building designed by architect John Carney, formerly of Denver, who now lives in Jackson Hole, Wyoming, while the 239 hotel rooms are on the first 14 floors.

“That is 40 percent above the market in downtown,” Norton said. “The original plan, and we have been here since the beginning, was to achieve a 40 percent premium over the rest of the market. Initially, that was to be at more than $1,000 per square foot. We achieved the 40 percent premium, but at a lower price point,” because the rest of the market also nose-dived from the peak.

The Four Seasons was first envisioned a year after the terrorist attacks of 2001.

“The hotel part of the project was to be funded by the sale of the condos,” Norton said. “Condos were the hot properties in 2002. After 9-11, no one would fund hotels.”

In 2007, 48 of the units had been pre-sold, but not closed, and construction began. Only 16 of those ended up closing.

Another view of the 45-story Four Seasons in Denver.

By the time it opened in 2010, hotels were hot again and condos were just about impossible to sell. In fact, not a single unit was purchased in 2010 or 2011.

The Four Seasons, including the hotel, was saddled with about $300 million in debt. The most senior debt was held by Goldman Sachs Group, followed by a group of German banks led by Munich Re AG. In third place were Japanese lenders led by Mitsui Sumitomo Insurance Co.

Much of the equity was contributed by GD Holdings, the real estate arm of the privately held Grupo Denim, a leading manufacturer of denim apparel, primarily bluejeans manufactured in Mexico and Nicaragua. GD Holdings kicked in another $15 million in debt to restructure the loan in early 2012. GD Holdings in 2009 bought a 50 percent ownership and management interest in the Ritz Carlton, Bachelor Gulch in Beaver Creek.

“The Japanese group, being in third position, closed that entire business and wrote off the loan,” Norton said. “That brought the debt to a manageable level,” allowing the prices to be slashed.

“If we didn’t have this unique capital stacking, we never would have been able to restructure it,” Norton said.

With the lower prices, condos began to move. Mostly, the buyers who bought the units as their primary residences, he said. He estimated only 10 percent of the buyers use it as a second home.

“I think the Four Seasons was always a great project,” Norton said. “It provided something in the Denver market, a level of luxury, that no one had ever seen before.”

The drop in prices came as the luxury market began to perk-up.

“Let’s face it: We experienced five years of a terrible market,” Norton said. “At the Four Seasons, we have tapped into affluent people who were ready to make a move once the price made sense. Living in the Four Seasons is like living no place else in Denver. There is no other option like it. The hotel is what really makes the residences like no other place in Denver.”

Selling out the project also speaks volumes about the high-end market in Denver, he said.

“What it says about Denver is that Denver is a deeper market than people think it is,” Norton said. “Many times over the years we have heard people talk about what a small market Denver is and how it is still kind of a cow town. But it is a much more sophisticated place than many people give it credit for.”

Douglas D. Kerbs, a broker with Fuller Sotheby’s International Realty, sold a dozen of the condos.

“Purchasing a private residence at the Four Seasons is a sound, long-term investment for buyers,” Kerbs said. “The future potential of the building is infinite as the Four Seasons continues to remain a vital player in downtown luxury real estate.”

He said one buyer has bought a half-floor unit plans a custom remodel that will create an “extraordinary” unit that will hit the market next spring.

His timing might be right.

“Twelve months ago, we looked at this building and thought, “We have a real problem here.” Now, we wish we had more units to sell,” Norton said. “Today, we could sell another 10 floors.”

Interested in buying a home in downtown Denver? Please check out COhomefinder.com.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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Comments

  1. I think this answers John’s question on the last blog post on why high end real estate is selling in Denver. The biggest factor is perceived value or these units would be selling for more than 60% below their initial proforma.

  2. Now we shall see if the Ritz Carlton units can sell. Unless they find owners who enjoy traveling by Greyhound bus, and want to be able to walk out thier front door at the terminal, they will still have a lot of work to do.

  3. “Purchasing a private residence at the Four Seasons is a sound, long-term investment for buyers,” Kerbs said.
    Delusional.
    The HOA fees have to be a killer.
    I know that Doug, as a RealWhore®™ has to say this.

  4. Good point Dave. Also, was not such a good investment for the 16% of the building that closed on pre construction sales. They will need prices to double just to break even.

  5. The long term sustainable value of all real estate is based on the cash flow that it produces. Luxury real estate only makes sense financially if purchased with cash.

    • By the way DJ, we finally agree on something. Your previous post is spot on, discounted cash flow is the only thing that really maters in the long run.

  6. I think Dave is talking about an owner occupant spending every year, $40,000 on HOA and $12,000 on taxes coming to the conclusion owning this unit was a good investment.

  7. It’s a very mediocre investment at best. Tell me, what kind of annual return you would expect one of these buyers to achieve? Levered or unlevered, it’s weak.

    • Looks like these units have an unlevered Cap Rate between 1-2% (assuming $6,000 for taxes, $1.5 sq foot for monthly HOA and the ability to rent the unit at $5795 per month). The Cap rate falls further if you don’t want to manage the tenant and want to use a Broker. I would think most any large Cap dividend paying stock will give you a far better rate of return over 10 years.

      http://denver.craigslist.org/apa/3443681929.html

  8. Just think, for the same $40,000 in HOA fees, you could stay 100 nights a year at any four season resort($400 per night) plus, you get turn down service and a mint.

  9. HOA fees on these high priced condos is puzzlingly high. At least it is puzzling to me. There is not much of a common area to maintain. They don’t pay for the unit utilities, maybe water and hot water, I don’t know, but that isn’t 10% of the HOA fee. So what is left is $2,000,000+/year for insurance and security. Really?

  10. “Twelve months ago, we looked at this building and thought, “We have a real problem here.” Now, we wish we had more units to sell,” Norton said. “Today, we could sell another 10 floors.”

    I would have to believe Goldman Sachs Group,Munich Re AG. and Mitsui Sumitomo Insurance Co. are glad you did not have any additional floors to sell, as their losses on this “failed” project would have been greater. This is just one big short sale…

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