ASPEN—Last year saw a record number of commercial real estate sales, including several high-profile downtown Aspen buildings. But beyond the strong numbers—a total of more than $71.5 million in commercial sales—that helped fuel a double-digit percentage increase in overall dollar volume in 2012, what does the surge of commercial activity mean for the marketplace? Plenty, according to those in the industry.
Willingness to invest
Perhaps the most significant takeaway from the flurry of commercial sales is that it indicates long-term confidence in Aspen’s business climate. Residential sales activity may highlight certain trends in that sector of the real estate market, but the fact is that buying a home is more of a lifestyle choice than a business decision (except for spec-home builders). And while some commercial investors choose Aspen in part because they own homes here, they also see it as a good business move.
Aspen appraiser Randy Gold noted in early 2012 that the commercial market was leading the local economic recovery. Prior to last year’s sales activity, Aspen probably saw the most active period of leasing in its history, Gold said during a January business luncheon.
“It’s somewhat of a bet on the strengthening retail environment in Aspen,” said Bill Small, a broker at Frias Properties who specializes in commercial real estate, about the high volume of sales. “I think it’s part of the commercial real estate cycle, that investor capital has decided it wants to buy—at some ridiculously high prices.”
Of several high-dollar building sales, only two could be said to have been acquired for their present income streams, Gold said. Others—like the Mountain Plaza, or Bidwell Building, which changed hands for $22 million, or the Gap building ($13.25 million)—were sold on the basis of getting approvals to demolish or significantly remodel them, with an eye toward capitalizing on the new buildings.
“Those are huge numbers, and those were just land sales,” said Gold, referring to the Mountain Plaza and Gap buildings, which were bought by the same main investor.
“Aspen is a strong attractive market for investors and it usually holds its value,” said Gordon Ledingham, vice president of commercial real estate for Wells Fargo in Aspen. “Investors are saying that now is a good time to come into Aspen, so they’re positioning themselves for the recovery of the economy.”
The commercial sales activity has been a boon for lending banks, who for the past few years have had a dearth of projects to lend on and have focused a lot of energy on managing loans on distressed properties.
“We are very pleased to see the activity that’s occurring, especially in Aspen,” said John Yarberry, who manages commercial lending in Colorado for Wells Fargo. “We make money primarily on making loans, and commercial real estate is an important part of our business. So we’re motivated to find good new commercial loans.”
Wells Fargo has always had money to lend, Ledingham and Yarberry explained; it’s just that there were fewer investors able to borrow and riskier projects during the last few years of the economic downturn. In fact, all the experts interviewed for this article agreed that the lending climate hasn’t changed so much as the economic circumstances that are conducive to making loans.
During the economic downturn, those with the resources to buy “just weren’t wading into it; they were standing on the sidelines waiting to see what would happen,” said Bart Johnson, an Aspen-based commercial real estate lawyer who noted that he’s seen plenty of loans close over the last few months.
The recent uptick in activity is “a combination of people thinking there’s value out there and banks wanting to lend on it,” Johnson said. “Banks’ underwriting can still be pretty tight, but they’re lending to people who can afford to pay back the loan. They’re safe bets.”
And while the Aspen market is infamous for having a high percentage of cash buyers, commercial real estate is much more likely than residential to be tied to a loan, “not because the borrowers couldn’t pay cash, but they’d rather pay the bank 4 percent interest and leverage their equity than tie it up in real estate,” said Johnson.
In terms of demand for commercial real estate loans in Colorado, 2012 saw a marked improvement over 2011 and especially 2010, “a very challenging year,” said Yarberry. And that goes hand in hand with construction activity, which is primarily being driven by multi-family apartment buildings on the Front Range and medical office buildings in the Grand Junction area. Aspen is seeing its own surge of commercial construction activity with at least three new downtown buildings going up this year.
As for 2013, Wells Fargo is anticipating a 30 percent increase in new commercial loans this year, said Yarberry, who considers Aspen to be “one of the brighter spots in the marketplace in general.”
Also of note is that investors in Aspen are buying multiple buildings. Mark Hunt, the lead investor in the Bidwell and Gap buildings, is one of the relatively new owners of the Hotel Jerome; his first commercial purchase in Aspen may have been the Mill Street Mall building that currently houses Above the Salt. Charif Souki, a part-time Aspen resident and Texas energy executive, bought the Pomeroy Sports and Mason Morse buildings within months of each other. According to a spokesperson for Souki’s Ajax Holdings, those are the first of several local investments.
Having deep pockets certainly helps in terms of acting as guarantors on loans, noted Johnson. And in some cases, it significantly reduces the life of the loan. The Aspen Art Museum, which is building a new $40 million museum in downtown Aspen, secured a $21 million loan for the project from American National Bank. But it has some $36 million pledged in private donations for capital costs. As a spokesman for the nonprofit museum explained, the loan exists to bridge the gap between the 18-month construction period of the museum and the five-year payment schedule for the donations. The museum intends to fully repay the loan from the pledged payment by 2017.
What’s abundantly clear is that the days of mom-and-pop type ownership of commercial and mixed-use buildings are long gone in Aspen (although there are still some opportunities for small businesses to buy condominiumized spaces within buildings). In fact, 2012 saw a number of buildings pass from a family to an investment group.
The Volk family sold the property (now home to Paradise Bakery and others) for $17.25 that it had acquired in 1947 for back taxes and whiskey. Bert Bidwell’s children sold the building their father had built in 1965. Amelia’s Building on the Hyman Mall passed out of the ownership of hair salon owner Amelia Kopp’s sons. And the Anderson family sold the building that houses their business, Pomeroy Sports, for $7.5 million.
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