SoCal Investors Are Following the Yield to Denver

The Denver market seemingly exploded this cycle—but in reality, the growth was a long-time coming. The Bascom Group has been an active player in Denver since 2005 and has acquired nearly 11,000 multifamily units, including its recent purchase of Modera at Observatory Park Apartments, a 275-unit new construction apartment complex, for $92.5 million. Now, Denver has popped into a bustling city, and as a result, the market is on investor radar. We sat down with Scott McClave, senior principal of Bascom, to talk about how the market has changed since 2005 and how the firm has adapted its strategy as more investors have shown up to play.

GlobeSt.com: You have been active in Denver for more than a decade. How has the market changed in your time investing there?

When we landed in Denver in 2005, it was a recovering market. It had been hit counter-cyclically from the tech wreck of the early 2000s when the rest of the country was doing well. The market didn’t recover until 2005, which worked in its favor because it never got overbuilt like a lot of the country did. At the same time, Denver was going through a fundamental shift in its lifecycle as a city. It was going from being a cow town to being a diversified first-tier city. It was getting away from its historical foundation of agriculture and MOG, and moving into first-tier tech. A lot of the universities were starting to be impactful, and it had a world-class airport that could take you on a direct flight anywhere in the country in three hours and direct global flights as well.

GlobeSt.com: What was the catalyst for the tremendous growth in Denver?

I give Denver Metro and the State of Colorado a lot of credit for being prescient and having a long-term plan for investing heavily in infrastructure. But at the core of it, what we have always found appealing about Denver is that it is a great quality of life city. There are a lot of cities people move to because they have to—because they are going where the jobs are. People are moving to Denver because they want to be there, because of the phenomenal quality of life. It has five major sports venues, an incredible suite of restaurants and incredible amenities in the central downtown area; you also have a great network of parks and trails within the city and of course, the mountains nearby. It makes it an attractive place to live. We like to look at cities as a whole. In our industry, we stare at data way too much, but that data is the product of a lot of other things. I think that Denver is a good case study of that.

GlobeSt.com: Why do you think Denver has become target market for so many investors?

Everyone is chasing yield. Early on when we were in Denver and there were fewer national firms there, cap rates were higher and deals were easier to get done. When people take a fresh look at things, they show up to chase new yield. We have certainly seen that in Colorado, especially following the downturn. Colorado had a very mild downturn relative to the rest of the country and showed tremendous growth in the recovery. We are seeing the same trend in Southern Nevada now. As an investment market today, Denver is more like the coastal markets with lower cap rates and long-term economic stability. We also choose to look at broader metrics, and we place our funds where they can best perform.

GlobeSt.com: Do you plan to remain active in the market as well?

Yes, absolutely. When the market started really running, we were probably a little cautious and shouldn’t have been because there were a lot of opportunities out there.

GlobeSt.com: How are you curbing the new competition in the market?

Having been active there for a long time, we have good first-name relationships with the brokerage community. It has become a much more diverse market in the time that we have been there. As the city has grown from both a population standpoint and an investor profile standpoint, the brokerage community has also evolved and developed and there is no one dominant group there anymore. We have always used a multi-polar approach in terms of brokerage relationships anywhere from the big national firms to the small independent guy as well as direct relationships with other owners. We have always been that way in terms of capital as well, and we have a broad base of investors that we work with, from Wall Street Funds, to pension funds to high net worth individuals. It isn’t a one-size fits all approach. We are, by nature, omnivorous in the type of product that we buy. We will buy small product, old product, large product, new product. That has allowed us a lot of flexibility in terms of finding product and finding yield and matching it with the right equity source.

GlobeSt.com: You just completed the purchase of Modera at Observatory Park Apartments. Tell me about the transaction and how it fit your investment strategy in the market.

It checked a lot of boxes. It is great quality product well positioned for a long-term hold; It’s in an affluent submarket next to a highly reputable university, light rail station, and within a couple of blocks of the freeway giving it easy access to downtown Denver and DTC. We also felt it was well priced for new construction product, which we see heading north. That’s an easy decision.