Patience Pays Off for Argus Realty

"We're really happy about it," Argus chief executive officer and chairman Dick Gee tells GlobeSt.com. "It is 80% leased and has a 20% vacancy. We actually think we got a really good 'stick and brick' purchase at this kind of price."

Buying it so far below replacement cost also gives it the luxury of charging below-market rents, he tells GlobeSt.com, as well as allowing it to put aside money to refurbish and re-tenant it. It's earmarking $250,000 to spruce it up. "We are going to refurbish the whole outside and change it to give it an office-tech look," Gee tells GlobeSt.com. "We're going to start construction as soon as the weather permits."

He calls it the "perfect kind of property' for a call center. "It's a single story building with a large floorplate. And because it used to be a mall [built in 1967], it has abundant free parking. It has that 360-degree field of vision that you find in malls," he says.The transaction was handled by the CB Richard Ellis investment team of Mary Sullivan, Tim Swan and Ron Urgitus. Sullivan says the seller selected Argus even though an all-cash buyer was one of the final bidders. About a dozen groups seriously bid on the property.

Gee says the center's access is a strong selling point. It is located just off Interstate 25. "It has this great access and doesn't have all of that congestion you find in the [Denver] Tech Center," at the opposite end of town along the southeast corridor, he tells GlobeSt.com. "You're minutes from three or four freeways."

Since the building was in escrow, it already has about 27,000 sf of new leases either signed or about to be signed, which is well ahead of schedule. The game plan was to have it leased up in 27 months, allowing a third of the empty space to be leased every nine months.

Argus bought the building with a lot of equity. 'We have enough dollars in it that over our five-year holding period we will have reserved out of the cash flow $5 million for re-tenanting costs," Gee says. "And our debt coverage is 2.4 debt on current income. That means it is very safe."

A five-year $19-million mortgage at 5.583% amortized over 30 years was arranged by Eric Tupler, a senior director in LJ Melody and Co.'s Denver office. Tupler says the lender cited the property's centralized location, stable tenant occupancy and stable cash flow as "major positives" in underwriting the loan.

The tenant-in-common investors include well-heeled individuals, husbands and wives, limited partnerships and trusts, as well as companies. Typically, each investor puts in about $500,000 each. Argus ties up the property and then finds the investors.

Argus specializes in acquiring both stabilized and value-added industrial and office properties for individual and institutional investors. It works with the Maxwell Drever family. It is looking for properties in the $10-million to $150-million range, and has acquired $325 million in commercial real estate during the past three years. It seeks primarily industrial and suburban office properties, and typically doesn't seek to buy apartments or retail, Gee says.