Denver - Mike Zoellner knows this town. He is a fourth-generation native of Colorado. He also knows how to build apartments, having worked for 17 years at Legacy Partners Residential, formerly Lincoln Property Co.
Zoellner, however, dreamed of having his own firm and struck out on his own a few years ago to form RedPeak Properties. The company is now behind some of the most creative multifamily developments in the Mile High City.
It has readapted and turned around several important buildings in the city, including the former Security Life Building, one of downtown’s first office towers.
Known as 1600 Glenarm Place, the project opened in early 2006 and won a Mayor’s Design Award in November, earning the fetching title of “buildings that beckon.” Not too bad for a 31-story, 40-year-old office building that was in foreclosure and sat empty for about eight years.
Others had developed big plans for the building, including turning it into a luxury hotel, but those proposals never materialized, opening the door for RedPeak, which bought the property and a nearby parking facility.
RedPeak had its own ideas for the landmark building. Zoellner, whose great-grandfather was a silver miner, turned the old offices into 333 rental units, with more than 20,000 square feet of retail space.
The building is now home to Denver-based Cook’s Fresh Market, an upscale market that is the first grocery store in downtown. It is also home to Peet’s Coffee & Tea. Earl’s Restaurant will open in the spring, and will deliver room service to apartment residents, who will also have their own entrance to the restaurant.
The $85 million project is credited with helping to change the neighborhood.
“Michael Zoellner is a leader in our community. His vision and persistence in the development of 1600 Glenarm has transformed the core of downtown,” said Tamara Door, president and CEO of the Downtown Denver Partnership, a nonprofit business organization that plans and develops the downtown neighborhood. “It has brought new residents, new retail, and a new vitality to a building on this block that for many years had remained vacant.”
Zoellner, she said, didn’t just develop a mixed-used project, but took great care in selecting the right retailers, which has helped in the success of the project.
Downtown Denver has about 9,000 residents, with 7,000 housing units, according to a 2006 report by the downtown organization. The larger Center City area has about 83,000 residents.
The downtown area has approximately 1,500 rental units and 4,300 for-sale units under construction or planned.
At the end of January, about 65 percent of the apartments at 1600 Glenarm were leased, with about 25 units being absorbed each month. Rents start at about $1,000 per month and go as high as $6,000 for a penthouse unit.
“It’s the most interesting group of people you will find,” Zoellner said about his residents. “There’s not only an income variation but a wide age dispersion in the building. There are people who have their first or second job out of college and 75-year-olds. There are three generations attracted to the urban lifestyle.”
RedPeak’s capital structure also sets it apart from many other development companies, allowing it to be more nimble. The firm works with a large state pension fund that has created a separate entity to invest in companies like Zoellner’s through Principal Enterprise Capital (PEC), a subsidiary of Principal Global Investors.
As a result, RedPeak is capitalized on a low-leverage basis, and all three parties—the pension fund, PEC, and RedPeak—share in the upside of value creation. Zoellner has a subscription line of credit with the fund that he uses to finance his projects. “It’s not one-off financing,” he said.
Zoellner anticipates that the industry will see more of these arrangements in the future as other pension funds look at this model. He calls it “patient capital” because he is able to wait for deals that are right for RedPeak.
A historic property
Zoellner enjoys the diversity that his work offers. “Every day is different and full of new challenges and opportunities,” he said. “Also, in order to be successful in our business, you must have a broad base of knowledge and experience in financing, design, investment underwriting, marketing, organizational behavior, construction, and leadership. I really enjoy making residents, team members, and investors happy and saying, ‘Wow.’”
RedPeak has developed about 2,200 units. During his career, Zoellner has been responsible for developing more than 7,500 units. Mark Windhager, another Legacy alumni, is RedPeak’s chief operating officer.
Another interesting RedPeak project is the redevelopment of the former Tolstoi House, which was built by a philanthropic women’s organization called the Tolstoi Guild. The group opened the 11-story building in 1964 to provide affordable housing to its members and raise money for their causes. The top floor was left open with a large kitchen and cabinets where the women could store their crystal and china.
Over time, the group began to lose its members, and it became too expensive to operate the large building, so the property was sold in 1976.
Zoellner first saw the 72-unit building some 20 years ago. He and his wife had their first apartment just down the street. “We knew the neighborhood and liked the livability of the neighborhood,” he said. The property is two blocks from Cheesman Park and a block from the Denver Botanical Gardens.
When RedPeak was getting started, the firm identified properties it was interested in. The Tolstoi House made the list, but it wasn’t just for nostalgic reasons. The building fit the profile of the type of asset the company has been focused on: a well-located property, solid construction, and a property in need of capital, remodeling, or vision.
This is an example of the firm’s local knowledge. “Mike is Mr. Denver,” said David Martin, managing partner of the Denver office of Moran & Co., a national brokerage firm specializing in apartment properties. “He is tuned into what’s going on here, and his properties have done very well.”
He understands the area’s submarkets and has a good sense of where to go, Martin said.
On the day that the Tolstoi House was listed, RedPeak made an offer, buying it for about $5 million in 2005. The upgrade and repositioning cost was about $6 million.
Renamed the Arboretum at Cheesman, the property has been converted into 58 condominiums, with four penthouses. The company started closing on units in November and had sold about 18 of the units in January, with the average sales price at about $325 a square foot.
The size of the development made it more suitable as a condominium project than a rental property, according to Zoellner.
More to come
Looking ahead, RedPeak owns three development sites that are ready for multifamily construction. “We are planning these opportunities now, but conservatively we could build approximately 800 units plus some support retail,” Zoellner said.
The firm is also looking at diversifying into resort communities. It has acquired several parking facilities, which serve a double purpose. They can continue to operate as parking and generate income, and they also serve as sites that are being land banked for potential development in the future.
Zoellner remains a long-term player, holding onto his properties rather than selling.
“This is home, and we try to create projects that are long-term investments,” he said. “We try not to take shortcuts. We are long-term value investors.”