Investor’s IRR: 23.50%
Initial Equity: $1,300,000
Acquisition Price $2,050,000
Disposition Price: $8,771,381
Hold Time: Varies (March 2001 thru June 2004)
CAP Rate at Purchase: N/A (Vacant Farm Land)
CAP Rate at Sale: N/A (Individual Lots & Homes)
In late 2000, we partnered with Nivek Enterprises, Inc. to acquire an infill site located in Denver off 56th Street between Pecos & Federal. Historically the 17 acre site had been utilized as a farm, but in late 2000, the site was approved for 85 single family homes. Our Development Team completed everything from the horizontal infrastructure (sewer, water, streets, utilities, etc.) to building individual homes for residential resale. The principals of Nivek have over 30 years of residential building expertise in the Colorado area and contributed to the success of the project. The underlying mission was to provide affordable housing in a centralized location to first time homebuyers, while generating a healthy return for the Investors. In addition to the 85 lot subdivision, the site was purchased with an existing farmhouse that was remolded and served as the sales office. In order to achieve the affordable housing component, the Development Team elected to construct manufactured homes with “stick-built” attached garages. The subdivision was required to adhere to strict architectural guidelines and upgrades such as high roof pitch, gables, picket fences, porches and bay windows. This gave the development the upgraded look of stick-built construction, but kept the entry level pricing intact. The development came in on budget during the horizontal infrastructure phase with only a few delays in timeline (due to unforeseen City and County approvals). Six different spec homes were used initially as the model homes to assist in the presales efforts; however, the lender tightened their lending ability after 9/11 and wouldn’t allow any additional spec construction (and it was discovered that first time home buyers in this price range were unwilling to wait the 4 to 6 month construction time). The model homes sold quickly; however, since the lender was unwilling to allow additional spec construction and the buyer pool unwilling to wait for construction, we were forced to shift the development plan from vertical construction to selling finished lots to other participating builders. In the end, we constructed only 26 homes within the 85 lot subdivision. This turned out to be a “blessing in disguise” as the Investors experienced roughly the same profit level per lot without the contingent construction defect risk of building the remaining homes. The last home and lots were sold in late 2004.