Deal Analysis – Denver Syndication of 17 units: The HAP Contract and the Package Deal

This post highlights The VareCo’s acquisition of a portfolio with unique complexities, stringent federal regulations, and creative opportunities. This portfolio consists of two multifamily complexes sold as a package-deal in two separate, high density, high-growth neighborhoods in Denver, CO.

This post highlights The VareCo’s acquisition of a portfolio with unique complexities, stringent federal regulations, and creative opportunities. This portfolio consists of two multifamily complexes sold as a package-deal in two separate, high density, high-growth neighborhoods in Denver, CO.

One property contains 11 connected row homes on 2.5 acres of land in the Whittier neighborhood and the other is a 6 unit building in the River North Arts District (RiNo) neighborhood of Denver.  These properties are currently under a Housing Assistance Payments (HAP) Contract through The Department of Housing and Urban Development (HUD), which guarantees the majority of rent payments.  

This is the second VareCo syndication deal featured on the Denver Real Estate Investing Podcast. Check out the podcast episode as Ben Davis, our CFO, and I join Chris Lopez to discuss the details of this deal. Feel free to reach out with any questions and ways to improve this analysis. 

Listen to the podcast or watch the video for the full discussion. 

Three Learning Options!
  1. Listen to the podcast “#224: Denver Syndication of 17 units: The HAP Contract and the Package Deal” on the Denver Real Estate Investing Podcast
  2. Watch the YouTube video (at the bottom.)
  3. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.

High Ogden multifamily investment property
High Ogden Portfolio consisting of two multifamily properties, 17 units total.

Denver – The Growing Economy

One question that continues to come up is why invest in multifamily in Denver when we have the option of going to other more affordable markets with higher cap rates? 

Colorado’s Economy

Taking into account the past 5 years, Colorado’s Real GDP growth average ranks 5th in the Nation at 3.6%. In 2019 alone, Colorado ranked 5th lowest in unemployment, 4th highest in labor force participation, and experienced  5.5% appreciation in real estate. Evidence of growth is all over the city, with continued migration of youth, abundant job opportunities, and construction cranes lining the Denver skyline- a tangible reflection of our strong economy.  

High Street

Denver multifamily investment property
Denver multifamily investment property
The High Street Property consists of 11 connected row homes, each with their own yards and space to build individual garages in the Whittier neighborhood.

The High Street property consists of 11 – 800sqft connected row homes, each with their own front and back yard. The row homes are situated on 2.5 acres in the desirable Whittier neighborhood of Denver. This area has transitioned over the past decade from a primarily workforce neighborhood to one that now includes new Class A developments, new restaurants and retail shops, and a handful of million-dollar homes.

Ogden Street

Ogden multifamily investment property
The Ogden Street property consists of six units in RiNo.

The Ogden Street property consists of 6 – 2 bed/1 bath 750sqft units in a standard up/down configuration, located in the River North (RiNo) neighborhood of Denver. This area has seen vast changes over the past five years, going from a historically industrial sector to a trendy, art-filled neighborhood with new-build multifamily complexes, new restaurants, and plenty of entertainment.  The majority of renters moving into this neighborhood are young urban professionals.

Sourcing the Deal

A well-regarded apartment broker in Denver brought me this deal in August, 2019.  After taking the weekend to complete the underwriting, I contacted the broker only to learn another buyer was already under contract on this deal. In February 2020 the deal fell out of contract— the city of Denver had the first right of refusal and terminated the deal due to the buyer wanting to tear down the existing structure and build 10 single-family homes. Because The VareCo had already completed the underwriting and was actively on the hunt for another deal, our team went under contract on this portfolio for $2.85M. Due diligence included: 

  • Phase I Environmental Study 
  • Rent Study and After Renovation Value (ARV) – Multiple profitable options are available on this portfolio, with the greatest return from converting the High Street Property into 11 condominiums and selling individually.
  • Full Inspection + inspection from previous buyer – Due to COVID related restrictions and for the protection of existing tenants, we utilized the previous buyer’s inspection report (pre-COVID) to supplement our own.
  • Submit HUD approval letter along with offer –  An attorney specializing in HUD contracts wrote the approval letter based on The VareCo’s background and experience. More below outlining why this was required and the multitude of steps required to meet the rigorous HUD requirements. 

The team negotiated concessions, with a final sales price of $2.74M.

A Notable Encumbrance to Purchasing this Portfolio: The HAP Contract

In addition to the seller requiring the purchase of both properties as a package, both properties are subject to a Housing Assistance Payments (HAP) contract being transferred to the buyer from the seller. This federal contract, issued through HUD provides Section 8 tenant-based assistance of up to 100% of rent.  

The High Street HAP Contract has a 20-year term ending in February 2022.  Due to receiving federal money, the federal government is required to underwrite EVERYONE associated with the purchase and management of the property. This includes The VareCo, all The VareCo staff, property managers, and tenants -AND- the property plans, business plans, and reserves.

A reserve minimum was required at the conclusion of a Project Capital Needs Assessment (PCNA).  This inspection identifies health and safety measures that must be taken to keep the property functioning safely for the tenants; this is both at the time of inspection and for the estimated useful life of the subject system (such as plumbing).  The VareCo is required to maintain this amount in their operating account prior to HUD approval of the acquisition.

HUD also required The VareCo to utilize a HUD-approved Property Manager. Only a handful of these exist in Denver, and we will inherit the current Property Manager with the purchase of the portfolio. These property managers are more involved with the tenants day-to-day lives and provide resources and services over-and-beyond standard property managers, such as relocation services, job placement, health-related services, and others.  These additional services are reflected in the property management fee which has the potential to be cost prohibitive. In this case we were able to apply our own management staff to supplement the maintenance burden thus lowering the net expense to the property manager. 

The HUD approval process is rigorous, taking multiple months to complete.  The comprehensive underwriting required by HUD created a high barrier to entry, highlighting The VareCo’s ability to stand out from competition and the ability to meet stringent federal requirements. 


During the remaining duration of the High Street HAP Contract, federally guaranteed rent provides short-term assurance that this property will cash flow and The VareCo will be able to provide a preferred return to investors. Taking into account uncertainties surrounding COVID-19, the Presidential election, and the subsequent economic climate to follow, The VareCo underwrote multiple solutions to understand return metrics as well as the overhead requirements necessary to execute each of the following: 

  1. Dispose of High Street and Ogden Street separately or together in 2023. 
  2. Return LP principal by way of refinancing, resulting in a cash flow hold scenario reducing investor risk by distributing cash flow and reducing Limited Partner (LP) principal.
  3. In the case of severe economic recession, renew/extend the HAP Contract and continue to operate “as is” for the foreseeable future. 

Options one and two provide the greatest return, with the execution as follows:

  • Upon the expiration of the HAP Contract, create Party Wall Agreements at High Street, convert the units into condominiums and sell each for $332K. (This is a conservative valuation, as similar properties in Denver without a yard are currently selling for $350K!). 
  • After the sale of each individual residence, the proceeds will pay down debt  while using investor capital to renovate the next condo, and then repeating.  
  • Further profit dollars on top of what is required for renovation will be distributed quarterly.

High Street Comps

Multi family comps Denver


Ben, our CFO approached multiple banks before finding favorable lending terms. The agency lenders, due to COVID, required an additional 12 months of P&I in addition to the already required HUD reserves. The VareCo has a long-standing relationship with a bank that was willing to finance the deal, but required a Phase II soil report due to the presence of lead at other properties within a certain geographic radius to the subject properties. A Phase II report would have cost us $20k-$30k alone. Ultimately, the seller’s broker suggested a bank that the previous buyer went through and was comfortable with the existing environmental due diligence. 


  • 70% LTV at 3.75% interest rate at 3 year fixed, 30 year amortization
  • Ability to dispose of individual condos with no pre-payment penalty
  • Interest only for 18 months, look at refinance on the condos (options)

A Unique Structure to this Deal

Due to our typical renovation strategy, our syndications typically require 100% of the capital to be called at closing. However, to provide the best return on this project, The VareCo acquired commitments for 100% of the project cost but will call the capital in two parts. 

  • 60 – 65% required at closing.
  • 35 – 40% required ahead of renovation which will begin at the conclusion of the HAP contract. 
  • Ideally, the proceeds of the beginning High Street Condo dispositions will fund the renovation of the later units. 

Total Raised

  • $1.7M in total equity raised. The VareCo called $1.02M (60% of total equity raised)  
  • $1.9M in bank debt
  • $3.6M total project cost.  $3M initially invested in the 1st phase of funding. 

Cash Flows Summary

  • The VareCo Cost Basis (Acquisition + Renovation): $3.6M ($182K/door)
  • Disposition Price Per Door of High St: $3.65M ($332K/door)
  • Total Payoff for Both Properties: $1.9M. Results in Ogden St property being owned outright.

To Recap:

Effective communication with brokers can make or break a deal. The VareCo almost lost out on this deal due to the assumption that the broker would provide enough time for us to review and decide if we wanted the deal prior to going to others.  Ask for timelines, be timely, ask how many others are looking at the deal, and continually communicate with the broker or individual who has the deal.  

Be Persistent. Over two dozen calls were made to find a HUD approved attorney. Many told us we would not be able to obtain the HUD approval letter, and yet we prevailed due to our persistence (and track record).  

Build relationships with banks.  Although using the same bank each time makes the lending process more efficient, having at least 2-3 strong relationships with banks is key to growing in the multi-family space.  

OPTIONS MAKE A BIG IMPACT! Cater to the needs and understand the concerns your investors may have. Optionality is key in a year like 2020 where uncertainty is prevalent. 

Disclaimer: Investing in Real Estate involves a high level of risk. The above figures and return data metrics are strictly for the purpose of education and do not represent actual data or return values. Investing in Real Estate involves a high degree of risk and is appropriate only for investors who can afford to sustain a loss of their entire investment.

YouTube Video: Denver Syndication Analysis of a 17 unit Package Deal

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