Denver's Union Station was 30-year barn raising

The Denver PostJuly 13, 2014 

— At 6:30 a.m. on Dec. 4, 2012, three Denver real estate developers sat down for a hastily arranged breakfast at the Egg Shell in Cherry Creek. On the menu was an order for $6 million. A day earlier, two of the men, Walter Isenberg, CEO of hotelier Sage Hospitality, and Jeff Hermanson, CEO of restaurant and retail developer Larimer Associates, had, in Hermanson's words, "fired" their equity partner on the project to reanimate Denver's Union Station.

The 120-year-old station's $54 million transformation into a hotel, shops, restaurants and bars — now set to open July 26 — was to be a capstone in Denver's march from a polluted, declining city to one of the nation's fastest-growing urban areas.

The project, however, could not go ahead, Hermanson said, with a partner who had "his finger on your chest, a partner not very comfortable with change or risk."

Work had begun the day before, and the contractor warned that to meet a drop-dead commitment to get Amtrak back into the station by March 2014, there could be no delays.

But now there was a $6 million hole in the project that could prevent it from going forward.

The third man at the table was Chad McWhinney, a developer who had made his fortune on big projects in northern Colorado. Now a Denver resident, McWhinney was looking for opportunities in town.

Hermanson and Isenberg laid out the deal.

"How quickly can you make a decision?" Isenberg asked.

"Five minutes for the right opportunity," McWhinney replied.

Union Station was just the kind of project McWhinney wanted, but he needed to work the numbers and check with his younger brother and partner, Troy.

That afternoon, McWhinney called Isenberg and said they were in.

The new Union Station will open in the center of one of the nation's hottest real estate markets.

To the station's east is the Lower Downtown historic district, with the lowest commercial vacancy rates and highest office rents in the city. To the west is the Central Platte Valley, now scene of nearly $1 billion in residential and commercial development and a new $500 million regional transit center.

It is a far cry from the Denver of the 1980s, when the city was choking on a brown cloud of pollution and struggling with a decaying downtown and a sputtering economy.

"Denver was able to use the crisis of the 1980s to experiment in doing business in new ways," said Jennifer Bradley, a fellow at the Brookings Metropolitan Policy Program in Washington, D.C. "Just as the 1980s wasn't Denver's moment, now is Denver's moment."

Redevelopment is pushing north and east into areas dubbed Ballpark, Arapahoe Square and RiNo.

"These are neighborhoods that in some cases didn't exist by names, because there wasn't much there," said Tami Door, president of the Downtown Denver Partnership, the association of 735 businesses that has been key in planning and developing the area.

The resurrection of the city came in "a thousand different steps — some big as a convention center and some small as a zoning change," Door said.

Three successive mayors committed to Denver's development and voters willing to back them up with taxes and bond issues helped, as did a coterie of developers and timely federal grants. Still, the story was anything but certain.

"You don't what's going to work till you try," Door said.

When Walter Isenberg, at age 26, arrived in May 1984, Denver's story looked bleak. The Kansas City, Mo., native and his Cornell University classmate Zach Neumeyer had come to start a hotel business. They began Sage in an office across the street from the Denver Rescue Mission.

"Little did we know Denver was going to collapse," Isenberg said.

Denver had a one-horse economy — the oil and gas industry — and when the world price of oil plunged to less than $10 a barrel in 1986, the city went with it. The unemployment rate reached 7.4 percent in 1986 — nearly a percentage point above the national average.

Downtown was in "a depression," Isenberg said, with office vacancy rates of 30 percent and half the hotel rooms empty.

"There were only a handful of people who lived in the Central Business District back then," Isenberg said. "I was one of them. I lived on 19th and Arapahoe. After five o'clock Monday through Friday, it was a ghost town."

About a year before Isenberg arrived, Denver elected its first Latino mayor, 36-year-old Federico Peña, who faced a city not only stumbling economically, but suffering an exodus.

After peaking at 514,000 residents in 1970, the population had dwindled to 492,000 by 1980 and continued to fall for a decade.

Only the Los Angeles area had pollution readings worse than Denver's. After the Broncos' 1988 Super Bowl loss, a TV sportscaster opined that Denver "has never been No. 1 in anything except carbon monoxide."

Peña, a former state representative and a neighborhood activist, believed things could change.

"We felt the city has fallen into the malaise," he said. "But there was all this pent-up interest and longing to make Denver a great city. People came here from all over — I came from Texas — to make this their home."

Peña's campaign slogan was "Imagine a Great City" — and he set about trying to translate the dream with big projects and big citizen task forces.

"We wanted to open it up to everyone," he said.

One project was to clean up the Platte Valley Rail Yards behind Union Station, which was a mess of 35 tracks used by five railroads. Peña's administration convinced the railroads to consolidate their lines, eventually freeing up about 200 acres for development.

The railroads, however, held on to Union Station and the 19.5 acres directly behind it.

"I did a TV campaign commercial walking down along the tracks, saying we were going to clean up the Platte Valley," Peña said. "And I stepped on a nail that went right through my shoe and just missed my big toe."

Part of that cleanup was a proposal by a 90-person citizen task force for a $280 million bond issue for infrastructure projects. "In 1985, at a time that property values were falling, people voted to raise property taxes," Peña said.

It was not the last time Denver voters would be asked to approve a tax increase to rebuild the city.

The biggest project Peña undertook was replacing the city's overworked Stapleton Airport with the new, bigger Denver International Airport.

"There was a lot of opposition," Peña said. "There were a lot of people who thought it was a terrible idea to put an airport 25 miles from the city."

Denver's fate and transport have always been intertwined. Founded by Gen. William Larimer Jr. in 1858 as a mining camp, the city faced extinction in 1865 when the Union Pacific Railroad put its transcontinental route through Wyoming. Thomas Durant, a Union Pacific vice president, called Denver "too dead to bury."

John Evans, Colorado's territorial governor, organized local business leaders and formed a railroad company to link Denver to the Union Pacific line.

Within days, they raised $300,000. Citizens of more modest means were encouraged to make small donations or contribute labor to the project. The first train from Cheyenne pulled into a station near the South Platte River on June 24, 1870.

To this day, when Denver developers and politicians talk of tricky projects, they invoke the story of the Denver Pacific Railway and Telegraph Company.

Despite the grand projects, Peña had trouble getting re-elected. "In my first term, I had all these grand visions of all these big projects," he said. "The mistake I made was not focusing on short-term, immediate victories."

One of those victories was a downtown small-business loan program. A recipient was a 35-year-old unemployed petroleum geologist named John Hickenlooper, who used the money to set up a brew pub in a building on Wynkoop Street in dilapidated LoDo.

The last big battle of the Peña years was designating LoDo a historic district.

"The lobbying and threats to political careers of the City Council and me were intense," Peña said. Nevertheless, the council voted 8-4 to create the Lower Downtown historic district in March 1988.

"It was a struggle," said Jerry Glick, a developer and owner of 1600 Wynkoop St. in LoDo. "A lot of property owners believed you would destroy property values. My view was the opposite. A lot of us figured you could make money on old buildings."

When Peña left office in 1991, the city was still losing population — the 1990 census tallied 468,000 — but Denver had "clawed itself out of the recession that was strangling us," he said.

Isenberg and Neumeyer were trying to find ways to survive as entrepreneurs — among their tasks was handling bankruptcies.

"We needed to make money, so we began doing workouts for banks, big financial institutions. At the end of the day, it led us to acquire The Oxford Hotel in 1990 and to Dana Crawford," Isenberg said. "It was in bankruptcy and we recapitalized it.

"We really learned from Dana the whole importance of historic preservation, not only what it could do for the community, but, frankly, what it could do for the business."

In 1954, after being part of the Harvard-Radcliffe business administration program in Cambridge, Mass., the then-23-year-old Crawford was lured to Denver by a boyfriend.

"Once I lost interest in him, I found I was really attracted to the city," she said.

In the early 1960s, the Denver Urban Renewal Authority was razing huge swaths of what it saw as a decaying inner city. Crawford saw something else.

"Downtown Denver was pretty much intact from its Victorian boom days and it reminded me a lot of Boston," Crawford said. "At the time, the idea of preservation didn't even exist."

Crawford began her campaign in 1965 on the 1400 block of Larimer Street. The street was the historical heart of the city, but by the 1960s, it was notorious.

"The word was that Larimer Street was just evil," Crawford said. "There 66 schlocky bars on the street, and a lot of times, there were drunks lying on the sidewalk."

Crawford launched Larimer Square modeled on an upscale shopping mall, with a mix of restaurants and high-end shops.

When the first Larimer Square restaurant — Your Father's Moustache — opened, there were lines waiting to get in.

Still, one side of the 1400 block of Larimer Street was slated for demolition.

"I spent a great deal of time sitting at the Urban Renewal Authority office fighting the fight," Crawford said. "At times, I can barely talk about it, it was such a hard fight."

In 1980, Crawford, as part of an investor group, started working on The Oxford, a block from Union Station. The goal was a historic, luxury, boutique hotel in a still-rough part of town.

While most new development was on the southern end of downtown, the city and the Downtown Denver Partnership had made one key investment: a $29 million, 1.2-mile pedestrian mall on 16th Street.

Opening in 1982, it laced all of downtown together.

In 1986, Crawford sold Larimer Square, which would eventually come into the hands of Jeff Hermanson, who had come to Denver in a roundabout way, leaving California after graduate school, to spend a year in Crested Butte as a ski bum.

"I got a job as a waiter," Hermanson said, "and I thought I'd reached the apex of my professional career being able to work at night and play all day."

Within a few years, however, he owned property and three restaurants in the ski town. "I was always an entrepreneur," he said. "In the fifth or sixth grade, I got busted for selling insect collections."

By early 1990, even as The Oxford ran into financial problems, Crawford became a catalyst in the city's loft movement, buying the Edbrooke Building at 15th and Wynkoop streets at a bankruptcy sale and turning it into apartments.

"Everyone said no one would ever live downtown," Crawford said. "The bankers and business people said this is a ridiculous conversation."

When Peña left office, he was succeeded by Wellington Webb, the city's first African-American mayor.

One of the Webb's first steps was to call a downtown summit. "It was my belief then and now, if you go to a city and they don't take you downtown, there is decay," he said.

Another priority was to get the new airport running. "Eighty-five percent of it was completed on our watch, including the first gigantic change order — $65 million to tear out the guts of the terminal to put in a baggage system requested by United Airlines," Webb said.

It would not be the last cost overrun. DIA's final price tag was $5 billion — almost 200 percent over budget.

And yet, DIA was crucial to Denver's story, say developers and economic development officials.

"I can't imagine what our city would be like if Stapleton was still our airport," Isenberg said. "Stapleton was not conducive to air travel in the 21st century."

It is said around town that Peña imagined a great city and Webb, who is now 73, built it.

The Colorado Convention Center — which was started under Peña with a big helping hand from the state — was expanded by Webb.

Webb created an authority to oversee the building of a convention center hotel — the Hyatt Regency, which opened in 2005.

Voters in 1999 approved $386.5 million in taxes and bonds to fund the convention-center expansion, a new wing for the Denver Art Museum and an expansion of the Denver Zoo.

"It wasn't just the powers that be who wanted to keep the urban core vital. The citizens of Denver voted time and time again to back that up," said Ken Schroeppel, a University of Colorado Denver architecture and planning instructor.

But even more important than pouring concrete was keeping people downtown and creating parks and amenities, Webb said.

"Sports and cultural activities have to be located near downtown," he said. "Look at Detroit. They moved the football team to Pontiac and the basketball team to Auburn Hills, and then they wonder why they can't get anybody to come to Detroit."

For Denver to keep the Nuggets and the Broncos — each had expressed a desire to leave — city-owned venues were spun out to private developers, with the Pepsi Center opening in 1999 and the new football stadium opening in 2001.

In 1989, Denver and surrounding counties approved a 0.1 percent sales tax for a special Scientific & Cultural Facilities District that provides about $40 million a year to hundreds of arts and cultural organizations — but the lion's share goes to city institutions such as the Denver Museum of Nature & Science and the Denver Center for the Performing Arts.

When it was announced in 1991 that Denver would get a Major League Baseball franchise, there was no bidding war for a stadium. Voters in the metro counties agreed to another 0.1 percent sales tax increase, this time to fund a downtown ballpark, which opened in 1995 at a cost of $300 million.

Those votes were part of a growing regional cooperation in economic development, said Tom Clark, CEO of the Metro Denver Economic Development Corp.

Metro Denver EDC preached cooperation as a way for the entire metropolitan area to pull itself out of recession, Clark said, and elected officials were willing to listen.

One of the first targets was the city's polluted air.

"That was an easy one," Clark said. "Everyone gets it that air quality knows no boundaries."

The city's public investments were now spurring private capital investment. "The city put its money where its mouth was," developer Glick said.

In the 1990s, Union Station and the land behind it, about 75 acres stretching to the South Platte River, remained undeveloped.

To spur development, the Webb administration stepped in and built the 30-acre Commons Park along the river between 15th and 19th streets,

"The city built this $10 million park, and there was not one housing unit," said Bill Mosher, the former head of the Denver Downtown Partnership. The park was completed in 1999.

Housing development jumped the vacant lots and train tracks near the station to fill land near the park and the cleaned-up river — $46 million was spent on the polluted and debris-strewn waterway.

In August 2001, with a push from the Webb administration, the Regional Transportation District bought Union Station and the 19.5 acres behind it for $40 million.

When Webb left office in 2003, after three terms, the city's population was once again on the rise — reaching 545,000 in 2000 — and its economy was changing.

On the Saturday night before he took office in 2003, Denver's new mayor, John Hickenlooper, held a reception for all the metropolitan-area county commissioners and mayors.

"I made a 2-minute speech that in essence said the days of Denver putting themselves ahead of everyone else are over," Hickenlooper said. "Denver can't be a great city without great suburbs."

Hickenlooper, a Pennsylvania native, had come to Colorado to study geology at the Colorado School of Mines and had taken a job in the oil industry. He lost his job in 1986 as the industry went bust.

"It was a terrible recession," Hickenlooper said. "It was every bit as bad as this last recession, probably worse for Denver."

He switched gears and, with partners and the city loan, went into the brewpub business, settling on a site across from Union Station.

"We looked at every single building in Lower Downtown," Hickenlooper said. "It looked threatening because they were all empty. It was kind of ominous. But we looked at the crime records for the city, and there was no crime down there because there were no people."

Wynkoop Brewing Company opened in October 1988. It was just a few months after the area was made a historic district, which the new restaurateur saw as a key move.

"Anyone can build a new airport or convention center, but 26 blocks of historic buildings, no one can create that," Hickenlooper said.

The first big project Mayor Hickenlooper faced was a proposal that tested the limits of regional cooperation: a light-rail system called FasTracks. The $4.7 billion project, with 122 miles of rails and 18 miles of dedicated bus lanes, was one of the nation's largest mass-transit projects.

At the outset, there was skepticism and opposition. Hickenlooper was a key to selling the project. "He became the pivot point," Metro Denver EDC's Clark said.

In November 2004, voters in eight counties approved, 58 percent to 42 percent, a 0.4 percent sales-tax increase to finance FasTracks. But much like DIA, FasTracks shot past its estimates, reaching about $7.4 billion. The rising costs and delays, which pushed the project's completion decades into the future, put stress on the regional cooperation.

"The mayors never broke," Clark said, "but we had problems."

Still, as tracks were laid, the gravitational force of downtown Denver became stronger and stronger.

"Public projects, like arenas, aren't enough to drive the economy, but infrastructure, like FasTracks, helps change the face of the region," the Brookings' Bradley said.

In 2010, Hickenlooper went on to become the first Denver mayor in 150 years to be elected governor — in part because of his regional approach, he said.

Now the hole in the doughnut was Union Station and the land behind it. The Denver Union Station Project Authority was created in 2008 to finance, design and build what would become a $500 million regional transit center linked to Union Station.

RTD also entered into agreements to sell the 19.5 acres behind the station for development and also planned a direct train from DIA to Union Station, starting in 2016, a project that became viable when the cash-strapped agency won a $1 billion federal grant.

The remaining 55 acres around the station also was poised for private development as new offices, such as DaVita Health Care Partners' $101 million headquarters built at 16th and Chestnut streets.

All the parcels — and the old Market Street bus station — sold, clearing $38.4 million, which was applied against the cost of the transit facility. About $12 million was used to prepare Union Station for development.

But what to do about Union Station itself? Dana Crawford had an idea.

"The building, from a use perspective, had become more and more moribund," Crawford said. "I just knew it could have a big future."

Crawford gathered a development team for the station. She called Isenberg, whose company now had 78 hotels in 18 states, and she returned to the folks at Larimer Square, who now had restaurants and commercial property across the city.

One of the people Crawford contacted was Joe Vostrejs, a principal at Larimer Associates. "She had what I thought was a harebrained scheme to turn the station into a hotel," Vostrejs said. "But as I continued to meet with her and wrapped my brain around it, I got pretty excited."

When Hermanson saw the scope of project, he too was intrigued. "Maybe once in a career you get a chance to work on a project as sexy as this," he said.

RTD put the station renovation out to a national bid.

In December 2011, the Union Station Alliance, the Crawford-inspired group, won the project and a 99-year lease for the property.

Winning the project was one thing. Figuring out workable financing was another.

"Today it looks like such a great project, it would be easy to financially put the project together," Hermanson said. "It took a long time trying to figure it out."

The group needed approval from the National Park Service to add dormers to the roof of the historic building.

"Without the dormers, without the mezzanine, the hotel was too small," Hermanson said.

It took the Park Service a year to approve a crucial $6 million historic tax credit. "We were sort of thinking there was not a project until we had the tax credits," Hermanson said.

By then, he and Isenberg had concluded that they could not work with their equity partner, leaving another $6 million hole that took them to McWhinney.

Chad and Troy McWhinney's first business venture was a strawberry stand across the road from Knott's Berry Farm, the theme park in Buena Park, Calif. Chad was in seventh grade, Troy in fifth.

By the time the brothers were in high school, they had 28 strawberry stands from San Diego to Los Angeles County.

The McWhinney brothers gave up selling fruit for real estate and headed to Loveland in 1991, after seeing a Time magazine cover proclaiming "Boom time in the Rockies." Chad was 21 and Troy 19.

What followed were developments that include the Centerra, a master planned residential and commercial project, and Medical Center of the Rockies, both at Loveland's eastern edge.

Chad McWhinney moved to Denver three years ago. "When I moved to town and I saw what was going on at Union Station, I said too bad we missed it," he said. "I wished we could have been a part of it."

As McWhinney started meeting people in town, he "put out the word" he was interested in projects, and that drew the phone call and very early breakfast meeting.

The McWhinneys' signing-on kept the project on track.

"You look at how good Larimer is in retail and restaurants, how good Sage is in hospitality, how passionate Dana is about preservation, and add in our skills," Chad McWhinney said. "We are doing something none of us could do on our own."

That is typical of the way things get done in Denver, Clark said.

"It is a small market without a lot of money," he said. "Since there isn't a lot of money, we have to do things collectively, and it fits the old Western ethic of the barn-raising."

And so, Denver's Union Station may be the ultimate barn-raising.

Now the downtown development game is almost over.

"Pretty much everything in LoDo and the Platte Valley is spoken for, with the exception of a few parcels," McWhinney said.

McWhinney is developing one of the three parcels left, a mixed commercial and residential project called Z Block, on Blake Street, a block from Union Station.

"Next you are going to see development moving back to the Central Business District, up Brighton Boulevard," he said.

Meanwhile, downtown real estate has become increasingly valuable. In April, the IMA Financial Plaza, one of the two new office complexes flanking Union Station, sold for $65 million — a record $600 per square foot — to GLL Properties, a subsidiary of a German real estate group.

"That's what you see in San Francisco and New York," said Kevin McCabe, an executive vice president at national real estate broker Newmark Grubb Knight Frank.

And as the city changed, so has the nation's economy and demographics, in ways that play to Denver's newfound strengths.

Now Denver, with its urban amenities and outdoor lifestyle, has become a magnet for the millennial generation — people born between the early 1980s and early 2000s.

"Young adults are headed to metro areas which are known to have a certain vibe — college towns, high-tech centers, and so-called 'cool cities,'" Brookings demographer William Frey wrote in 2011.

Since 2007, Denver has had the greatest influx of millennials of any city in the country, more than 23,000, according to a Frey analysis. The city's population hit 650,000 in 2013.

And as Denver, sitting at the doorstep to the Rocky Mountains, has drawn millennials, that generation is attracting new companies in search of skilled workers.

Consider the story of Signpost Inc., a marketing software company founded in New York in 2010 by 27-year-old Stuart Wall.

As the company grew, it moved to Austin, Texas, the city just behind Denver in millennial population growth, and then it looked at Seattle, Portland, Ore., and Denver for a second office.

"We wanted a young, educated workforce, a place with a good quality of life, better than New York, direct flights," Wall said.

The company posted key openings on job boards to see what applicants it would get, he said. "We felt Denver had the best response."

The company opened a small office in May 2013. As the staff grew to 45, it moved into an 8,500-square-foot space in a converted, brick stable in the Ballpark neighborhood.

"Finding that in New York would be more difficult and more expensive," Wall said. The company expects to have 100 Denver employees by year's end.

"Denver was well positioned because it started to create a walkable, lively downtown neighborhood 15 years ago ... at a time no one could see the trend," Brookings' Bradley said. "Denver didn't chase the trend; the trend came to it."

Still, success brings its own problems. Bums slept on Larimer Street when Crawford began her preservation campaign almost 50 years ago — and homelessness still persists.

"We have a lot more homeless than we did 30 years ago," Colorado Coalition for the Homeless president John Parvensky said. "It is clearly a tale of two cities, look at all the luxury housing going up, Union Station, the building of the convention center. Investment to deal with the homeless has fallen significantly behind."

Development pushing out from downtown also is changing the makeup of nearby neighborhoods, including the historically African-American Five Points. Denver's black population fell to 62,000 in 2012 from 90,000 in 1987. Aurora's African-American population grew to 53,600 in 2012 — a 45 percent increase over 2000.

"Young whites are moving in," Webb said. "As older African-Americans die off, their kids are selling those properties and moving to Arapahoe and Douglas counties. I think it's a mistake. They can't afford to move back in."

Others also see it as a troubling trend.

"Downtown is becoming home to an increasingly white and affluent population," CU Denver's Schroeppel said. "To be a great city, we need to have diversity."

The city is still dogged by some of the same issues: the DIA project that adds a hotel, train station and covered plaza is already 20 percent over budget — at an estimated $598 million — and real estate will still be subject to boom and bust.

"It is the nature of the beast," developer Glick said.

And ultimately, the trends will change, Brookings' Bradley warned.

"You can't plan for everything," she said. "You have to figure out what sustaining relationships and institutions to make the city resilient, because somewhere down the road, there is going to be something that you don't foresee. No place anticipates its own fall."

Information from: The Denver Post, http://www.denverpost.com

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