April 21, 2000

Real Estate Buzz

More gold than ever in Kirkland site

It's just a 9,600-square-foot building. It's only on a little more than an acre. But it's in Kirkland -- on the waterfront. In fact, it's across the street from ground zero of elite office addresses: Carillon Point.

So the sky seems to be the limit for folks interested in owning, and presumably redeveloping, the former headquarters of the bankrupt gold mining company Royal Oak Inc. Of course, if the buyer is Craig McCaw, the cell telephone multibillionaire, the sky's the only limit in just about everything.

John Luger's JDL Enterprises raised eyebrows last fall when it lunged mightily to buy the Royal Oak site from bankruptcy for $3.4 million.

Based on the size of the existing building, JDL's price equals a whopping $354 per square foot, a new record for the area.

However, JDL's Matt Frey said then that JDL planned to construct an "A-plus-plus" building there, somewhat smaller than the maximum 37,000 square feet that zoning allows. So JDL's price wasn't such a lunge.

At 37,000 square feet of new building, the $3.4 million price comes to $92 per square foot. At 30,000 square feet, the price would equal $113 per square foot.

And JDL wasn't short of cash in a way that made it a stingy buyer. Luger formed JDL as a vehicle for real estate investment after he sold his data base security company Database. Frey is his son-in-law. The Royal Oak site was JDL's first deal.

But that was last fall.

A new buyer has cut in to take JDL out of the dance for any rebuilding plans. If JDL's $3.4 million raised eyebrows, what would the new buyer's $6 million price raise?

Sources report that the new buyer has the site under contract for that amount. They also say the buyer is McCaw, whose cellular empire grew across the street from the Royal Oak site in Carillon Point.

Leigh Callahan, a Colliers International broker, confirmed he represents a buyer for the site, but said he couldn't comment any more than that, be it on price, the buyer's identity or anything else, such as whether a buyer would redevelop it as office or high-end condominiums.

Frey at JDL couldn't be reached to comment.

At $6 million, the price equals $625 per existing square foot of the Royal Oak building. It equals $162 per square foot of a new 37,000-square-foot structure. It comes to $200 per square foot if the new structure totalled 30,000 square feet.

A $6 million price also equals about $120 per square foot of land. "$100 per square foot for land isn't astronomical," said one Eastside broker.

With rents in Kirkland well past $30 a square foot, and well past $40 at Carillon point, new offices there could conceivably support such a price, "but with air-tight margins," the broker said. A poorly funded buyer would struggle if an economic downturn decreased rents, but a well-funded buyer like McCaw "can wait that out," the source said.

This wouldn't be the first commercial real estate investment in the area for the McCaw family. Though they sought anonymity, word got out last year that brother Keith McCaw was at least part of the money behind a $55.59 million purchase of four of five buildings at Opus Northwest's Willows Commerce Park in Redmond.

State records confirmed the identify of Keith McCaw as a member of the limited liability corporation that made the Willows purchase.

Word has spread more recently that the McCaws have been negotiating to buy Opus' three Union Station buildings in Seattle that are mostly leased to Amazon.com. Opus officials have declined to comment on any deal.

Previous columns:

• Real Estate Buzz, 04-14-2000
• The Buzz, 04-07-2000
• Real Estate Buzz, 03-31-2000
• Real Estate Buzz, 03-24-2000
• Real Estate Buzz, 03-10-2000
• Real Estate Buzz, 03-03-2000
• Real Estate Buzz, 02-25-2000
• Real Estate Buzz, 02-11-2000