July 13, 2000

Real Estate Buzz

On the waterfront: Microsoft's Avanade

Avanade Inc., the Microsoft-Andersen Consulting partnership that is expected to grow wildly, sub-leased 66,000 square feet in the World Trade Center on the downtown Seattle waterfront.

Colliers International broker Mike Dash helped put the deal together, but he couldn't be reached to provide additional details.

A source said the lease appears to be short term. Visio Corp. last year leased more than 300,000 square feet in the World Trade Center as construction of the two-build office project was underway. Then Microsoft bought Visio. Documentation about the Avanade space shows Avanade sub-leased from Microsoft.

Andersen and Microsoft formed Avanade as a joint venture in March to help corporate customers develop systems using Microsoft’s enterprise and Windows 2000 software. They said Avanade would grow to more than 3,000 technical employees within 24 months and at some point go public.

Bill Bain's working on 7th and Madison

NBBJ architect Bill Bain someday expects to convert a low-usage block on the edge of downtown Seattle into a splashy, big mixed-use project.

The block is on Madison Street between Seventh and Eighth streets -- where NBBJ once had its offices before moving down to Pioneer Square.

Bain and construction company operator Peter Johanson, operating together as The Marion Co., have been drawing together ownership of the block for more than a year now.

Bain and Johanson thought they’d be drawing up development plans by now and hiring a fee developer, but buying and getting their arms around operating the Stanley Apartments slowed them down, Bain said in an interview last week.

"We had to bring in a management firm to help us pull that together," he said.

The partners control about three-fourths of the block now and have an option on a parking lot they don’t control yet, Bain said. They have yet to study precisely what to develop on the block, but Bain said the plan has always been a combination of residential, office and retail.

Nobody's tighter than Seattle

Seattle’s downtown area ranked fifth in the country in the highest mid-year office rent rates and first with the lowest vacancy rate in a North America survey by Oncor International.

San Francisco topped the Class A central business district rental rate list at $69 per square foot. Boston came next at $60, then Silicon Valley with $54, Manhattan at $49.51 and Seattle at $39.

Washington D.C. came sixth at $36.48, then Toronto with $34, Chicago with $32.10, West Palm Beach at $31.01 and Sacramento at $30.

Edmonton came in lowest among metro areas Oncor surveyed, at $12, with Vancouver, B.C., next at $18.

Oncor gave Seattle’s CBD a 1 percent Class A vacancy rate. Silicon Valley was next-tightest at 2.43 percent, then San Francisco with 2.59 percent. Ottawa came fourth with 3.49 percent followed by Boston’s 3.80 percent.

Obviously Oncor didn’t include Bellevue’s CBD, which at 4.2 million square feet is tiny compared to the measured markets. If Oncor had ranked Bellevue, Bellevue would have come in second, based on Colliers International’s recent finding of a 1.1 percent second quarter Class A office vacancy rate.

The weakest vacancy rates were in Baltimore at 18 percent, Milwaukee and Dallas at 17 percent and Winston-Salem, N.C., at 15.5 percent.

"Cities throughout North America -- particularly their CBDs -- are growing fat on leases signed by technology and dot-com companies," writes Oncor, which is affiliated with the Seattle-based brokerage of Kidder Mathews & Segner. "These companies prefer airy, lofty environments offered in many Class B or lower structures. It is unquestionably a great time to own seasoned, well-located, spacious, functional buildings that have, or can gain, high-speed computer access.

Martin Smith buys Central Building

A Martin Smith Inc. partnership called 350 LLC closed on buying the eight-story Central Building in the downtown Seattle financial district.

The partnership paid Cypress Apartment Fund Ltd. $19.2 million for the 90-year-old office building on Third Avenue between Columbia and Marion streets, according to King County property records.

Property records list the building at 140,000 square feet. At that size, the price equals $137 per square foot. Martin Smith previously measured it at 163,000 square feet, at which the price comes to $118 per square foot.

Martin Smith principal Greg Smith said the partners plan to perform largely routine upgrades but otherwise continue operating the building largely as is.

The building is across Marion from the impending 40-story IDX Tower that Martin Smith planned before selling those plans. The new owner, Hines, is scheduled to start construction in September.

The Central Building thus looks like a play to gain some of the appreciation that Martin Smith predicts the IDX will bring to its neighboring properties.

Targeted Genetics joins "biotech hub"

The biotech firm Targeted Genetics leased 75,000 square feet in Bothell that have been serving as the temporary home of the University of Washington’s new Bothell branch campus.

The university’s lease expires at the end of September, when the school is to have moved into its new Bothell campus, said Bob Mooney, a Staubach Co. broker who represented Targeted Genetics.

The Targeted Genetics lease covers a full building in Canyon Park owned by CarrAmerica Realty Corp. The building is next to Icos Corp., in an area that’s becoming a "little biotech hub," as Mooney put it.

"It’s an expansion for Targeted from its (35,000-square-foot) main facilities in downtown Seattle at 1100 Olive Way," Mooney said.

Tomlinson sells to Paul Allen again

Paul Allen added another two acres to his still-growing South Lake Union holdings, property records show.

The Microsoft co-founder paid Tomlinson Inc. $9.5 million for the full-block bounded by Pontius and Yale avenues and Republican and Harrison streets, plus a parcel across the street from the block. The 30-unit Lillian Apartments and the vacant New Richmond Laundry occupy the block.

The acquisition brings Allen’s South Lake Union portfolio to more than 31 acres, with another 5 acres to come via buying the city of Seattle’s properties around Mercer Street.

This is Allen’s second purchase from the Tomlinsons, a long-time Seattle real estate investment family. In April, Allen’s Vulcan Northwest paid the Tomlinsons $4.1 million for two parcels totaling an acre on John Street between Pontius and Yale.

Dean Altaras of Morris Piha Management Group represented the Tomlinsons in the deal.

Equity refinances two complexes

Equity Residential Properties Trust transferred ownership of $34.5 million worth of Seattle-area apartments -- to itself.

Equity’s operating arm sold Eagle Rim Vistas apartments in Redmond and Chandlers Bay Vistas apartments in Kent to new Equity partnerships that both begin with BEL-EQR in their names, King County property records show.

The 80-unit Eagle Rim moved for $13 million. Chandlers Bay, with 123 units, went at $21.6 million.

Equity performed the transactions as part of a "recapitalization and refinance involving Fannie Mae" that covered 21 apartment complexes valued at $220 million, said Equity senior vice president Cindy McHugh. The deal allowed Equity to pull capital out of the complexes to deploy elsewhere, she said. Equity manages the complexes, just as it did before the ownership change, she said.

As of last January, Chicago-based Equity controlled 46 apartment complexes in the Northwest. Nationwide the real estate investment trust’s portfolio totals 1,049 complexes in 35 states totaling 223,304 units, McHugh said.

Microserve picks Tukwila site

Microserve Technology Services leased a newly built, 28,000-square-foot warehouse building in Opus Northwest’s Glacier Business Park in Tukwila. The Kirkland-based computer hardware support services company will move distribution and repair operations from Kirkland and Kent into the new building.

Previous columns:

• Real Estate Buzz, 07-06-2000
• Real Estate Buzz, 06-29-2000
• Real Estate Buzz, 06-22-2000
• Real Estate Buzz, 06-15-2000
• Real Estate Buzz, 06-08-2000
• Real Estate Buzz, 06-01-2000
• Real Estate Buzz, 05-25-2000
• Real Estate Buzz, 05-18-2000