March 19, 1998
By JERRY CRAIG
Journal city editor
Seattle Mayor Paul Schell's proposal for selling the 62-story Key Tower may get a cool reception from the City Council, but the real estate community generally thinks it is a hot idea.
"There's no question the investment marketplace is very strong today," says Tom Abbott of the Cushman & Wakefield brokerage firm. "There is a tremendous demand for Class A trophy-type office properties like Key Tower."
Schell goes before the council today to present his idea of selling the office highrise and using the profits to help fund construction of a three-block civic center. The city purchased the highrise two years ago with the intention of making it Seattle's new city hall.
But since then, property values have skyrocketed and Schell sees an opportunity to sell the building for considerably more than the $120 million the city paid for it.
Schell wants to solicit bids from around the country to determine the building's value. A decision would be made later on whether to actually sell it.
Key Tower, completed in the early 1990s, is located at the southeast corner of Fifth Avenue and Columbia Street.
Some council members have expressed reservations about selling the tower so soon after purchasing it. Others have questioned the political wisdom of embarking on another large scale downtown building project. Council approval isn't needed to solicit bids but would be required in order to sell the building.
A request for proposals from brokers to assist in the sale of Key Tower is expected to be issued in the next few weeks, according to the city's facilities director, Norma Miller. She expects to have a firm on board by May 1. The winning company most likely would work alongside two local real estate consulting firms already under contract to the city: Craig E. Kinzer Corporate Real Estate and The Seneca Group.
Miller predicts Key Tower could fetch anywhere from $170 million to $250 million on the open market. She anticipates the sale would draw considerable interest from large pension funds and real estate investment trusts.
The most recent comparable sale was U.S. Bank Centre, a 44-story office building at Fifth Avenue and Union Street. Bentall Corp. paid $237 million, or $257 per square foot.
But making comparisons can be tricky, say real estate experts.
Abbott says it is hard to place a value on a building without knowing all the details about its current leases. Seattle City Light houses 900 city employees in Key Tower under a 10-year lease. King County also rents space.
One potential sticking point, according to Abbott, is that part of the building's site is leased from the state Department of Transportation which could complicate the sale.
Key Tower's location in the heart of the city's financial district is a big plus, says Abbott. There are three office towers at the Fifth and Columbia intersection, containing over 3 million square feet.
U.S. Bank Centre is located in the downtown retail core. That can sometimes be a disadvantage for office tenants, says Abbott, because of the added congestion.
Rob Aigner of Colliers International calls Schell's plan "a fascinating proposal. The city could easily realize $50 million to $70 million over what it paid for Key Tower." But Aigner would like to know more about how the city financed the purchase of Key Tower. "There might be some hoops you would have to jump through before selling it."
Gary Carpenter of Bentall Corp., the purchaser of U.S. Bank Centre, says Schell's proposal "has all the right ingredients. Schell is a developer and understands market value."
Bentall is not interested in buying Key Tower, Carpenter said, but the sale would attract a lot of interest, particularly from REITs and "institutions who want to get into Seattle."
