June 30, 1998

Columbia Seafirst fetches $404M

By JON SAVELLE
Journal staff reporter

Equity Office Properties Trust has purchased Columbia Seafirst Center from Seafirst Bank for $404 million. The deal was announced yesterday by Equity Office, a Chicago-based real estate investment trust that is the nation's largest publicly held owner and manager of office properties.

Equity Office paid a record price for the 76-story, 1.5-million-square-foot trophy building. Equity Office President Timothy Callahan said the purchase reflects the REIT's basic strategy of investing in high-quality properties where the fundamentals of supply, demand and economic growth will persist.

Seattle real estate industry professionals were impressed by the building's selling price, but said it is difficult to compare it directly to other properties.

"What it does is, it represents a new pricing level for Class A downtown office buildings," said Colliers vice president Rob Aigner. "They are buying the leases in the building, of course, plus potential leases. They analyzed it on what future space is worth."

The purchase increases Equity Office's Seattle portfolio to over 4.3 million square feet. The REIT in December acquired eight properties from Wright Runstad & Co. in a $625 million deal that includes a stock swap. Jon Runstad, chairman and CEO of Wright Runstad, subsequently was elected to the board of trustees of Equity Office.

Aigner said that the previous Equity Office deal with Wright Runstad is significant for the new purchase, because, if you factor in the price per square foot for all of them, it "makes the average look pretty good."

Appraiser Christopher Wronsky of Wronsky Gibbons & Riely said the value of the building is hard to analyze without knowledge of its current or projected income. He noted that Seattle developer Martin Selig, who built Columbia Center, was always quoted as saying that he had sold the building at the point of its maximum value -- $354 million -- in the late 1980s.

"I wonder if the bank is feeling the same way?" Wronsky asked.

One obvious question is what effect the Columbia Center price will have on the planned sale of the city's Key Tower, just across Fifth Avenue to the east. Columbia Center fetched $269 per square foot, and the City Council was advised recently that Key Tower's value may be $250 per square foot.

But Wronsky cautioned that having one property go for a certain price doesn't mean another will do the same.

"There's a disconnect in the press, and in the guy in the street, in the imaginings they have on the values of commercial property," he said. "They imagine that commercial properties can change in price just like the whims of housing do. They don't recognize that commercial properties are purchased for the future income that they are going to generate. Leases and long-term commitments have a substantial impact on price.

"All such buildings are not free to go flapping up."