February 4, 2008

2007 was a very good year for Schnitzer West

Image courtesy Bowen Studios [enlarge]

So far 14 tenants, most dealing in luxury goods, have agreed to lease retail space in The Bravern, which is anchored by Neiman Marcus. Schnitzer West says it has more than 350 “reservations to make reservations” on the 455 Bravern condos, which are priced from $400,000 to more than $5 million.

Seattle-based Avanade Inc. has agreed to lease about 80,000 square feet in the 818 Stewart office building Schnitzer West is constructing in downtown Seattle, a real estate source said.

Dan Ivanoff, Schnitzer West's managing investment partner, wouldn't confirm that the information technology consultancy founded by Accenture and Microsoft would rent the space. He would only say that one tenant signed a deal in 2007 to lease 81,000 square feet, another 19,200 feet and Schnitzer itself is taking 22,000. The building has a total of 238,000 square feet.

The deals cap a very, very good year for the locally based firm — one in which it landed high profile companies for whopping leases.

Microsoft agreed to take a total of 1.34 million square feet in two of the company's projects now under construction: The Bravern in downtown Bellevue and Advanta Office Commons in the Eastgate area. Additionally, Amazon.com signed on to rent 440,000 square feet in the Schnitzer West component of a project Schnitzer and Vulcan Inc. are developing for the online retailer in Seattle's South Lake Union.

The transactions and another 125,000 square feet Ivanoff said tenants have agreed to lease in The Bravern's retail complex bring Schnitzer West's Puget Sound region 2007 preleasing total to just over 2 million square feet.

Parker Ferguson, a principal with Flinn Ferguson, which represents tenants, said he can't recall any developer in the Seattle market leasing that much office space in one year, “and many won't lease that much in their career.”

“It's big by any standards, not just Seattle-Puget Sound,” he said. “It's an enormous amount of leasing by world standards.”

It's by far a record year for the firm, which was founded in 1997, Ivanoff said. He credits advanced planning.

“We were well prepared to capture the demand when the demand showed up — and that's not luck,” he said.

2008 looks good

This year may also bode well for the firm.

Besides the deals at the 818 Stewart, Schnitzer West is in early discussions with a “significant name” tenant to lease about half of its 660,000-square-foot 1918 Eighth office building in downtown Seattle, Ivanoff. He said other tenants are also “circling” the 36-story building, which is slated for completion in the fall of 2009.

Additionally, the company is in early discussions with another “significant name” to take about half of its 750,000-square-foot M5 Commerce Centre at 505 Madison St., said Ivanoff. Construction is slated to start in the fall and be complete two years later.

“Obviously we wouldn't be doing all this if we weren't very bullish,” Ivanoff said, noting that there's “high octane” demand in the market.

“There's just some core drivers here that weren't here 20 years ago,” he said.

Don Fosseen, a senior vice president with CB Richard Ellis, said “it looks like Schnitzer has good timing on 818” and may also on 1918 Stewart “because relatively so little is being constructed” in downtown Seattle.

While another firm, Cushman & Wakefield, recently forecast downtown Seattle vacancy rising to 10 percent in 2010 when a number of office buildings being constructed come on line, Fosseen said the new construction will add just 6.7 percent more space to a downtown Seattle market with strong job growth.

“There's very few options,” he said.

The Bravern

Schnitzer West has 5.6 million square feet of office, condos and industrial space in development in the Puget Sound region. It also has 1.2 million square feet of already leased space and manages 2.5 million square feet.

So far 14 tenants, most dealing in luxury goods, have agreed to lease in the retail component of The Bravern, which is anchored by Neiman Marcus, said Ivanoff. Wild Ginger and Jimmy Choo have announced, but Schnitzer is precluded for now from naming some of the others. However, Ivanoff said there will be a steak house by chef John Howie of Bellevue's Seastar, a French restaurant out of New York and an Italian concept eatery. This leaves only 54,000 square feet left to let, he said.

Susie Detmer with Cushman & Wakefield said The Bravern is pursuing stores that will offer a higher quality and price point of retail goods than previously found in one place in the region. Luxury brands like to cluster around Neiman Marcus, which attracts affluent people, said Detmer, a senior director specializing in retail.

“It really is for the fashionistas,” she said of the complex.

Landing Neiman Marcus “is what established The Bravern as a viable retail project,” she said. The department store's presence also should help sell The Bravern condos to people who value luxury names, she said.

“Living in a development where Neiman is immediately will establish it as a very high-end location,” she said.

Ivanoff said Schnitzer West has more than 350 “reservations to make reservations” on the 455 Bravern condos, which are priced from $400,000 to more than $5 million. Interest has come from empty nesters to mid-30s couples with and without children, people from both coasts and foreign buyers, he said.

“Again, I think it's the strength of the retail underneath that's caused that buyer pool,” he said.

Callison designed the project's commercial space, which is being built by Skanska. The residential portion was designed NBBJ and is being built by PCL Construction.

Seattle condos

About 50 percent of the 578 total units in the firm's Brix, Gallery and Equinox condo developments in downtown Seattle have presold, Ivanoff said.

He credits many focus groups — and his own one-man, off-the-cuff queries of everyone from flight attendants to store clerks — with helping the company get a handle on buyers' wants. That research, for instance, determined that the two-story loft units originally planned for the Gallery in Belltown weren't desired as much as one bedrooms.

“We were getting strong indications of demand for the smaller units and lower price points,” Ivanoff said.

Ivanoff said that the desire for condos locally continues to be strong despite some in the market reporting slowing sales.

“We don't see the market the way they do, and we're well capitalized and we do our homework,” he said.

More condos coming

In fact, Schnitzer West will be ready to start construction of three more condo projects, in the 100- to 150-unit range, in Seattle and the Eastside by the fall of 2009, he said.

Here are some of Ivanoff's thoughts about the direction the firm will be taking:

• It continues to look for land from Kent to Chehalis for industrial development.

• It plans to buy more properties with partners following the success of its purchase of the Willows office complex in Redmond with Citigroup in late 2006. The complex has been repositioned and named Redmond West on Willows.

• In Denver, Schnitzer West plans to build a substantial amount of office space, and also condos and mixed-use, but hasn't determined if it will do industrial development.

• The firm has started analyzing the San Francisco market for potential development. It plans to look at the Los Angeles market after that analysis is done.

Ivanoff said he is comfortable with Schnitzer West's previous decision to scale back the office component of The Bravern from what was initially planned — despite subsequently landing Microsoft.

“I'd rather have not built enough than built too much,” he said.

Ferguson, with Flinn Ferguson, said Schnitzer West's timing has been great.

“They sensed I guess that the train was coming down the track... ” he said.