May 13, 2022

Hudson Pacific plans to buy Pacific Place, then flip retail to offices

Photo by Michael Walmsley [enlarge]

The downtown shopping destination could see a major makeover; it’s unclear if the skybridge to Nordstrom, at left, would remain.

[enlarge]

Inside, Il Fornaio is gone, with new co-working stations positioned around the atrium. Photo by Gensler

Madison Marquette finished its renovation of Pacific Place just in time for the pandemic. Since then, not all the retail at 600 Pine St. has recovered, and the shops now look to be well under 50% occupied. It's not a dead mall or distressed property, but it's also not healthy.

Now, from prospective buyer Hudson Pacific Properties, original developer Pine Street Group and architect Gensler, there's an early new plan to convert the upper levels to office space. Terms for the current leases there, to various stores, restaurants and the 11-screen AMC cinema, are unknown. The initial plan carries a nominal value of $260 million; design review may not be required for such an interior renovation job.

Then, even more dramatic is the architect's stated intention to “explore the possibility of adding one to three towers on top of the existing structure, potentially residential, office and/or hotel.” That would surely require design review.

Madison Marquette declined to comment on the possible sale. Matt Griffin of Pine Street Group referred the DJC to Hudson Pacific, which offered no comment. That firm, based in Los Angeles, has a Seattle office.

The full block, covering 2 acres, is zoned up to 550 feet. Adding towers would, of course, require extensive structural work below. And the garage below the retail, with some 1,200 stalls, might also require structural reengineering for new loads above.

Developed in 1998 by the predecessor to Pine Street Group, Pacific Place has four stories above grade, plus the former Barnes & Noble concourse level below. (The bookseller closed in January 2020; an AT&T store is now the main tenant there.) As presently configured, including the large central atrium, it has about 339,000 square feet.

The early plan calls for new tenants on the concourse level and ground floor. The latter would be reconfigured with a separate office lobby (the new north corner entry from Seventh Avenue), plus some ground-floor office space.

The ground-floor retail would be reduced and reallocated to three corner bays totaling about 30,000 square feet — about one tenth of the current total. Barney's closed at some point during the pandemic; and Tiffany & Co. now occupies only a small interim space on the second level. Several stores are now occupied by short-term pop-up vendors.

The planned offices above would be served with new elevators, windows, systems and an outdoor terrace. Office floor plates might be around 87,000 square feet, if the escalators and atrium were filled in. Three floors of that size might yield somewhere between 200,000 to 250,000 square feet. Or the atrium could remain, as the early plan indicates.

NBBJ designed Pacific Place, with Lease Crutcher Lewis and Sellen as the builders. The recent renovation was by Gensler and Bayley Construction.

Retail was hurting from online competition even before the pandemic, though premium shopping centers like University Village and Bellevue Square have continued to perform strongly. Pacific Place was for many years a destination retail and entertainment center. However, like much of downtown, where office workers are only gradually returning, its fortunes have been affected by the pandemic and perceptions of unsafe, unclean and depopulated streets.

Madison Marquette acquired the Pacific Place commercial condominium in two deals: the retail from Pine Street Group in 2014 for $271 million; then the city-owned garage in 2016 for $87 million. For the latter deal and planned renovations, it also took out a $207 million loan from Wells Fargo, which has been repaid.

Predating the new plan, old signs covering the vacant retail facing Pine read, “Exciting changes coming soon.” Remaining tenants include Lululemon, Din Thai Fung and Thai Ginger. During a recent visit, more people were using the new co-work stations and WiFi than shopping. The top floor cinema and restaurant level seems the most active.

Hudson Pacific Properties is very well established in our market. The publicly traded REIT puts its current downtown portfolio at 2 million square feet — almost entirely offices, and including the Washington 1000 tower that just broke ground next to Summit, the Washington State Convention Center addition.

Outside our market, Hudson Pacific has previously converted old data centers, warehouses and retail centers to offices. One example, with Gensler and Macerich, is One Westside in Los Angeles. The former old Westside Pavilion mall will have 584,000 square feet of offices, which Google has claimed and intends to occupy this year.