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February 16, 2023

SRM contemplates hotel flip in Uptown

By BRIAN MILLER
Real Estate Editor

Photo via Runberg Architecture Group [enlarge]
If the plan proceeds, only minor interior work will be required.

SRM Development and Runberg Architecture Group completed the Astro apartments in Lower Queen Anne about six years back. To all appearances, the half-block building at 315 First Ave. N. is a healthy mixed-use development. The retail space is fully leased, and the number of illuminated windows at night indicates a stable tenant population.

And yet, Runberg just filed an early plan to convert the majority of its 211 units to hotel rooms. It amounts mainly to a change of use under city code, with only minimal interiors work described.

No design review would be needed for such conversion, if the plan proceeds. Exact numbers will likely emerge later, but the early application says “most of the units in the building” would flip to lodging. So guests and a few tenants would mingle in the hallways and gym. The ground-floor retail wouldn't be affected.

There's no hotel brand mentioned, and the building may well continue under its current name. Runberg writes, “There is no reception area proposed — check-in/out is handled remotely.” That corresponds the limited-service sector of the hotel trade, with virtually no staff.

Mixing together rentals and lodging isn't common, but it's done here and there. (The hotel plus condo model is usually a better fit, with in-house dining and amenities that can be shared.) Notably, Onni Group has a hotel component at its new Onni SLU development, which operates under its own Level brand.

There's no indication of distress at the Astro, though it suffered a minor fire last year. One month's free rent is now being offered for only four units. One-bedrooms can be had in a range from about $1,850 to $2,295 per month; and a two-bedroom is listed at $3,000. Amenities in the six-story building include a roof deck and gym that gets near constant use.

With SRM and Runberg planning two other apartment projects nearby, totaling 245 units, and two now under construction by Continental Properties, plus two more being built by Vibrant Cities, one might argue that Uptown is oversupplied with apartments.

And one could also argue with the opening of Climate Pledge Arena, now drawing throngs of entertainment and sports fans to the neighborhood, that Lower Queen Anne needs more hotel rooms.

Looking at the apartment market first, rents dipped 3% in the fourth quarter, according to Kidder Mathews' recent multifamily report. During the same period, compared to the third quarter, the city's vacancy rate rose from 7.7% to 7.8%.

In larger buildings like the Astro, says KM, on a 12-month basis, the vacancy rate rose from 6.6% to 9% city-wide. That does imply a certain softening.

Apartment List has a different map of Seattle (basically the whole region), but its recent analysis says that local rents declined by 0.9% last month, compared to December. Year-over-year rent growth is negative 1.1%. And it says, “Rents in Seattle are down by 4.4% since the start of the pandemic in March 2020.”

Work-from-home and recent tech layoffs are likely factors there. And KM notes that larger, newer, luxury apartments are “still susceptible to rent declines as higher wage earners are laid off for the first time in several years.”

As to the hotel market, using December figures, the Downtown Seattle Association says that visitors increased by over 8%, year over year. However, not every visitor stays in a hotel. Using STR data, compared to 2019, what it calls hotel demand was at 71% of that pre-pandemic level — still depressed, in other words.

The industry consensus, however, is that leisure travel is snapping back faster than business travel. And if you and your spouse have already booked expensive concert tickets at the CPA, immediately east of the Astro, a hotel room with parking could sound like a sweet and extremely convenient deal.

For a hotel owner/operator, as compared to apartments, the dollars per square foot may be more attractive, but the challenge is keeping those rooms filled on a daily and weekly basis.

Finally, SRM has been exploring the idea of including some lodging, or short-term rentals, in its nearby future building at 101 W. Roy St. But the master use permit, issued last summer, merely says 132 units and an unspecified number of hotel rooms. There's been no demolition there, and no seeming hurry to start. Also with a MUP in place is its 113-unit companion project at 118 W. Mercer St. (on the same block), where the former Tup Tim Thai and everything else have been razed. But, again, there's no apparent rush to begin that either.

SRM's cautious approach to the market chimes with Kidder Mathews' sober assessment: “Given that vacancy increased in every market during the last 12 months, expect decreased occupancy in the near-term — even if rental rates follow their traditional spring run-up. The potential for a slowing economy in 2023 will likely appear first in declining occupancy and then rental rates.”


 


Brian Miller can be reached by email at brian.miller@djc.com or by phone at (206) 219-6517.




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