June 14, 2024

County will pay $36M for Dexter Horton Building

Photo via Newmark [enlarge]

The building is now about 52% occupied, down from about 90% at the time of the 2019 sale.

During a late May meeting, the King County Council voted to purchase downtown's historic Dexter Horton Building, at 710 Second Ave. The sale is expected to close on June 28. The price is to be a bit over $36.6 million, compared to the last trade, in 2019, which was worth $151 million.

In a jaw-dropping loss of value for the landmarked building, the county will pay about 24% of that prior sales price. The buyer then, and future seller, is CIM Group of Los Angeles. Puget Sound Business Journal first reported the news.

The council vote was eight to one in favor of the deal. An unrecorded purchase agreement was inked back in February. CBRE represented the county, which had also employed Flinn Ferguson Cresa as its leasing broker.

Council meeting materials from May 28 spell out a grim succession of events, so far as CIM Group is concerned. It had taken out a $100 million loan from ING Capital to fund the pre-pandemic purchase of a building that was then about 90% occupied. Today, the 15-story, approximately 336,355-square-foot building is about 52% occupied, says the county. (Newmark represents the space.)

Per the county's Budget and Fiscal Management Committee staff report, “Current ownership is in default of its loan repayment obligations.” ING Capital doesn't want the building, and “the lender has agreed to release its security interest in the property upon closing, allowing the county to own the property free and clear of loan encumbrances.”

Tenants when the building last sold in January 2019 included the county's Department of Public Defense, now with some 112,000 square feet. Today, the DPD needs more space for its roughly 340 staff members, says the county, which would entail paying more rent than its current $4.6 million per year. So, the council concluded, it made more sense to be an owner, given the very low cost of buying. But it also expects to spend over $8.6 million over the next five years on a new roof, building systems, etc. (Closing costs and fees will also add about $1 million to the county expenditure this month.)

At the same time, the county will collect rents from remaining tenants including Collins Woerman. The rent roll is now almost $3.4 million per year.

The county now values the building at about $46 million — about half its valuation in 2019. Designed by John Graham Sr., it was completed in 1924, and occupies the south half of a block also bounded by Third Avenue and Cherry Street. The building was landmarked in 1992, renovated in 2002 and 2014, and is LEED Gold-certified.

Long-term, as the county and other office occupiers reconsider their space needs and the effects of work-from-home, the county may consolidate other staff to the Dexter Horton Building. Other county buildings may thus be surplussed and the land redeveloped. That's a topic raised by King County Executive Dow Constantine at last year's State of the County speech — and again at this past Tuesday's annual event. The most notable target is the long-vacant King County Administration Building, a likely tear-down, but other buildings in the so-called Civic Campus are also being eyed.

Dexter Horton (1825-1904) was the famous pioneer and city father who founded his namesake bank in 1870. It later morphed into SeaFirst Bank, and was eventually acquired by Bank of America.