October 2, 1998

Real Estate Buzz

Who will be first out of the ground?

Everyone on the Eastside is talking about the Broderick Group's prediction that Three Bellevue Center will be the first office tower out of the ground and win the high-stakes development competition.

Some in the real estate community privately grumbled about the pomposity of the exercise, which certainly adds to Bellevue's reputation as the most hyped market around.

But most of the 175 people who attended the market overview politely accepted the forecast as just that, according to Paul Sweeney ,the Broderick broker whose predictions were based on financing, timing and marketing potential.

After Wright Runstad's 463,000-square-foot Three Bellevue Center, he tabbed Hines' 475,000-square-foot 112@Twelfth to finish second and Schnitzer's 300,000-square-foot Bridgewater third.

Bringing up the rear are Eugene Horbach's 350,000-square-foot Bellevue Technology Tower followed by Tochterman Management Group's Meydenbauer Place and Lincoln Square, which Canadian developer Westbank Projects Corp., is developing.

You've got to hand it to Sweeney for having the chutzpa to make the prediction. As Colliers International broker Bret Jordan noted, there are plenty of factors to weigh and a switch in even one could throw everything off.

He wondered what will happen, for instance, if the financing deal for Three Bellevue Center requires backers to lease 20 percent of the building before starting. That could add an extra three months to the 17-month construction timetable and open the door for Hines and Schnitzer.

This is why it matters not so much who is out of the ground first but who finishes first, added Pete Holloman, a CB Richard Ellis broker who said Sweeney's Three Bellevue Center pick is "right on" because Wright Runstad is close to getting the necessary permits from City Hall.

But, Holloman said, because the well-financed Hines and Schnitzer proposals are smaller than Three Bellevue, either could be the first to open their doors and cash in on the Eastside's pent-up demand for space.

Ann Chamberlin, CB Richard Ellis' managing director and regional operations officer, wondered how the upheaval in the stock market, which has driven Morgan Stanley's REIT index down 24 percent since January, will play out in the Bellevue market.

The commonly held belief is that Sam Zell's Equity Office Properties, the nation's largest publicly traded owner of office buildings, will finance Three Bellevue.

Holloman thinks Zell's pockets are deep enough that the recent market plunge won't affect Equity's plans.

Two developments that's didn't make contender list are Kemper Freeman's Bellevue Place expansion and the City Center II building.

According to Sweeney, Freeman has not spent as much time pursuing permits as the developers of the six projects that were analyzed. But, he added, Freeman "could jump into the race at any time."

As for City Center II, the rumor is that Equity is about to buy City Center I and the City Center II building site from Northwestern Mutual Life. Since Equity is likely to fund Three Bellevue, it is not going to compete against itself by backing construction of another office tower, Sweeney said.

How high-end? Freeman probably isn't heartbroken about not making the Broderick list. His family's Bellevue Square, after all, is raking in the high-end tenants, according to the October issue of Shopping Centers Today.

According to the article, Freeman was surprised when Barcelino Consolidated Corp., which sells $4,000 suits, inquired about space at the mall. The high-tech hot spot is opulent, for sure, but he wondered if it was really that upscale.

Now, he said, "Barcelino in one year will do as much business as the previous tenant, a jeweler, did in 35 years of business."

Moving uptown. At 150 members and growing, Commercial Real Estate Women has become too big for the Rainier Club and is moving to the Washington Athletic Club. The move uptown and a handful of other factors have forced CREW to reschedule its next meeting to noon Oct. 15 when the group will elect new board members. After that, CREW will return to its normal schedule of having its meetings on the second Thursday of each month.

Previous columns:

• Real Estate Buzz, 09-25-1998
• Real Estate Buzz, 09-18-1998
• Real Estate Buzz, 09-11-1998