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November 19, 1999

Real Estate Buzz

On Tuesday, Kemper Freeman Jr., and his Bellevue Square development staff talked about how downtown Bellevue is on its way to becoming a retail mecca on par with Chicago's Magnificent Mile and San Francisco's Union Square. Please excuse their gushing, Babbitt-esque tone. They were, after all, announcing that finally, after 10 years of planning, construction was beginning on The Corner at Bellevue Square.

Against the boosterish background, one couldn't help but wonder if the Eastside's urban core isn't going overboard retail wise. The Galleria is open, and Lincoln Square and Palladium Center backers aren't backing down. One Seattle-area retail expert, Art Wahl of CB Richard Ellis, thinks the dreaded word overbuilt can be applied to the sector.

He thinks Lincoln Square will happen because it's close enough to the Eastside retail sector's sweet spot: Northeast Eighth Street and Bellevue Way Northeast, where The Corner at Bell Square is going up. As for the others, I don't think they'll get built. At least not anytime soon, he adds.

That's just my opinion, Wall emphasizes. I don't know anything you don't know.

Backers of Palladium Center, the mixed-use project proposed next to the expansion of Meydenbauer Center, Bellevue's convention hall, naturally have a different take.

Connie Grant of Tochterman Management Group, Palladium's land partner, said work on the two-hotel, entertainment center could start next spring. Her brother, Tom B. Tochterman, added the partners are finalizing equity funding. We are so close to the finish line, he says.

At first blush, the numbers do look daunting. The Corner adds 110,000 square feet to the 1.3-million-square-foot Bell Square. Lincoln Square includes a total of 342,000 square feet of retail. And Palladium would add 300,000 feet. All this is on top of 168,000 square feet at the Galleria. But Tochterman urges folks to look a little deeper because, he says, it all depends on how you slice up the pie.

Remove from Palladium's total 90,000 feet for the cinemas and 60,000 feet for restaurants, and you're down to 150,000. Galleria officials say that minus the cinema, restaurant and entertainment uses, there are actually only 37,000 square feet of hard-core, put-it-in-the-bag-and-walk-out-with-it retail. And Lincoln Square really has only 200,000 square feet of raw retail when you factor out the cinemas and the health club, according to the developer, Westbank Projects.

Don't forget, either, that heading the Palladium Co., are some of the most competitive and shrewd developers in the country. Among the principals are folks involved in such trophy projects as Water Tower Place in Chicago and Pacific Place in Seattle, to name but a few. And they have Marriott and Ritz-Carlton lined up to run the Palladium Center's hotels.

"Overbuilt? I wouldn't think the market suggests that," says Andrew Lowther, vice president of asset management for Schroeder Properties, which developed the Galleria.

He denies rumblings that lease holders at the $23 million entertainment center are not meeting goals. While the facility is fully leased, five tenants still have yet to move in. Gene Juarez, according to Lowther, is to open its nearly 24,000-square-foot spa this spring and some other tenants are to begin operating the first week in December.

We anticipate great things when everything's open, Lowther says.

Galleria patrons also are reportedly peeved about having to pay for parking. The Galleria plans to continue charging Galleria visitors to park even though such a concept is an Eastside anathema. Within a year or so it'll be more the rule, says Lowther, because Lincoln Square will charge as well. He adds that without for-fee parking, the Galleria wouldn't exist.

Save the date: Dec. 8, that is, for the Commercial Brokers Association's third-annual Commercial Real Estate Insights Breakfast.

The heads of some of the companies most active in the Puget Sound region are scheduled to address the meeting in Seattle. Speakers are Mark Rauenhorst, president of Opus; Hamid Moghdam, CEO of AMB Property Corp.; Dave Sabey, president of the Sabey Corp.; Dean Henry, president of Legacy Partners Residential; and Peter Pike of PikeNet.

For tickets, call CBA at (425) 820-3348 and ask for Kris Morris.

On the home front: Things might be dandy as ever on the commercial side of real estate thanks to dot com mania, but it's not so hot when it comes to residential in the Northwest.

So says The Meyers Group of Canton, Mich. Its recent report states mortgage rates are 1 percent higher than at the beginning of the year, effectively making mortgage payments 10 percent higher than in January.

Even so, the number of residential building permits nationally will almost certainly break 1998's record for both single-family and total permits. Some markets are better than others, of course, and at the top are Chicago, San Diego and Florida, which the report categorizes as booming. At the bottom is the Puget Sound region and Portland, which are characterized with six other markets as rapidly declining. Total permits were down 12 percent in the Seattle area for the quarter and 35 percent in Portland.

You might think that commercial real estate brokers would be reinvesting their commissions from the go-go market back into the hand that feeds them, but you'd be wrong.

Where are the brokers investing? Dot coms, according to Rob Aigner, who heads the Seattle office of Colliers International. They don't want to get left behind, he explains.

This is occurring even though some analysts are advising that real estate investment trusts and real estate companies should comprise a significant portion of the portfolios of most investors.

A new research report from Sutro & Co., examines real estate in eight Western states. The analysts say real estate prices in California and Washington would likely increase due to ongoing economic growth, geographical and regulatory constraints and an anticipated recovery in the Far East.

As if this is news to anyone in the Puget Sound region.



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