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“Nabbefeld”
Joe Nabbefeld
Real Estate Editor

August 24, 2000

Real Estate Buzz

Tochtermans 'tweaking' Meydenbauer project

:Eastside streets are abuzz with expectations of big changes soon to come on the long-proposed-but-slow-to-start Palladium Center super project that ties to expansion of the downtown Bellevue Meydenbauer Center.

One version has the out-of-town development group headed by Ken Himmell and Jeff Rhodes departing from the two-hotel, retail and office project. This version breaks into a couple of pathways from there. The land owners, the Tochterman family, would be fed up enough to let nothing happen for a while, or the Tochtermans would bring in new developer.

Another version is a hybrid of these. The Himmell-Rhodes group, which specializes these days more in retail and hotel development, would decrease its role, and its ownership stake, and an office developer would join in.

A usual-suspects list of area developers with their hands already in downtown Bellevue have all been in contact with the Tochtermans about the possibilities. The buzz is one development firm with its own downtown Bellevue office project pretty far along is leading the pack to cut a deal with the Tochtermans.

Connie Grant of the Tochtermans said by phone en route out of town for a vacation: "Well, if it were coming apart, I wouldn't be leaving for vacation. ... It isn't falling apart."

She said, "We're just tweaking it a little bit" and "there's a lot of forward momentum." She wouldn't elaborate because "we're trying to live up to the rule of not talking about it until it's all signed and done."

She also said, "Palladium is still involved." Asked if that answer also addressed the future, she said, "Palladium is still involved."

Rhodes and Himmell couldn't be reached to comment.

Palladium Center was named Meydenbauer Place when the Tochtermans and Rhodes conceived it in the mid-90s. The site totals eight acres that cover the remainder of the huge block on which the Meydenbauer convention center sits.

As part of the project, Meydenbauer would grow from 291,000 to 563,000 square feet on two of those acres.

The rest of the project has already gone through several evolutions. It started as a major hotel and a large office tower atop retail, including 18 movie screens, and 2,300 undergound parking spaces. But then other developers won the race to build the first wave of new downtown Bellevue office towers, raising the risk that adding more office would hurt the market. The Meydenbauer project last year dropped its office component, replacing it with a second hotel.

Marriott and Ritz-Carlton last year signed on for the hotels. The project changed its name to Palladium Center, following the name of Himmell's New York-based development firm Palladium Co. The developers next went in search of hundreds of millions in financing for the huge project.

They're still looking, possibly hampered by disputes over who gets to own how much of what.

Meanwhile, the office market soared beyond initial expectations and a second, even bigger wave of office proposals has washed over downtown Bellevue. The Palladium Center group last year jumped in, too, by returning an office tower to their proposal.

Stay tuned.


More telecom hotel action

The telecom hotel derby keeps rockin' along, with Craig Wilson and Neil Hokonson jumping on the Eastside and Martin Smith Inc. on the Southside.

Wilson, Hokonson and Sandy Sheinin comprise FEI Investment Properties, which is cooking up plans to build a 200,000-square-foot "data center" in Bellevue along Highway 520.

FEI's roughly four-acre site is near 124th Avenue Northeast and Northup Way, on a fiber optic pathway. FEI hasn't closed on the site yet.

FEI hasn't tied down a tenant yet, but figures the low-rise, industrial-style structure may house one of the first developer-driven telecom hotels on the Eastside.

Microsoft and other tech companies certainly maintain advanced facilities to house their equipment; the telecom hotel concept centers involves tenants sharing facilities rigged with extensive cooling, electrical, security, seismic and other systems.

Companies seeking to provide telecom hotels have focused on the Kent Valley and close-in Seattle industrial markets for the past year as investors scavenged for space to buy, often claiming they'll pay up to three times market rates.

Wilson confirmed that FEI has applied for permits for the Northup facility but didn't go into more detail.

The architect is Bellevue-based Mulvanny G2. FEI hired the Kidder Mathews & Segner broker team of Brian Adams, Joe Lynch and Zack Vall-Spinoza to locate tenants.

Seattle-based Martin Smith, meanwhile, closed on a potential telecom hotel site south of Boeing Field and immediately east of Interstate 5.

A partnership of Martin Smith principals and Seattle investor Jamie Colbourne paid $8.3 million to the owners of Seattle Packaging for the cardboard box maker's 124,000-square-foot distribution warehouse at 3701 S. Norfolk St.

That price comes to $67 per square foot. Seattle Packaging plans to build a larger warehouse in Kent Valley to move into next year.

Martin Smith principal Mickey Smith said "the romance" of telecom hotel fever played a role in making the purchase. However, he said, the emerging realities of telecom hotel development may yet hit like a cold shower, in which case the property also appears to be a dandy for leasing to another distribution warehouse user.

"It would be perfect for these telecom hotel groups because it's on a fiber optic line," is in good shape and is next to the freeway, Smith said.

But the whole telecom hotel phenomenon is still new and all the kinks haven't even emerged yet. Smith sees at least two major obstacles coming into view.

"I'm coming to the conclusion that one of the biggest obstacles is finding a user (or tenant) that is of good creditworthiness," Smith said. "It's starting to look like the dot-coms were six months ago" where they all wanted office space, and wanted it now, but were speculative money losers living on big future promises that meant little in terms of lease security.

The answer for dot-com landlords became insisting that the tenants put up letters of credit for up to two years worth of rent, meaning the landlord could collect rent for up to two years while looking for a new tenant if the dot-com failed.

The other big obstacle is providing the huge amounts of electric power the facilities require.

"People (both developers and tenants) are just assuming they can bring 20,000 amps to a building by just calling City Light and asking them to deliver it next week," Smith said. "That's like 10 times the usual for this kind of warehouse."

The emerging reality: "It probably takes two to three years of lead time" to get that amount of power to the building, he said. "The issue is City Light's electrical grid can't accommodate that kind of growth without a lot of planning.... There are a lot of people out there feeling this subject out."

As to the possibility of a telecom user paying way more for the space, "I've heard that's out there, but we'll see." When factored through risk-reward questions a conventional distribution warehouse user may start looking just as attractive again, he said.

In the case of the Seattle Packaging building, both may happen. If Smith has to wait three years for delivery of the mega-electric power, he could place a conventional industrial tenant in there on a three-year lease in the meantime.


Spieker pushes forward on its Bellevue tower

Spieker Properties submitted its permit application to construct a 24-story office tower in downtown Bellevue, one of numerous office proposals jockeying for position in downtown's latest race to build.

The application says the structure on the southwest corner of Northeast Eighth Street and 108th Avenue Northeast would total 570,000 gross square feet, or abut 550,000 rentable.

So far the project is identified as the Northeast Eighth Street Tower.

Spieker doesn't own the property yet; the California-based real estate investment trust has contracted with several owners to close later. The site adjoins the First Congregational Church.

Spieker's architect is NBBJ. The building would provide 17,600 square feet of ground-floor retail and 1,434 underground parking spaces.

Spieker vice president Richard Leider said Spieker wouldn't divulge more details yet.


Royal Oak site sells at $6 M

The pending and shrouded $6 million purchase of the tiny former Royal Oak Mines building near Carillon Point in Kirkland closed.

King County property records identify the buyer as Westbridge LLC.

Real estate sources expect that the buyer plans to demolish the 9,600-square-foot office building to build something larger, and very swank, on site that's slightly bigger than an acre. The property is across the street from Carillon Point.

The sources identify the buyer as a member of the McCaw family, billionaires from the sale of their cellular telephone company, but that identity hasn't been confirmed. McCaw Cellular operated out of Carillon Point.

Former tech company owner John Lugar's JDL Enterprises bought the Royal Oak property out of bankruptcy last fall at what was considered an eye-popping $3.4 million. JDL said then that it planned to construct a small but "A-plus-plus" office building there as JDL's first-ever development.

Then this spring a buyer came in with an aggressive offer that has resulted in the $6 million sale.



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