September 7, 2000

Meydenbauer: Ritz out, Schnitzer in

Three more buzz-bits just in on the evolution of the Palladium Center proposal that would coincide with expansion of the Meydenbauer Center convention hall in downtown Bellevue:

• Ritz-Carlton confirmed the project will no longer include a Ritz;
• Instead, the proposal, which will still include a large Marriott Hotel, will switch to a lot more office space by adding a second office tower.
• And Schnitzer Northwest is on track as the office developer.

"We won't be part of the Meydenbauer project," said Ritz hotel development vice president Chris Komanowski. "There will be significantly less hotel space to make way for more office."

The large hotel-office-and-retail project has evolved several times over the past few years but never in a way that landed it the hundreds of millions in financing needed to take it into construction.

The Tochterman family owns the nearly eight-acre site next to Interstate 405. Developers Jeff Rhodes and Ken Himmell in the mid-'90s teamed with the Tochtermans to tie a near-doubling of Meydenbauer Center to development of an adjacent hotel, retail center and office tower.

Next the office portion came out, replaced by a second hotel, because other office towers made it into construction. Marriott agreed on a 550-room hotel and Ritz agreed to 300-room one.

Financing still remained elusive.

Then the office market tightened up more, to record-low vacancy rates. The Tochtermans brought the office portion back into the project's plans. But financing still wouldn't come together.

As The Buzz reported on Aug. 24, that yet another new evolution has been cooking. Tochterman family member Connie Grant said then that the Tochtermans were "tweaking" the project and that she would tell more when the tweaking was finished. Sources said the possibilities included Rhodes and Himmell leaving the project and an office developer coming in.

Grant couldn't be reached to comment yesterday and Rhodes said all comments should come from her.

Komanowski said Ritz decided "a few weeks" ago to "pull out" to make room for more office and thus to make the project "more financable." The Marriott will grow larger, from 550 to 660 rooms, he said.

"Schnitzer is planning a bigger office play; that's my understanding, Komanowski said. Sources said the Tochtermans have met with a variety of locally-active office developers to discuss building two, instead of one, office towers in the project.

Schnitzer executives said they had no comment.

At the same time that Ritz planned a Meydenbauer Ritz, it continued long-running negotiations to place a five-star hotel in downtown Seattle, too. Ritz's departure from the downtown Bellevue project now increases the luxury hotel chain's drive to set up in Seattle.

"We're still very interested" in breaking into downtown Seattle, Komanowski said.

Vance Corp. recently bought the most likely downtown Seattle Ritz site, the Key Bank parking garage at Sixth Avenue and Olive Way. Ritz and Vance in the past acknowledged they're negotiating; Vance officials recently said the negotiations continue.

---

Alhadeff, Martin Smith buy Teledesic Building

A Kenny Alhadeff-Martin Smith partnership bought the Teledesic Building in Bellevue’s warehouse corridor from Principal Life Insurance Co. for $13 million, King County property records show.

The price for the combination office-and-warehouse structure equals $88 per square foot.

A Kenny Alhadeff-Martin Smith partnership bought the Teledesic Building for $13 million, which comes out to $88 per square foot.

The structure is split into 72,000 square feet of Class A office space occupied by Teledesic and 75,000 square feet of warehouse space. HomeGrocer.com until recently subleased the bulk of the warehouse space from Teledesic but HomeGrocer recently pulled out and the space is available, said Martin Smith executive Rob MacAulay.

Teledesic is billionaire Craig McCaw’s speculative company that seeks to launch a network satellites to create an "Internet in the sky."

Alhadeff is a Seattle-based real estate investor and businessman whose wealth originated with ownership of the former Longacres horse track. Alhadeff has invested in various Martin Smith partnerships.

Iowa-based Principal conducts extensive real estate activities in the Puget Sound area and has a long relationship with Seattle-based Martin Smith Inc. Principal owned the warehouse at 1445 120th Ave. Northeast since 1986, when Principal paid $5.4 million for the property.

Martin Smith executive Steve Kramer said Alhadeff and Martin Smith bought the property because "We really like that area (of Bellevue east of Interstate 405 and south of Highway 520). It’s an area that definitely has pressure on it for changes of use" from warehouse to office, but for now strict light-industrial zoning has prevented a massive changeover.

---

Tech Tower signs a big tenant

Developer Eugene Horbach's Bellevue planned Bellevue Technology Tower landed a nearly 100,000-square-foot tenant to bring the structure's total to 140,000 square feet leased.

Conversational Computing Corp. signed a lease for 98,377 square feet in the proposed downtown Bellevue office skyscraper, according to a monthly activity summary by the brokerage Kidder Mathews & Segner.

Kidder broker Brian Hatcher, who has the job of finding tenants for the tower, declined to comment.

Horbach earlier this year razed buildings on the site at 333 108th Ave. Northeast, but an actual start of construction has remained imminent. The first tenant signed a couple months ago, called a tech company called Loc8.net Inc. But Loc8.net took 41,498 square feet, a desirable lease but not of the size to make the building a go.

The Conversational Computing lease could do the trick.

Conversational Computing would move its headquarters from about 50,000 square feet on Willows Road in Redmond.

---

IDX Tower construction set to start

Hines has scheduled Sept. 19 for the official ground-breaking for the IDX Tower. PCL is the general contractor.

The skyscraper on Madison Street between Third and Fourth avenues would stand 40 stories, making it the largest office building developed in downtown Seattle since the 1980s. No other structure of that size is planned.

IDX would total 810,000 rentable square feet. The four mid-rise office buildings under development so far at Union Station on downtown's south edge together total about that much space.

Hines, the developer, has a substantial amount of the tower leased. IDX Systems Corp. signed for the largest amount (and building name rights), taking 324,000 square feet.

---

M&M sees office vacancies rising

Marcus & Millichap, the market-rate apartment brokerage specialists with some office brokers in its Bellevue office, predicts the Seattle-area's record-tight office vacancy rates will rise soon as newly constructed buildings come on line.

The firm's mid-year office market report says, "Additions to inventory will push average vacancy up to 5.5 percent in 2000."

To reach 5.5 percent would be quite a jump. CB Richard Ellis pegged the region-wide office vacancy rate at 2.8 percent for the second quarter.

Greg Wendelken, head of M&M's Bellevue office, said predicting 5.5 percent "might be a little bold," but said both a lot of space will come on line and the economy will cool. He also noted that 5.5 percent would still be healthy.

Previous columns:

• Real Estate Buzz, 08-31-2000
• Real Estate Buzz, 08-24-2000
• Real Estate Buzz, 08-17-2000
• Real Estate Buzz, 08-10-2000
• Real Estate Buzz, 08-03-2000
• Real Estate Buzz, 07-27-2000
• Real Estate Buzz, 07-20-2000
• Real Estate Buzz, 07-13-2000