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“Nabbefeld”
Joe Nabbefeld
Real Estate Editor

December 21, 2000

Real Estate Buzz: Remember the old days, like 1997?

The view from a top floor of Trammell Crow Co.'s recently opened One Convention Place office tower in downtown Seattle wasn't just of freshly snow-caked Olympic Mountains on an unusually clear December day.

One Convention Place
One Convention Place

The view also looked back a mere three years to how remarkably different the office market was then.

Remembering how unexpected, nay inconceivable, today's extraordinary market conditions were just that short time ago made Trammell executives Shelley Easter Gill, David Ray and Jim Figel pause, even though they had worked right through it all.

When Easter Gill and Trammell's Kirk Johnson unveiled the first drawing of the proposed 308,000-square-foot One Convention place in the summer of 1997, there was genuine concern whether they'd find tenants and whether they were fools to talk of building on spec.

They were proposing the first new downtown office tower since 1991, the first since the bone-crunching market swoon that followed 1991. They were stepping back out onto the limb after years of developers fighting off, or succumbing to, foreclosures and bankruptcies, rents falling to $15 per square foot with free tenant improvements and other hungry concessions, and soaring vacancies.

It sounds almost odd now. Rent under $30 for any sort of space is hard to find and marquee locales go for more than $50 a square foot. Vacancies have hovered at an unheard-of 1 percent. Concessions? Tenants make those, not the landlords whose only challenge has been to decide which tenant to go with from among the line in their office.

When One Convention Place went into a one-year delay of its construction start because it had to wait for resolution of a state convention center condemnation fight, the question was whether that would kill the office tower -- not how much higher rent Trammell would get to charge a year later, as it turned out. Trammell didn't even build the One Convention Place as tall as zoning allowed.

As it has turned out, Trammell, acting as fee developer for the Virginia Retirement System, didn't just sign a tenant or two. The building, which stands above the expansion of the convention center on Pike Street at Seventh Avenue, opened last week at 94 percent leased, and at premium rent rates. Easter said another tenant was nearly signed to bring it to about 98 percent leased. Internap Network Services Corp., an Internet company, took 43 percent of the space.

Back three years ago, one other downtown office building was proposed, Martin Smith Inc.'s 180,000-square-foot Millennium Tower, and observers honestly wondered with deep concern whether the market would be able to sustain two new towers.

Now they're both considered small buildings that hardly make a dent in the vacancy rate. The 810,000-square-foot IDX Tower recently began construction at more than 50 percent pre-leased. Some 800,000 square feet of new offices at Union Station finished construction at full lease-up.

New waterfront buildings like the World Trade Center and 401 Elliott got built and fully leased. Other proposed office structures for the Denny Triangle, Belltown, South Lake Union, the stadium area and even as far out from downtown as the Goodwill on Dearborn Street are working through permitting.

"Nobody expected it would turn out like this," Ray said.

Trammell executive Tom Woodworth said yesterday at an industry association gathering that the Virginia pension fund and its advisor, T.A. Associates, likely will put One Convention Place up for sale early next year.

The building cost about $70 million, or more than $225 per square foot, to build, Trammell said.

The look back comes at possibly a key time, too. Just as swiftly as the market soared beyond expectations, now experts say the economy is cooling and at least one developer predicts the dot-com shakeout will run vacancies just as quickly back up to 10 percent in the coming year.


Sleeth and the CREW

Retail broker Paul Sleeth can sling a sound bite.

As lunch speaker last week for the monthly gathering of Commercial Real Estate Women, the Colliers International broker said he remains optimistic about the economy. The way he said it: "I'm so looking forward to next year."

E-business, he said, "isn't going to put (bricks and mortar) retail out of business. You can't get a haircut over the Internet. You can't eat out over the Internet."

The successful e-tailers, he said, generally will be Web operations run by successful traditional retailers.

Even if the economy softens, which looks even more probable just since his speech a week ago, retail rents aren't likely to fall much, the way office rents could, he said, because retail rents haven't run up nearly as severely.

Sleeth's choicest statement may have been his insight into what could be behind the scenes in Simon Properties' offer to sell the large southern parking lot at the Northgate shopping center.

Simon a couple years ago laid out huge plans to expand Northgate over 10 years, including building some 450 apartments on the south parking lot. Plans for elsewhere on the site included building a hotel and parking garages instead of surface parking, and roughly doubling the mall's retail space.

Activists seeking to free Thornton Creek from beneath the southeast surface parking lot so far have successfully fought approval of those plans. Last summer, Simon surprised observers by appearing to throw in the towel by putting the 13-acre southeastern portion of the site up for sale for about $25 million.

No deal has emerged yet.

Sleeth said perhaps Simon may not sell. Perhaps Simon really isn't intending to, but rather is playing a bluff in hopes of shaking city leaders into helping Simon overcome the opposition.

"I'm hoping the Northgate sale is political," Sleeth said. "They may be putting it out there as a message."


Mastro does Pierce County

Developer Mike Mastro expected to close this week on selling almost a significant portion of a single-family subdivision that's ready to go into home construction in Puyallup.

The subdivision of more than 305 single-family homes and apartments is called Puyallup Downs. It's located between 23rd Avenue Southeast and Seventh Street Southeast, next to Bradley Park and near South Hill Mall.

Seattle-based Mastro Properties platted and then in late 1998 sold 10.2 acres of the first phase to Anthony Carino's Carino Homes for $1.3 million. Carino built 162 apartments on that portion. North Bay Development Co. also bought the remainder of the first phase.

Now comes Puyallup Downs' 146-lot second phase. The Puyallup City Council recently gave Mastro Properties final plat approval for this phase, providing the final go-ahead for construction of 146 single-family homes.

Mastro said he expected to close this week on selling 89 of the second-phase lots for $3.7 million to GGT LLC, which has contracted to buy the remaining 57 lots next September for $2.5 million.

GGT, which consists of principals Scott Griffin, Howard Talbitzer and Tony Glavin, began work on some lots this week to begin home construction.

Mastro said GGT's price will be between $41,500 and $51,000 per prepared lot.

Mastro Properties Chief Financial Officer Monika Harmon said receiving the second-phase plat approval took five years of pre-development, geological and environmental reviews.

The new homes will range from 1,400 square feet to 2,500 square feet and sell for between $144,950 and $185,950.

Jim Seldon of John L. Scott Real Estate will market the homes.

"That winds us down in Puyallup," Mastro said, meaning he doesn't have another project in his large pipeline there. His company has three more subdivisions in the planning nearby, however: two in Bonney Lake and one in Graham.

Mastro expects final plat approval soon for both 350 single-family lots at Bonney Lake Country Club and 135 lots at White River Estate. Both projects have received preliminary plat approval.

In Graham, Mastro Properties has a 402-lot single-family subdivision on the drawing board called Grand Firs.


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