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Real Estate Editor
August 13, 2020
It's the dog days of August, deals are few, some construction sites are still idle and everyone's wondering what to do with the kids if and when school resumes. Meanwhile, we're still telecommuting from our kitchen tables, attics and garages. Daddy is trying to work here! Stop interrupting me with your TikTok rehearsals!
Yet even in the awful New Normal of our ongoing coronavirus recession, there are fish in the water. Three big fish.
Real Estate Alert just reported that a trio of notable properties is being offered by Newmark Knight Frank: the Securities Building block in downtown Seattle, long owned by Clise Properties; the Sheraton Bellevue block, owned by PMF Investments; and the former downtown post office site in Redmond, owned by Cosmos Development.
NKF's Tim O'Keefe confirmed the news. His team includes, at the national level, Kevin Shannon and Ken White, and at the local level several colleagues including Cavan O'Keefe, David Marks and Mike Schreck. Each of the three offerings has a slightly different team, with some overlap among them.
Clise declined to comment on a query from the DJC, which last year first reported the plan to split the landmarked Securities Building, at 1904 Third Ave., from the attached garage and retail structures on the larger north end of the full-block property. That end of the block isn't landmarked. It's mostly additions to the original south tower on Stewart Street, which Clise developed in 1913.
Gensler is in charge of the separation plan, which will eventually lead to the demolition and redevelopment of over half the 2-acre block. (That's the former Bed, Bay & Beyond and Ace Hardware complex, also bounded by Fourth Avenue and Virginia Street.) The permit was issued late last month. But again: The Securities Building isn't going away.
Real Estate Alert values the Clise block at around $200 million, presumably based on NKF's listing. It estimates a development potential of 1.6 million square feet. The north end measures about 55,700 square feet, and is zoned up to 500 feet. Development rights could also be transferred from the 10-story Securities Building, which has about 139,567 rentable square feet.
In Bellevue, at 100 112th Ave. N.E., local firm PMF paid $42.7 million in 2016 for the 4.8-acre Sheraton property. That's just west of Interstate 405, and near the future East Main Station, where light rail service will begin in 2023.
CollinsWoerman is designing the mixed-use redevelopment plan, called BelleVista Place, which will replace the 41-year-old hotel, Bellevue Grille and Azteca. The phased four-building plan calls for about 1 million square feet of offices, plus 145 apartments.
The plan is still in review with the city. PMF is run by the Franklin family, an experienced retail developer and operator, which could be looking to sell or partner in the project. Real Estate Alert values that project at $175 million. PMF didn't respond before deadline to a DJC query.
Over in Redmond, near the future light rail station, Cosmos and Jackson Main Architecture have been planning two mixed-use towers at 16135 N.E. Eighth St. That plan recently changed its mix of uses to about 208 apartments, 268,000 square feet of offices and 29,500 square feet of retail/commercial space. Total project size, including parking and public space, is about 700,000 square feet. But those numbers are subject to change.
The two nine-story towers constitute what Cosmos calls Redmond City Center. The company paid about $5.5 million in 2010 for the 2.3 acres. The master use permit is already in place; the city of Redmond is still considering the design and other secondary aspects to the plan.
Real Estate Alert values that property at $30 million. In aggregate, those three reported offerings could fetch over $400 million.
Paraphrasing the brokers, the website described the three properties as being attractive to opportunistic buyers during the current economic downturn — with high upside potential whenever the market recovers.
None are what you'd call distressed assets, though bookings are surely down at the Sheraton Bellevue, as with the entire hospitality industry. The Cosmos site is essentially bare land, producing no income. And the Securities Building is reported to be 77% leased to tenants with a weighted average remaining lease term of 3.4 years — figures could only come from the broker or Clise. Clise also operates the Securities Building Technology Center, an underground data center, at 1914 Third; and the block does still have some retail tenants including Mattress Firm.
None of the three are turnkey ready in any sense. (Redmond is closest; and NKF's office leasing flyer targets completion in mid-2022, two years before light rail gets there.) But until there's a coronavirus vaccine, waiting — meanwhile getting projects entitled — could be a sensible strategy for a deep-pocketed buyer.
Oh, and here's a curious footnote to the supposed Clise offering. (Big fish number four, maybe?) Though no sale has been recorded, Broderick Group said in its second quarter office report last month that the Westin Building Exchange, at 2001 Sixth Ave., sold to Digital Realty, which had already owned 49% of the property. (Clise is or was the majority owner.)
Digital Realty, an international REIT based in San Francisco, announced the deal in February and said it would close in the first half of this year. Terms and brokers were not announced. The 33-story data center, or co-location center, was originally a 1981 office tower that Clise gradually converted into a server farm — now right in the heart of Amazonland.
Broderick valued the pending deal at $305 million — apparently meaning the entire property. (The county values it at around $183 million.) A guesstimate would be about $149 million for a 51% stake, though it's possible Clise will retain a small share.
Clise didn't respond to DJC queries last month or on Wednesday. Digital Realty confirmed the pending sale but not its dollar value, and had previously said it will manage the data center. CEO A. William Stein in February called it “the primary interconnection hub for the Pacific Northwest, linking Canada, Alaska and Asia along the Pacific Rim.” He continued, “The building is the sixth most densely interconnected facility in North America, and is home to leading global cloud, content and interconnection providers.”
On its website, Digital Realty says the building now comprises 290,000 square feet of data uses and 110,000 square feet of offices. It began life as headquarters for Westin, the successor to Western International Hotels, the chain led and grown worldwide by Seattle business legend Eddie Carlson.
Clise has an even longer history in Seattle. And it's no longer headquartered in the Securities Building. South across the street is the former Macy's building — once filled with Amazon workers who will presumably, eventually return there and to other pandemic-emptied offices. The latter company has grown to leviathan-sized proportions as home shopping and cloud services have surged during the crisis.
Whatever future buyers emerge for the three properties will find, there will be some kind of post-pandemic demand for real estate. But whether offices or apartments will be favored is anyone's guess.
Got a tip? Contact DJC real estate editor Brian Miller at email@example.com or call him at (206) 219-6517.