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Real Estate Survey
1999 DJC Real Estate survey
Also as usual, he has clear ideas about the way the two fit together.
It's a tale of two industries, Sabey said in a recent interview. One is Boeing and exports; they are down to flat. The other is technology, and that's what's driving our economy.
Sabey noted that technology companies, like Microsoft and Amazon.com, are extremely robust and have attracted enormous quantities of capital to themselves and the region. This is offsetting and masking Boeings lackluster commercial airplane business.
At the same time, banks continue to be conservative about financing real estate development, and the liquidity created by REITs and commercial mortgage-backed securities last spring has dried up.
That has taken ten percent off of the values of real estate in this market, Sabey said. In some cases, twenty percent. The transaction level is down as a result, and it has taken one major buyer class, REITs, out of the market.
The exception is Sam Zell and his Equity Office Properties REIT. Sabey said Zell is funded directly through partnerships with institutions, which are still in the investment game. Zell accumulates capital pools from the institutions, then goes into ownership with them on investment properties.
As for existing owners of property around Puget Sound, Sabey said you couldn't ask for a better market. There are rising rental rates, few vacancies and long-term interest rates have dropped. Particularly in downtown Seattle and the Eastside, red-hot technology companies are ensuring good returns for landlords.
What risk exists is clustered around Boeing. Sabey said the aerospace company is pulling back from office space in the south Seattle submarket, and layoffs in Everett will ripple through that area over the coming months.
There's one issue that's different now from 10 years ago, Sabey said. Boeings customer base is healthy. The question I have is, with Boeings announced layoffs, some parts of Asia are flickering as if the lights might come back on. What happens two years out if Boeing starts to grow again?
Certainly the markets out there, and certainly they will rebound sometime.
For real estate professionals who are in it for the long term, Sabey believes that the Seattle market is a good one. Sabey Corp. itself has developed the Gateway Corporate Park in the south Seattle market, which is aimed directly at Internet companies and those who need quick access to airports.
Elsewhere, Sabey is positioning itself to take advantage of the eventual Boeing rebound and the reaction to sticker shock for Eastside properties. And the company continues to pursue high-end residential projects that serve the newly affluent technological entrepreneurs.
As for industrial conversions, a former staple of Sabey's diet, he said there are fewer opportunities these days. Instead he is looking at existing but undercapitalized projects to buy and finish.
We may have something to say about that soon, he said.
Apart from development, Sabey Corp.'s construction arm is doing a strong business, with $60 million worth of work set for completion this year. Those projects are in Seattle; Spokane; The Dalles, Ore., and Aurora, Colo.
For the first time in 15 years, he said, landlords are able to charge tenants what it costs to provide space plus make a profit. Tenants who face renewals of their leases, however, don't have a lot of choices.
Also, money for tenant improvements is going to be a minimal dollar amount, maybe $5 per square foot. You could re-carpet, maybe repaint, and not a whole lot else.
What's more, landlords are starting to look at other aspects of their properties as potential profit centers. One of them relates to standards for common areas instituted in 1996 by the Building Owners and Managers Association.
According to Aigner, the new standards permit landlords to charge off to tenants a greater proportion of common space than was possible before 1996.
There is a tremendous amount of hidden value in these office buildings, he said. I'm sure Equity Office, Selig, Bentall they are all recalculating values based on the new BOMA standards.
Likewise parking. Once offered as an incentive to attract tenants, landlords now see parking as something that can produce a return on investment.
All of which means that quality properties are worth the high prices they are commanding these days, because they are still cheaper than buying land, getting permits, building a building and filling it with tenants.
But this is a fundamental disequilibrium in the market, as supply and demand don't match. Aigner said this will be corrected somewhat when another 500,000 to 1 million square feet of space becomes available. That will happen when prelease commitments are made for announced projects like the Madison Financial Center, Union Station or Metropolitan Park III in downtown Seattle.
Not that a lopsided market is all bad.
Disequilibrium spells opportunity for persons who are willing to take the risk, Aigner said. Seattle as an investment place is a very popular place to be.
Robert Hollister, director of the Bellevue office of the Texas-based developer, said the three projects are Cedar Court, in Redmond; 112th @ 12th in Bellevue; and, with Martin Smith, the Madison Financial Center in downtown Seattle.
The 112th @ 12th project is in the predevelopment phase. With 480,000 square feet in three buildings, the project should be under construction by May. Completion is expected in summer of 2000. G2 is also the architect for that project.
Madison Financial Center, a 38-story tower to be built at the corner of Fourth and Madison, will add 800,000 square feet of Class A office space at one fell swoop. Still in the very early stages of predevelopment, the project needs an anchor tenant or tenants to commit to 25 percent of the space.
Were talking to all of the major space users in downtown Seattle now, Hollister said. Were getting a lot of expressions of preliminary interest, and we don't even have marketing materials yet.
According to Hollister, the tower property is the only true Class A high-rise site available in the financial district; Trammell Crows convention center project and Martin Smiths Millennium Tower are on the periphery.
Given the Hines preference for developing in urban centers, and given the scarcity of suitable sites in Seattle and the Eastside, the company is considering the possibility of projects in other urban areas such as Spokane and Tacoma.
Hines likes urban centers because, as long as there is no massive oversupply of space, quality projects tend to maintain their value through real estate cycles. Hollister said this strategy requires patience and careful assembly of real estate, as Martin Smith has done. Vulcan Northwest's Union Station project is another good example of this approach.
You need to be creative, Hollister said. The projects we are doing are all redevelopment or infill; from my standpoint, that makes sense not just as an investment but also urban planning. You keep high density in the urban core.
When the Hines, Smith and Vulcan projects are built, they should correct some of the imbalance of space supply and demand in Seattle. Hollister believes that the current situation is unhealthy, because inadequate supply is constraining the growth of smaller, younger companies.
Things are better on the Eastside.
I don't honestly think there is a major risk of oversupply on the Eastside, Hollister said. It will be a healthy situation for landlords and tenants.
For Hines, the coming projects dictate an increase in the size of its Northwest staff. Now numbering eight, the company will look to hire local talent. But, considering the local job market, Hines may have to go farther afield to find the people it wants.
Gary Carpenter, chief operating officer of Bentall U.S., says he is confident that the markets for commercial real estate and housing will remain robust in the Northwest for the next 24 months. He expects that healthy job growth will continue to support these markets.
Were pretty motivated to continue developing, Carpenter said. We have land, so we can sort of control our destiny.
At Bentall's Newport corporate center, in Bellevue, the company is planning to add another 300,000-square-foot office building. Designed by Freiheit & Ho in association with Callison Architecture, the project will get underway with Sellen Construction on April 1.
This is the last piece of land in this center and it's located next to Four Newport, which is under construction for Attachmate Corp.
Up the road a piece, Bentall is building Millennium Corporate Park in Redmond. The first three buildings of the six-building complex are close to completion, adding 270,000 square feet of office space to that submarket. In April the second three buildings will commence, doubling the square footage on the project. Carpenter said they will be complete by the end of the year.
Waiting in the wings is a downtown Bellevue site on the southeast corner of Northeast Fourth Street and 108th Avenue Northeast. That 2.5-acre site, now occupied by a six-story office building, is being held until a development opportunity presents itself.
We have decided to allow the frenzy that's going on in downtown Bellevue to continue without our participation, Carpenter said. We have designed some buildings for it, and it's in the permit process, but it's not moving with any great speed.
Not that speed would be needed. Carpenter said that when all Bentall's office projects are combined those planned and under construction they add up to 1 million square feet of new space to be added by the end of 2000. And that's just on land Bentall owns, not counting what may come in acquisitions.
On the residential side, Continental-Bentall is just completing La Chateau in Bellevue. That 105-unit, two-building development on Richards Road has already seen the opening of the first building, with the second coming in a couple of months.
Leasing is going very quickly, Carpenter said.
Another Continental-Bentall residential project is going up in South Everett. Called the Admiralty Way Apartments, the 250-unit complex is located on, appropriately, Admiralty Way. And in downtown Seattle, Westlake Tower is planned and permitted, with PCL lined up for general contracting. But the 30-story apartment building is on hold until Bentall secures a partner.
It's called spreading your risk, Carpenter said early this month. We have so much going on here, we elected to take a partner.
Bentall has been in negotiations with two potential partners; one of them will have been selected by the time you read this.
The tower project reflects Bentalls confidence in the downtown Seattle residential market, and the company is aggressively pursuing other opportunities there.
For long term housing growth, it has really got some legs, Carpenter said. Belltown, the Regrade, the growth of the city toward Lake Union it will be dynamic.
At the moment, the company is developing two Class A office properties on I-90, one in Bellevue (70, 000 square feet) and one in Issaquah (115,000 square feet).
And starting this summer, Touchstone will build two retail projects, in Seattle and Tacoma.
The Seattle retail property is to be located near the Northgate mall, and consists of multiple tenants in 350,000 square feet of gross leasable area. In Tacoma, the 130,000-square-foot building will be built to suit the tenant.
Touchstone also has just completed a 105,000-square-foot office project in Totem Lake, with software firm Computer Associates as the anchor tenant.
Howe says that his company generally aims it's office projects at tenants in the software, telecommunications, technology and corporate administration categories.
We see continued opportunities in our strategy of infill and redevelopment and assemblage, Howe said. Both in the office and retail sectors. The key is the right locations and building the right type of project.
Were always looking for properties to develop, but it is extremely difficult to find good sites.
Overall, Howe foresees a strong real estate market for the next couple of years, particularly in retail. Office markets may soften somewhat as supply increases, but he expects that to moderate again.
I personally think that from a real estate development perspective, there's much more diversity in the economy, Howe said. There are multiple employment sectors, many of them growing. We've never seen this kind of opportunity here. Over the next 10 to 20 years, were in for some very stable, very solid growth, with very minor interruptions.
Despite that optimism, Touchstone is developing on a project-by-project basis. The company seeks niche locations and particular opportunities.
We are very selective, Howe said. Maybe were too conservative, I don't know.
In Seattle, Lowe undertook two large renovation projects last year, at 1551 Eastlake and Southcenter Corporate Square. Both were acquired empty, given extensive makeovers and then marketed. Wrench says leasing should be complete in the first half of this year.
Lowe also conceived the idea of using the old U.S. Post Office Terminal Annex, at Fourth Avenue South and South Lander Street, for consolidated operations of Seattle Public Schools.
We hope to complete the transaction and help the school district initiate construction in 1999, in the third quarter, Wrench said.
Cosmetic upgrades are planned for a recently acquired Lowe property in Portland, One Main Place. That is a 20-story office highrise with ground-level retail.
We've set as a goal acquiring $60 million to $80 million of additional commercial [properties] in 1999 in the metropolitan Portland and Puget Sound areas, mostly office, Wrench said. The focus of the acquisitions will be both existing income-producing properties as well as properties suitable for comprehensive renovation similar to our strategies on Southcenter and Eastlake.
To fill those properties, Lowe has a particular kind of tenant in mind.
Rent-paying tenants, Wrench said. Were very selective.
As for the market overall, Wrench said it resembles commodities markets in being entirely driven by supply and demand. He is bullish on the Puget Sound market for the near and long term, but there is a possibility of a glut of space in downtown Seattle and the Eastside. And Wrench definitely predicts a glut of suburban office space around Portland.
But that hasn't dampened his enthusiasm.
Were feeling really good about 1999 and the prospects for the next several years, Wrench said.
And much is tied to the world economy, as major employers like Boeing are dependent on the export market.
There's a wild card in housing, Dennis said. While growth may slow down, there's such a dramatic constraint on the supply of land and lots, were not sure a slowdown will put downward pressure on housing prices.
This has a cascade of effects. Higher housing prices make the region a less desirable place in which to work, which makes life more difficult for employers and so on up the food chain.
Things aren't quite so bad in the office and industrial sector because, even with land constraints, many as yet unbuilt projects are entitled and in the pipeline. When combined with Boeings pullback from south Seattle space, there may be as much as 2 million square feet of new space possible.
Few in the industry believe that all of that space can be built and filled with tenants.
Then there's the problem of permitting delays and the time needed for construction, which together can stretch a project out to six years.
Despite all those challenges, Dennis expects business will be good. This year should be almost as strong as 1998 in some ways, and better in others, he said.
It was a terrific year for Unico, said Quentin Kuhrau, the firms vice president.
One area the firm isn't investing in is the downtown Seattle market. That's because Unico has a non-compete agreement with the University of Washington that bars it from buying downtown properties. The agreement is part of a ground lease deal Unico made with the university in 1953 on 1.7 million square feet of buildings in the downtown Metropolitan Tract.
That ground lease expires in 2014 and Kuhrau said that is a big reason why the firm is diversifying with other properties. He said he hopes the university will sign up for act two, but, a lot of things can change in 15 years.
Most of Unicos' purchases have been in Renton and Bellevue. In Renton, it bought 600,000 square feet of space in One, Two and Three Renton Place and the Valley Office Park. In Bellevue, it bought the 400,000-square-foot Skyline Tower and three smaller buildings: the 400 Building, Washington Park and the Delphi Building.
Kuhrau said the company isn't planning to buy as much property this year. So far, there have been no big purchases. There really haven't been a lot of properties on the market, he said. I don't know if the product will be available.
A possible future development could entail demolishing the 400 Building, which is on land adjacent to the Skyline Tower, and building a second tower to match.
Kuhrau said redevelopment of the 400 Building site would not likely happen in this development cycle, which he estimated at three to seven years. Unico isn't planning to move ahead right away because downtown Bellevue has too many projects on the horizon. Kuhrau said a lot of companies in the Eastside market are facing rent increases in the next few years that will squeeze them out to the north and south markets.
If more than two buildings come up, the market will be tested. If all the projects come on line, were toast, he said of the Bellevue market,
Unico has been looking at buying existing assets outside the Puget Sound area. Some of the locations include Portland, northern California, Denver, Salt Lake City and Phoenix. Kuhrau said Unico hopes to open a branch office this year, probably in a Northwest city such as Portland, Boise or Spokane. An acquisition would trigger the opening of a new office.
We need to convince ourselves we have some competitive advantage [to expand into other markets], he said.
In addition to property development, Unico offers property management, leasing, financing and brokering. The company hired 20 new workers last year to bump its total up to 129. It has offices in Seattle, Tacoma, Bellevue and Renton.
Metzler is the oldest, largest investment bank in Germany. Its first acquisition in the Seattle-area was made in 1978 when Metzler purchased the Lakeridge Business Park, a warehouse/light industrial complex in Redmond.
Ten years later Neal left the Winmar Co. to open Metzler's first North American office.
We're low key, and tend to fly under most people's radar, Neal said. Our advantage is that as part of an investment bank, we take into account how our clients' other investments interact with real estate.
Metzler now has one other U.S. office, in New York, which handles corporate financing, mergers and acquisitions. The company owns about 6.5 million square feet of space in 44 U.S. projects.
Office and industrial buildings are Metzler's bread and butter, although the company dabbles in retail development, according to Neal. Most of the projects are private, and a little over half are supported by foreign investors.
About 70 percent of business is comprised of family fortunes and the balance is institutional money, Neal said. Sixty percent of monies come from offshore, and the balance is domestic.
Neal predicts 1999 will again be the year of the high-tech industry, and said Metzler is not opposed to developing projects for high-tech use. In fact, the Lakeridge development, located nearby the Microsoft campus, is rumored to have caught the high-tech Goliath's eye for a new research/development complex.
Neal declined to comment on the rumor, and said negotiations with any company won't begin until building permits for the redevelopment are in hand.
He does anticipate a good, steady market for the next several years, for well conceived projects.
The future of real estate is location sensitive and transportation infrastructure will weigh heavily on where good real estate lands, he said.
Metzler is likely to expand its staff in the near future, while out-sourcing development jobs as much as possible. Neal said the company will eventually turn its attention from developing properties to focus almost exclusively on acquiring and managing existing properties.
According to Tochterman Director Connie Grant, business is good and getting better.
Liquidity is back in the market, and there is a strong demand, Grant said. We had a blip last August. It was a serious blip, but still a blip. It allowed us not to be cavalier, and I am very optimistic about our group.
Last year Tochterman lost its equity financing for Bellevue's Meydenbauer Place project after First Boston Credit Suisse backed out of investing in the development.
Those clouds have since vanished, however, and Grant said the sun is shining on the $400 million Meydenbauer Place office-hotel project.
We've made a lot of progress on Meydenbauer and it's on a good roll, Grant said. We chose our development partner in 1996 and spent 1997 bogged down with public process because of the project's public component. In 1998, we've worked on getting financing. Financing is never simple.
Meydenbauer Place, which also includes an expansion of Bellevue's convention facility called Meydenbauer Center, will likely open in late 2001.
Rhodes and Himmell were partners in Seattle's Pacific Place which some say has changed the face of the city. Once it's finished, Meydenbauer Place will have the same, profound impact, Grant said.
As for the real estate market in general, Grant views it with disciplined optimism.
The economics are there, as long as it's a good project, good location and the demand is solid, she said. Economic forecasts are strong, and the economy is diversified enough to weather any storms up ahead.
Grant also noted that now is a calmer time for real estate especially compared to last year's market which was frenzied with investors.
With a 25-minute ride to the airport, a 20-minute trip to downtown Bellevue and great places nearby for his employees to live, Rowley said the company's offices are in a wonderful location.
Rowley Enterprises aims to offer a little of everything to clients as well.
We cover it all, Rowley said. We do mini-storage, offices, light industrial and a little retail.
Rowley Enterprises does most of its own leasing, has a maintenance crew to tend its buildings and a landscaping crew to keep green areas in top shape. Rowley owns 61 buildings in the greater Seattle area and has 1,400 tenants.
The company's two big projects this year are the Kelkari apartments and Hyla Crossing office park in Issaquah.
Rowley recently received master site approvals for both projects, and is working to obtain building permits. Construction on the first 63 units of the 189-unit Kelkari is expected to begin within the next two months.
Hyla Crossing, with 600,000 square feet of Class A office space, will be built in phases. A 120,000-square-foot office building will be the first to go up.
We're going steady here, Rowley said. We've been in business for 40 years, and don't anticipate making any changes.
In other words, don't fix what isn't broken, he said. The market is doing well and so is the economy an all around good time for those in real estate. Like many of his colleagues, Rowley sees blue skies ahead for quite awhile, despite murmurs of a recession.
Sam Zell said there would be a recession in 1999, he said. I think the economy may slow down this year, but nothing drastic. It'll still be good for the next few years.
His optimism stems partly from the added discipline in the market these days.
There's no question about it. There's definitely more discipline now than what we saw in late 1997 and the first half of 1998, he said. At that time, REITs jacked up prices in the area to amounts most real estate investors would never pay.
Nevertheless, Rowley said, there is plenty of money available from banks for good projects a trend he expects to continue as long as lenders don't hand out too much, too quickly for projects that may not succeed.
It's no surprise then that the real estate investment and development enterprise has been charging the high-tech/bio-medical market.
The company is quickly leasing space in its North Creek Tech Center in Bothell, and may develop biotech lab space in the South Lake Union neighborhood.
But Schnitzer isn't exclusively high-tech. A 220-unit apartment complex in Everett is almost ready for construction, and a 245-unit complex there will follow closely on its heels.
Managing Principal Dan Ivanoff said Schnitzer will continue to pursue the high-tech market, as well as develop more residential buildings in the future.
He doesn't consider either market the company's niche.
Our specialty is pursing opportunities that fit our company, Ivanoff said. We're pretty bullish in bio-tech and will do more multi-family housing, but our niche is definitely finding good opportunities.
To help keep up with the client load, Schnitzer plans to add 12 or 13 new employees in the upcoming months. Soon the company will shift toward managing existing assets, steering away from development.
Fears of a possible recession haven't cast any shadows on Ivanoff's vision of the future. Barring any major layoffs at Boeing or downsizing at Microsoft, the region should be in pretty good economic shape for the next few years, he said.
REITs are pulling back; creditors are tightening up. That will really help protect real estate even if the economy does slow down, Ivanoff said.
It's no secret that with all the recent mergers and acquisitions, Corporate America looks a lot different than it did even one year ago, Chamberlin said.
She noted that client demands and expectations are changing as large, institutional buyers bombard the market. In response, CB Richard Ellis is beefing up its corporate services.
As our clients change, our direction changes to meet the needs of this emerging, very strong market, Chamberlin said.
CB Richard Ellis manages about 3.17 million square feet of property/building space in the Seattle-area, and conducted between $300 million and $400 million in leasing/selling transactions last year.
Chamberlin stressed that brokerage will still take center stage.
The base of our skills, talents and services our fundamental strength is our basic brokerage and transaction service, she said. Everything else overlays that core.
Chamberlin said the company also is excited about its international opportunities, made possible last spring after the merger between CB Commercial and the London-based REI Limited.
What the merger really means, she said, is that CB Richard Ellis now has global capabilities to serve a growing number of local clients who have real estate needs outside the U.S.
Having recently experienced a large staff turn over, CB Richard Ellis is keeping a positive outlook on internal, as well as external changes.
While we always hate to lose anyone, staff changes present new opportunities for CB and for the employees who are leaving, Chamberlin said.
Vance Corp. President Mark Houtchens doesn't expect to rock the real estate market too much in the future.
We will selectively pursue buildings in the next few years, but we don't expect to make changes in our staff size, Houtchens said.
Vance has been part of the Seattle real estate scene since the 1920s and owns approximately 1.5 million square feet of Class B office space in five, downtown Seattle buildings.
Among them are the Tower Building, Plaza 600, Lloyd Building, Times Square Building and the Roffe Building.
Houtchens said the current low vacancy rates are a blessing, but also a headache at times.
For the most part, the low vacancy rate is good, but complicated, he said. When the rates are this low, it's like playing Rubick's Cube with existing tenants to make sure everyone's happy.
While Houtchens credits the high-tech industry with boosting and stabilizing the real estate market, he's not planning to get in on that action. Vance's portfolio is not in a high-tech area, he said, thus the company won't try to be everything to everyone.
He is, however, expecting good times to continue for at least another few years.
I don't see any reason for a recession, although real estate may slow down, he said. Of course, that's a crap shoot.
Houtchens believes the real variable governing future success is the lenders.
As long as lenders maintain discipline, and refrain from making too many loans to risky projects the market will stay healthy.
[Lending] must stay in control, he said. Then if a recession occurs, there may be a number of disappointed investors, but no catastrophes.
The wheels are already turning for the 24-story Nordstrom Office Tower planned at Seventh and Olive, which adds more than 500,000 square feet to Clise's downtown portfolio. Construction is expected to begin this spring.
Also in the works is a five-story, approximately 65-unit affordable housing complex to be located near the Nordstrom tower on Eighth Avenue and Stewart Street. That project will be co-developed by Clise Properties, Nordstrom and the Housing Resource Group.
Clise Properties also owns the United Airlines and Westin buildings downtown, and is the leasing agent for the Denny Building on Sixth Avenue.
Company President Al M. Clise said high demand and low vacancy rates will keep the real estate market in good shape for the future.
The market is very good right now, not as a volatile as one might think, Clise said.
As long as discipline in lending, discipline in development, strong demand and low vacancies continue, the market should hold steady even if the economy wanes, he said.
Clise said the driving force behind Seattle's successful market is no secret: high-tech.
High-tech is leading the market, and we're seeing a lot of interest in the Denny Triangle area, Clise said. As long as the activity keeps up, high-tech will lead the market for awhile.
Al Clise said traditional markets, such as law firms and banks, come in a distant second.
Clise Properties focuses on asset/property management, and partners with other entities to develop property. The company has no plans thus far to increase its staff.
Momentum keeps building for Opus Northwest, one of the most active commercial real estate developers in the Puget Sound region.
Since opening an office in Bellevue in 1992, Opus Northwest has developed about 2 million square feet of industrial, office and retail space in the central Puget Sound region. Currently, another 2 million square feet is under construction and projects totalling 3 to 4 million square feet are planned.
In the past 18 months Opus has increased its staff here from 10 to 45 full-time employees.
The real estate market here is still going strong, said John Solberg, Opus Northwest vice president/general manager. Things are expected to slow down, but we haven't seen it yet.
Solberg notes the company's mix of building types has changed somewhat over the past year. Industrial has remained steady at 50 percent, but office space has increased from 20 to 50 percent and retail, about 30 percent a year ago, is now at zero. We've finished up all our retail for now, said Solberg.
Opus' Union Station development in downtown Seattle is a departure from its typical fare of office and industrial parks in outlying areas. Last year, the company finalized a deal with developer Union Station Associates to buy two pads and build four- and nine-story office buildings with about 360,000 square feet. Construction is scheduled to start in June on Opus Center @ Union Station and be completed a year later.
Opus also has an option on a third pad at Union Station and anticipates starting construction on a 300,000-square-foot office building around year-end.
We've had a good reception to our projects there, Solberg said.
NBBJ is the architect for the three Union Station buildings. Opus is the general contractor.
Opus projects currently under construction include: Willows Commercial Center in Redmond; Sammamish Parkplace office complex (for Vulcan Northwest) in Issaquah; Fife Landing in Fife; Glacier Cascade industrial complex in Tukwila; and the 1.1-million-square-foot Emerald Corporate Center in Auburn.
Several more projects are in the permitting stage: Opus Northpointe, a 45-acre, 700,000-square-foot office park north of the I-5/I-405 interchange in Lynnwood, slated to be under construction later this year; Opus Eastpointe, a five-story office building in Issaquah; and the Opus Business Center near Highway 522 in Woodinville.
I don't expect it to cool at all, says the Vancouver, B.C. developer, who also believes that the U.S. economy has been dramatically underestimated in general.
But with boom times in Puget Sound country has come labor shortages and high construction costs, Gillespie points out.
Gillespie says building costs are now twice as high in Seattle as they are in Vancouver, B.C., where most Westbank development is centered. Gillespie also claims that the Seattle area is more costly to build in than other such major U.S. metropolitan centers as Chicago.
The cost of concrete [in Seattle] is astronomical, says Gillespie. Finding wood framers is difficult. It's been a little bit of a learning experience for us.
Gillespie made a big splash in the local real estate scene in early 1998 when he announced plans for Lincoln Square, a $300 million mixed-use development in downtown Bellevue featuring an office building, residential tower and hotel. Plans were later scaled back to include a smaller 27-story office building and 33-story hotel/residential tower. Construction on the office building is expected to start this summer.
Lincoln Square would be Westbank Projects' biggest project ever, says Gillespie. Currently, Westbank has $450 million in development under way with most of it in the Canadian provinces of British Columbia and Alberta. Gillespie claims that Westbank today is the dominant developer of neighborhood shopping centers (food or drug store anchored) in British Columbia. Most of the company's other projects are residential: two highrises and one lowrise are under construction in the Vancouver, B.C. area.
Gillespie says he is thinking about building a residential highrise in Seattle or on the Eastside, but a final decision probably won't be made for a year or two.
Two of the three projects are now completed. Frederick & Nelson is now occupied by the Nordstrom store and headquarters. And last fall the $180 million Pacific Place retail complex opened to rave reviews.
Construction has now started on the third phase of the $400 million, three-block redevelopment: a $20 million renovation of the former Nordstrom store at Fifth Avenue and Pike Street into both retail and office space. Pine Street Development also intends to update office space in the adjacent 10-story, 90,000 square-foot Seaboard Building soon, according to spokeswoman Jane Lewis.
Pine Street Development's original partners Jeffrey Rhodes, Thomas Klutznick and Ken Himmel sold out last year to Multi-Employer Property Trust, which has 80 percent interest, and a group of local investors headed by managing partner Matt Griffin.
Lewis says Pine Street Development has no plans beyond completing the original three-block redevelopment.
Denny Onslow, executive vice president, said the downtown Seattle market, just feels good.
His reasons for feeling good include the final phase of Harbor Steps 282 apartment units in two towers along First Avenue that will be finished in August and December of 2000; Site 17 North 32 apartment units in Belltown that will be finished this December; and a project for the carpenters union that includes 275 apartment units and union hall space in the Belltown area.
Onslow said more and more people are accepting downtown as a great place to live, and as they move in, the area is becoming safer. The biggest concerns Onslow voiced about downtown were parking and circulation. He said business improvement areas are helping build continuity downtown by eliminating breaks in pedestrian flow and making the streets safer. He said wayfinding will improve so that visitors will always know where they are at in the city.
Onslow said downtown is expanding geographically to include Belltown, the stadium district and the Convention Center area. Also, the waterfront economy is expected to get a big boost when cruise ships start docking.
Harbor may be looking at more residential development in the downtown, Belltown and Capitol Hill areas in the future. Onslow said demand and the upcoming supply of housing downtown are not in balance.
I think you're going to see steady growth, Onslow said, but, the rising costs of construction will continue to hamper new development.
A big challenge to Harbor will be making projects feasible while meeting construction costs and sustaining a high level of quality.
In the ski business, Harbor operates as Harbor Mountain LLC, which is a partnership between Harbor Properties and Keith McCaw. Harbor Mountain owns Schweitzer, Stevens and Mission Ridge ski resorts. At Stevens, plans call for a new lodge and base area along with new entryways and a clock tower. The existing middle lodge will be removed to make way for the new lodge, which will feature a railroad theme with heavy timbers and a river rock base. It will have twice the seating of the existing lodge.
At the newly purchased Schweitzer, Onslow said the company is looking into redeveloping the resorts hotel.
Harbor Properties is planning to do some remodeling to its headquarters in the Logan Building at Fifth and Union in downtown. Onslow said the company added a few people last year and wants to reconfigure its space on the second floor.
One of those sectors is the Southend office market. Woodworth said that market will get soft because Boeing has put 750,000 square feet of office space near the Kent Space Center on the market. That could drive vacancy rates from 5.7 percent to over 20 percent.
Up north, in the Bothell North Creek area, Woodworth said supply also may outstrip demand for office space. But, in the face of that news, Trammell Crow is going ahead with plans to develop 100,000 square feet of speculative high-tech space in a project called Canyon Park 228. Work should start there this summer.
Woodworth said his firms Canyon Park project is a little different than other developments in Bothell. Every market that has added risk may have added opportunity, he said.
Another market Woodworth sees some risk in is Bellevue's CBD. He said, if all the planned projects there were to go off at the same time, the vacancy rate could jump from 2.3 percent to 14 or 15 percent. But, he said, it appears the capital markets have operated significantly enough to squelch any significant over supply.
Woodworth said the projected slowdown in job growth in the Puget Sound region will slow demand for space, but wont create a significant reversal in the health of the market. In most of the other markets we see demand as relatively stable.
Like most other developers, Woodworth likes the downtown Seattle office market and its 1.99 percent vacancy rate. Trammell Crow is betting big with One Convention Place a 308,000-square-foot office tower planned near the Washington State Trade and Convention Center. It should be finished in the summer of 2000. Woodworth said his firm is talking with several potential clients to take space in the new building.
Texas-based Trammell Crow now has 10 locations in the Northwest. It runs five key businesses: property management, brokerage services, infrastructure management, retail services, and development and construction services.
Woodworth said infrastructure management is one of the fastest growing areas for the firm. In October, Trammell Crows infrastructure management division became the operator for all of Group Health's real estate. Woodworth said Group Health should see lower occupancy costs, better uses of capital and greater efficiencies because of the relationship.
Trammell Crow also is making a big push in its brokerage business, with investment sales and integrated corporate services. Last year, the local office merged with The Norman Co. and, after nine months, had doubled its gross revenue. Woodworth said the office closed $302 million in transactions in 1998. Woodworth said he anticipates a record year for the brokerage business because 1999 will be the first full year of combined operations with Norman.
The merger with Norman also picked up several property management contracts downtown, including the Exchange Building, Bank of California Building, Commuter Building, 720 Olive Building and 1001 Fourth Avenue Building.
In the Puget Sound area, Trammell Crow manages about 17 million square feet of office, industrial and retail space. That base of operating properties gives us a unique view of the marketplace, Woodworth said. Because of that, the firm is able to determine rents, expenses, construction costs, lease-up time frames and other important information for specific markets.
Locally, Trammell Crow has 260 employees. Woodworth said the firm is not looking to acquire any other firms at this time, but may do selective hiring in the brokerage and development sectors.
Smith, the CEO of Fortune Development, is putting all of his eggs in the downtown Seattle residential basket. In the past three years, Fortune has sold or is in the process of selling 20 different sites with 3,000 units throughout the city.
Smith said his firm is one of the most active apartment developers in the city. Everything we do is in the city, he said. Downtown is now a cool place to live.
Smith is quick to point out his firms strategy hinges on the ability of the city to absorb bad economic news. For example, he said, when Boeing announces layoffs, the housing areas to the north and south of the city are the hardest hit. He added the supply of housing downtown is constrained.
Fortunes list of current projects includes: the Maxwell, 53 units under construction on Capitol Hill; Landings Lake Union, 24 condo units in Wallingford; 400 units planned for the Wilson Ford site in Ballard in a joint venture with JPI, expected to be under way in late 1999 at the earliest; 143 units at Minor and Thomas expected to start later this year; 102 units at the corner of Elliott and Broad in the master-use permit stage; over 100 units at Elliott and Clay; 150-200 units at the corner of Vine and Western; and 88 units at Fifth and Yesler expected to start this fall.
About 75 percent of Fortunes projects will be sold as developments as the company continues to focus on its role as a land developer. That is a change from the way the company first did business. Smith said the change was made because the firm didn't have the capacity to build all of the projects it is now involved with. He did say he would like to build more in the future. We like to build as much as we can, he said.
Smith said Fortune should do well over the next year if the year 2000 problem and troubles in Asia don't escalate. He said he doesn't expect to make any changes to his workforce of 15.
Aging baby boomers are generating healthy revenues for Bellevue-based Leisure Care, a developer and operator of assisted-living and retirement homes. Over its 23 years, Leisure Care has grown to be the largest privately held assisted-living company in the country and the eighth among all companies.
Madsen, an 11-year veteran at Leisure Care, was named president and CEO in September. The company also added 27 employees last year to bump its ranks up to 74.
Madsen said the workforce was beefed-up to position the company for growth. We generally hire ahead of our growth to handle what's coming up.
What's coming up, according to Madsen, is 20 to 25 percent annual growth for the next five years. Madsen said those numbers will be a result of the company's growth combined with an influx of aging baby boomers moving into retirement.
And, those baby boomers are not just getting older, they're getting wealthier. 401ks are going to pay off, Madsen said.
Madsen said last year the company acquired over 700 apartments units, started work on 500 new units and made several additions to existing facilities. This year, Leisure Care has several projects identified for development and is eyeing several facilities for acquisition. Madsen said there could be close to 100 new communities added to the company's portfolio over the next five years.
Leisure Cares market includes 10 western states. About 75 percent of its business is independent retirement apartments and the rest is assisted-living. Both types of housing are typically developed together to offer a continuum of care as residents age. The company now serves over 4,000 residents.
Madsen said the company doesn't do Alzheimers care and doesn't plan to in the future. He said the current niche is serving it well.
Madsen said there is a race to attain market share in the retirement industry, with a lot of new developers getting into the business. He said those unsophisticated developers may overbuild, causing softness in the entire industry. One bright spot is those projects may become acquisition opportunities for Leisure Care down the road.
Leisure Care has developed some unique amenities for its residents. A new program called Travel by Leisure Care is just getting started. It is a travel service aimed at seniors that offers discounts, organized trips and traveling representatives who are trained in the special needs of senior tourists. Some of the trips that are being booked by the outfit include: a tour of Branson, Mo., a trip to Reno, cruises in Hawaii and Alaska, and visits to New York, New England and Cape Cod.
The travel services is part of the company's focus on its residents lifestyles. Another program being test marketed is a senior gym facility, complete with personal trainers. That is expected to begin March 1 at the company's Brittany Park project in Woodinville.
It's very exciting to watch the industry evolve, Madsen said.
Business is so good at Kidder Mathews Segner that company president Joe Preston got booted out of his Seattle office so that space could be made for two new brokers.
But, Preston isn't complaining. Revenues for the firm increased by 34 percent over 1997, partly due to new brokers joining the firm. That, combined with a busy real estate market, generated the best year yet for Kidder Mathews.
It was a great year for real estate in general, said Curt Ghan, senior vice president. There were a lot of transactions and a lot of leases.
For example, Ghan said the firm last year sold 22 office and industrial properties in Georgetown for Pacific Northwest Group A, which is made up of two large California pension funds. Ghan said the pension group sold its Georgetown holdings in order to redeploy its capital.
I think the most significant impact on downtown last year was retail, said Ghan, who specializes in the downtown market. I think what were going to see this coming year is more cranes, more construction. Everyone says they're going to start building.
Some of the projects about to begin or just getting started include the Millenium Tower, One Convention Center; 401 Elliott and several projects around Union Station.
As some of the new projects are built, Ghan said there will be an uptick in the vacancy rate, but it will not be dramatic. I think we will have a healthy market this year, he said, but not a big run up on rental rates as seen in 1998.
In addition to brokering, Kidder Mathews also has developed property management and appraisal divisions. Preston said they are both running at capacity. The property management division, called Quadrant KMS Management Services, is about three years old. It was formed as a joint venture with Quadrant and now manages about 4 million square feet of space.
Preston said property management will continue to be a challenge, however, because there are a lot of institutional owners and that leads to turnover.
The appraisal division, called Shorett KMS Appraisal Services, also does feasibility studies.
Our goal is to become a major, regional full service real estate company, Preston said.
Kidder Mathews is owned by 30 agents and employees of the company. It's run more like a partnership than anything else, Preston said. We have two constituencies: users of real estate and brokers.
Of its four offices, the company's Bellevue office is its largest, with 30 brokers. Other offices are located in Seattle, Tukwila and Tacoma. Preston said management is considering opening offices in other markets, like Portland, Olympia, Spokane and Boise, but has made no decisions yet. He said the Portland area tops the possible expansion list.
Preston said the firm had an average of 69 brokers during 1998. It ended the year with 72 brokers and now has 76. Most of the brokers who come to Kidder Mathews are from other big firms, usually national firms. Preston said the national companies tend to staff up with a lot of salaried support people, which many high-production brokers don't need and don't want to pay for through reduced commission rates.
Preston said there are a lot of brokers leaving companies right now and he expects more to come. We have in our budget to add additional staff in 1999, he said. The only problem is the company currently doesn't have space for them.
Kemper Freeman Jr. says that after nine years of planning, work on the Corner Building at Bellevue Square will begin this summer, and another long-awaited project the expansion of Bellevue Place may start in 1999.
Kemper Development's other major project, a second expansion at Bellevue Square, is about three years away.
To do these things right takes time and patience. You've got to have a vision and revisit that vision and work on it and check on it and keep selling it, said Freeman, whose family has operated Bellevue Square for 51 years.
But he wonders how long it will last. One major office tower, Three Bellevue Center, is underway; five other downtown office and mixed-use projects are on the drawing boards, and a slew of other office projects aimed at snagging technology companies is cropping up across the Eastside.
In such a tight market with record-low vacancy rates, he wonders why the downtown projects are not filling up. As of Feb. 12, not one square foot of office had been preleased.
The question is: Is downtown Bellevue a high-tech address? Freeman said.
At about 150,000 square feet, Microsoft is the largest office tenant at Bellevue Place, which Kemper Development built across the street from Bellevue Square in 1988.
We're happy with them. They're happy with us, Freeman said. But high-tech generally looks for smaller low-rise buildings.
Freeman's not worried about the buildings filling up. It's just peculiar that at this moment no one can put their finger on who (the tenants) are and where they are.
Generally speaking, he has some concerns about the economy. Last year was good and he anticipates 1999 will be strong, too. He thinks the boom times will last another two years.
How long can the rest of the world be in the tank without it affecting the United States and the Northwest? he asked. We'll find out sooner or later, and that sooner or later is going to be sobering.
The Corner Building at Bellevue Square is a 110,000-square-foot, L-shaped structure that will wrap around a parking garage at the southwest corner of Bellevue Way and Northeast Eighth Street. It will have an atrium resembling a mountain lodge.
Bellevue Place's expansion was scaled back last year but plans still include upscale restaurants and shops as part of an expansion of between 200 to 250 hotel rooms at the existing Hyatt Regency Bellevue hotel. Also included are 45,000-square-foot conference center, six small movie screens that will show art films, and 800-plus parking stalls.
The second phase of the Bellevue Square expansion the one that is about three years away would result in a reconfigured Bon Marche, new space for Saks Fifth Avenue, an additional 150,000 square feet of retail space for smaller shops, and about 2,000 new parking stalls.
Jim Bowles, Cushman & Wakefield's new senior managing director in the Northwest, wants to make one thing clear: Cushman & Wakefield is a resource-rich firm with a worldwide network.
He'll use this message not only to attract business but lure staff as he beefs up the Puget Sound-area offices from 24 brokers to 35 and possibly 40. During 1998, five brokers left regional offices, further depleting the staff that at one point in the last five years measured 35 brokers.
We have not done a good enough job letting people know what a remarkably deep company this is, Bowles said.
To make his point he picks up a report. Several hours earlier he asked his research staff to gather data on all apartment complex sales in Snohomish County during the last two years. Now he had the file in hand.
Cushman & Wakefield's Seattle offices have a research staff of six full-time employees. That's something the boutique firms can't offer, said Bowles, who returned to Cushman & Wakefield in June.
Cushman & Wakefield probably has more national corporate accounts than anyone else, Bowles said. He estimated that nationally, one-third of the business stems from interoffice referrals.
Further boosting the firm to a more global presence was the September merger of Cushman & Wakefield with the European-based Healey & Baker. The $112 million deal culminated the firms' eight-year joint venture.
On the regional scene, Bowles returned to Cushman & Wakefield from another job one month after two key brokers Gary Danklefsen and Rob Larsen moved to rival CB Richard Ellis. Larsen and Danklefsen are well known as Boeing's primary real estate consultants.
While Cushman & Wakefield misses Larsen and Danklefsen, the move didn't hurt the firm as much as people speculated, according to Bowles.
In truth, Boeing made a decision to solicit the help of various companies, he said. Those changes would have occurred whether Rob or Gary were here or not.
Cushman & Wakefield, for instance, is selling for Boeing two office buildings: the Auburn 234 and Southcenter South.
The firm's Northwest Valuation Advisory Services staff had a banner year in 1998. We probably did the lion's share of business on commercial buildings, Bowles said. Among the sales the division worked on were Columbia Seafirst Tower and U.S. Bank Centre, both in Seattle, and the Skyline Tower/400 Building sale in Bellevue.
On the brokerage side, Cushman & Wakefield saw its share of action last year, Bowles said. He noted brokers Reynolds Haas and Tom Abbott represented a Delaware corporation that sold to Seattle-based Unico Properties the Valley Office Park and three-building Renton Place. The approximately 600,000-square-foot transaction was done for $56.5 million.
Bowles said he will be able to point to such successes when he recruits brokers, something he said he will not rush nor put a deadline on. The time frame depends on getting the right people.
Kennedy Associates Real Estate Counsel had a busy 1998 and expects to stay busy in 1999 as it seeks to invest in office and industrial properties and developments.
The 21-year-old Seattle-based pension fund adviser has grown to 50 employees in four offices. It has $2.4 billion in assets under management for U.S. clients. Among its assets is the nation's top performing open-end fund: the $1.7 billion Multi-Employer Property Trust.
Last year Kennedy bought Totem Skyline, a Kirkland office park, for MEPT. Kennedy developed with Trammell Crow Co., three office/research and development buildings in the Highlands at Canyon Park in Bothell.
In 1999, it is planning to build two more office/research and development buildings with Trammell Crow in the Canyon Park Business Center. Called Canyon Park 228, the buildings will total 101,000 square feet. They will be near the intersection of 228th Street Southeast and 29th Avenue Southeast.
It's really just a continuation of the Highland Campus development, said Rich Haas, a senior vice president at Kennedy.
Brent Jackson, a Trammell Crow vice president, said final site plan work is being done. The goal is to get the building permits in March, begin construction in June and have the shell completed in the first quarter of 2000.
Also on the Eastside, Kennedy has signed a letter of intent to invest $200 million in the mixed-use Lincoln Square that Westbank Project Corp. of Vancouver, B.C., has proposed. Haas said he could not discuss the deal's specifics.
In Seattle, Kennedy has invested MEPT funds to finance all of Harbor Properties' Carpenters Tower. It is a 196-unit apartment development on the southeast corner of Second Avenue and Vine Street in the Belltown neighborhood.
Kennedy also is working on financing for the proposed Westin Hotel at Seattle-Tacoma International Airport. Haas could not discuss the specifics.
Our focus is going to be on acquiring industrial properties and office properties -- both development projects and existing ones, Haas said. One area of focus will be industrial sites in Sumner and Fife.
Currently, 44 percent of Kennedy Associates' investments nationwide are in office, 31 percent are in industrial, 15 percent are in multifamily, 8 percent are in retail and 2 percent are in hotels.
The majority of its investments (34 percent) are along the West Coast. In second place at 20 percent is the Northeast.
Kennedy's strategy is simple. Invest in areas where research shows there will be significant demand for rental space. These include key national transportation centers, such as Washington, D.C./Baltimore, Chicago, Seattle, Portland, San Francisco, Los Angeles and Dallas. Additional markets that may be viable, according to the company, are Atlanta, Denver, Indianapolis, St Louis, Phoenix and Memphis.
We think the Seattle market is going to be strong, said Haas, who cited the area's record-low vacancy rates.
Wright Runstad & Co.'s Seattle headquarters last fall was a super-charged atmosphere as the firm's 157 employees wrapped up one of the busiest periods in the firm's 27-year history.
The arrangement someday could lead to another development project for Wright Runstad. Equity recently bought City Center, a 27-story office tower in downtown Bellevue that came with a three-acre building site called City Center II. Real estate observers have speculated that Equity won't compete against itself by building more office space.
Wright Runstad Chairman and CEO Jon Runstad, however, said his firm and Equity will begin the permitting process sometime in the next several months. He cautioned that whether the project starts is up to the market.
No specific arrangement has been worked out with Equity for development of City Center II, but in all likelihood it will be a joint venture of some sort, Runstad said.
Other development projects are in the works for Wright Runstad, but Runstad would not discuss them other than to say they are in the Northwest. You will not find us making announcements to see if something will happen, he said.
Wright Runstad's recently completed and ongoing projects include 2 million square feet of space in Seattle, Bellevue and Portland.
Besides the ongoing renovation of the PacMed tower for Amazon.com, the company's Seattle projects includes the completed World Trade Center West. Wright Runstad is wrapping up World Trade Center East as well as King Street Center for King County.
Both WTC projects, located on the waterfront across Alaskan Way from the Bell Street Pier, are public-private partnerships with the Port of Seattle. The Port owns the WTC West office space and the WTC East garage. The garage is at the base of the office, which Wright Runstad owns.
Projects under way in Bellevue are the 22-story Three Bellevue Center and the 462,000-square-foot, three-building Sunset North. In Portland, Wright Runstad is finishing up the ODS Tower.
Add to these projects the anticipated construction in Seattle of three lowrise office buildings at the PacMed site on Beacon Hill and the World Trade Center North and Wright Runstad's development tally hits 2.4 million. It makes it one of the busiest developers in the nation.
That's a very large volume of work for us by any standard, Runstad said. Where we stack up nationally I have no idea. In terms of Class A office building we are among the most active in the country.
World Trade Center North, like World Trade Center East, is being developed for Visio, a Seattle software company. The north building, located on Wall Street between Elliott Avenue and Alaskan Way, is another public-private partnership with the port. Construction of WTC North's three-story garage, which the port will own, is to begin in April; construction of the five-story office, which Wright Runstad will develop and own, is scheduled to start in November.
Equity Office Properties Trust has agreed to buy WTC East for $38.5 million once Visio finishes moving in. Sam Zell, who heads Equity, said his firm expects to also buy WTC North.
Construction won't begin without preleasing on three office buildings planned for the PacMed site. Wright Runstad is spending at least $25 million to renovate the 16-story tower for Internet bookseller Amazon.com. It's expected the booming Amazon.com will take the total 240,000 square feet in the new buildings.
Runstad said the arrangement with Equity provides a very important strategic alliance and gives us a rather extraordinary source of capital.
The deal includes not only development opportunities but also leasing and property management operations. Wright Runstad now manages the eight buildings Equity acquired from Wright Runstad as well as other buildings in the Northwest that Equity has bought. Among them is the region's tallest: the 76-story Columbia Seafirst Center.
This has meant hiring more people for both the property management and development divisions, although Runstad said the company has tried to run pretty darn lean on the development side of the business.
Wright Runstad now has 157 employees; 127 work in property management, 11 in development and the rest in both divisions.
Runstad notes that while many projects have been announced in Seattle and Bellevue, the question is whether the proponents can secure financing, a difficult task since last summer when world financial markets faltered.
That will affect the supply side of the equation, Runstad said.
As for demand, he is bullish on the Northwest. He conceded the Puget Sound region is not immune to a national economic downturn. And Boeing cutbacks mean the number of manufacturing jobs is decreasing, though Runstad thinks high-tech jobs will fill that vacuum.
He cited the enormous energy surrounding technology. It is, he said, enough to make him particularly optimistic about this region.
Despite all the chaos in world financial markets last summer, 1998 turned out to be a pretty good year, says North Coast Mortgage Co. President Michael T. Makar.
Expect more of the same in 1999. Market research shows all the signs are good, added Maker, who called most markets are incredibly strong.
This does not mean all are thriving. Makar wonders about weaknesses in the Kent Valley office market where Boeing is selling 917,000 square feet.
That's never been a good sign, he said.
His second concern the suburban apartment market also is related to Boeing. The aerospace giant employed 99,000 people in Washington state on Dec. 31 but has plans to trim that number to between 80,000 and 90,000 workers by the end of 1999.
Boeing's also dumping 1.16 million square feet of industrial space in the Kent Valley, but developers do not seem concerned. They're building 2 million square feet in the valley, and farther south in Sumner, 4.6 million square feet are planned.
Another of Makar's concerns is downtown Bellevue where construction has begun on one new office tower, Three Bellevue Center, and five other projects are lined up behind it.
But overall, the Seattle area market still looks strong, and much of its health can be attributed to financing. Long-term fixed rate debt stands between 6.5 and 7.5 percent.
That's incredibly low and makes a lot of real estate work, Makar said. It's a compelling reason to own real estate now.
One financing problem for borrowers, though, is a downward shift in the loan-to-value ration. That means they can't get as much of their project financed as they could in early 1998 when some lenders financed 80 percent of a purchase.
They're all gone now, said Makar. Now the rate is typically 65 percent with a maximum of 75 percent.
Still, he said, there's a lot of (long-term, fixed-rate capital) available and it's cheap.
The same is true for construction loans. There is capital available and at about 7.75 percent Makar said it's not priced too badly.
The third type of funding equity capital, or as Makar calls it the daring kind of capital, is not so readily available. He said this is a good thing because when this sort of money is available, too much space gets built. Today's lenders remember the 1980s and are pulling the purse strings tighter.
Consider Bellevue. Even though vacancy rates are at or near record lows, six projects are on the drawing boards and if all get built, the market will balloon from 4 million square feet to 6.5 million square feet.
The problem for Eastside developers, Makar thinks, is that Eastside tenants traditionally have sought space in suburban projects because they offer more parking than downtown projects.
Unfortunately (downtown) is where more projects are being announced, Makar said.
He doesn't worry about developer Wright Runstad's Three Bellevue Center, but I'm not sure about many other projects unless they get some preleasing.
He thinks that Bellevue could evolve into something resembling the 1980s building boom in downtown Seattle. That was like watching super tankers collide.
Everybody could see it coming, but you just couldn't stop it, Makar said.
The problem last decade was that developers had so much money sunk into their projects that they could not back off and ended up creating the glut that thrashed the market. The good news for Bellevue is that Makar thinks developers do not have the same magnitude of investment tied up in their projects and will be able to apply the brakes should market conditions dictate doing so.
As for the downtown Seattle market, he is not worried. The market's historic low vacancy rates have prompted preparation work on Millennium Tower and One Convention Place, which total roughly 500,000 square feet. Five Union Station developments add up to more than 1 million square feet, but individually these projects and others around town are relatively small.
Makar noted no 1 million square foot developments are going to spring out of the ground unexpectedly. The lead time is just so bloody long, he said. I think it will be hard to overbuild the Seattle CBD 150,000 square feet at a time.
One could call Pacific Real Estate Partners the little, big brokerage house.
The 7-year-old Bellevue firm was one of the Puget Sound region's first so-called boutiques, but the notion that it's a small firm specializing in one market is incorrect. Pacific Real Estate Partners, now at 10 brokers with the addition last fall of Dave Lamont who came from Spieker Properties, still qualifies as small. But its focus is wide.
It handles leases and sales of industrial, office and land in four major markets: the Eastside, North End, Seattle and the Kent Valley.
We do think it's better for the client (if we are able) to talk intelligently about all four markets, said Stuart Williams, one of the firm's four founders. We do it all.
In addition to doing it all in its home region, Pacific Real Estate Partners' realm has spread across the state and nation. In the last two years, it has represented tenants in 21 cities outside Washington.
We never thought we were going to be doing that much business outside the state of Washington and in doing so we did leases of 750,000 square feet, Williams said.
Pacific Real Estate Partners has, for instance, represented Level III Communications, a large Denver firm, in its search for space on the West Coast.
In Washington, the firm has represented tenants seeking space in various cities. That work is counted in its local tallies: close to 2 million square feet of industrial, including flex; 1.5 million square feet of office; and another 1.2 million square feet of office that is to be built.
Currently, Pacific Real Estate Partners is marketing Schnitzer Northwest's Civica Office Commons, a 300,000-square-foot project scheduled to begin construction this quarter in downtown Bellevue. And Metzler North America last fall hired the Pacific Real Estate Partners to market its proposed Lakeridge Corporate Square, a 560,000-square-foot office in the Overlake neighborhood of Redmond.
Among existing sites where Pacific Real Estate Partners handles the leasing are GE Capital's Bothell 405 Business Park and Washington Capital's Paine Field Business Park in Everett, which Pacific Real Estate Partners took over from Trammell Crow Co., about two months ago.
Pacific Real Estate Partners' work in investment sales includes one ongoing project that Williams called a major deal. The firm is representing John Hancock Life Insurance, which is selling Overlake Village, a 102,000-square-foot retail development in Bellevue.
Another of the firm's founders, Bill Pollard, recently represented a private Lynnwood investment company, Olympic Capital Management, when it bought for $7.995 million the Lincoln Center. It is a 70,000-square-foot Class C office complex whose prime location next to Interstate 405 in downtown Bellevue has attracted the attention of developers.
The firm also is helping the King County Library System sell its 80,000-square-foot office/service center in Seattle's South Lake Union neighborhood. The library is moving to a similar-sized building on an Issaquah site, which Pacific Real Estate Partners helped locate.
Williams believes demand in the Puget Sound region will continue to be strong in 1999. That means there will be a tremendous amount of buyers who want to buy or build, he said.
And now that rental rates have reached building replacement costs, new space will be constructed and rental rate increases will slow some. The new space will create what Williams calls a soft ceiling on rental rates.
He also thinks pension fund advisers will make a big comeback in 1999, not only as buyers of real estate but funders of new projects as well.
After 11 years of no high-profile construction projects, Koehler McFadyen & Co. is ready to jump back into it by starting the first building of 410 Elliott West, an office/research campus on the north end of Seattle's central waterfront.
President Stephen Koehler said the final lease for the old buildings on the site expired Jan. 31. Further paving the way toward actual construction are negotiations for 60,000 square feet for a prospective tenant he would not name.
Firms today don't have the luxury of signing up two years in advance, he said.
He knows firsthand the vagaries of today's fast-paced market. Cell Therapeutics Inc., a biotechnology firm, reportedly signed a letter of intent for space at 401 Elliott West but had to pull out when the biotech firm encountered financial troubles last year.
Ultimately, 401 Elliott West will have two more five-story buildings for a total of 300,000 square feet. It is situated to take advantage of the waterfront's high-tech development boom where such firms as Visio, RealNetworks and Immunex are settling.
Koehler McFadyen is best known for developing Westlake Center, the major mixed-use project that opened in 1988 just as the real estate market went into the tank.
Until the current upswing, Koehler McFadyen has stayed busy managing the 24-story Westlake Center Office Tower as well as other office and retail properties. The management portfolio totals nearly 1.2 million square feet.
It also has provided development project services for AT&T Wireless and WRQ Inc., a Seattle software company.
AT&T Wireless Services retained Koehler McFadyen for its build-to-suit corporate headquarters at Redmond Town Center. Koehler McFadyen also represented WRQ Inc., a software firm, for its leased corporate headquarters at the 1100 and 1500 Dexter in Seattle.
Martin Smith Inc. in 1998 continued its march toward becoming one of the Puget Sound region's major commercial real estate developers. This year will be more of the same for the company that until a few years ago was a property management firm.
The company still manages plenty of property approximately 7 million square feet, with half suburban and half downtown. While that business has grown, the firm's focus includes more and more development.
Greg Smith, one of the firm's principals, hands over a marketing sheet that outlines Martin Smith Development Corp.'s current projects in downtown Seattle. All are south of Madison Street and east of Fourth Avenue for a reason.
Smith says what he has been saying for a long time: I'm a big believer in south downtown. He talks of the $2.4 billion in public and private investment planned for the area. The majority of the proposals key off the fact that Union Station in a few short years will be the hub where the region's commuter rail, light rail and express bus service converge.
Martin Smith Development Corp.'s current downtown Seattle projects include construction of the 20-story Millennium Tower, a 273,000-square-foot office and residential tower. Of that space, 180,000 feet are office. Smith said construction will begin in March.
Real estate observers have speculated whether Smith or the Trammell Crow Co., which is building Once Convention Place, will be out of the ground first. Smith said it's much ado about nothing. He cited the record low vacancy rate downtown.
He said he doesn't care who will be first. Millennium is 180,000 square feet (of office) in a market that's just slammed.
Also on tap but further down the line is the 38-story Madison Financial Center. Hines, a Houston company, has agreed to finance the deal once 25 percent of the space is preleased.
Then there are the former WOSCA Shippers Cooperative site and 83 King Street Phase II. In the last year, Martin Smith acquired those sites as well as 83 King Street, a Pioneer Square office building just north of the development sites.
Smith talks of creating a campus setting on the company's new properties. WOSCA measures 8 acres, and 83 King Street Phase II could accommodate a 160,000-square-foot project. Smith said mixed-use developments are planned.
Martin Smith recently began working on a third possible mixed-use project called Occidental Street. The company is working with Diamond Parking, the owner of the half block on the east side of Occidental Park, just north of Main Street.
To take on these projects and attend to other matters, such as investment sales, Martin Smith Inc. grew by approximately 20 employees in the last year to 155. About 12 people work on the development side. Smith expects to hire more although he doesn't know how many.
Demand for the company's services continues to grow. Smith said the firm receives unsolicited calls from people who ask Martin Smith to help them develop their properties.
In 1998, Martin Smith worked on a total of $340 million in sales and acquisitions, including such high-profile deals as the $237 million sale of U.S. Bank Centre to Bentall Corp. Martin Smith itself bought the 330,000-square-foot Seattle Trade Center for $26.5 million, renamed it the Seattle Trade and Technology Center, renovated it, and now the waterfront building is fully leased.
Martin Smith continues work on another project: the 1.1-million-square-foot Valley Centre Corporate Park, a warehouse development in Auburn. Two buildings totaling 710,000 square feet have been built. All but 60,000 feet are leased.
The plan is to build the next two buildings in 1999. We're in right now getting the plans finalized for permits, said Martin Smith principal Mickey Smith. We'll start this summer for sure. He added the company is looking for other industrial developments throughout the region.
The advantage that Martin Smith Inc. has, according to Greg Smith, is that it is a local concern. It's the biggest distinction. We are local. That means that the projects it develops will be high quality, he said.
Surveys by Jon Savelle, Ben Minnick, Ragan Graham, Marc Stiles and Jerry Craig.
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