Seattle Commercial Real Estate News of the Day

Thursday, February 23, 2012

Seattle Times Daily Journal of Commerce Headline
Amazon’s 3-tower plan set for public review

Real Estate Buzz: Exploring the Amazon-Clise deal

Sears shedding some stores, reports 4Q loss Amazon.com is mum on its plans for the Denny Triangle property, so we can only speculate what will happen, at least for the next month or so.

Circle this date on your calendar: March 27. That’s when an early design guidance meeting is scheduled for 5:30 p.m. in Room L280 of City Hall.

We’re wondering whether the world’s largest online retailer will build 3 million square feet all at once or in phases on the three blocks it is buying from Clise Properties. Maybe the company is land banking, though that doesn’t seem to be the case based on preliminary filings at City Hall.

Al Clise, chairman and CEO of his family’s company, confirmed last week that Amazon agreed to buy more than five acres around Seventh Avenue and Lenora Street. Amazon could build up to 1 million square feet on each of the three blocks, and also has an option to buy significantly more of Clise’s property nearby.

Getting a million square feet on each of the three blocks would require constructing three 500-foot towers. That’s doable, but they would be dramatically out of scale.

How the company proceeds depends, of course, on factors ranging from its current need for space, its future growth and when leases expire for the nearly 2.8 million square feet it’s renting.

We reached out to two experts, and here’s what they told us, though not for attribution. One said he figures Amazon needs about another 1 million square feet now, and its leases will start expiring in 2022.

A second source said that based on Amazon’s past growth, it will build the new space in phases. It would take at least three years for the first phase to be ready. Until then, the company can continue to lease, giving it the flexibility of leasing some spaces and owning others, as Microsoft has done.

“I think what Amazon is doing is totally rational,” said the source. “I think the people who should be the most worried are people who bought land in South Lake Union thinking they were going to do some big deals with Amazon.”

One spec project, Speer Street’s 129,400-square-foot complex at 202 Westlake Ave. N., will do OK because “there will be plenty of companies that want to be near Amazon,” he said.

Who will be hurting? People who bought land thinking they were going to do a 500,000-square-foot project for Amazon, or those who already have leased all or most of their big buildings to Amazon.

“Anytime you lease your whole building to one user, you have to seriously think about what will happen when the lease expires,” said one source. “All that can get a little scary.”

But there’s no doubt the Clise-Amazon deal is great news for Seattle.

“It validates that this incredible job engine called Amazon is going to stick around,” said the source, though he cautioned that Seattle should not get too cocky. Remember when Washington Mutual built that big tower a few years ago?

Plaza 600 for sale?

A source says another Seattle high-rise — the Vance Corp.’s Plaza 600 — is on the market.

Vance officials did not return a call to confirm.

The 210,000-square-foot building is at 600 Stewart St. and was built in 1969. Some renovations were done in recent years. Occupancy is 85 percent, with multiple tenants. Asking rents are $30 to $35 a foot, fully serviced, according to officespace.com.

Wow for looks, wow for price

Everybody loves a bargain. We think we’ve found one in downtown Salem, Ore.

The Meridian is a bank-owned, mixed-use complex that cost more than $40 million to build and is now being offered for sale for $8.8 million. It is mostly completed but another $4 million will be needed to finish it, says broker Rob Marton of HFO Investment Real Estate in Portland. HFO has the listing with Grubb & Ellis’ Portland office.

“It’s a phenomenal looking building. You drive by it and you literally go, ‘Wow! What’s that doing here?’” said Marton. He said The Meridian would stand out even in Portland’s Pearl District.

We checked the photos, and that’s not just broker hype. You can see too at http://tiny.cc/hg3ey.

Dan Berrey of Commercial Concepts Inc. developed the six-story complex, which has housing and commercial above underground parking. The award-winning project was designed by Arbuckle Costic Architects and built by John Hyland Construction. It was substantially finished in 2009.

The Meridian has about 15,300 square feet of commercial space and 89 housing units. Roughly two-thirds of the commercial space sold for $180 a foot, and four of the 89 condos sold for between $214 and $383 a foot, Marton said. Thirty-seven other condo units are finished and rented for about $1.25 per square foot.

Grubb and HFO started marketing The Meridian earlier this month. The call-for-offers date has not been set, but Marton said the team is aiming for March 9.

Berrey said the project was hurt when Fannie Mae and Freddie Mac stopped lending money to residential condo buyers. Work stopped when the Federal Deposit Insurance Corp. shut down the construction lender, First Regional Bank of Los Angeles. “It was a double-edged sword,” Berrey said.

The original lender was taken over by First Citizens Bank of North Carolina. The Oregonian reported in 2010 that First Citizens sued to recover $35 million outstanding on the loan. Berrey declined to talk about how much was owed or name his equity partners.

The loans and other real estate that First Citizens acquired were covered by a loss-share agreement with the FDIC. That provided protection against losses to First Citizens Bank and, according to Berrey, made the bank less willing to strike a deal with him.

“We had tried several times to negotiate with [First Citizens],” Berrey said, though he offered the bank $20 million more than a year ago. The bank held on, and the value of The Meridian kept dropping. “It’s a great example of taxpayer waste, in my opinion.”

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About CraigHillTeam

Specialist in office & investment real estate in Seattle & the Eastside
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