Thursday, May 12, 2011
|Seattle Times||Daily Journal of Commerce Headline|
|Washington is leader in making highways efficient||Real Estate Buzz: Holland plans more than 1,000 apartments|
|Retail sales up for 10th straight month in April||Holland Partner Group has started 1200 Madison, a mixed-use complex with 237 apartments on Seattle’s First Hill. Expect more from the Vancouver-based developer, which this summer is starting another project in the South Lake Union area.
Holland has under contract a property at 901 Dexter Ave. N. where Korry Electronics operated until moving to Everett a couple of years ago. The plan is to build about 285 units in a mid-rise structure. Runberg Architecture Group is designing the project, and Holland does its own general contracting.
Two or three more starts will follow next year, and even more are possible, said Chairman and CEO Clyde Holland. Over the next few years, Holland hopes to build 1,000 units in addition to 1200 Madison and 901 Dexter.
Holland is one of many developers who are bullish on Seattle’s multi-family market. The question is who among these competitors will prevail. One apartment broker, Jon Hallgrimson of CB Richard Ellis, said, “Clyde is going to lead the charge.”
While other developers stayed in the game expending capital during the depths of the recession, Holland was content to sit on the sidelines after finishing M Street on First Hill in 2007. Now, he says, some of those other developers are “in the penalty box for two years.”
So is the road ahead smooth for Holland?
“I have not seen a better time to be investing in new real estate development,” he said. “I also have not seen a time as risky.”
To make new projects pencil, rents are going to have to go up 30 to 35 percent, and Holland expects that will happen in the next couple of years. But there’s no guarantee so lenders and equity partners want more assurance. In the wake of the Great Recession, can you blame them?
Equity providers want a bigger piece of the pie, and lenders are requiring borrowers to pony up more of their own cash. And now they want bonding, Holland said. He put $4 million of his own cash up for a bond on 1200 Madison, but declined to say what the total cost of the bond was.
Bonding a project is a first for Holland, who has directed the development or rehabilitation of more than 25,000 units with a total transaction volume of almost $5 billion. People who work for lenders and equity providers say they’ll lose their jobs if there’s a mistake this time, so developers have to get projects bonded. The Hartford provided the bond, with Invesco of Dallas and PNC providing equity and financing, respectively, for 1200 Madison.
Tighter standards mean less competition, and that means fewer new units at a time when there’s already a shortage.
So when will equity and credit standards loosen? Holland isn’t sure that will happen soon enough to unleash a wave of development though he thinks that will change when 1200 Madison is completed in a couple of years and sold for a hefty profit.
“If the dam breaks, we’ll see a lot of projects in 2015,” Holland said.
Beachworks thinks small, for now
Beachworks acquired this Beacon Hill house for $126,000, spent an undisclosed amount on repairs and listed it for $289,000. It was under contract five days after it went on the market.
You probably haven’t heard of Beachworks LLC but you might if the North Seattle family investment company continues to grow as it has for the last two years.
The company pays cash for single-family houses that need to be finished or remodeled. Last year, Beachworks bought and sold seven properties. This year it forecasts volume will increase 20 percent as the company invests $3.2 million. Ultimately, brothers-in-law Erik Ekstrom and Bentley Pugh hope to make long-term investments in commercial real estate, including multi-family. Last week, the company was in contract to buy a 22-unit apartment project in Burien.
The company was launched three years ago by Pugh’s parents, Dick and Nella. The retirees had dabbled in real estate investment and wanted to do more.
“My parents just had this vision of investing and the family working together,” said Bentley Pugh, a broker at Windermere’s Northgate office. He manages and operates Beachworks with Ekstrom, who worked at Wilcox Construction where he built projects for Krispy Kreme, Starbucks and car dealers. The family turned to Bob Bernstein, a Bellevue CPA who helped them put together a mission statement.
Beachworks is named for the family’s cottage in the South Sound. The family holds weekly conference calls to talk about business including leads on distressed sales. With more and more capital coming to the market, competition is picking up, according to Bentley Pugh. Still, the company usually does a couple of projects at one time, working with different contractors, whom Ekstrom manages.
For Beachworks, caution is key because they are investing their own cash. For example, Beachworks bought a small Beacon Hill development site with a house on it for $126,000 and considered doing a four- to five-unit project with another developer. After deciding that was too risky, Bentley Pugh said Beachworks rehabbed the house and put it on the market for $289,000. Five days later it was under contract.
“Right now we aren’t doing huge projects but I see us going in that direction, but conservatively,” Bentley Pugh said, “because I know you can get hurt.”
13 acres in Seattle anyone?
We were wondering what’s the latest on Clise Properties’ Denny Triangle land. At 13 acres, it’s one of the nation’s largest metropolitan assemblages, if not the largest. There was big interest until three years ago when the venerable Seattle company put the land sale on hold due to turmoil in the global capital markets.
Company Chairman and CEO Al Clise said at the time he was in “serious negotiations with an astute international developer who shared our vision for a world-class redevelopment project on par with London’s Canary Wharf or New York’s Rockefeller Center.”
The capital markets are back on more stable footing, so we dialed up Clise to find out what’s happening. “The short answer to that is not much,” he said. “We really don’t have anything to report.”
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