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PANEL of EXPERTS

The Manhattanization of Seattle? BY CYNTHIA FLASH

t’s no secret that job growth is golden after-work lifestyle they appreciate. Recently, four experts representing a in the Emerald City. And it’s clear to So what about home ownership in real estate brokerage and marketing firm, anyone who has driven through or this hot downtown Seattle market? an appraiser and economist, a mortgage walked around downtown Seattle Developers have focused their attention lender and a millennial consumer joined that most of those workers now live on apartments citywide, which increased a round table discussion with the Puget Iin our urban core. Many are young, well- by 18,667 units throughout Seattle Sound Business Journal to explore in- paid techies who are new to town. Most between 2011 and 2014. Meanwhile, city housing trends. After much debate of these millennials are choosing to rent only 1,012 new condominium units were and a review of the market statistics and new, amenity-rich apartments so they added – meaning that just 5 percent of demographics, they agreed on what can be close to their jobs, peers, and the this new housing stock is for sale. the future holds for renters, buyers and CONTINUED PG A2

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CONTINUED downtown developers. Recession. The panel of experts say “It’s the Manhattanization of Seattle,” the in-city condo market fully recovered Targeting Urban Investment said Dean Jones, principal and owner of from the loss in values but prices haven’t Mortgage Restrictions (Siting a Seattle and Bellevue -like development trajectory) Realogics Sotheby’s International Realty yet risen as fast as apartment rents. In and Realogics, Inc. “I believe we’re going King County, apartment rents climbed Easing Up to have one of the most fundamentally 35 percent since year end 2010, while dense markets, like , citywide condo prices rose only 6 percent Vancouver and . We‘ll see (higher in the urban core). That value ualifying for a home restricted stock unit (RSU) income loan has become much now, which is great for tech easier over the past five workers who receive a significant “For consumers, prices will go up so Q years – especially portion of their compensation now’s a good time to buy.” FINANCIAL DISTRICT for first-time buyers — that way instead of through at the same time that a salary. BRIAN O’CONNOR | O’Connor Consulting Group consumer purchasing Buyers should not power may be peaking. be afraid to take out That’s the word mortgage insurance. inflation and appreciation across the inversion means it can actually be less CENTRAL PARK from Trevor Bennett, Rather than put down board for land, construction costs, rents expensive to own a condominium than it mortgage loan officer 20 percent to avoid and condo values. Now consumers need is to rent a similar apartment (especially with Caliber Home Loans, this insurance, they can to decide if they want to take an equity after income tax deductions). So why the region’s largest private get into a home with less stake in all that or watch it from the haven’t more buyers snapped up these mortgage banker. It’s good news down, and take the tax deductible sidelines.” condos? UPPER EASTSIDE for millennials and other renters insurance, which avoids taking Jones, along with economist Brian “Most new residents are going to who are considering buying a out a more volatile adjustable O’Connor of O’Connor Consulting kick the tires downtown for a lease term home or condominium. rate second mortgage or higher Group, mortgage banker Trevor Bennett or two,” said Jones. “That’s especially “Now, first-time buyers can buy interest rate fixed second of Caliber Home Loans, and millennial the case for young recruits working on digital marketing expert Nelson Yong, contract. They’ll want greater security concluded that current renters thinking before buying. Many of those apartment about buying should start getting serious units are incubating our future condo “Now, first-time buyers can buy about it now. buyers.” a home without any contribution Demand for condos in downtown Apartment demand closely tracks Seattle had been relatively flat since job growth, which O’Connor said may of their own and 100 percent of the 2008 downturn, but it’s expected have peaked in 2014, unless of course, the down payment can be gifted.” to grow once new units open later this more large corporations move in. “We’re “I believe we’re going to have one year. It’s been half a decade since any coming off a record year led by Amazon of the most fundamentally dense TREVOR BENNETT | Caliber Home Loans new condominiums have been delivered hiring and there could be another Expedia SISTER CITIES — Downtown Seattle and downtown Bellevue operate much like two pistons in the region’s and inventory is “like oil in an engine,” out there,” said O’Connor, referring markets, like New York City, high-octane engine and share surprisingly similar characteristics with their distant cousin New York City. a home without any contribution mortgage, Bennett said. He also said Jones. “Without it the market slows to the travel giant’s announced move As illustrated, their urban growth areas are defined by approximately 10-by-two miles, each featuring a Vancouver and San Francisco.” central recreational amenity and a prevailing consumer preference to live, work and play in the city that of their own and 100 percent of thinks appreciation is rising much down. The in-city condo market is now from Bellevue to Seattle. Commercial encourages density. Experts suggest that Manhattan’s sky-high property prices will eventually become a DEAN JONES | Realogics Sotheby’s International Realty the down payment can be gifted,” faster than most consumers can rebooting because more consumers are developers are certainly hopeful as they reality in Puget Sound’s urban markets. Bennett said as one of four save up for larger down payments. buying in and median home prices are are building millions of square feet of industry experts who met recently “I meet many first time buyers increasing.” speculative office space. interest rates while they can. Then there 10 percent of these new renters decide cover the added costs. have been discussing it just like San to discuss the region’s apartment that are misinformed and we Added O’Connor: “We need Although existing condo inventory is are the discretionary buyers to add to the to buy, that’s going to be a significant “It’s a good time to buy as we’re Francisco did decades ago. Most v. condo real estate market. simply want to be a resource at significant appreciation for a strong anemic, demand has been expanding. mix – those moving up to newer units, impact on our housing stock,” Jones said. early in this condo cycle,” said business leaders oppose government He’s also seeing higher loan- this pivotal time in the market,” condo market but that’s coming. Currently there are fewer than 60 resale seeking second homes, fence sitters, “I worry about supply and affordability.” O’Connor, who predicts that new intervention. Jones said he believes to-value jumbo loans with as little said Bennett. “Buyers need to Developers will be playing catch up given condos on the market in downtown Seattle students who have paid off their loans O’Connor said he also fears the cost towers will soon need to average the better solution is to encourage as 5 percent down today. Lenders be prepared and recognize an the protracted high-rise construction and while there are 867 condos currently and put money into the bank, downsizing of new construction will only rise as many more than $900 per square foot to more density to create additional believe home prices are rising, opportunity when it surfaces. And timelines — demand can rise much under construction, Jones estimated that empty nesters and investors —the types labor union contracts will reset this year pencil out. Because of high rents supply, which will slow the increases making them feel more secure first time buyers should remember quicker than supply.” nearly half are already pre-sold. “We see who typically enter the market every time – five years after they corrected with and even higher demand for income in rents. “I feel that the market should in making such large loans. In —just get in. This isn’t your final The last downtown condo boom was a supply and demand imbalance ahead, it rises. the recession. The city wants to charge property investments (evidenced by decide the price of housing,” he said. addition, mortgage underwriting house.” 2004 through 2007. Then the credit especially at moderate price points,” he With historic home ownership levels additional fees as well. Developers will low capitalization rates), apartments Bottom line? These experts have a also takes into consideration crunch pinched the development pipeline said, adding that he expects more renters in the 60th percentile – it seems unlikely have to charge more for new projects or have been more profitable, leaving strong message for those young tech and buyers retreated amidst the Great to explore the favorable prices and low that millennials will rent forever. “If even defer building more condos until prices few projects in the condo pipeline. workers who may be afraid to commit With that lack of supply, we’ll to a purchase: If you are secure in www.NoPlaceLikeOwn.com experience upward pressure up on your job and you love Seattle, now’s New Construction Condominium Deliveries & Sales Status prices. the time to own a piece (Downtown Seattle Submarket - Supply & Demand Shown in Year of Unit Completion) Will rent control be a residential of it. Waiting will only safe harbor? Seattle city leaders cost more in the future. Sold & Closed Pending Sales Median Condominium Pricing Conversion to Apartment Unsold Inventory Estimated Median Condominium Pricing Apartment Conversion Project Foreclosure/ Apartment Planned Estimated Total Resale & New Construction Condominium Absorption Déjà Vu? 1200 $700,000

736 ith demand for ownership Median Condominium Pricing which had been rented and will soon be 1000 $600,000 increasing, will it translate fully restored and offered for individual to increased conversions of 914 548 ownership. “We’ll see fewer {apartment} 800 $500,000 W rental housing to for- conversions this round because sale properties? It happened last buildings are simply worth more

600 $400,000 cycle and it’s happening again. as income properties right now,” Carbon 56, a condominium said Brian O’Connor of O’Connor

Total Units Total project in the Denny Triangle, Consulting Group. “The for-sale 400 $300,000 sold 36 of 56 units before economics simply won’t win, 265 131 325 314 365 412 converting the remaining 20 especially considering onerous 271 200 273 $200,000 216 units to apartment rentals in 2007 tenant relocation requirements, 219 30 201 to straddle the economic downturn. rising renovation costs and declarant 106 137 89 51 6 32 85 0 $100, 000 Recently, those homes reverted back to risks. Don’t count on conversions 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 condominiums and the development is delivering a flood of entry-level housing Years now sold out, according to Realogics for-sale like last cycle.” I seriously doubt Sotheby’s International Realty. Likewise, we will see many apartments convert to CONDO COMEBACK — Following a dearth of new supply after the 2008 economic recession and credit crunch, a new cycle of in-city condominiums will begin becoming available in 2015 as both homebuyer interest and median home prices rise. As illustrated, the resale market is also expected to expand significantly as new product allows the firm will bring to market 26 landmark condo, the math does not work and the move-up buyers to introduce more resale inventory to the marketplace and more renters are expected to purchase that supply. | Graph by Realogics, Inc. FROM LEFT TO RIGHT — Brian O’Connor, Trevor Bennett, Dean Jones, and Nelson Yong. homes at Fort Lawton in Discovery Park, risks are too great. A4 ADVERTISING SUPPLEMENT TO THE PUGET SOUND BUSINESS JOURNAL

Coming of Age - Anticipating the Millennial Market

hat is it about those To Bennett, the future is clear: The fence-sitting, immediate “Make events experiential, factual longer millennials wait to buy, the longer gratification, fear of they’ll be missing out on appreciation, W commitment millennials and social — then you’ll have your tax benefits and purchasing power. And anyway? They come to Seattle with the audience.” NELSON YONG | SILK he’s not worried about another market newest skills, are wooed by the best tech correction either. “Except for some global companies, and rent themselves trendy event triggering another downturn, we apartments in the city’s urban core. peers: “Millennials are hit by conspicuous Yong, who has lived in China and the have a fundamentally strong market in And there they wait. They wait to marry. consumption with the media. They see United States, suggests that millennials the region and long-term home equity has And they wait to buy. In fact, according to a a snapshot of people’s lives via Twitter be taught the benefits of real estate proven to be the most secure asset class.” recent report in the Puget Sound Business and Instagram, which looks great, but ownership. “Bring information in Yong is listening and admits he’s likely Journal and Seattle Times, the rate of may not be.” That makes them believe consumable ways that’s not scary. Show to buy before he competes with more of people ages 25 to 34, (those generally they should be wealthy, but instead they the pressure that there will be decreasing his peers. “I realize it’s time for me to stop considered millennials), who own homes come out of college with significant debt, inventory – especially in Seattle,” he said. treading water and start building equity,” in King County is the lowest it’s been since are pressured to go to grad school, and “Make events experiential, factual and he said. “I’m not alone.” the Gold Rush era. then face rising rent or home ownership social – then you’ll have your audience.” That’s a history lesson. Some 93 costs. A burgeoning percent of millennials who currently rent career and a focus on Male (2012) Female City of Seattle Population by Age Group want to and eventually plan to own a lifestyle over savings Millennials home, Wells Fargo Home Mortgage senior will have many vice president Carmen Bell said in a recent deferring their desire 85 years & over 3,788 8,153 80-84 years 3,769 6,328 interview with Mortgage Servicing News. to buy a home. 75-79 years 4,671 6,390 So it seems both consumers and industry Couple that 70-74 years 6,087 7,570 leaders should anticipate some changes with little financial 65-69 years 10,219 11,228 ahead. Lead-or-follow? literacy, fear of 60-64 years 16,174 16,676 “Millennials are the largest and most another economic 55-59 years 18,464 20,043 important consumer group on our radar,” downturn, and a 50-54 years 20,727 20,046 said Trevor Bennett, mortgage loan officer propensity against 45-49 years 21,581 18,180 and Kirkland branch manager with Caliber commitment (the Age 40-44 years 24,500 22,520 Home Loans. He is one of four industry average millennial 35-39 years 26,596 24,507 30,926 28,738 experts who met recently to discuss in Seattle is 25, 30-34 years 25-29 years 34,577 35,065 the region’s real estate market, which is and many won’t 20-24 years 26,172 27,414 flooded with this demographic. marry until their 15-19 years 14,686 15,825 Nelson Yong, a 30-year-old digital 30s) makes them a 10-14 years 11,192 11,307 marketing expert with SILK is not only tough demographic 5-9 years 12,836 13,229 is a millennial renter, but markets to that to sell to, let alone Under 5 years 16,976 15,640 group, and explains the mentality of his communicate with. 40,000 30,000 20,000 10,000 0 10,000 20,000 30,000 40,000 Population SOURCE | ACS 2012 STUDY Panel of Experts

TREVOR BENNETT DEAN JONES BRIAN O’CONNOR NELSON YONG

Trevor Bennett is a branch manager Dean Jones is the recognized market Brian R. O’Connor, MAI, CRE received Nelson Yong is a Seattle-based and loan officer for Caliber Home strategist behind many of the Pacific his MAI designation in May 1996 and marketing and branding thought Loans. Trevor and his team have been Northwest’s most respected real estate is certified as a General Real Estate leader. He leads business development assisting Puget Sound home buyers projects over the past 20 years. He Appraiser for the State of Washington. and marketing for SILK, a digital with real estate financing since 2001. was named “Marketing Director of He is also a State Certified General marketing agency with a focus on His clients include many of the region’s the Year” in 2003 by the National Appraiser for the State of Oregon and bridging the U.S. and Chinese markets. leading home builders and real estate Association of Home Builders and as a Certified General Appraiser for the He has over 10 years of online and agents. He is a board member of the an advisor to third-party developers State of Idaho. offline marketing experience managing New Home Council and consistently and lenders his firm Realogics, Inc. Brian R. O’Connor has been interactive projects for small business recognized as a top producer in the drove more than $1 billion in project inducted into the membership of The to global brands like Microsoft, greater Seattle market. Trevor and sales. He also owns and manages the Counselors of Real Estate and has XBOX, Dell, Kodak, and Lionsgate his wife live in the Madison Park region’s global real estate brokerage been awarded the CRE designation as Studios. Nelson often travels between neighborhood of Seattle with their new Realogics Sotheby’s International of November 2014. China, and the U.S. while baby daughter. Realty, a top-selling office in downtown remaining heavily involved in the Seattle. Seattle technology, investment and MLO 317162 real estate communities.

Caliber Home Loans - Kirkland Branch Realogics Sotheby’s International O’Connor Consulting Group, LLC SILK I Digital + Creative 10510 NE Northrup Way, Suite 150 Realty & Realogics, Inc. 500 Union Street, Suite 560 5808 Lake Washington Boulevard, Suite 400 Kirkland, WA 98033 2715 1st Avenue, Seattle, WA 98121 Seattle, WA 98101 Kirkland, Washington 98033 206.940.2558 206.448.5752 I [email protected] 206.622.5100 I [email protected] 206.832.7320 I [email protected] [email protected] Visit: Rsir.com & Realogics.com Visit: www.OCGP.com Visit: www.SILKDigital.com Visit: www.CaliberHomeLoans.com