Seattle & Portland 2014 investment overview EMBRACING A NEW KIND OF CLOUD
OUR SILVER LINING IS THE THRIVING TECH SECTOR JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. jll.com Dear valued clients and friends,
As we reflect on the investment landscape of 2014 there are several key themes that come to mind – sustained strength of our local economy, steady employment growth and the explosion of the Seattle tech market. Each of these factors played a critical role in helping us maintain our attractiveness in the eyes of the investment community.
Seattle was among the top major markets for job growth in 2014, with growth far ahead of the national average. We were named “Most Innovate State in the Nation” by Bloomberg and ranked as the 2nd best place to live for millennials by NerdWallet.
JLL’s own research ranked Seattle as the 2nd strongest tech market in 2014. The best part about this designation is that we beat out Boston. So, even if we didn’t beat them in football this year, we still came out on top.
Our local team also benefited from our strong market fundamentals, with the addition of several new team members and the formation of a Seattle based REIB group.
We would like to take this opportunity to thank you for allowing us to represent you in 2014 and look forward to growing our relationships into 2015 and beyond.
JLL Pacific Northwest Investment Team
Seattle & Portland 2014 Investment Overview 3
CAPITAL MARKETS TEAM Seattle Seattle Multifamily
Stuart Williams David Young Managing Director Managing Director +1 206 971 7008 +1 206 607 1719 [email protected] [email protected]
Lori Hill Corey Marx Managing Director Executive VP +1 206 971 7006 +1 206 607 1726 [email protected] [email protected]
David Otis Seth Heikkila Vice President Senior VP +1 206 971 7022 +1 206 607 1732 [email protected] [email protected]
Mark Thygesen Matt Kemper Retail Associate Vice President +1 206 607 1737 +1 206 607 1752 [email protected] [email protected] JLL Capital Markets team
Portland Bellevue NW REIB
Buzz Ellis Ann Chamberlin John Lo Managing Director Managing Director Managing Director +1 503 972 8091 +1 425 974 4022 +1 206 607 1753 [email protected] [email protected] [email protected]
Paige Morgan Zach Goodwin Senior Vice President Associate +1 503 972 8098 +1 206 607 1791 [email protected] [email protected]
WE EXPERIENCED TREMENDOUS ECONOMIC GROWTH IN 2014, WHICH PROPELLED INVESTOR INTEREST AND PUSHED PRICING LEVELS TO NEW HEIGHTS. WE ANTICIPATE A STRONG REBOUND OF SALES ACTIVITY IN THE SUBURBS IN 2015.” - Lori Hill
Seattle & Portland 2014 Investment Overview 7 JLL Capital Markets group
Leverage the expertise of a global leader
Devised from comprehensive research, pervasive market knowledge, ethical practice and superior professionalism, JLL Capital Markets team is focused on the unique requirements of our investor clients. Our in-depth local market and global investor knowledge delivers best-in- class solutions for clients—whether a sale, financing, repositioning, advisory or recapitalization execution.
With a diverse, unified platform of shared expertise through a single point-of-entry, we help you achieve your priority capital objectives:
Investment Sales Benefit from sales advisory services grounded in solid market analysis, sophisticated portfolio structuring support, complex valuation, thorough underwriting capabilities, reliable investor intelligence and practical marketing expertise.
Real Estate Investment Banking Gain direct, strategic access to global money centers and real estate investment banking professionals who manage debt and equity financing across all asset types and scenarios.
Corporate Finance and Net Lease Access an unmatched combination of expertise in finance, lease accounting, tax and transaction structuring with global access to capital that helps real estate occupiers and net lease investors make the best financial decisions to optimize transaction economics and maximize asset value.
Special Asset Services Obtain transaction execution, valuation and advisory services for non-performing and sub-performing real estate assets concerning financial institutions and special servicers.
We have a national reach but operate with a select group of experts to offer a personal transaction experience like you won’t find with other firms. Our philosophy is simple - transparency helps foster an environment of open communication, leading to an integrated effort that quickly and efficiently drives the best results.
8 JLL Real Estate Investment Banking group
Navigate capital solutions
As a trusted business advisor, our Real Estate Investment Banking team helps you navigate the capital markets to obtain the best capital solutions for your particular requirements. With billions of dollars in debt and equity transaction experience and deep insights into capital flows and trends around the world, we are well-qualified to advise on creative structures and innovative solutions. Clients seeking direct access to global capital also benefit from our on-the-ground access and contacts in every money center around the world.
We provide access to the lowest cost of capital on the best terms via a competitive auction process and creative structuring. Through our broad array of relationships and a proprietary database that contains hundreds of lending and equity sources—both domestic and foreign— we provide a link between our clients and opportunity, finding appropriate, prequalified groups of capital providers and investors and creating a competitive market to get the best possible pricing and deal structure. Because we don’t align with any specific capital source, we deliver objective advice and focus exclusively on your needs. Your project receives senior-level attention—the top leaders of our group are always involved on a day-to-day basis.
Our Real Estate Investment Banking professionals devise capitalization strategies and manage debt and equity placements across all asset types.
•• Acquisition and permanent financing
•• Bridge and mezzanine financing
•• Construction financing
•• Performing note sales
•• Recapitalization strategies
•• Asset advisory
Seattle & Portland 2014 Investment Overview 9
SEATTLE SEATTLE
Market Overview
Driven by the rapidly expanding technology industry, which in 2015, as well as the eighth best overall real estate market was ranked the second strongest in the nation in JLL’s High- and the third best for development potential. This tier one technology Office Outlook report, Seattle’s economy has hit market has seen a strong surge in venture capital funding a new all-time non-farm employment peak and boasts one and prospects remain strong for the aerospace and high-tech of the lowest unemployment rates of any major metro area; industries. Enviable demographics propel tech hiring which the local unemployment rate is 100 basis points below the perpetuates wage income growth. Seattle’s population growth national average. The most recent employment forecast from is far outpacing the national average, and it continues to the Puget Sound Economic Forecaster calls for impressive attract millennials at a faster rate than nearly every other major job growth of 2.6 percent in 2015. Current figures show U.S. city and was recently ranked the second best place to live that unemployment in December 2014 stood at 6.3 percent for this demographic by NerdWallet. With several of the West statewide and 4.6 percent in the Seattle-Bellevue-Everett Coast’s top universities located in the Puget Sound, including area. Over the past 12 months, a total of 82,900 jobs have the University of Washington, companies in the region have been added in Washington, mostly in the professional and excellent access to skilled workers. An impressive list of local business services (this sector includes many jobs related to companies have taken advantage of the talent pool, including high-tech) industries, construction, retail trade, education and Amazon, Microsoft, Boeing, Nordstrom, Starbucks, Costco, health services, and government. A recent report released by Russell Investments, the Bill & Melinda Gates Foundation, the the Brookings Institute found that Seattle is one of only three Fred Hutchinson Cancer Research Center, and Weyerhaeuser. major U.S. cities where the income inequality gap is shrinking. In addition, many Bay Area companies are expanding in the Furthermore, for the second year in a row, Washington topped region, including Google, Facebook, Twitter, and Salesforce. MoneyRates.com’s list of “Best States to Make a Living.” While office-using technology and life sciences companies have been the primary recipients of most of the venture The Puget Sound is a top U.S. gateway market and one of capital and news headlines in the region, a rising tide lifts all the most economically vibrant metropolitan areas in the boats, and demand and pricing has been increasing across all nation boasting a diversified economy with strong tech sector property types. Despite this trend, Seattle remains relatively drivers. PWC’s Emerging Trends in Real Estate ranked Seattle affordable to live and conduct business, compared to other as the fourth best market in terms of investment potential tier one markets. Seattle
OFFICE INDUSTRIAL RETAIL MULTIFAMILY
2014 Seattle office sales ($10M+) overview
Increased demand fuels record sales prices and robust volume
2014 was the fifth consecutive year that more than $1 billion in Demand kept building throughout the year, as the fourth office assets traded hands in Puget Sound. In total, the market quarter saw the highest sales volume, with $828.8 million in saw 40 transactions over $10 million close, which makes 2014 assets trading hands in the region. The quarter was highlighted the most active year for office investment sales since 2007. by the sale of 1111 Third and Second & Spring. Ivanhoè However, the $1.8 billion total volume of these deals represents Cambridge and Callahan Capital Properties acquired the a decrease of nearly 38 percent from the previous year. While aforementioned Seattle CBD buildings from Walton Street volume was less impressive than 2013, average pricing on a Capital for $280.0 million, or approximately $396 per square per-square-foot basis increased slightly to $318. In addition, foot. While previous quarters illustrated increased demand Puget Sound area cap rates averaged 6.2 percent, up 10 basis for non-core product, five buildings in the Seattle CBD sold in points from last year. the fourth quarter. Brickman Associates purchased the Pacific Building from The Rockpoint Group and Meriwether for $50.4 The year began quickly, as the first sale over $100M occurred million, or $391 per square foot. The property was previously in January; KBS purchased The Plaza Buildings from Beacon acquired for $35.5 million in March 2013. This represents an Capital Partners for $186.5 million, or $404 per square foot. The increase of 41.9 percent in 19 months. two Bellevue CBD buildings, totaling 461,673 square feet, were the first Class A assets to trade hands in the submarket since As the market moves into 2015, strong landlord sentiment City Center Plaza in 2012. Perhaps more notably in the first and expectations for robust demand continues to fuel quarter, Kilroy Realty purchased 401 Terry, a Class A building investor appetite for Seattle’s office assets. Leasing market fully leased to Institute for Systems Biology, from Vulcan for fundamentals will continue to improve with strong rent growth $106.1 million, or $755 per square foot. This pricing set a new anticipated in the short and mid-term. Investor interest in the per-square-foot market record, surpassing the $745 that GLL Bellevue CBD remains palpable, and while development activity Real Estate Partners paid for 202 Westlake just six has been substantial, core asset sales have been rare in recent months earlier. years. This situation will change soon, as several properties in the submarket will sell with the sale of The Summit I & II being The second and third quarters of 2014 were notable as one of the largest deals done in Puget Sound in 2015. institutional investment sales activity occurred almost exclusively in suburban submarkets. While none of the Seattle has firmly cemented its place as a tier one gateway transactions that occurred during this period made headlines market for institutional investors and 2015 looks to be a banner like the 401 Terry sale, they offered great evidence of investors’ year for office investment sales. There is an abundance of growing interest in suburban and non-core product. American capital seeking real estate assets and Seattle’s high profile core Realty Advisors purchased Waterfront Place On Yarrow Bay properties fit the bill. While REITs and domestic pension funds from Talon Private Capital for $31.5 million, or $604 per square comprised the majority of buyers in 2014, foreign investors foot. Less than five years earlier, in October 2010, the property have taken notice of Seattle and are increasingly on bid lists for traded for $21.5 million, or $413 per square foot. That equates major assets. We anticipate total office sales volume will exceed to an increase in value of 46.2 percent for the Class A Kirkland $2 billion and the market record for pricing per square foot will asset, which traded at a cap rate of 4.9 percent. fall for the fourth consecutive year.
Seattle & Portland 2014 Investment Overview 15 Seattle office leasing
Robust leasing activity has vacancy trending towards 10 percent and development activity heating up
Bloomberg named Washington the “most in years - vacancy dropping to levels not seen since currently under construction, with just 26.2 percent innovative state in the nation,” based on its large 2008, rents escalating and demand far exceeding preleased. Houston, Dallas and New York are the technology workforce, high productivity rates annual averages - development activity is only markets with more space currently being built. and vast array of public technology companies. ramping up. A talented workforce and quality real estate will Seattle’s talented workforce, collaborative sustain this demand. startup environment and quality real estate has Each of the four Puget Sound office clusters made the city one of the most desired locations - Downtown Seattle, Eastside, Northend and Competition for tenants looking to migrate to in the country for high-tech companies of all Southend - experienced year-over-year rental rate the market, or maneuver within it, is intense and sizes. Six of the ten largest office tenants in the growth in 2014, with the most significant increases the demand for creative space is intensifying. As metro area are in the high-tech industry. Several occurring in buildings with new ownership, high market fundamentals continue to strengthen, major tech tenants have recently entered the occupancy, or premium view space. Seattle CBD landlords will need to position their buildings with market, including Alibaba, Apple, Oracle, HP, and Class A rents currently stand at $36.70 per square amenities and features that tenants desire. Tenants Dropbox. Additionally, companies such as Amazon, foot, up 6.0 percent year-over-year. Average Class need a rich amenity set, including an updated Google, Tableau, and Zillow, which already have a A asking rents in the Bellevue CBD stand at $38.96 lobby, athletic facility, conference center, bike major local presence, have been expanding per square foot, which represents an increase of storage, deck or other outdoor spaces, and diverse their footprints. 4.3 percent from last year. Seattle and Bellevue retail mix. Owners increasingly want to make sure have significant pent up demand, as there are that their retail offerings appeal to millennials. The Seattle office market finished 2014 with 2.1 currently more than 180 companies in the market million square feet of space taken down, which is representing as much as 8.0 million square feet Vacancy declined for the fifth consecutive year 42.0 percent higher than the 10-year average. This of potential activity. Tenants are finding it tough and is trending toward 10.0 percent in 2015, the robust demand, driven primarily by the high-tech to migrate to the downtown cores, particularly tipping point where the market has historically industry, accounted for approximately 45.0 percent tenants seeking Class A space. Companies such as experienced substantial rent growth. Job growth of all regional office leasing activity in 2014, has Kemper Development, Trammell Crow, Schnitzer should remain strong in the near future, as major pushed vacancy to 10.7 percent, which is 490 basis West, Daniels Real Estate, and Touchstone have all technology tenants continue growing in the points below the national average and places broken ground on significant downtown projects, market, and construction projects will continue to Seattle in the position of having the 5th lowest with the intention of capturing the pent-up be kicked off. Those owners that have mastered vacancy rate in the country; behind New York, demand. Seattle is currently one of the most active how to position and market their space as creative Portland, San Francisco and Salt Lake City. With markets in the nation for office development, with are having, and will continue to have, the most market fundamentals as strong as they have been more than 5.1 million square feet of office space success in capturing demand.
THE SEATTLE OFFICE MARKET FINISHED 2014 WITH 2.1 MILLION SQUARE FEET OF SPACE TAKEN DOWN, WHICH IS 42.0 PERCENT HIGHER THAN THE 10-YEAR AVERAGE
16 Seattle office sales & statistics
Office market statistics
Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF
Downtown Seattle 47,854,435 10.4% $33.90 988,037
Eastside 24,905,170 8.6% $33.41 713,051
Northend 7,551,981 12.3% $27.77 311,095
Southend 8,133,629 17.8% $23.46 81,937
2014 Total Market 88,445,215 10.7% $31.60 2,094,120
2013 Total Market 88,460,367 12.5% $30.40 2,585,636
Sales matrix (over $10 Million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 55 119 19 6 15 25 38 39 40
Price/SF Highest $574 $531 $425 $397 $548 $557 $642 $745 $755
CAP Rate Average 6.1% 5.2% 6.2% 9.5% 7.2% 6.8% 5.5% 6.1% 6.2%
Sales Volume $2.7B $9.6B $0.4B $0.37B $1.2B $1.7B $4.9B $2.8B $1.8B
Office market statistics include Class A and B office buildings over 30,000 sf, single-tenant and multi-tenant.
Seattle & Portland 2014 Investment Overview 17 Seattle office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Portfolio Sale 11/19/14 572,500 $254,123,000 N/A Ivanhoè Cambridge / •• 65% leased at time of sale Callahan Capital Properties 1111 Third 1980 / 2013 $444 •• Two building portfolio sale which included Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF 1111 3rd Ave Walton Street Capital Second & Spring Seattle, WA Downtown Seattle 47,854,435 10.4% $33.90 988,037
Eastside 24,905,170 8.6% $33.41 713,051 Second & Spring 11/19/14 135,000 $25,877,000 N/A Ivanhoè Cambridge / •• 90% leased at time of sale 1100 2nd Ave Northend 7,551,981 12.3% $27.77 311,095 1906 / 1990 $192 Callahan Capital Properties •• Two building portfolio sale which included Seattle, WA Walton Street Capital 1111 Third Southend 8,133,629 17.8% $23.46 81,937
2014 Total Market 88,445,215 10.7% $31.60 2,094,120 Portfolio Sale 1/3/14 324,300 $131,006,000 5.4% KBS •• 84% leased at time of sale 2013 Total Market 88,460,367 12.5% $30.40 2,585,636 Plaza Center 1978 / 2007 $404 Beacon Capital Partners •• Two building portfolio sale which included 10900 NE 8th St US Bank Plaza Bellevue, WA
US Bank Plaza 1/3/14 137,373 $55,494,000 5.4% KBS •• 75% leased at time of sale 10800 NE 8th St 1978 / 2007 $404 Beacon Capital Partners •• Two building portfolio sale which included Seattle, WA Plaza Center
Bellefield Office Park 11/7/14 507,000 $120,300,000 8.0% Lionstone Group / Talon •• 87% leased at time of sale 1150-1800 114th Ave SE, 1972-1997 $237 Walton Street Capital •• Fifteen building office campus 11201 SE 8th St Bellevue, WA
401 Terry 3/13/14 140,605 $106,125,000 6.0% Kilroy •• 100% leased at time of sale 401 Terry Ave N 2003 $755 Vulcan •• Heavily built out with lab space Seattle, WA •• Institute for Systems Biology is single tenant - NNN lease expires January 2021
720 Olive 6/30/14 300,710 $101,000,000 5.5% Talon / Prudential •• 86% leased at time of sale 720 Olive Way 1981 / 2005 $336 Hines •• Building was previously acquired for $83.7M Seattle, WA in January 2006
18 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Sunset Corporate 12/18/14 307,176 $90,691,000 6.0% New York Life •• 84% leased at time of sale Campus 1992 / 1998 $295 Prudential •• Two building office complex 13810-13920 SE Eastgate Way Bellevue, WA
World Trade Center East 1/24/14 186,117 $74,500,000 5.0% LaSalle •• 90% leased at time of sale 2211 Elliott Ave 1999 $400 EOP / TIAA-CREF Seattle, WA
Stone 34 12/19/14 120,777 $70,078,000 5.2% Unico / Laird Norton •• 92% leased at time of sale 3400 Stone Way N 2014 $580 Company •• Brooks Sports leased all of the office space Seattle, WA Skanska and a portion of the retail •• Long term ground lease
Triton Towers 4/29/14 407,107 $59,960,000 8.1% Hines / Oaktree Capital •• 90% leased at time of sale 555-700 S Renton Village 1980-1986 $147 Management •• Three building office park Pl, 707 S Grady Way HAL Real Estate Investments Renton, WA •• Boeing occupies approximately 55% of the campus
Merrill Place 1/23/14 179,814 $57,700,000 5.2% Hudson Pacific •• 93% leased at time of sale 411 1st Ave S 1905 / 1998 $321 Nitze-Stagen / Mile Rock •• Off-market transaction Seattle, WA Capital •• Development potential for 160,000 SF
PEMCO Building 12/31/14 168,260 $51,750,000 N/A Unico •• 100% leased at time of sale 325 Eastlake Ave E 1981 $308 PEMCO Insurance •• PEMCO Insurance leases the entire building Seattle, WA and will vacate in late 2015
Pacific Building 10/31/14 129,065 $50,400,000 5.8% Brickman •• 91% leased at time of sale 720 3rd Ave 1971 $391 Rockpoint Group / Meriwether •• Property was acquired for $35.5M in March Seattle, WA 2013
Corporate Campus East 1/14/14 154,195 $43,400,000 6.2% TA Realty •• 91% leased at time of sale 3001-3015 112th Ave NE 1986 $281 Cornerstone RE Advisors / •• Four building office park Bellevue, WA 98004 Teachers Retirement System of Illinois
Seattle & Portland 2014 Investment Overview 19 Seattle office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
500 Yale 10/16/14 73,631 $35,995,000 5.9% Stars •• 96% leased at time of sale 500 Yale Ave N 2009 $489 LBA Realty •• Tenants are WeWork and New York Life Seattle, WA Insurance Company
Canyon Park Heights 7/22/14 143,758 $32,850,000 6.8% Nicola Crosby •• 96% leased at time of sale
Office Center 2000 $229 BlackRock 21540 30th Dr SE Bothell, WA
Waterfront Place On 8/19/14 52,091 $31,455,000 4.9% American Realty Advisors •• 100% leased at time of sale Yarrow Bay 2008 $604 Talon •• Building was acquired for $21.5M in October 5207-5209 Lake 2010 Washington Blvd N Kirkland, WA
2200 First (Former Zulily 1/2/14 106,515 $27,675,000 N/A Urban Renaissance Group •• 100% leased at time of sale
Building) 1909 / 2014 $260 Felton Properties •• Zulily leased the entire building and vacated 2200 1st Ave S in June 2014 Seattle, WA
Three Tree Medical Arts 12/1/14 60,191 $22,675,000 7.1% Healthcare Realty Trust •• 100% leased at time of sale
Building 1992 $377 Three Tree Medical Arts Bldg •• Ground lease 16529 Sylvester Rd SW LLC Burien, WA
419 Occidental (Former 3/27/14 85,752 $17,549,000 6.4% Manchester Capital •• 98% leased at time of sale FX McRory Building) 1906 / 1987 $205 Management •• Class C office building 419 Occidental Ave S Intracorp Seattle, WA
20 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Portfolio Sale 11/12/14 72,495 $16,498,000 N/A Unico •• 97% leased at time of sale Grand Central Building 1900 $228 Goodman Real Estate •• Three building portfolio sale which included 208-222 1st Ave S Buttnick and City Loan Buildings Seattle, WA •• Previously acquired for $11.5M in October 2013 •• Will convert to multifamily
Buttnick and City Loan 11/12/14 34,336 $10,097,000 N/A Unico •• 100% leased at time of sale
Buildings 1930 $294 Goodman Real Estate •• Three building portfolio sale which included 206 1st Ave S Grand Central Building Seattle, WA •• Will convert to multifamily
Alderwood Business 1/30/2014 138,499 $16,400,000 9.8% Sterling Realty •• 86% leased at time of sale Campus 1985-1996 $118 Joe Vierra •• Six building business park 19101-19221 36th Ave W Lynnwood, WA
Redmond Technology 6/20/2014 100,978 $15,925,000 N/A Menlo Equities •• 11% leased at time of sale Center 2008 $158 W3 Partners •• Off-market transaction 18300 Redmond Way Redmond, WA
Highlands Campus Tech 7/1/2014 74,685 $15,472,000 7.0% Investcorp •• 96% leased at time of sale
Centre 1999 $207 LBA Realty •• Three building campus included a flex and 21520 30th Dr SE manufacturing building Bothell, WA
Gateway Corporate 10/30/2014 62,167 $15,200,000 N/A BECU •• 94% leased at time of sale
Center - Building 7 1987 $245 Deutsche Asset & Wealth •• BECU is headquartered next door and 12720 Gateway Dr Management acquired the property to support its long- Tukwila, WA term growth
Seattle & Portland 2014 Investment Overview 21 Seattle office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
PCL Building 12/19/2014 50,050 $15,000,000 N/A Donald Burton / Donald •• 40% leased at time of sale 15405 SE 37th St 1999 $300 Zender •• Purchased for occupancy - Evergreen Home Bellevue, WA Jack Martin / Nick Westlund Loans will take a significant amount of space and lease out the rest
Star Plaza 2/12/14 25,241 $15,000,000 N/A First Congregational Church •• 85% leased at time of sale 11061 NE 2nd St 1978 $594 of Bellevue •• Purchased for occupancy by church Bellevue, WA David Keyes and Barry Mattaini
Heritage Corporate 12/19/2014 52,376 $14,500,000 N/A Par 5 Investments •• Vacant at time of sale Center 2000 $277 Trident Investments 13427 NE 16th St Bellevue, WA
Seattle Metropolitan 12/23/2014 36,131 $14,300,000 N/A Martin Smith / Urban Visions •• 100% leased at time of sale Credit Union 1907 / 1979 $396 Seattle Metropolitan Credit •• Bought for redevelopment 801 3rd Ave Union Seattle, WA
Portfolio Sale 3/7/2014 69,451 $13,750,000 7.4% Hannay Realty Advisors •• 86% leased at time of sale Broderick Building 1889 / 1986 $198 Principal Financial Group •• Two building portfolio sale - MiKen Building 615 2nd Ave •• Historic building Seattle, WA
MiKen Building 3/7/2014 46,859 $9,300,000 7.4% Hannay Realty Advisors •• 100% leased at time of sale 1417 4th Ave 1908 / 1999 $198 Principal Financial Group •• Two building portfolio sale - Broderick Seattle, WA Building •• Historic building
Plaza 305 6/30/2014 22,404 $13,500,000 N/A Fana Group •• 92% leased at time of sale 305 108th Ave NE 1979 / 2007 $603 Goldsmith Land Investments •• Property was acquired for redevelopment Bellevue, WA
22 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Market Square 8/27/2014 45,247 $12,400,000 5.5% Stream Real Estate •• 100% leased at time of sale 1415 Western Ave 1908 / 1998 $274 Goodman Real Estate •• In-place rents were below market Seattle, WA
Pioneer Building 1/9/2014 72,000 $12,344,000 5.4% Sun Capital Corp. •• 100% leased at time of sale 606 1st Ave 1892 / 1974 $171 Dorothy & Richard Sikora •• Class C office building Seattle, WA
Kirkland Gateway 7/18/2014 29,6789 $12,000,000 6.0% Columbia Pacific Advisors •• 100% leased at time of sale 11250 NE Kirkland Way 2000 $404 Davidson, Czeisler & Kilpatric, Kirkland, WA P.S.
Eastridge Corporate 5/7/2014 44,670 $12,000,000 N/A Bellevue School District •• 77% leased at time of sale
Center - Building C 1984 / 2004 $269 G. Wilhelm Trust •• Buyer acquired the property with plans to 12011 NE 1st St occupy spaces as they become available Bellevue, WA
Transpacific Trade Center 6/16/2014 68,355 $11,900,000 N/A Puyallup Tribe of Indians •• 85% leased at time of sale 3700 Pacific Hwy E 1987 / 1997 $162 Milgard Family Foundation •• Sale included a land parcel of 1.08 acres Fife, WA
Sound Mind & Body 3/31/2014 34,076 $11,600,000 N/A First Western Development •• 100% leased at time of sale to Sound Mind & 437 North 34th St Body Gym 1997 $340 Services Seattle, WA SMB of Seattle LLC •• Building will be renovated for Tableau Software •• Ground lease
Overlake Office Center 10/8/2014 48,568 $11,200,000 5.8% NIU Enterprises •• 100% leased at time of sale 15446 NE Bel Red Rd 1980 / 1990 $231 Kauri Investments Redmond, WA
Seattle & Portland 2014 Investment Overview 23 Seattle office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Wards Cove 6/30/2014 23,120 $10,224,000 6.0% Ali Bundrant •• 100% leased at time of sale 88 E Hamlin St 1917 / 2008 $442 Wards Cove Company •• Three property sale included a marina Seattle, WA
First West Building 7/30/2014 64,926 $10,200,000 N/A Martin Selig Real Estate •• 48% leased at time of sale 200 1st Ave W 1971 / 1990 $157 Kauri Investments Seattle, WA
Downtown Public Health 12/19/2014 24,000 $10,078,000 4.7% St Bride’s Managers •• 100% leased at time of sale Center 1960 / 1981 $420 Nicola Crosby •• Downtown Public Health Center leases 2124 4th Ave entire building Seattle, WA
24
Seattle
OFFICE INDUSTRIAL RETAIL MULTIFAMILY
2014 Seattle industrial sales ($10M+) overview
Sales volume down as owners opt to hold onto high preforming assets
The trade, transportation and utility sector, as well as the The decline in sales volume is not due to waning interest, construction industry, have been two of the main drivers of job but rather a lack of available product. In fact, 57.6 percent of growth in Puget Sound within the past year. With a flourishing respondents to PWC’s Emerging Trends in Real Estate 2015 housing market, an abundance of large infrastructure projects survey recommended buying industrial property in Seattle. and new office and industrial development, the near term This makes Seattle the 8th most desirable industrial market in outlook for construction looks positive. The aerospace, food/ the nation. Additionally, 30.3 percent of respondents placed beverage and logistics industries have helped drive growth a “hold” rating on industrial product, while the remaining in the Ports of Seattle and Tacoma. These industries have 12.1 percent minority recommended selling. Investment remained strong economic drivers, in regards to imports market activity remains primarily concentrated in off-market and exports in the region and are helping to drive the local deals and buyers positioning for land acquisitions for industrial market. future development. Owners remain reluctant to take their properties to market as they anticipate the peaking cycle. Sales volume of Puget Sound industrial properties decreased Institutional investors on the other hand have taken notice of by 47.1 percent year-over-year, with $411.3 million in assets the strong market fundamentals over the last two years and trading hands in 2014. While total volume was down, the have been aggressive in acquiring both existing product, frequency of trades remained high, as 24 properties were typically through unsolicited offers, as well as land in order sold. Furthermore, average pricing on a per-square-foot basis to develop new product in the near-mid-term. These forward remained identical, at $91, and cap rates stayed relatively commitments for product clearly demonstrate pent up flat at 6.4 percent. The cap rate compression in the market demand for well-located industrial assets and this type of pre- has been significant, as it’s currently 280 basis points below commitment buying has only returned to the Puget Sound the high of 9.2 percent in 2009. 2014 simply lacked the market in recent years. With the local economy continuing to jaw-dropping $100-million-plus portfolio sales that had been strengthen, the outlook for the Puget Sound industrial market seen in previous years. The largest deal of the year occurred is positive. Moving into 2015, we expect the industrial market in November, when CenterPoint Properties purchased the to continue to perform well, both in terms of demand from two building industrial park located at 8801 E Marginal Way tenants and interest from institutional investors. S from Washington Real Estate for $31.9 million. 100 percent leased at the time of sale, the buildings traded at a cap rate of just 5.45 percent. Buyers in the market were fairly diverse this year, as the aforementioned CenterPoint Properties and DCT Industrial were the only investors on the purchasing side of multiple transactions.
Seattle & Portland 2014 Investment Overview 29 Seattle industrial leasing
Strong tenant demand and increased development made 2014 a memorable year
2014 marked the strongest year for the Puget Sound industrial market Rental rates have been on the rise during the past year, increasing by in recent history. The dominant story throughout the year was “new about 20 percent since the end of 2013. During the recession, rental development,” as over two million square feet of new product hit the rates fell dramatically, as landlords scrambled to attract and retain as market and an additional 3.7 million square feet of development is many tenants as possible. As the local and national economies began currently under way. Just about all of the new construction was delivered to strengthen and the commercial real estate market in Puget Sound in the Southend markets, which include Seattle, the Kent Valley and gained momentum, tenant activity began to heat up in 2014. As a result, Pierce County. The biggest market news to hit the Kent Valley in many landlords were able to push rents higher and be more selective in their years was the announcement by Amazon that it will lease over 1.1 million choice of tenants. Average monthly blended rental rates in the Southend square feet of industrial space at the Stryker Business Center in Kent. The are now hitting $0.49 per square foot, which is just below the previous internet sales giant started occupying Building 1B in the second quarter market peak of $0.52 per square foot set in Q3 2008, further illustrating and will occupy the build-to-suit on Stryker Phase II in the summer of market momentum. 2015. The Northend and Eastside markets have seen performance vary widely quarter to quarter, but are generally heading in the right Tenant activity will remain strong for the foreseeable future, especially in direction with both markets having a vacancy rate below 7 percent and the Southend markets. New supply will begin to match demand towards an increasing number of construction projects in the pipeline. Boeing’s the end of 2015, at which point rental rates will begin to level off. With 2 announcement at the beginning of the year to keep production of million square feet of development delivered in 2014, and a significant the 777X in the region has provided a strong boost for the aerospace amount of new development currently in the pipeline, the market will industry in and around Everett. This is translating to increased demand begin to shift towards balanced conditions between landlords and and increased rental rates in that submarket. tenants. Warehouse and distribution facilities will see the majority of activity in the coming months, as the vast majority of tenants currently in Overall, tenant demand in the region has been very strong in 2014. the market are looking for that type of space. Almost 5 million square feet of net positive absorption was posted during the year with a number of large deals still in the pipeline. Market conditions remain landlord favorable in a vast majority of submarkets for serviceable industrial product, with those landlords controlling state- of-the-art-product, firmly in the driver’s seat. Concessions have been 2014 MARKED THE STRONGEST steadily decreasing with less free rent offered and other concessions also being pulled back. YEAR FOR THE PUGET SOUND INDUSTRIAL MARKET IN RECENT HISTORY.
30 Seattle industrial sales & statistics
Industrial market statistics
Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF
Seattle 47,006,969 2.4% $0.84 633,136
Eastside 31,970,652 6.6% $1.01 546,753
Northend 27,657,595 5.3% $0.70 607,154
Kent Valley 108,395,022 3.5% $0.56 2,520,050
Pierce County 58,163,329 6.0% $0.48 629,192
2014 Total Market 273,193,567 4.4% $0.69 4,936,285
2013 Total Market 256,708,467 5.5% $0.59 4,318,802
Industrial market statistics include industrial and flex inventory over 10,000 sf, single-tenant, multi-tenant and owner-occupied.
Sales matrix (over $10 million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 14 35 19 9 11 14 20 25 24
Price/SF Highest (ind) $140 $164 $151 $100 $115 $187 $125 $288 $198
CAP Rate Average 6.8% 5.9% 6.6% 9.2% 7.4% 7.2% 6.5% 6.3% 6.4%
Price/SF Highest (flex) $206 $237 $199 $207 $156 $257 $180 $190 $122
Seattle & Portland 2014 Investment Overview 31 Port of Seattle and Port of Tacoma historical total TEU’s
2014 TEU container volume Seattle* Tacoma* * In 2014 Port of Seattle and Port of Tacoma began combining their statistics
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000 Total TEU’s Total
1,500,000
1,000,000
500,000
0 2007 2008 2009 2010 2011 2012 2013 2014*
2007 2008 2009 2010 2011 2012 2013 2014
Seattle 1,973,504 1,704,492 1,584,596 2,139,577 2,139,577 2,033,535 1,574,994 *
Tacoma 1,924,929 1,861,358 1,545,853 1,455,466 1,488,799 1,534,476 1,890,000 *
Total TEU’s 3,898,433 3,565,850 3,130,449 3,595,043 3,628,376 3,568,011 3,464,994 3,400,000
32 Seattle industrial-flex sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
IAA - Buildings A and B 11/26/14 461,980 $31,900,000 5.5% CenterPoint Properties •• 100% leased at time of sale 8801 E Marginal Way S 1930 $69 Washington Real Estate •• Two building industrial park Tukwila, WA Holdings
The Park at Woodinville 10/24/14 49,446 $29,690,000 6.3% KBS Realty Advisors •• 96% leased at time of sale to 13 14201-14269 NE 200th St tenants 1982 $124 Colony Realty Partners Woodinville, WA •• Five building industrial park
Rainier Park of Industry - 3/24/14 358,673 $29,300,000 N/A American Realty Advisors •• Vacant at time of sale
Building 5 2005 $82 LaSalle / Legg Mason Real 13515 48th St E Estate Sumner, WA
Frederickson Industrial Center 9/11/14 372,400 $27,900,000 N/A James Hardie Building •• 100% leased at time of sale 4615 192nd St E 1985 / 2001 $75 Products •• Bought for occupancy Tacoma, WA Key Development Investment •• Six building industrial park LLC
Puyallup Industrial Park 5/31/14 235,945 $22,900,000 6.8% DCT Industrial •• 90% leased at time of sale 402-418 Valley Ave NW 1998 $97 Haub Revocable Trust •• Three building business park Puyallup, WA
Genie Industries - Building 1 3/27/14 198,094 $21,850,000 8.5% LBA Realty •• 100% leased at time of sale & 3 1981 / 1995 $110 Everest Properties / Evergreen •• Two building park with a land parcel 18340-18460 NE 76th St Realty Group included Redmond, WA
Kent 167 Distribution Center 10/27/14 361,120 $19,300,000 N/A KTR Capital Partners •• 9% leased at time of sale 27232 72nd Ave S 1985 $53 K & H Sutter Company Kent, WA
Highlands Campus Tech 7/1/14 125,987 $18,235,000 7.0% Investcorp •• 95% leased at time of sale Centre 1999 $145 LBA Realty •• Three building campus included an 21222-21312 30th Dr SE office building Bothell, WA
Seattle & Portland 2014 Investment Overview 33 Seattle industrial-flex sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Seaway Business Center 12/23/14 148,621 $17,537,000 6.6% DCT Industrial •• 100% leased at time of sale 1200-1310 Industry St 2007 $118 Invesco •• Two building portfolio sale Everett, WA
24th St Business Park North 12/15/14 240,000 $17,500,000 7.2% Harsch Investment •• 97% leased at time of sale 13701 24th St E 2003 $73 Properties •• 13 buildings Sumner, WA Peterson Brothers, Inc.
Lakewood Corporate Center - 7/25/14 205,000 $17,500,000 6.0% TIAA-CREF •• 100% leased at time of sale
Phase I - Building A 2006 $85 BlackRock Granite Property 11101 S Tacoma Way Fund, Inc. Lakewood, WA
Puget Sound Freight Lines 11/12/14 157,515 $16,400,000 5.5% CenterPoint Properties •• 100% leased at time of sale 3480 W Marginal Way S 1965 $104 First Industrial Realty Trust Seattle, WA
Lincoln Distribution Center 11/13/14 169,350 $14,405,000 5.0% Clarion Partners •• 53% leased at time of sale 5808-5834 196th St 1982 $85 Bertch Company •• Two buildings Kent, WA
Crown Distribution 11/24/14 101,978 $14,250,000 N/A Spirit Realty Capital •• 100% leased at time of sale 17117 59th Ave NE 2002 $140 1st Beverage Capital •• Sale leaseback Arlington, WA
White River Corporate Park 5/12/14 167,023 $14,050,000 7.0% Stockbridge •• 97% leased at time of sale 2302 W Valley Hwy N 1991 $84 Morgan Stanley •• Two buildings Auburn, WA
Holgate Center 7/16/14 110,600 $13,007,000 7.3% Mapleton / RDS Real Estate •• 100% leased at time of sale 1737 Airport Way S LLC 1951 $118 •• Two building park included a retail Seattle, WA Kyubei Ohki, Inc. building
34 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Hogland Transfer Company 9/17/14 111,000 $12,200,000 6.0% Prudential •• 100% leased at time of sale Building 1999 $110 Fidelity Real Estate Group 6605-6615 Hardeson Rd Everett, WA
Park In Puyallup 12/5/14 108,644 $11,600,000 6.1% Gramercy Property Trust •• 100% leased at time of sale 507 N Levee Rd 1997 $107 LBA Realty Puyallup, WA
NW Waste Industries Building 9/29/14 53,550 $10,625,000 5.6% Prologis •• 100% leased at time of sale with 6.5 54 S Dawson St years remaining on the lease 1950 $198 Emerald Services, Inc. Seattle, WA
Intel Business Park 11/7/14 370,000 $10,368,000 N/A Fortress Investment Group •• Part of a multi-property sale 2700-2800 Center Dr that included Telecom Hotel/ 1996 $28 Intel Corporation DuPont, WA Data Hosting properties totaling $41,000,000. Information presented only reflects the sale of the manufacturing asset.
Des Moines Logistic Center 5/30/14 136,584 $10,328,000 7.2% TPG Capital •• Part of 61 property portfolio sale - 19216-19320 Des Moines $375M total 1993 $28 Prologis Memorial Dr S SeaTac, WA
McCallum Envelope 7/24/14 79,650 $10,250,000 N/A Suzie Burke •• 100% leased to Direct Connect 801 NW 48th St Group on a short term lease while 1975 $129 McCallum Print Group Seattle, WA DCG’s new building is completed •• Acquired as a vacant building and has since been leased to Fremont Brewing
North Creek - Building 7 7/30/14 83,360 $10,200,000 N/A Rosen-Harbottle Commercial •• 22% leased at time of sale 11720 N Creek Parkway N 1999 $122 Real Estate Bothell, WA Eurofins US
Topics Entertainment Building 10/3/14 115,176 $10,000,000 5.5% Terreno Realty Corporation •• 100% leased at time of sale 3401-3405 Lind Ave SW 1984 $87 Greg D. James Renton, WA
Seattle & Portland 2014 Investment Overview 35
Seattle
OFFICE INDUSTRIAL RETAIL MULTIFAMILY 2014 Seattle retail sales ($10M+) overview
Record pricing is achieved as the market sees the most trades in any single year since 2005
Retail investment sales volume decreased by 20.5 percent until Madison Marquette acquired Pacific Place in July. The year-over-year, with $837.0 million in assets trading hands. Washington D.C. developer paid $271.0 million, a market 2013 featured five sales of over $100 million, and while record $849 per square foot, to Pine Street Group and 2014 could not keep up with that pace, the total number Bentall Kennedy to own the 319,347 square foot property of trades was the highest it’s been since 2005, as 24 major located at 600 Pine Street. Not only did the five-story mall sales ($10M+) occurred this year. Additionally, the average set a regional record for pricing and set the low benchmark pricing per square foot of retail sales in 2014 increased by for cap rate in 2014, at just 4.5 percent, but it is the biggest an astonishing 72.6 percent, to $355. Overall average cap retail transaction since the $297.0 million sale of Southcenter rates ended the year at 6.0 percent, down 40 basis points Mall in 2012. year-over-year. This cap rate compression is significant when you consider that 2014 represents the fifth consecutive year As evidenced by record pricing and the high frequency of of the downward trend, from a high of 8.8 percent in 2009. trades, demand for the Puget Sound retail market remains higher than ever. While transactions of high profile malls 2014 got off to a quick start, as Clarion Partners purchased were primarily responsible for the sales volume in 2013, Meridian Center from Miller Capital Advisory and CalPERS 2014 saw the sale of several shopping centers drive volume. in January for $113.2 million, or $724 per square foot. With the current imbalance between supply and demand for The downtown Seattle property, home to tenants such this type of product, as well as a lack of available value-add as Niketown, Regal Meridian 16 and GameWorks, was 92 properties, competition amongst investors for prime retail percent leased at the time of sale, and sold at a cap rate opportunities should be fierce in 2015. of 5.6 percent. That remained the largest sale of the year,
THE AVERAGE PRICING PER SQUARE FOOT OF RETAIL SALES IN 2014 INCREASED BY AN ASTONISHING 72.6 PERCENT TO $355
38 Seattle retail leasing
Strong demand further strengthens retail market
Employment in Seattle has outpaced the national average impressively, this represents a decline of 170 basis points since 2010. The presence of Microsoft, Google, and in the last three years. Overall asking rental rates increased especially Amazon has made Seattle an international 2.0 percent year-over-year. Vacancy is lowest in Downtown center of technology. Above-average population growth Seattle, at a miniscule 2.7 percent. Additionally, rental rates and employment growth in high-paying tech industries is increased an impressive 7.9 percent in Downtown Seattle, boosting retail sales and, consequently, demand. The recent to an average of $23.86 per square foot. 2014 was notable residential construction boom, concentrated in the market’s in that every cluster in the Puget Sound market - Downtown urban core, should boost retail sales downtown. In fact, Seattle, Eastside, Northend, Southend and Tacoma - buying power (population multiplied by income) is expected experienced significant positive net absorption. In fact, to rise at least 20 percent by 2018 – a factor that could Tacoma, which has struggled with elevated vacancy in recent support more than 1.5 million square feet of new retail. The years, saw more than 520,000 square feet of space get taken fact that scheduled deliveries are only half that figure reveal down. The Eastside retail market had another strong year, as that Seattle is relatively under-retailed. The glut of well-paid, nearly 240,000 square feet of space was absorbed, dropping younger residents in the market is resulting in an increase in overall vacancy to 3.9 percent. Demand has been strongest in demand for groceries and luxury goods. Construction has the Shopping Center sector, which accounted for more than started to come back, but this process has been a gradual 53 percent of metro area net absorption. Construction activity one. The recently-built Grand Ridge Plaza at the Issaquah remains muted with approximately 352,000 square feet Highlands has started opening stores. Rents have turned the delivering to the market in 2014 and slightly less than 500,000 corner and are heading up, but are still competitively low. square feet underway. This won’t be the case for long, especially in the CBD, thanks to the difference between the level of retail that current demand can support and what is actually on track to be delivered. NEARLY 1.9 MILLION Conditions in the Seattle retail market continue improving with positive net absorption and limited construction. Nearly SQUARE FEET OF SPACE 1.9 million square feet of space was taken down in 2014, which represents an increase of 157.0 percent over last year. WAS TAKEN DOWN IN Rampant leasing activity has pushed total retail vacancy down 70 basis points year-over-year to 4.9 percent. Perhaps more 2014, WHICH REPRESENTS AN INCREASE OF 157.0 PERCENT OVER LAST YEAR
Seattle & Portland 2014 Investment Overview 39 Seattle retail sales & statistics
Retail market statistics
Avg. Rental Rate Submarket Size (RSF) Vacancy Net Absorption RSF (NNN)
Downtown Seattle 26,602,913 2.7% $23.86 89,875
Eastside 27,512,181 3.9% $23.06 239,160
Northend 45,581,016 4.8% $16.83 511,709
Southend 31,448,856 5.5% $16.11 520,995
Tacoma 40,865,073 6.8% $15.02 523,602
2014 Total Market 172,010,039 4.9% $17.53 1,885,341
2013 Total Market 171,492,976 5.6% $17.18 733,505
Sales matrix (over $10 million)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 22 28 19 4 8 7 15 16 18 22
Price/SF Highest $368 $518 $467 $380 $404 $305 $387 $512 $509 $849
CAP Rate Average 6.3% 6.4% 5.9% 7.2% 8.8% N/A 7.0% 6.4% 6.4% 6.0%
40 Seattle retail sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Pacific Place 7/14/14 319,347 $271,000,000 4.5% Madison Marquette •• 90% leased at time of sale 600 Pine St 1998 $849 Pine Street Group / Bentall •• Major tenants include Barneys New Seattle, WA Kennedy (MEPT) York, Barnes & Noble, Tiffany & Co, and AMC Theatres
Meridian Center 1/29/14 156,318 $113,150,000 5.6% Clarion Partners •• 92% leased at time of sale 1500 6th Ave 1996 / 2004 $724 Miller Capital Advisory / •• Major tenants include Niketown, Seattle, WA CalPERS Regal Meridian 16, GameWorks, and American Apparel
Portfolio Sale 12/23/14 183,898 $59,057,000 N/A Terramar Retail Centers •• 100% leased at time of sale Point Fosdick Square 2011 $321 Safeway •• Part of 35 property portfolio sale 4831 Point Fosdick Dr NW •• Major tenants include Safeway, QFC, Gig Harbor, WA Ace Hardware, and Rite Aid
Lakeside at Canyon Park 12/23/14 121,833 $35,552,000 N/A Terramar Retail Centers •• Included 3.96 acres of land 24040 Bothell Everett Hwy 2011 $292 Safeway •• 89% leased at time of sale Bothell, WA •• Part of 35 property portfolio sale •• Major tenants include Safeway and Starbucks
Broadway Market 12/30/14 110,949 $43,000,000 5.2% Regency Centers •• 100% leased at time of sale 401-417 Broadway E 1950 $388 Corporation •• Major tenants include QFC, Gold’s Seattle, WA Madison Marquette / LaSalle Gym, and Urban Outfitters •• Ground lease
Lake Forest Park Towne 10/15/14 241,480 $37,000,000 5.0% Merlone Geier Partners •• 95% leased at time of sale Center 1964 / 1995 $153 Madison Marquette •• Major tenants include Albertsons, Rite 17171-17535 Bothell Way Aid, and Ace Hardware NE Lake Forest Park, WA
Walgreens Center 12/31/14 49,056 $30,000,000 5.5% Panos Properties •• 100% leased at time of sale 15555 NE 24th St 1969 / 1979 $612 Walgreens Bellevue, WA
Seattle & Portland 2014 Investment Overview 41 Seattle retail sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Redondo Square 5/15/14 125,096 $24,900,000 6.5% Gerrity Group •• 94% leased at time of sale 27005-27073 Pacific 1990 / 2004 $199 Urban Renaissance Group •• Six building retail center Hwy S Kent, WA •• Anchor tenants are Ace Hardware, Bartell Drugs, and Safeway
South Hill Village 3/11/14 142,002 $23,903,000 6.1% Nicola Crosby •• 100% leased at time of sale 120 N 31st Ave SE 1995 $168 Echelbarger Investments •• Major tenants include Big Lots, Puyallup, WA Petsmart, and Sportsman’s Warehouse
Bethel Junction 7/28/14 157,683 $20,800,000 6.8% Gerrity Group •• 86% leased at time of sale Shopping Center 1989 / 1998 $132 Robertson Properties Group •• Major tenants include Safeway, Big Lots, 3311-3399 Bethel Rd SE and O’Reilly Auto Parts Port Orchard, WA
Heritage Square 2/27/14 53,277 $18,025,000 6.7% Retail Properties of America •• 100% leased at time of sale 700-740 NW Gilman Blvd 1985 / 1993 $338 Development Enterprises •• Non-anchored retail center Issaquah, WA •• Tenants include Jack in the Box, Denny’s, Sleep Country USA, and Sherwin Williams
Claremont Village 11/5/14 86,497 $17,575,000 6.0% Phillips Edison ARC •• 92% leased at time of sale 4805-4933 Evergreen Way 1952 / 1995 $203 Shopping Center •• Multi-tenant retail center anchored by Everett, WA Eliat Management Company QFC •• Key tenants include Ace Hardware, GNC, and Chase Bank
Market at Lake Tapps 9/25/14 78,941 $16,600,000 6.7% Boardman LLC •• 88% leased at time of sale 19467-19685 WA-410 1990 / 2013 $210 Felton Properties / Time •• Major tenants include Office Depot, Bonney Lake, WA Equities Walmart, and Bank of America
Westgate North 12/30/14 62,232 $15,800,000 6.6% Donahue Schriber Realty •• 100% leased at time of sale Shopping Center 1960 / 1989 $254 Crow Holdings •• Major tenants include Chase Bank, 2601 N Pearl St Round Table Pizza, and Taco Bell Tacoma, WA
42 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Aurora Square 5/28/14 38,030 $15,250,000 5.0% ROIC •• 98% leased at time of sale 15727-15915 Westminster 1987 $401 ACF Property Management •• Key tenants include Marshalls and Pier Way N 1 Imports Shoreline, WA
Avondale Plaza 11/25/14 40,216 $15,070,000 5.9% Retail Properties of America •• 90% leased at time of sale 11435-11523 Avondale 2005 $375 Barclays Realty & •• Major tenants include PCC Natural Rd NE Management Market and Remax Elite Redmond, WA
200 Plaza 4/2/14 29,920 $15,000,000 N/A Run Xiang Wang •• 100% leased at time of sale 206-224 105th Ave NE 1959 / 1978 $501 Jerome Alhadeff •• Future redevelopment site Bellevue, WA
Lowe’s Home 9/1/14 126,890 $13,800,000 4.9% Rosenthal & Rosenthal Inc. •• 100% leased at time of sale Improvement 2008 $109 Stephen Anderson •• Major tenants are Sportsman’s 2221 NW Myhre Rd Warehouse and Ashley Furniture Silverdale, WA
Shane Co Plaza 1/1/14 53,289 $13,724,000 N/A General Growth Properties •• 100% leased at time of sale 18811 28th Ave W 1980 $258 Rosen-Harbottle •• Tenants include Mattress Discounters Lynnwood, WA and Windermere Real Estate
24 Hour Fitness 10/27/14 43,147 $13,331,000 8.4% Khosrow Omidvar •• 100% leased at time of sale to 24 Hour 18006 120th Ave NE Fitness 2014 $309 Titus Properties Bothell, WA
Lake Serene Center 5/1/14 29,983 $12,500,000 8.0% Washington Investment LLC •• 100% leased at time of sale 3625 148th St SW 2009 $417 Daniel J Towslee •• Major tenants include Bartell Drugs, Lynnwood, WA Starbucks, and 7-Eleven
SeaTac Plaza 8/25/14 107,394 $12,000,000 5.0% Wei Zhang & Jenny Shih •• 98% leased at time of sale 2120-2210 S 320th St 1979 $112 Byung Chan Park & Young Su •• Major tenants include Allstate Federal Way, WA Park Insurance, Laser Quest, and Outback Steakhouse
Seattle & Portland 2014 Investment Overview 43
Seattle
OFFICE INDUSTRIAL RETAIL MULTIFAMILY
2014 Seattle multifamily sales ($10M+) overview
Seattle continues to be a highly-sought after market to invest in multifamily assets, as the property type accounts for nearly half of all regional investment activity
2014 was another great year for the Seattle multifamily unit for the year at $606,382. The largest suburban property market. Driven by employment that is outpacing nearly every to trade was Bailey Farm in Bothell. The Wolff Company sold major metro and attracting hordes of high-earning tech the 372-unit garden style asset to Kennedy-Wilson and Capri workers, the market experienced continued low vacancy and Capital Partners for $91.5 million, representing a cap rate of strong rent growth. Developers have taken notice as the 4.3 percent and a price per door of $245,968. robust development pipeline is working overtime to keep up with the seemingly insatiable demand for new residential Moving into 2015, expect to see more of the same in the units. As evidenced by the strong sales volume in 2014, Puget Sound region, high volume of trades, low cap rates investors continue to flood into the market, pushing pricing and record pricing. With Amazon continuing to expand its into record setting territory for both new construction and South Lake Union campus (currently set to exceed 10 million value-add assets. Total volume ended 2014 at $2.8 billion, SF); the Boeing Company (over 80,000 employees in the 40.0 percent higher than 2013 and very near the region’s Puget Sound region) continuing to set sales records as the all-time peak of $2.9 billion, set in 2007. world’s leading aircraft manufacturer; Bay Area tech giants like Facebook, Apple and Google expanding their footprints Multifamily sales in the region in 2014 were notable not in Seattle; and significant start up activity, the economic only for the sheer volume of properties changing hands, engines that drive the multifamily market are firing on all 84 transactions occurred in 2014, but also for the variety cylinders. Therefore, even with record-setting deliveries of of property types selling. Demand was widespread with new units, Seattle’s multifamily sales environment should urban projects, as well as suburban assets commanding remain positive with rent growth (albeit slightly less than the strong pricing. Average cap rates for the region remained previous two years), occupancy rates favorable to landlords, compressed and relatively stable, averaging 5.2 percent, and sales volume in 2015 to meet or exceed that of 2014. up just 10 basis points from 2013. The largest sale in 2014 Even with the threat of increasing interest rates, capitalization was Invesco Realty’s acquisition of The Martin in South Lake rates will continue to remain at historically low levels as a Union. Vulcan sold the 188 unit property for $114 million at result of the underlying fundamentals. a reported cap rate of 4.7 percent and the highest price per
Seattle & Portland 2014 Investment Overview 47 Seattle multifamily sales & statistics
Sales matrix (over $10 million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 121 93 57 15 36 45 17 49 84
Highest Price/Unit $285,965 $407,083 $417,391 $211,957 $321,078 $350,000 $509,800 $690,583 $606,383
CAP Rate Average 5.4% 5.1% 5.8% 6.4% 6.4% 5.8% 5.5% 5.1% 5.2%
Sales Volume $2.0B $2.9B $1.6B $0.39B $0.89B $1.5B $2.7B $2.0B $2.8B
THE ROBUST DEVELOPMENT PIPELINE IS WORKING OVERTIME TO KEEP UP WITH THE SEEMINGLY INSATIABLE DEMAND FOR NEW RESIDENTIAL UNITS
48 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
The Martin 10/8/14 $114,000,000 188 4.0% Invesco Realty 2105 5th Ave $606,383 2013 Vulcan Seattle, WA $629
Bailey Farm 3/21/14 $91,500,000 372 4.3% Kennedy-Wilson/Capri Capital Partners 1225 183rd St SE $245,968 2012 The Wolff Company Bothell, WA $328
Beaumont 12/31/14 $84,000,000 344 4.3% Guardian Life Insurance 14001 NE 183rd St $244,186 2009 Boston Capital Woodinville, WA $183
Piedmont 5/2/14 $76,750,000 396 5.0% Essex Property Trust 15309 NE 13th Pl $193,813 1968 Carmel Partners Bellevue, WA $216
Waterscape at Juanita Village 9/25/14 $75,200,000 196 4.3% UDR, Inc. 11801 97th Ln NE $383,673 2013 M-M Properties Kirkland, WA $392
Station at Othello Park 7/17/14 $75,000,000 351 5.1% Universal Investment Gesellschaft 4219 S Othello St $213,675 2011 USAA Seattle, WA $220
Panorama House 9/5/14 $73,982,000 179 N/A Security Properties 1100 University St $413,307 1962 James Wolfe Seattle, WA $430
Joseph Arnold Lofts 4/28/14 $68,500,000 131 4.1% Invesco 62 Cedar St $522,901 2013 The Schuster Group Seattle, WA $581
Leilani on Greenwood 9/16/14 $65,898,000 273 4.9% Weidner Apartment Homes 10215 Greenwood Ave N $241,385 2013 Goodman Real Estate Seattle, WA $198
Seattle & Portland 2014 Investment Overview 49 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Millington at Merrill Creek 6/13/14 $63,500,000 344 5.3% Security Properties 1401 Merrill Creek Pkwy $184,593 2006 Invesco Everett, WA $193
Carriages at Fairwood Downs 6/26/14 $61,800,000 400 5.5% TruAmerica Multifamily 15030 SE 179th St $154,500 1988 Berkshire Group Renton, WA $139
Alcyone 12/17/14 $60,950,000 161 4.5% Equity Residential 301 Minor Ave N $378,571 2004 Vulcan Seattle, WA $303
Pavilion 5/30/14 $59,750,000 518 6.4% Fowler Property Acquisitions 1900 SW Campus Dr $115,347 1990 Kennedy-Wilson Federal Way, WA $121
Ellington at Bellevue 8/18/14 $58,750,000 220 4.8% Essex Property Trust 11200 NE 11th St $267,045 994 AvalonBay Communities Bellevue, WA $356
Rock Creek Landing 7/30/14 $58,220,000 576 5.3% Kennedy-Wilson 1024 N Central Ave $101,076 1986 Holland Residential Kent, WA $131
Broadstone Koi 6/2/14 $57,000,000 166 4.5% CBRE Global Investors 1139 NW Market St $343,373 2013 Prudential Seattle, WA $464
Queen Anne Towne 5/16/14 $51,100,000 107 4.7% RREEF America 1900 Queen Anne Ave N $477,570 2014 Emerald Bay Equity Seattle, WA $364
Elan Redmond Town Center 12/9/14 $49,975,000 134 4.7% Berkshire Income Realty 16325 Clevelan St $372,948 2013 Greystar Investment Group Redmond, WA $397
50 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Pebble Cove 12/17/14 $49,500,000 288 5.0% Jackson Square/Reverse Exchange Svcs 17600 134th Ave SE $171,875 1996 Invesco Renton, WA $16
Bella Sonoma 11/20/14 $46,750,000 280 5.4% Kennedy-Wilson 2301 62nd Ave E $166,964 2006 SEB Fife, WA $162
Lightbox 8/29/14 $45,500,000 162 4.1% UDR, Inc. 4545 8th Ave NE $280,864 2014 Resmark Companies Asotin, WA $353
Covington Farms 2/28/14 $42,700,000 352 5.8% Lowe Enterprises 10115 Holly Drive $121,307 1989 Heitman Everett, WA $126
Montair at Somerset Hill 7/30/14 $42,620,000 370 N/A Kennedy-Wilson 1704 Barnes Blvd SW $115,189 1991 Holland Residential Olympia, WA $121
Grammercy 6/11/14 $41,500,000 382 5.5% Fowler Property Acquisitions 17425 120th Ln SE $108,639 1980 PASSCO Renton, WA $208
Canvas 9/5/14 $40,000,000 123 5.0% Public Employee Retirement System of 600 Elliott Ave W $325,203 2014 Idaho Seattle, WA Goodman Real Estate $506
Park West 12/3/14 $39,278,000 145 4.0% Pacific Urban Residential 4100 129th Pl SE $270,883 1989 Ellingwood Company Bellevue, WA $157
Newport Crossing 11/4/14 $38,800,000 192 4.6% Friedkin Realty 7311 Coal Creek Pkwy SE $202,083 1990 Security Properties Newcastle, WA $203
Seattle & Portland 2014 Investment Overview 51 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Copper Ridge 4/24/14 $36,525,000 325 5.3% Citation Homes Central 4600 Davis Ave S $112,385 1983 Archon Group Renton, WA $144
Three20 5/16/14 $36,071,000 134 4.1% Equity Residential 320 E Pine St $269,187 2014 The Stratford Company Seattle, WA $336
Jax 11/5/14 $36,000,000 76 4.0% Fritzi Realty 500 3rd Ave W $473,684 2014 Continental Properties Seattle, WA $578
Gatsby 8/7/14 $35,600,000 70 4.2% Fritzi Realty 1145 10th Ave E $508,571 2014 Continental Properties Seattle, WA $618
Square One 12/9/14 $33,500,000 112 4.5% Equity Residential 1020 NE 63rd St $299,107 2014 Intracorp Real Estate Seattle, WA $374
Stream Uptown 7/10/14 $32,955,000 118 5.2% TIAA-CREF 708 6th Ave N $279,280 2012 Star Equity Management Seattle, WA $372
North Creek 8/5/14 $29,850,000 264 5.5% Lowe Enterprises 11401 3rd Ave SE $113,068 1986 Blackstone Group Everett, WA $133
Park South 5/29/14 $29,744,000 252 5.8% Friedkin Realty 10102 8th Ave S $118,033 1987 MG Properties Group Seattle, WA $118
Collins on Pine 5/21/14 $29,117,000 83 4.6% Essex Property Trust 1222 E Pine St $350,807 2013 Metropolitan Homes Seattle, WA $369
52 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Aspen at Belvedere 10/15/14 $28,950,000 168 5.5% Prime Group 21010 39th Way S $172,321 2010 Holland Residential SeaTac, WA $179
Montclair Heights 4/23/14 $28,670,000 174 5.1% TruAmerica Multifamily 2223 Benson Rd S $164,770 1989 Braddock & Logan Homes Renton ,WA $143
Belvedere at Aspen Heights 10/15/14 $28,000,000 140 4.8% Prime Group 20998 37th Ave S $200,000 2013 PNW Home Builders Group SeaTac, WA $200
Westhaven 3/27/14 $27,000,000 190 5.8% TruAmerica Multifamily 2201 SW Holden St $142,105 1987 Holland Residential Seattle, WA $171
Lakes by Mill Creek 4/21/14 $26,910,000 223 6.1% Thayer Manca Residential 13001 8th Ave W $120,673 1986 Empire Investments Everett, WA $137
Apex 4/30/14 $26,500,000 203 6.6% Kennedy-Wilson 2424 S 41st St $130,542 2006 MC Construction Consultants Tacoma, WA $73
StonePointe 7/30/14 $26,000,000 240 6.2% Kennedy-Wilson 3806 78th Ave Ct W $108,333 1990 Holland Residential University Place, WA $119
BluWater 12/8/14 $25,500,000 152 5.4% Coast Equity Partners 11311 19th Ave SE $167,763 1991 Gosvernor International Everett, WA $182
The Venue 2/13/14 $24,125,000 284 6.0% Fowler Property Acquisitions 1150 Union Ave NE $84,947 1973 Columbus Pacific Properties Renton, WA $117
Seattle & Portland 2014 Investment Overview 53 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Muriel’s Landing 3/25/14 $24,000,000 100 6.0% FSC Realty 5240 University Way NE $240,000 2012 The Schuster Group Seattle, WA $461
Vesper Seattle 11/12/14 $23,914,000 72 4.9% Saratoga Capital 1321 Minor Ave $332,139 1991 Pacific Urban Residential Seattle, WA $452
Balfour Place 3/26/14 $23,130,000 200 N/A Redwood-Kairos Real Estate Partners 1205 Stewart St $115,650 1992 Irwin Somerville Seattle, WA $238
Shangri-La/Avana on the Lake 9/11/14 $23,125,000 79 4.5% Greystar Real Estate Partners 538 Lakeside Ave S $292,722 1961 BlackRock Seattle, WA $319
Gilman Square 6/30/14 $23,000,000 125 4.9% King County Housing Authority 360 NW Dogwood St $184,000 1987 Security Properties Issaquah, WA $199
Northshore Townhomes 9/22/14 $22,100,000 86 5.0% The Matteson Companies 7000 NE 186th Pl $256,977 2008 Grosvenor Americas Kenmore, WA $178
Sunset View 3/14/14 $21,885,000 240 6.6% Investors Management Group 2101 SW Sunset Blvd $91,188 1970 Angelo, Gordon & Co. Renton, WA $71
Sierra Sun 5/22/14 $21,500,000 150 5.6% Hamilton Zanze & Company 12400 Sunrise Blvd E $143,333 2004 James Brown Puyallup, WA $120
Martha Lake 12/3/14 $20,300,000 155 5.8% Waterton Associates 16626 6th Ave W $130,968 1991 Helix Funds Lynnwood, WA $144
54 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Pinewood Square 10/22/14 $20,275,000 180 5.2% Paul & Barbara Stephanus 6500 208th St SW $112,639 1977 Bridge Property Management Lynnwood, WA $164
Serra Vista 12/19/14 $20,010,000 138 5.5% Paul & Barbara Stephanus 15517 40th Ave W $145,000 1989 Archon Lynnwood, WA $166
Newberry Square 8/28/14 $20,000,000 123 5.3% Fairfield Residential 16116 Ash Way $162,602 2005 Sundquist Homes Lynnwood, WA $100
Viewpointe on Queen Anne 4/30/14 $20,000,000 112 4.9% Timberline Partners 2450 Aurora Ave N $178,571 1987 Jim Lampman Seattle, WA $166
Aspen Creek 12/29/14 $19,900,000 162 N/A SEA 104 Court East LP 12724 104th Ave Ct E $122,840 1996 UDR, Inc. Puyallup, WA $136
Karbon 8/15/14 $19,100,000 105 5.9% Friedkin Realty Management 6802 Coal Creek Pkwy SE $181,905 1989 Goodman Real Estate Renton, WA $194
Cherry Creek 4/28/14 $18,225,000 252 7.2% Security Properties 2325 96th St $72,321 1979 ALS Calico Corporation Seattle, WA $95
Borgata 10/15/14 $17,900,000 83 4.7% Rise Properties Trust 420 S 50th St $215,663 2002 Grosvenor International Renton, WA $192
Catalina Community 2/25/14 $16,395,000 96 6.0% Greg & Marina Itkin 2210 132nd Ave SE $170,781 1992 Keystone Development Bellevue, WA $334
Seattle & Portland 2014 Investment Overview 55 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Residences at 3295 6/19/14 $15,440,000 60 5.0% Abacus Capital Group 3295 SW Avalon Way $257,333 2012 Randolph Street Realty Capital Seattle, WA $290
Union Arms & Manor 1/31/14 $15,173,000 84 4.2% Pinnacle 604 E Union St $180,631 1925 Gibraltar Seattle, WA $225
Verse Seattle 4/28/14 $14,612,000 90 6.2% Pacific Urban Residential 421 23rd Ave S $162,356 2004 Lorig Associates Seattle, WA $192
Remi 11/5/14 $14,100,000 34 4.0% TriMark Property Group 2727 Eastlake Ave E $414,706 1996 Westlake Associates Seattle, WA $446
Landings at River’s Edge 11/18/14 $14,050,000 120 5.7% Trimark Property Group 1741 22nd St NE $117,083 1976 River’s Edge Auburn Auburn, WA $115
Woodland Pointe 6/24/14 $14,000,000 112 5.4% Rise Properties Trust 14359 Linden Ave N $125,000 1978 The Stratford Company Seattle, WA $196
Rev Fremont 9/30/14 $13,140,000 49 5.0% TriMark Property Group 309 NW 41st St $268,163 2013 Kauri Investments Seattle, WA $373
University Manor 4/22/14 $12,992,000 80 4.0% Gerard Pigotti 1305 NE 43rd St $162,400 1928 Shorenstein Seattle, WA $255
Sunset Park 9/18/14 $12,920,000 124 5.8% Pacific Living Properties 11202 2nd Lane SW $104,194 1988 Sunset Equities Seattle, WA $64
56 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Borealis 11/20/14 $12,500,000 53 5.1% PrivatePortfolio Group 109 Dexter Ave N $235,894 2008 Vulcan Seattle, WA $264
Velo 9/16/14 $12,500,000 49 5.1% Frederick & Julie Gould 301 E Roy St $255,102 1967 Cadence Capital Seattle, WA $376
Heather Ridge 2/21/14 $12,150,000 107 5.6% Apex Properties 20427 68th Ave W $113,551 1969 Weidner Apartment Homes Lynnwood, WA $139
1400 Market Street 12/1/14 $12,125,000 125 N/A The Reliant Group 1314 Market St $97,000 1978 Epic Asset Management Tacoma, WA $144
107 on Greenwood 9/16/14 $11,770,000 56 5.0% Weidner Apartment Homes 10770 Greenwood Ave N $210,179 2013 Goodman Real Estate Seattle, WA $383
Squire Park 12/24/14 $11,250,000 59 7.6% Jonathan Rose Companies 11710 S Jackson St $190,678 2009 Central Area Development Association Seattle, WA $172
Commencement Terrace 8/14/14 $11,090,000 168 6.0% Investors Management Group 29 Saint Helens Ave $66,012 1979 RP Management Inc. Tacoma, WA $93
Westside Flats 1/17/14 $10,769,000 60 5.2% Granite Peak Partners 3233 SW Avalon Way $179,483 1999 Avalon Ventures Seattle, WA $223
700 East Mercer 9/10/14 $10,605,000 51 4.0% Frederick & Julie Gould 700 E Mercer St $207,941 1962 Western Property Management Seattle, WA $260
Seattle & Portland 2014 Investment Overview 57 Seattle multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Newport Heights 12/11/14 $10,525,000 80 5.7% Woodspear Properties 5680 152nd St $131,563 1985 Horizon Realty Advisors Tukwila, WA $174
Miller-Warren 10/1/14 $10,000,000 52 4.0% Timberlane Partners 701 E Pike St $192,302 1910 Rodney Hansen Seattle, WA $327
1711 12th Avenue 7/29/14 $10,000,000 37 4.7% Planetary Power 1711 12th Ave $270,270 2013 Graham Capital Group Seattle, WA $536
58 PORTLAND Title left PORTLAND
Market Overview
Strong economic growth and overall market In-migration of the sought-after young and highly fundamentals have increasingly put Portland on the educated to Portland is driving job growth in the radar of institutional investors seeking yield and high tech sector as employers increasingly follow value. During 2014, Portland recovered all jobs lost the talent. And while pricing is escalating across all during the recession and then some. The metro area property types, Portland remains a relative bargain saw robust job growth of 3 percent and employment compared to its West Coast neighbors, both in has surpassed the area’s previous jobs peak by terms of cost of living and in terms of cost of doing more than 34,000. Economic expansion has been business. Perhaps growth in the Portland market can diverse with both office and industrial using sectors best be explained by one of the CEO’s of a tech firm contributing significantly, with the high tech sector that has recently elected to expand in Portland area driving a significant amount of growth and energy presence; “We hired people from all over the country in the market. Our city continues to garner outsized and gave them the choice between living in San attention from national media outlets touting our Francisco or Portland. 100% chose Portland.” amazing quality of life, foodie scene and relatively affordable cost of living. The reality of what Portland has to offer is finally soaking in and businesses and real estate investors around the country are noticing.
60 Portland
OFFICE INDUSTRIAL RETAIL MULTIFAMILY Title right
62 2014 Portland office sales ($10M+) overview
Sales volumes reach highest level since 2007
Office investment activity in the Portland market saw a robust while others represent the fruits of that labor. Perhaps the best increase in 2014 with institutional sales at their highest volume example of the latter was the sale of the Yeon Building. Gaw since 2007. The market saw 18 trades over $10 million for a total Capital acquired the building from Jonathan Rose Companies volume of close to $640 million, an increase of 46.0 percent year- for $29.7 million. Jonathan Rose, with their local operating over-year. The year was notable as demand for institutional assets partner Urban Renaissance Group, made significant upgrades spread to the suburban markets and CBD pricing surpassed pre- to the property taking it to 93.5 percent leased. The cap rate on recession peaks for both Class A and Class B assets. Although the sale was 5.1 percent with a price per square foot of $234. cap rates for core urban products have compressed, averaging Jonathan Rose acquired the 60.0 percent leased-building in 6.5 percent in Portland, they remain 100 basis points higher in 2011 for $73 per square foot. The sale of the American Bank Portland than our neighbors to the north and south, enabling Building set a high-watermark for Class B and historic buildings Portland to continue to offer a favorable risk-adjusted spread in the CBD of $266 per square foot. A joint venture between over other west coast markets. In addition, foreign investors have ScanlanKemperBard and a Chilean pension fund, Independencia, taken notice and are increasingly on bid lists for major purchased the 169,000 square foot property for $45.1 million in Portland assets. July, the property was 93 percent leased and had a cap rate of 7.2 percent. In the CBD, low vacancy and solid rental rate growth led to pricing increases and a flurry of activity in the second half of the Institutional interest spread to the suburbs in 2014 with those year. One Main Place traded for $86.3 million in late December. sales up over 800 percent year-over-year. The largest office New York Life bought the building from KBS for $274 a foot and sale was Starwood Capital’s acquisition of the PS Business a cap rate of 6.1 percent, the property was 92.0 percent leased at Park portfolio, Cornell Oaks and Creekside Corporate Park. the time of sale and the buyers expect to capture value through The 18-building portfolio totaled 1.2 million square feet and rising rental rates and building lease-up. One Main Place last sold traded for $164 million, or $135 per square foot with a cap rate in 2010 for $57 million and a 9.0 percent cap rate, the building of 7.0 percent. The properties were over 90.0 percent leased was 99.0 percent leased at the time of sale. This represents an representing an opportunity to add value through lease up and increase in value of more than 57.0 percent in five years. The rent growth in a rising market. The market saw six additional Lovejoy, located in the Pearl District and built in 2008 represents suburban transactions over $10M. It is anticipated that several a smaller Class A asset, but one that garnered a significant price, other new suburban offerings will hit the market in 2015. trading for $38.5 million as Unico bought out the rest of their interest in the property from their partner Cigna. The building Driven by the market’s strong fundamentals – low vacancy and was 100% leased at the time of sale and traded for a 6.5 percent increasing rents – as well as superior values compared with cap rate with a price per square foot of $460, setting the new that of its closest major neighbors, investor interest in Portland high-watermark. The size of the building and location in the Pearl will persist, motivating existing owners to sell and leading to District contributed to the strong pricing achieved for the asset. strong pricing for core and value-add assets. The CBD will see significant investment activity in 2015 with several core properties Class B and historic properties were also highly sought-after expected to trade hands. In general, institutional interest in in the CBD as seven properties traded hands in 2014. Several Portland is at a new high and we see no near-term end to this represented opportunities for the new owners to reposition increased appetite for product. the buildings into creative office and capture a rising market,
Seattle & Portland 2014 Investment Overview 63 Portland office leasing
Robust demand propels market to top of national heap
Portland’s office market saw just over 1.3 million square feet of net from creative users is driving this rental rate growth. The Westside demand in 2014, almost twice the 10-year historical average for net suburbs have been in growth mode for the past 2 years as vacancy absorption, pushing market vacancy to a 15-year low. The Portland has improved dramatically. With Westside suburban vacancy now market has seen four consecutive years of above average demand sitting at 11.9 percent, the market has seen a strong recovery, while deliveries have remained significantly below average. This dropping 140 basis points. This has led to Class A rental rate office market momentum has pushed vacancy into single digits for increases of 4.3 percent year-on-year, with Sunset Corridor Class A the first time in more than 15 years. Portland now boasts the second up 6.7 percent over the same timeframe. The limited supply of large lowest metro area vacancy of all major markets tracked by Jones spaces market-wide is driving up rents for users over 30,000 square Lang LaSalle, behind only New York. Demand for office space in feet. Net effective rents for leases executed over the past year in Portland continues to be driven by technology firms, with more than this size range are up 18.1 percent year-over-year. 30 percent of all leasing activity attributed to high-technology and information. Market improvement was diverse but users generally The construction pipeline has filled considerably in the past showed a preference for an urban environment with 67 percent year with 887,648 square feet of office product currently under of demand in the Central City and Close In Eastside while the construction, all of which is speculative and 98.6 percent of which suburban markets accounted for 33 percent of area absorption. is either in the CBD or Close In Eastside, up from only 422,934 square feet at the end of 2013. Deliveries are up as well with The business climate in Portland is strong and many firms are 325,640 square feet delivering in 2014, compared with just 213,800 expanding their presence in the market. The average size of in 2013. An increasing amount of development has come in the Portland’s tenant is also growing. Conventional wisdom was that form of redevelopment, as developers look to capitalize on large, Portland is a market of very small tenants, with the average sized well-located, but functionally obsolete buildings, which appeal to tenant somewhere in the range of 4,000 to 5,000 square feet. Our the growing number of expanding creative and high-tech firms in research shows that since 2009, the size of Portland area office Portland. Large projects including Park Avenue West, Pearl West, tenants has increased by over 20 percent, now clocking in at just and The Oregonian, are expected to deliver in late 2015 and early over 8,000 square feet. Currently, JLL is tracking more than 3.2 2016, which will add substantial supply to CBD inventory. million square feet of tenants in the market with an average size requirement of over 21,000 square feet. With relatively little vacant supply set to deliver in early 2015 coupled with accelerating demand, Portland’s vacancy should dip Rents in the Portland market have increased notably over the past below 9.5 percent in the first quarter of 2015. In turn, rents are year, particularly for large, premium spaces. In the CBD, Class A expected to increase and concessions will likely decrease, as tenants rents increased 5.2 percent year-over-year and are approaching the experience tighter market conditions, especially for large, centrally- $30 mark with the highest asking rents for premium Class A product located, Class A and creative spaces; this will further motivate hitting $38.00 per square foot, full service. At $29.63 as of the end developers to pursue additional developments and redevelopments of 2014, overall average Class A asking rents are now more than in the central city. 11 percent higher than their previous high-watermark set in 2008. Class B rents in the CBD are also showing strong momentum, with year-over-year rent growth for 2014 of 6.5 percent. Strong demand
64 Portland office sales & statistics
Office market statistics
Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF
Central City 25,671,550 7.4% $26.24 675,229
Eastside 6,351,742 9.0% $21.05 259,493
Westside 20,888,188 11.9% $21.27 380,319
Vancouver Suburbs 6,331,738 11.3% $17.65 1,907
2014 Total Market 59,243,218 9.6% $22.49 1,313,948
2013 Total Market 58,106,985 11.1% $21.18 989,864
Sales matrix (over $10 million)
2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 28 9 5 5 5 9 14 18
Price/SF Highest $442 $271 $159 $197 $356 $443 $399 $460
CAP Rate Average 6.7% 7.1% 7.6% 8.4% 7.4% 8.3% 7.3% 7.2%
Seattle & Portland 2014 Investment Overview 65 Portland office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Portfolio Sale 10/01/2014 688,260 $164,100,000 7.0% Starwood Capital •• 18 building portfolio with a mix of Class A, B and Flex space Cornell Oaks 1982 / 1999 $135 PS Business Parks Greenbrier Pkwy •• Cornell Oaks 93% leased at time of sale Beaverton, OR •• Creekside 90% leased at time of sale •• Properties in rising market with significant rent growth potential and potential to add value through lease up Creekside Corp Park 524,131 •• Two large tenants were known to be SW Nimbus Ave 1984 / 1999 vacating, influencing occupancy and cap Beaverton, OR rate •• Cap rate on in-place NOI
One Main Place 12/15/2014 315,133 $86,300,000 6.1% New York Life •• CBD Core asset 101 SW Main St 1982 $274 KBS Realty Advisors •• 92% leased at time of sale Portland, OR •• Major tenants Ball Janik and Tripwire •• Cap rate on in-place NOI
American Bank Building 7/29/2014 169,548 $45,100,000 7.2% ScanlanKemperBard/ •• 93% leased at time of sale with limited 617 SW Morrison St near term rollover 1914 $266 Independencia Portland, OR LaeRoc Partners •• SKB in a JV with Independencia, a Chilean Pension Fund •• 50% of building rolls within 4 years w/ opportunity to boost rents •• Cap rate on in-place NOI
Historic US National 11/10/2014 207,895 $40,000,000 4.7% ScanlanKemperBard/ •• Occupancy at sale was 80% but large tenant will roll in Jan 2015 putting Bank Block 1906 $192 AEW 309 SW 6th Ave occupancy at 63% Beardsley Building Portland, OR Development •• Pro forma cap on 63% occupancy
66 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
The Lovejoy 6/18/2014 82,901 $38,550,000 6.5% Unico •• 100% leased at time of sale 1331 NW Lovejoy St 2008 $460 Unico/Cigna •• Sale is for office condo portion of project Portland, OR •• Unico owned partial interest, sale represents the purchase of office condo by different fund •• Pro forma cap
Lincoln Building 2/27/2014 262,975 $37,100,000 9.0% DRA Advisors/ Newcastle •• 97.7% leased at time of sale 421 SW Oak St 1944 / 2005 $141 Partners •• Flat income stream with significant Portland, OR Broadreach Capital rollover risk in year 5 Partners/ Unico •• Pro forma cap
Cascade Station I & II 4/15/2014 127,718 $30,000,000 7.9% Palisades Partners •• First acquisition for Palisades Partners, 9500-9600 NE Cascades focus on value-add and core-plus assets 2008 / 2009 $235 Trammell Crow Pky in Western US Portland, OR •• 70 year ground lease •• 100% leased at time of sale •• Pro forma cap
Yeon Building 11/20/2014 126,885 $29,750,000 5.1% Gaw Capital/Downtown •• 93.5% leased at time of sale 522-530 SW 5th Ave 1906/1987 $234 Properties •• Significant renovations/systems upgrades Portland, OR Jonathan Rose Cos. completed by seller •• Pro forma cap
Peace Health 8/07/2014 488,808 $25,700,000 N/A PeaceHealth •• PeaceHealth occupies 33% 1115 SE 164th Ave 1981 / 2005 $53 PacTrust •• PeaceHealth was leasing with pre- Vancouver, WA negotiated option to buy
Seattle & Portland 2014 Investment Overview 67 Portland office sales ($10M+)
Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
Tigard Corporate Center 3/31/2014 123,210 $24,000,000 8.9% Deutsche Asset & Wealth •• Single tenant with 3+ years remaining 12123-12447 SW 69th Ave 2000 $195 Management (RREEF) •• 100% leased at time of sale Portland, OR Specht Properties/ASB •• Included a 357 stall parking structure
The Executive Bldg 7/24/2014 109,934 $21,100,000 8.0% Swift Realty Capital •• Class B+ building with good location 811 SW 6th Ave 1956 / 2006 $191 Matteson Real Estate •• DEQ is major tenant with lease expiration Portland, OR Equities within 24 months •• 91% leased at time of sale •• Existing debt was assumed
Cornell West 8/25/2014 115,668 $18,224,000 6.8% TA Realty •• Good quality suburban Class A office 1500 NW Bethany Blvd building 2000 $158 Founders Properties Beaverton, OR •• 85% leased at time of sale •• Cap rate on in-place NOI
Lattice Semiconductor 11/07/2014 194,620 $15,150,000 N/A Goldman Sachs •• Property was occupied by Lattice, they 5555 NE Moore Ct will lease back a portion and will re-locate 1999 $78 Lattice Semiconductor Hillsboro, OR HQ to CBD •• Property will be 50% vacant after sale
The Oregonian 9/24/2014 165,000 $14,500,000 N/A Clarion/Urban •• Vacant at time of sale 1320 SW Broadway 1948 / 1996 $88 Renaissance Group •• Bought for re-development Portland, OR Oregonian Publishing Co.
68 Property Closing Total SF Sale Price Cap Buyer Comments Date Year Built $ Per SF rate Seller
14th Overton Bldgs 9/04/2014 44,000 $14,100,000 N/A Meriwether Partners •• 95% leased at time of sale 1315-1330 NW Overton 1921 $320 WDC Properties •• Major tenant is IceBreaker Portland, OR •• 2-story former industrial buildings – likely purchased for future re-development
Main Place Bldg 9/30/2014 87,984 $12,150,000 8.0% Menashe Properties •• 90% leased at time of sale 1111 Main St 1990 $138 Realvest Corp •• Sale included 230 stall parking garage Vancouver, WA
Mt Scott Prof Center 12/17/2014 53,000 $11,000,000 N/A MB Real Estate •• Medical office building 9300 SE 91st St 2008 $208 Mark Jenquin •• 68% leased at time of sale Happy Valley, OR •• Major tenants Metropolitan Pediatrics
1500 Plaza 9/02/2014 66,484 $10,800,000 6.6% Swift Realty Capital •• 85% leased at time of sale 1500 NE Irving St 1964 $162 Washington Holdings •• Multi-tenant office building Portland, OR •• Cap rate on in-place NOI
Seattle & Portland 2014 Investment Overview 69
Portland
OFFICE INDUSTRIAL RETAIL MULTIFAMILY 2014 Portland industrial sales ($10M+) overview
Sales volume up, but lack of supply remains an issue
Sales volume for industrial product jumped to near $320 Owner users remained active in the Portland market, million in 2014, more than double the volume sold in 2013 accounting for six transactions totaling $113 million for the and more than 300 percent of the volume the market has year. Corporations, motivated by rising prices and a lack averaged during the previous six years. Still, a lack of quality of availability, want to take control of their own real estate assets coming to market has been a consistent theme in and hedge against rising rental rates. The largest of these the Portland industrial market during this real estate cycle. was Intel’s purchase of Maxim Integrated Product’s 325,000 Of the sales in 2014, $206 million in 9 transactions were square foot facility on 33 acres in the Sunset Corridor. The institutional investments while the rest were owner/user price was $23.2 million, representing a price of $71 per acquisitions. Demand has far exceeded supply as investors square foot, and it is assumed that Intel will occupy the continue to wait for their assets to stabilize or for pricing to property as Maxim vacates. In another owner user sale, return to its pre-recession peak before they put them on Alliance Packaging and NIKE, Inc. engaged in a down-leg the market. transaction, trading two industrial properties. Alliance Packaging’s older facility near NIKE’s Beaverton campus was Strong demand has led to cap rate compression, particularly sold to NIKE for $15.0 million or $132 per square foot. NIKE for premium quality assets. Average cap rates for trades in then constructed a custom facility in Hillsboro for Alliance 2013 was 7.2 percent, this dropped to 7.1 percent in 2014. Packaging, which sold for $22.3 million or $62 per square During 2014, the Portland area saw its first industrial trade foot. Alliance Packaging will occupy 64.3 percent of this new at a sub 6 percent cap rate, and this for an older stabilized building and will lease out the remainder. portfolio. The Holman Portfolio, consisting of 4 buildings in Clackamas (built 1980) totaling 430,799 square feet and 5 Industrial product in Portland remains very tightly held with buildings in Guild’s Lake (built 1958-1973) totaling 346,671 limited assets coming to market, but this is likely to loosen square feet, traded from Hawthorne Investment Company up a bit in 2015. As newer properties stabilize, expect to Industrial Property Trust. The property included 15 owners to consider selling and volumes to increase again in acres of land valued at $6.00 per square foot. With land 2015 with interest from institutional investors remaining high. removed from the valuation, the trade totaled $52 million Three institutional properties are currently on the market with a cap rate of 6.2 percent on the Guild’s Lake portion and expected to close in 2015 with additional product and a 5.9 percent cap rate on the Clackamas portion. In anticipated to hit the market in the middle of the year. In the largest trade for the year, GE Capital sold a portfolio of addition, much of the new speculative construction is being 115 properties in multiple states. IndCor was the buyer and built by merchant developers who are likely to sell them as they purchased the three Oregon assets totaling more than soon as they are stabilized; bringing some much needed 1.1 million square feet for an allocated $69.8 million with a modern institutional supply to hungry area investors. cap rate of 6.7 percent. These were also older assets, built between 1964 and 1984.
72 Portland industrial leasing
Industrial market leverage shifting away from tenants
Portland has a strong “traded-sector” economy, defined as one square feet under construction and a large amount of planned where goods and services are used outside the region. This traded- development set to break ground in early 2015. Nearly 500,000 sector economy supports a strong and vibrant industrial market and square feet of predominantly speculative space is expected to includes traded sector clusters such as active apparel companies, hit the market in the first quarter of 2015 with the delivery of electronics manufacturers and “clean” technology companies. Gateway Corporate Center and Prologis PDX 20, both in the NE Manufacturing contributes significantly to the area’s traded sector Columbia Corridor. Although absorption is expected to remain economy and computer and electronic manufacturing dominate at strong levels, vacancy will likely bump up slightly. Interstate the area. The industrial supersectors, which include trade, Crossroads Distribution Center and Cameron Distribution center, transportation, & utilities, manufacturing, and construction, are all both speculative projects in NE Columbia Corridor, are under performing strongly. With strong industrial employment growth construction and are expected to bring an additional 800,000+ driving demand and limited supply side development, the Portland square feet of space to the submarket by the end of 2015. industrial market is seeing strengthening market fundamentals as vacancy declines and rental rate increases spread to This new development activity demonstrates confidence in demand more submarkets. in the NE/Columbia Corridor. Shovel-ready industrial land is in very limited supply within Portland’s urban growth boundary, and this Metro area net absorption has historically averaged 2.2 million barrier to entry, along with the expensive and restrictive Portland square feet on an annual basis with construction averaging 1.8 area approval processes should continue to keep new supply in million square feet. 2014 saw the market absorb 3.6 million square check despite this new construction activity. feet, far surpassing 2013 numbers and average annual numbers. Metro area vacancy has dropped to its lowest level in over 20 years, Pricing has increased notably, up 9.4 percent year-over year, now at now sitting at 5.3 percent. Industrial leasing volume was strongly a new high average asking rent of $0.58 per square foot per month, positive during the year and market activity has shown a significant blended. Rents are seeing significantly stronger growth in tighter uptick as 2014 came to a close. Computer and electronics submarkets and in the limited quality product that is left on the manufacturing and distribution as well as food and beverage market. Asking rates for new construction are further evidence of distribution companies continue to drive growth, with a surge in this rent trend with shell rates at $0.45 and the office surcharge at activity from third party logistics providers. While the area has seen $0.85 per square foot. small to mid-sized firms’ fuel growth, there has been increased interest from several very large users, looking to establish regional distribution centers in the Portland area.
In response to these significant strengthening market conditions, METRO AREA VACANCY HAS the market is seeing significant new speculative construction DROPPED TO ITS LOWEST break ground. The first projects since 2009. 2014 saw the delivery of 1,184,233 square feet, higher than every previous year since LEVEL IN OVER 20 YEARS, 2008. Additionally, the construction pipeline has ramped up significantly with speculative projects, now with over 2,000,000 NOW SITTING AT 5.3 PERCENT
Seattle & Portland 2014 Investment Overview 73 Portland industrial sales & statistics
Industrial market statistics
Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption (RSF)
Eastside 91,663,973 4.9% $0.51 1,178,539
Westside 72,125,065 5.6% $0.63 2,373,454
Clark County 18,026,025 6.0% $0.65 54,546
2014 Total Market 181,815,063 5.3% $0.58 3,606,593
2013 Total Market 179,365,147 6.1% $0.53 1,831,650
Sales matrix (over $10 million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 13 17 5 1 1 2 5 5 15
Price/SF Highest $207 $156 $112 $52 $59 $44 $63 $95 $133
CAP Rate Average 7.8% 6.9% 7.0% 9.5% 9.2% N/A 7.4% 7.4% 7.1%
74 Portland industrial sales ($10M+)
Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
GE Capital Portfolio 2/27/2014 1,145,730 $69,800,000 6.7% IndCor •• Portfolio of 115 properties in multiple Wilsonville Dist., Yeon & states 1964 / 1984 $61 GE Capital Cascade Business •• Comp represents estimate of OR portion Portland, OR of sale
Airport Way Portfolio 4/23/14 475,146 $35,800,000 7.8% Stockbridge Capital •• Sale was 3 parks in Oregon Airport Park, Airport Park 1979 / 1994 $75 Industrial Income Trust •• Portfolio sale containing 13 properties West, Airport Ctr I & II REIT making up Airport Park, Airport Park Portland, OR West, Airport Center I & II, and Johnstone Supply •• 95% leased at time of sale
Portfolio Sale 12/18/14 430,799 $28,997,223 5.9% Industrial Property Trust •• 17% of leases roll in first year Holman Portfolio - 1980 $67 Hawthorne Investment Co. •• Sale price was $32.9M which included 15 Clackamas acres of land 10775-10955 SE Jennifer •• Land valued at $6 PSF removed from St price to achieve true $/SF Clackamas, OR
Holman Portfolio - NW 12/19/14 346,671 $23,734,088 6.2% Industrial Property Trust •• Buildings 100% leased at time of sale
Portland 1958 / 1973 $68 Hawthorne Investment Co. •• 5 buildings in NW portion of sale 2805-2909 NW 31st Ave Portland, OR
7300 NW Evergreen Pky 12/17/14 325,000 $23,200,000 N/A Intel Corp. •• Two buildings 100% leased to Maxim Integrated Products - HB1 1987 $71 Maxim Integrated 7300 NW Evergreen Pky Products, Inc. •• 33.40 acres Hillsboro, OR •• Assumed that Intel will occupy property - Owner/User sale
Alliance Packaging 7/1/14 358,870 $22,254,371 N/A Alliance Packaging •• BTS for Alliance by Trammel Crow on 23035 NW Jacobson Rd Nike land 2014 $62 NIKE, Inc. Hillsboro, OR •• Alliance will occupy 64.3% and lease out balance
Seattle & Portland 2014 Investment Overview 75 Portland industrial sales ($10M+)
Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
Alliance Packaging 6/30/14 112,971 $14,953,000 N/A NIKE, Inc. •• Owner/User 1255 SW Burlington Dr 1985 $132 Alliance Packaging •• 100% leased at time of sale Beaverton, OR •• Down-leg transaction in exchange for a newly built industrial building in Hillsboro •• Nike will occupy or re-develop
212 Corporate Center 1/7/14 233,425 $14,500,000 N/A PECO •• Owner/User sale 11241-11245 SE 1996 $62 Tennant Investors •• Two building park Highway 212 Clackamas, OR
Lake Oswego Commerce 4/25/14 153,315 $14,000,000 N/A MicroSystems •• Portfolio of 5 properties 100% leased Ctr 1979 $91 Engineering •• Micro Systems and Biotroniks Inc. occupy 6024 SW Jean Rd Watumull Properties a majority of the complex Lake Oswego, OR •• Micro Systems exercised option to purchase
Wilsonville Corporate 5/30/14 202,000 $13,673,943 7.2% TPG Capital •• Part of a 59-property portfolio Center 1995 $68 Prologis •• OR portion is allocated 26200 SW 95th Ave Wilsonville, OR •• Cap rate is for portfolio
Cross-Dock Terminal 4/14/14 96,077 $13,212,500 8.6% Winkler Development •• 100% leased to single tenant with 5+ 6845 N Cutter Cir years left 1991 $138 NorthAmerican Terminals Portland, OR Management •• Great land location •• Tenant has credit challenges
Swan Island Industrial 10/1/14 346,612 $12,600,000 8.6% Premier Press •• Owner/User Sale 5000-5130 N Basin Ave 1954 $36 Watumull Properties •• Vacant at time of sale Portland, OR •• Premier Press sold their facility same day and will be relocating to this facility
76 Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
Parkway Corporate 6/26/14 177,288 $11,600,000 N/A Findlay Family Properties •• Owner/User
Center 1986 $65 Weston Investment Co. •• 10.37 acres of land 25600 SW Parkway Center Dr •• Property purchased to be redeveloped into a full-service Chrysler auto dealership Wilsonville, OR
Tanasbourne Business 1/2/14 112,953 $11,400,000 7.3% Pacific NW Properties •• 90% leased at time of sale Park 1996 $101 Rees & Associates •• Off-market transaction 20795-20811 NW Cornell Rd •• 3-building flex park Hillsboro, OR •• Pricing reflects heavy office build-out
Premier Press 10/1/14 110,185 $10,150,000 N/A Meriwether Partners •• 2 properties 100% leased at time of sale, 510 NW 15th/2850 NW Premier Press expected to vacate within 1937 / 1957 $92 Premier Press 31st months Portland, OR •• Redevelopment project
Seattle & Portland 2014 Investment Overview 77
Portland
OFFICE INDUSTRIAL RETAIL MULTIFAMILY
Seattle & Portland 2014 Investment Overview 79 2014 Portland retail sales ($10M+) overview
Investment volume and pricing stable
Institutional interest in Portland area retail properties remained strong in 2014, driven by solid population and economic growth and strong regional demographics. 2014 retail investment sales volume for sales over $10 million was essentially stable from the previous year, totaling $668 million after 2013 set a record high for the last decade. However the number of transactions was up significantly, with 13 properties trading, compared to nine transactions in 2013. The sale of Washington Square Mall dominated investment activity for the year and represented more than half the total volume of activity. Macerich acquired their joint venture partner’s 49 percent interest in a 5 mall portfolio sale from Cadillac Fairview. Washington Square Mall was one of the assets acquired, totaling 1,443,000 square feet, with an allocated price of $399 million. The Mall was 93% leased at the time of sale and is Oregon’s highest performing mall with sales of $1,044 per square foot. No cap rate was available but the price per square foot of $564 represents the high-watermark for the market. THE SALE OF WASHINGTON SQUARE MALL DOMINATED INVESTMENT ACTIVITY FOR THE YEAR AND REPRESENTED MORE THAN HALF THE TOTAL VOLUME OF ACTIVITY
Other activity was largely dominated by institutional investors buying well-leased grocery-anchored shopping centers with an average cap rate of 7.0 percent. Among these sales were Mall 205 and Plaza 205, sold to Gerrity by ACF Property Management for $76 million at a 6.7 percent cap, the two shopping centers were 91% leased and anchored by Home Depot and Bed, Bath & Beyond. Wilsonville Town Center also sold to Northview Investments from Retail Opportunity Investment Corp. The 170,000 square foot Thriftway-anchored community center traded for $35.1 million and a 6.0 percent cap rate. Net sellers in the Portland market this year were Retail Opportunity Investment Corp, CE John and Kirkwood Properties.
80 Portland retail leasing
Strong demographics propel retail market
Portland’s above-average population growth and offerings. Millennials call for innovation and novelty in outstanding job growth have worked in its favor, making their retail experience, and more than anything, they are it an attractive market for both corporate and retail experiential buyers, seeking to combine digital and brick expansion. The market’s reputation as a tech-center has and mortar retailing. Millennials have large buying power not only boosted employment, but has also increased and tend to favor fast fashion retailers, restaurants and the number of well-educated, highly-paid residents in the omnichannel choices. The impact on the Portland retail area. Tourism has also been a boon to the local economy; market can be seen in the development of mixed use, urban in the last year, visitors spent four percent more money on retail centers and walkable destination retail. hotels, food, entertainment and shopping than in the prior year. Thanks to increasing retail sales, retailers’ confidence Portland’s retail market saw solid improvement in 2014 with is increasing, resulting in growing expansion plans in the net absorption almost double the previous year, coming in market. Cumulative growth in the big-spender cohort at just over 1 million square feet, pushing vacancy to pre- (ages 35-54) is expected to near 3.5 percent by 2018, a recession levels, now standing at 4.8 percent. While rents factor almost certain to push up retail demand even more. fell 15 percent during Portland’s downturn, they have been Portland’s CBD is especially popular with retailers such as rebounding for the past two years and were up 4.0 percent H&M, Tory Burch, Apple and Microsoft opening new stores year-over-year in 2014. Construction in the Portland market in recent months. has been muted since 2009, but the area saw the delivery of just over 1 million square feet in 2014 with a modest The move towards urban and local is very evident in the amount of construction underway. While construction Portland retail market. What limited development underway remains minimal, it could present a challenge for expanding takes on a heavily mixed-use and walkable flavor while retailers, since vacancy is already at pre-recession levels. local and healthy continue to be the winning formula in Thanks to limited supply, pricing power should remain in the tenant mix. Portland demographics and heavy inmigration hands of landlords for the next few years. of millennials is having a large influence on retail market
WHILE RENTS FELL 15 PERCENT DURING PORTLAND’S DOWNTURN, THEY HAVE BEEN REBOUNDING FOR THE PAST TWO YEARS AND WERE UP 4.0 PERCENT YEAR- OVER-YEAR IN 2014
Seattle & Portland 2014 Investment Overview 81 Portland retail sales & statistics
Retail market statistics
Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF
CBD 5,151,778 3.8% $22.10 -6,431
Clark County 17,869,969 7.4% $16.34 190,510
I-5 Corridor 10,475,139 3.8% $21.32 449,204
Lloyd District 5,511,205 4.1% $14.88 -5,236
Northeast 20,436,712 5.1% $15.52 52,922
Northwest 1,809,029 1.8% $15.60 -12,260
Southeast 22,108,577 4.4% $15.28 134,233
Southwest 13,190,818 4.3% $17.93 236,177
Westside 9,392,120 3.6% $18.53 42,146
2014 Total Market 105,945,347 4.8% $16.86 1,081,265
2013 Total Market 104,601,889 5.3% $16.22 535,567
Sales matrix (over $10 million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Sales 13 14 6 4 9 4 5 9 13
Price/SF Highest $393 $633 $636 $173 $328 $209 $533 $405 $564
CAP Rate Average 6.8% 6.5% 6.6% 8.5% 7.9% 9.7% 6.4% 7.4% 7.3%
82 Portland retail sales ($10M+)
Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
Washington Square Mall 11/17/2014 1,443,000 $399,352,586 N/A Macerich •• Part of a 5-portfolio mall sale 9301-9799 SW Washington 1974 / 1995 $564 Cadillac Fairview •• Macerich acquired the JV partner’s Square 49% interest and now wholly owns the Tigard, OR property •• $/SF based on full value of allocated price •• 93% leased at time of sale •• Oregon’s highest performing mall with sales per SF of $1,044
Mall 205 & Plaza 205 7/31/2014 478,239 $76,500,000 6.7% Gerrity •• Two shopping centers anchored by 10120 SE Washington St Home Depot, Bed Bath & Beyond and 1971 $160 ACF Property Portland, OR 24 Hour Fitness Management •• 91% leased at time of sale
Wilsonville Town Center 12/11/2014 170,031 $35,100,000 6.0% Northview •• Community center anchored by Rite Aid 8235 SW Wilsonville Rd and Thriftway 1990 $206 Investments Wilsonville, OR Retail Opportunity •• 95% leased at time of sale Investment Corp
Hazel Dell Square 4/3/2014 85,766 $27,650,000 6.8% Giustina Resources •• 6 buildings anchored by Natural Grocers 7604-7607 NE 5th Ave and LA Fitness 2007 $322 CE John / Gramor Vancouver, WA Development •• 100% leased at time of sale
Tigard Marketplace 2/18/2014 134,323 $25,125,000 9.3% ROIC •• 8 retail properties 13520 SW Pacific Hwy 2002 $187 Mount Kellett / EVOQ •• Shopping Center anchored by H-Mart Tigard, OR Properties and Bi-Mart •• 74% leased at time of sale •• Property to be repositioned •• Off market sale
Seattle & Portland 2014 Investment Overview 83 Portland retail sales ($10M+)
Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
Sunnyside 205 12/10/2014 53,547 $17,525,000 7.0% Family Buys Trust •• Neighborhood center anchored by 9919 SE Sunnyside Rd Sunnyside Health & Wellness 1988 $327 Regency Centers Clackamas, OR Corporation •• 95% leased at time of sale
Willamette Market Place 7/10/2014 61,517 $15,305,000 7.0% Scanlan Kemper Bard •• Included 4 retail buildings and a multi- 2050 8th Ave story retail/medical building 2008 $249 Karlin Real Estate West Linn, OR •• 76.3% leased at time of sale •• Anchored by Ace and Five Guys
Progress Ridge Town 6/27/2014 65,759 $15,200,357 7.8% Spirit Realty Capital •• Property part of Shoppes at Progress Ridge anchored by New Seasons Square 2010 $231 Kirkwood Properties 14950 SW Barrows Rd •• Big Al’s under 20-year triple net lease Beaverton, OR with 15 years left
Burlington Coat Factory 7/10/2014 83,260 $13,180,000 7.5% Bilak Investments •• 100% leased at time of sale 10510 SE 82nd Ave 1959 $158 Oregon Pacific •• 10 year net lease Portland, OR Investment & •• Sale included 60,000 SF of excess land Development
Oregon City Point 8/20/2014 35,305 $12,350,000 7.1% Flair Diversified •• Class A shopping center anchored by 19478 Molalla Ave Starbucks, Five Guys and Panda Express 2007 $349 Properties Oregon City, OR Retail Opportunity •• 93% leased at time of sale Investment Corp
84 Property Closing Total SF Sale Price Cap rate Buyer Comments Date Year Built $ Per SF Seller
Big Al’s 6/27/2014 60,479 $10,539,361 N/A Spirit Realty Capital •• Sale leaseback of single building in strip 16615 SE 18th Ave mall 2006 $174 Kirkwood Properties Vancouver, WA •• 87.5% leased at time of sale •• Mall anchored by Walgreens •• Big Al’s is bar & grill with bowling
Slabtown Marketplace 6/10/2014 36,000 $10,178,000 N/A Capstone Partners •• Property purchased for land value – 2170 NW Raleigh St being re-developed into a mixed use 1952 $283 CE John Company Portland, OR project •• Will have 38,000 SF of retail (including 28,000 SF New Seasons) and 115 units of multi family •• Total project cost will be $40M
Hillsboro Town Center 11/25/2014 108,553 $10,000,000 7.5% Sidley Law Group •• Community center anchored by Bi-Mart 1975-2075 SE TV Hwy 1980 / 1998 $92 Phillips Edison & Co. •• 2 building center Hillsboro, OR •• 95% leased at time of sale
Seattle & Portland 2014 Investment Overview 85 Title right
86 Portland
OFFICE INDUSTRIAL RETAIL MULTIFAMILY
2014 Portland multifamily sales ($10M+) overview
Sales volume surges past previous peak
In 2014, Portland solidified its presence among the achieving a pricing premium. In the largest transaction, nation’s top multifamily markets. Demand for new Heitman Capital Management purchased Rock Creek apartments surged, resulting in quick absorption and an Landing from UBS for $80 million. The 480-unit Hillsboro incredibly low number of properties offering concessions. property adjacent to The Streets of Tanasbourne festival Growth was spurred on by record high job numbers as marketplace was 95 percent leased at the time of sale and well as strong upticks in both the metro’s total population traded at a 4.8 percent cap rate. and labor force. Overall year-over-year rent growth surged past 10 percent, with vacancies continuing to hover well Looking to 2015, economic indicators point toward below 4 percent. Assets sold at historically low cap rates, continued strength within the Portland metro area. averaging just 5.6 percent with premier assets trading a Multifamily development will remain robust, with cap rates below 5 percent. Total transaction volume for developers seeking to minimize the metro’s overall rental institutional deals was robust at $1.2 billion, continuing housing shortage. Reports show that new properties at a pace on par to set new records. Sales volumes were are typically of institutional caliber (150 units or greater) almost double those seen in 2013, and higher than the with an emphasis on smaller unit types (one bedroom volume experienced during the height of the previous and studio floor plans), which are generally commanding cycle. The number of transactions was also significant, greater pricing on a per foot basis. Rent growth is up to 37 from 20 in 2013. Sale receipts also show new expected to continue at a healthy pace and absorption benchmarks for price per square foot within traded will remain strong as more millennials flood the market multifamily assets and a new high-watermark was set for and employment numbers, as well as office leasing and price per unit with the sale of the Asa Flats and Lofts, expansions, continue to swell. Consequently, the Portland $456,710. Unico sold the 231-unit urban project sold to metro is expected to continue its upward trajectory within Invesco for $105.5 million, and a cap rate of 4.5 percent. the multifamily sector, offering strong returns for investors.
A significant number of newly constructed urban projects traded hands in 2014 with very strong pricing as they remain a favorite among institutional investors. The projects were generally well-leased and commanding the highest rents in the market. These assets traded at the lowest cap rates in the market, between 4.4 and 5.0 percent. The market also saw an uptick in trades for suburban properties, with those in mixed-use settings
Seattle & Portland 2014 Investment Overview 89 Portland multifamily sales & statistics
Sales matrix (over $10 million)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Total # of sales 25 27 21 8 16 21 20 20 37
Highest price per unit $146,610 $294,077 $455,340 $184,659 $285,149 $395,000 $267,241 $343,017 $456,710
Cap rate average 6.1% 5.2% 5.4% 7.2% 5.9% 5.7% 5.7% 5.6% 5.6%
Total sales volume ($ in $458M $1.1B $688M $266M $485M $690M $660M $702M $1.2B millions)
ASSETS SOLD AT HISTORICALLY LOW CAP RATES, AVERAGING JUST 5.6 PERCENT WITH PREMIER ASSETS TRADING AT CAP RATES BELOW 5 PERCENT
90 Portland multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Asa Flats + Lofts 6/19/2014 $105,500,000 231 4.5% Invesco 1200 NW Marshall St $456,710 2008 Unico Portland, OR $435
Rock Creek Landing 8/19/2014 $80,000,000 480 4.8% Heitman Capital Management 3009 NW Overlook Dr $166,667 1995 UBS Hillsboro, OR $185
One Jefferson Parkway 6/03/2014 $63,000,000 347 N/A Friedkin Realty Management Group 1 Jefferson Pkwy $181,556 1985/2007 Prometheus Lake Oswego, OR $172
Thorncroft Farms 1/23/2014 $58,000,000 340 5.5% Berkshire Property Advisors 2120 NW Thorncroft Dr $170,588 1998 Crow Holdings Hillsboro, OR $155
CE John Portfolio 12/1/2014 $31,900,000 92 N/A LaSalle Investment (3 Properties) $346,739 2012 CE John Company Franklin Ide 2240-2250 NW Lovejoy St $398 Portland, OR
Benevento 12/1/2014 $12,100,000 24 N/A LaSalle Investment 1606 NW 23rd Ave $504,167 2013 CE John Company Portland, OR $404
Seattle & Portland 2014 Investment Overview 91 Portland multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Sawyer’s Row 12/1/2014 $11,200,000 40 N/A LaSalle Investment 1950 NW Raleigh St $280,000 2013 CE John Company Portland, OR $265
Arbor Heights 10/20/2014 $54,100,000 348 4.7% CBRE Global Investors 15199 SW Royalty Pkwy $155,460 1997 Capri Capital Partners Tigard, OR $190
Harrison Tower 12/16/2014 $53,000,000 185 5.0% Sequoia Equities 222 SW Harrison St $286,486 1965/2007 Alecta Real Estate Investment Portland, OR $355
Sofi at Murrayhill 8/01/2014 $53,000,000 351 N/A PUR Housing America 11103 SW Davies Rd $150,997 1990 JP Morgan Beaverton, OR $174
Tupelo Alley 2/7/2014 $52,900,000 188 4.4% JP Morgan 3850 Mississippi Ave $281,383 2009 Behringer Harvard/ PGGM Portland, OR $224
The Landing 8/25/2014 $52,500,000 302 5.4% The Randall Group 19901 Coast Redwood Ave $111,446 2011 VergePointe Capital Oregon City, OR $133
Green Leaf Monterey 4/24/2014 $51,250,000 390 6.0% Green Leaf Partners 8640 SE Causey Ave $131,410 2008 Blue Vista Capital Partners Portland, OR $140
92 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Avana Orenco Station 8/26/2014 $51,000,000 264 5.0% Greystar Real Estate Partners Apartments $193,182 1998 Invesco 6710 NW Vinings Way Hillsboro, OR $209
Arbor Creek 9/26/2014 $47,250,000 440 5.8% Jackson Square Properties 3280 SW 170th Ave $107,386 1984 Holland Partner Group Beaverton, OR $140
Westview Heights 8/18/2014 $44,800,000 198 4.8% Sares-Regis Group 18301 NW Chemeketa Ln $226,263 2003 Kennedy-Wilson Portland, OR $156
Lumina Apartments 10/17/2014 $43,550,00 440 6.0% Grand Peaks Properties 2700 W Powell Blvd $98,977 1994 Fowler Property Acquisitions Gresham, OR $121
2121 SE Belmont 12/1/2014 $42,300,000 123 N/A RREEF 2121 SE Belmont St $343,902 2007 Berkshire Group Portland, OR $233
Honeyman Hardware Lofts 11/1/2014 $37,050,000 100 4.7% DiNapoli Capital Partners 555 NW Park Ave $370,500 1903 Lubert-Adler Partners Portland, OR $268
Vista @ 23 3/26/2014 $27,000,000 278 6.8% Bridge Investment Group Partners 3181 NE 23rd St $97,122 1990 Harbour Realty Partners Gresham, OR $94
Seattle & Portland 2014 Investment Overview 93 Portland multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
The Addy 8/07/2014 $26,650,000 104 4.5% Zurich Alternative Asset Management 1222 NW 18th Ave $256,250 2014 Mountain West Investments Portland, OR $288
Tualatin Meadows 10/30/2014 $23,750,000 240 N/A Affordable Housing Associates 18755 SW 90th Ave $98,958 2001 GSL Properties Tualatin, OR $138
Creekside Village 12/16/2014 $19,970,000 132 N/A ConAm Group of Companies 3100 Falk Rd $151,288 1992 Westbridge Properties Vancouver, WA $102
The Gables at Mountain Park 1/9/2014 $19,500,000 129 5.5% Sares-Regis Group 2 Jefferson Pkwy $151,163 1991 Belkorp Industries Inc Lake Oswego, OR $156
Green Leaf Cascade Park 8/25/2014 $18,500,000 166 5.5% Green Leaf Partners 604 SE 121st Ave $111,446 1987 Guardian Management Vancouver, WA $124
Townhomes With A View 12/19/2014 $16,250,000 192 N/A NBP Capital 9840 SE Talbert St $84,635 1987 HSBC Bank Clackamas, OR $55
The Preserve 12/30/2014 $16,025,000 135 6.5% Objective Real Estate Partners 19839 Highway 213 $118,704 1994 Fowler Property Acquisitions Oregon City, OR $170
94 Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Lewis Ridge Apartments 4/17/2014 $15,662,147 112 6.1% Eaton Vance Corp 7915 NE Burton Rd $139,841 2013 Darren Welborn Vancouver, WA $136
Sunnyside Place Apartments 7/17/2014 $14,100,000 108 5.8% Hamilton Zanze & Company 13300 SE 122nd Ave $130,556 1991 Wood River Management $131
Chesapeake Pointe 10/16/2014 $14,000,000 159 5.8% Bischoff Properties 4400 SE Naef Rd $88,050 1988 Summit Realty Group Milwaukie, OR $106
Causey Village 6/30/2014 $13,500,000 72 N/A Reliant Group 8411 SE Causey Ave $187,500 2007 J & R Group Portland, OR $140
Seasons on the Park 10/22/2014 $13,350,000 120 5.8% Becki Christian 1017 SE 12th Ave $111,250 2013 Transpacific Investments Battle Ground, WA $123
Stark Street Crossings 8/22/2014 $13,100,000 130 6.1% OpenPath Investments 20433 SE Stark St $100,769 2003 B3R Properties Gresham, OR $111
Beef Bend Court 4/15/2014 $13,100,000 120 6.0% Hamilton Zanze & Co 13880 SW Chinn Ln $109,167 1998 Guardian Management Tigard, OR $129
Seattle & Portland 2014 Investment Overview 95 Portland multifamily sales ($10M+)
Property Closing Date Sale Price Units Cap rate Buyer $ Per Unit Year Built Seller $ Per SF
Courtyard at Cedar Hills 03/31/2014 $11,675,000 145 6.5% Prime Residential 13643 SW Electric St $107,356 1969 Granite Bay Capital Group Beaverton, OR $90
Fifth Avenue Court 07/29/2014 $10,606,000 96 7.0% Cascade Housing Association 221 NW 5th Ave $110,479 1999 Kalberer Company Portland, OR $134
The Enclave/Trailside 04/24/2014 $10,050,000 120 5.5% Summit Real Estate 4850 SW 11th St $83,750 1999 Fowler Property Acquisitions Gresham, OR $82
96 601 Union Street, Suite 1100, Seattle, WA 98101 tel +1 206 607 1700 fax +1 206 607 1701 225 108th Avenue NE, Suite 550, Bellevue, WA 98004 tel +1 425 974 4000 fax+1 425 974 4020 1 SW Columbia, Suite 550, Portland, OR 97258 tel +1 503 972 8000 fax +1 503 972 8001
JLL.com 601 Union Street, Suite 1100, Seattle, WA 98101 tel +1 206 607 1700 fax +1 206 607 1701 225 108th Avenue NE, Suite 550, Bellevue, WA 98004 tel +1 425 974 4000 fax+1 425 974 4020 1 SW Columbia, Suite 550, Portland, OR 97258 tel +1 503 972 8000 fax +1 503 972 8001
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