Since the onslaught of the global pandemic, the commercial real estate markets through the world have mostly frozen up. While some deals happened because they were in advanced discussions, others also fell through as companies walked away from non-refundable deposits thinking that this downturn may indeed be deep and wide across the industry. Seattle was not immune to this, and The Registry reported one such instance where Blackstone pulled out in early April from a deal to purchase the 170,000 square foot office building in Seattle located at 325 Eastlake Avenue East, also known as Yale & Thomas.
Just a month earlier, in early March, Seattle-based Urban Visions had placed on the market 200 Occidental in Pioneer Square. The Mithun-designed, LEED Platinum, 183,000 square foot property is fully leased to Weyerhaeuser and a couple of retail tenants on the ground floor. Some had placed the guidance pricing on the property at around $160 million, or roughly $875 per square foot. Urban Visions developed the project just a few years ago, and scored a major win with Weyerhaeuser relocating from its venerable headquarters in Federal Way to Seattle’s oldest neighborhood.
JLL is the listing agent on the sale of 200 Occidental.
Just a couple of weeks ago, it was reported in one industry newsletter that Skanska had also entered the seller market by placing its recently developed 2+U tower on the market. The 701,000 square foot, 38-story, class A property was just recently fully leased, as well, giving Skanska a marketable asset with predicable cash flow. This property is located at 1201 Second Avenue, and it is leased to Qualtrics for 275,000 square feet, Dropbox for 121,000 square feet, Indeed for 198,000 square feet and co-working tenant Spaces for 91,000 square feet.
Eastdil Secured is marketing the asset on behalf of Skanska, according the industry sources.
A recent, second quarter of 2020 industry report by the Broderick Group also confirmed that Skanska’s building was on the market, now giving potential investors a few options to consider.
Some industry anecdotes have identified buildings with long term leases to be more favorable in the new, post-Covid climate. While properties with leases expiring over a shorter term also meant increased rents going forward, the new environment may now bring unpredictability in that model, since it is uncertain if current tenants may renew their leases of if others will be in line to take over the space in case they do not. Therefore, a property with long term leases may seem like a better investment until the downturn recedes.
Comparing these two properties, it will be interesting to see if a single-tenant property will yield more interest than one that has more tenants. Also, investors will have to ask themselves how much opportunity they see in the Seattle office market and weigh the benefits of investing roughly $160 million for a smaller asset, or over $600 million for a larger one. That may attract different buyers, but certainly the market’s appeal will be tested and perhaps even portend its ability to withstand the current market dynamics.