By Meghan Hall
Since the Great Recession, Seattle has grown by leaps and bounds, its pace of expansion rivaling some of the country’s largest cities and biggest markets. Now considered a gateway market, the city is continuing to lure domestic and international companies, which are vying for space as developers strive to keep up with demand. However, one of Seattle’s long-established developers, Martin Selig Real Estate (MSRE), still sees time left in the current development cycle. The Registry caught up with the company’s Managing Director, Jordan Selig, to dive further into MSRE’s predictions for the future of Seattle’s commercial real estate market.
2018 was a strong year for the commercial real estate industry; what surprised you about the past year, and what projects were most memorable for you?
I’m involved in all of our new developments, and all of them are special to me since each of them is unique. Last year, I focused specifically on our 400 Westlake project and on our Federal Reserve Bank project. Both of them will be examples of maintaining and building upon an existing historic structure. The existing buildings at both locations are already under renovation. We began foundation work on the Federal Reserve Bank site in November 2018 and will start work on the foundation at 400 Westlake in the second quarter of this year. We’re building these speculatively, so a focus of mine this year is going to be on finding the companies to occupy these unique buildings.
At 400 Westlake, we’ll be preserving the historic Firestone Tire Building and turning it into a 15-story office project with a total of 200,000 square feet of office space, plus ground-floor retail with high-bay space, in the heart of South Lake Union.
On 2nd Ave. between Madison and Spring St., we’ll be refurbishing the Federal Reserve Bank building – a national historic landmark – and turning it into a 13-story office project, with a total of 175,000 square feet of office space, plus a gorgeous ground-floor food and beverage and shopping area.
Did development and construction for office space in Seattle keep up with demand in 2018? What were some of the biggest challenges in 2018 as a result of heightened demand?
The demand for new office space in Seattle has far outpaced available space in recent years. Seattle’s economy is experiencing a tremendous and unprecedented period of expansion, due mostly to robust job growth. I’m particularly glad to see Seattle’s economic backbone diversifying, not only as a developer and landlord but also a citizen, someone who grew up here and has always called Seattle home.
Seattle is booming, as evidenced by many of the country’s most profitable companies opening up large offices here. Culturally too, Seattle is growing up. I highly recommend a visit to the Seattle Opera or Pacific Northwest Ballet at McCaw Hall – both are world class.
Given the strong market demand, the biggest challenge for us in 2018 was to get our projects permitted quickly. The process can be a long one these days. Everyone at SDCI (Seattle’s Department of Construction & Inspections) works incredibly hard, but it’s clear that they’re overwhelmed with new project applications and need more resources.
Luckily, our development team, which includes architects, contractors, engineers and project managers, is highly experienced and skilled at responding to the many challenges that naturally arise during the development process. I am privileged to be a part of this talented and hard-working team of individuals, many of whom have been with our company for decades. One learns many new things with every project, and puts those lessons to use with future projects, so it’s invaluable to have the same team working together over time.
We are energized by this new phase of Seattle’s development and are rising to the challenge of building in the 21st century, with a number of LEED buildings already in our portfolio, and with 400 Westlake set to implement Seattle’s new Living Building Pilot program. As a result, 400 Westlake will be the most sustainable building of its size and type in the United States. I was proud to have a hand in the creation of the Living Building Pilot program and hope to see other developers take advantage of it as well.
Martin Selig Real Estate has been involved with the Seattle commercial real estate market since the 1950s. What is your perception of the current development cycle? How does it compare to others?
Specific to Seattle, there are two cycles now in play. One is the shorter-term development cycle, which has lasted an extraordinarily long time already, but its end is not yet in sight. The other cycle is longer-term, characterized by the closing gap between Seattle and other big-name cities like New York and San Francisco.
For international companies, Seattle is now a “gateway” city, where they may open a first office in the United States. That wasn’t typically the case before. Also, Seattle’s growth rate in rents has surpassed that of Manhattan and the Bay Area for many years now. As said, the gap is closing.
What does a successful office product look like today? As a developer, what do fundamentals do you look at before investing in a property? How has this evolved over the course of Martin Selig Real Estate’s tenure in Seattle?
A successful office product is always one that is built to last and caters to its tenants. Period. The developer and client working together is a model that always works.
Co-working is a phenomenon in which we believe strongly. WeWork and WeLive are taking 36 stories of office, apartment and amenity space from us at 3rd and Lenora, in fact. The building is now under construction and will be completed in 2020.
Most companies have been shifting toward a more open layout and remote working capability for quite a while now. There’s also a strong emphasis on employee perks like food and fitness, and on creating a healthy workspace with natural light and fresh air, tasteful art and seasonal landscaping.
As a company, we’ve always been ahead of the curve in creating spaces for our tenants that are both functional and pleasing to the eye. That’s part of the reason why our retention rate is so good. Also, we have the best management team out there. Many of our company’s tenants have been with us for longer than I’ve been alive!
What are you looking forward to in 2019, and what challenges do you anticipate facing in the coming year? How do you approach risk in the industry?
We have so many things to look forward to this year: breaking ground on 400 Westlake and the Federal Reserve Bank building, wrapping up construction at 15th and Market and 3rd and Lenora and the Design Review Board process on 75 Marion, our newest project, on a full city block across from the ferry terminal on Alaskan Way.
As a City, we have the opening of the tunnel to look forward to in the coming weeks. This is going to transform downtown in unimaginable ways. The reduction in street traffic is going to make downtown and the waterfront far more pedestrian friendly. It’s going to change the whole ambience at the street level.
Since we’re a private company without any partners, we have no investors to pay back, and thus can take the long-term perspective. Most other development companies have to take a shorter-term perspective. In my opinion, that’s the main reason why we don’t see office development keeping up with demand in Seattle.
We approach risk by never over-leveraging. We are quite conservative when it comes to the leverage point on our construction and permanent financing. Since we build to hold, and plan on being around for many generations to come, we think forward. The market will not always be growing so quickly as it is now, and interest rates will not always be so low.
Keeping our tenants happy is always the first priority. That’s why we put the strongest focus on tenant satisfaction, and we do everything in-house. Engineering, janitorial, architecture, construction, landscaping, leasing, garbage, security, parking – we do it all! Everyone you see on a Martin Selig Real Estate property is wearing the MSRE uniform, and many of our employees have been at the company for decades. Education is one thing, experience is another.
The way we manage risk is by keeping our tenants and employees happy. That’s why the turnover rate amongst both groups is so low. At the end of the day, that’s what it’s all about.