By Meghan Hall
Between them, Laird Norton Properties (LNP) and Heartland LLC have more than a century’s worth of experience in Seattle’s real estate market and have seen their city grow and change more rapidly than ever before. At the end of January 2019, the two companies announced a strategic merger with the intent of diversifying their already impressive real estate portfolio even further. The Registry spoke with Jeff Vincent, president and CEO of LNP, and Jim Reinhardsen, president of LNP and senior managing director of Heartland LLC, about the companies’ plans for the future.
Jim, tell us a little bit about your career at Heartland, and how it has prepared you to take over as President of Laird Norton Properties. What are you looking forward to most in your new position, and why?
For thirty years, I have worked with a broad range of clients helping to design and implement strategies for real estate in the Pacific Northwest and beyond. Laird Norton Properties has been a client of Heartland since 2006. They know us. We know them. We have similar values and approaches. LNP takes a long-term approach to investment in real estate. Many of Heartland’s engagements have been with clients and partners that also have long-term perspectives. By combining capabilities and assets, we will become a fully integrated real estate enterprise prepared to execute in any market or market cycle.
Over the course of this market cycle since the Great Recession, how has LNP seen the Seattle real estate market change?
From the doldrums of 2009 and 2010, the Seattle real estate market has rebounded to a period of tremendous growth with Amazon’s move to the CBD. With healthy job creation, as well a strong regional, national and international investment interest, new development outpaced all expectations. However, this growth brought the challenges of rising construction costs, increased rents, affordability and infrastructure not quite keeping up with the rapid urbanization of this market.
In light of these opportunities and the associated risks in this market cycle, how has LNP chosen to participate in this market?
Early in this cycle, LNP sought best-of-class real estate platforms to partner with in programmatic relationships anticipating multiple investments with agreed-upon investment criteria. For example, LNP’s partnership with Unico led to successful commercial office investments in Seattle, Portland, Denver and Salt Lake City. More recently, LNP has partnered with Spectrum on Workforce and Student Housing in the Puget Sound area. While continuing to work with its partners, LNP is now engaging in direct investments in these and new markets.
Was 2018 what LNP expected it to be, in terms of real estate investment in the Puget Sound Region?
In 2018, Seattle real estate investments became more challenging. Costs and interest rates have been rising. Valuations have been escalating. Consequently, investment returns are decreasing. Nevertheless, competition for projects has increased with some investors willing to pay premium for a place in this market. LNP’s long-term view has required patience while remaining confident about this market’s strength into the future.
Has LNP seen any trends emerge over the last year that will be particularly relevant for 2019?
Decreasing affordability, cost effective construction, the needs of an aging demographic, the surge of co-working spaces, the challenge and needs of the homeless population and the increase in TOD development are among the trends to watch. Further, there is a renewed focus on relationships as expected when cycles change and are in an uncertain stage.
Tell us a little bit about the working history between LNP and Heartland. When did the two companies first discuss a merger? Why is now an opportune time for the merger to occur?
Heartland’s first project with LNP dates back more than 12 years. Since then, Heartland has been a trusted advisor. Discussions about a potential merger emerged from strategic discussions in August of 2018. It became apparent that our long-term perspectives, shared values, similar cultures and combined potential presented a once-in-a-generation opportunity to create a truly differentiated real estate enterprise.
How will the alignment of LNP and Heartland fuel the growth of LNP’s existing portfolio in the region, while also expanding Heartland’s services throughout the United States?
LNP and Heartland intend to grow in current and additional markets. The combination of Heartland’s comprehensive real estate advisory capabilities and LNP’s real estate and business expertise will lead to new opportunities, locations and relationships. LNP is particularly interested in identifying high quality assets in its current markets and forming relationships with families and others that share long term perspectives.
What excites LNP most about the next 12-24 months? Conversely, what worries LNP the most, and what challenges will the company face in the year ahead?
LNP/Heartland is excited to be well-positioned at this time in the market. We have the breadth of capabilities, discipline, innovation and reputation to succeed. The challenges we see are ones that we can’t control. These are uncertain times, which impact our national and local economies. Patience will be required.