By Jack Stubbs
Laird Norton Properties recently added another commercial asset to its Puget Sound Region portfolio.
On Thursday November 2nd, the Bear Creek Corporate Center in Redmond sold for $38.5 million, or roughly $231 per square foot, according to sources familiar with the transaction. Seattle-based Laird Norton Properties is real estate investment firm that owns and operates a national portfolio. The seller of the commercial property was Metzler Real Estate, another Seattle-based company that provides independent advice and investment services to private and institutional clients investing in real estate markets throughout North America.
Tom Pehl and Lou Senini of CBRE Capital Markets in Seattle advised the seller in the sale, and Jack Standeford of CBRE Debt and Equity Finance advised the buyer on securing new financing, according to sources familiar with the transaction.
Bear Creek Corporate Center is comprised of two office buildings totaling 166,751 square feet located at 17411 and 17425 NE Union Hill Road in Redmond. Building A, built in 1988, is comprised of 73,029 square feet, while Building B, built in 1991, is comprised of 93,722 square feet, according to the property report written by CBRE.
The two-building office park—which includes 512 on-site parking spaces—is located one mile to the west of downtown Redmond and sits in close proximity to Washington State Route 520 and Interstate 405. Additionally, the property is one mile from the Redmond Transit Center and will be proximate to the Redmond Light Rail station planned for 2023.
The property report highlights the asset’s location as one of its primary features—the commercial property’s appeal reflects the variety of diverse high-growth industries currently thriving in the Puget Sound Region, including aerospace manufacturing, software, technology, life sciences, retailing and global health. The report notes that these industries continue to contribute to Seattle’s status as one of the nation’s most prominent office markets, with over 15 million square feet of positive net absorption since 2010 and one of the lowest unemployment rates in the nation.
Current demand in the two-building property is strong. Building A is 100 percent leased to Univar USA Inc., a leading global distributor of chemistry-related products and services. Building B is 71 percent leased, with recent leasing to tenants including GeoEngineers, Inc., an engineering consultant and Aduro. According to the property report, both of the tenants will invest additional capital into their respective buildouts and will take occupancy late this year, providing investors the maximum remaining lease term.
According to the property report, the property is an attractive proposition for investors, with current in-place cash flow and an average lease term of five years. Currently 84 percent leased in total, the building provides potential investors the opportunity to increase returns on the property upon leasing of the remaining space. The property is unencumbered by existing debt, allowing investors to generate strong leveraged cash returns.
The Class A office property has also been extensively revamped and renovated in recent years from 2006 to 2009—with recent capital expenditures exceeding 5.7 million, according to the report. The asset received extensive work on mechanical systems, roofs as well as upgraded electrical and fiber optic systems. More recently in 2017, the outdoor courtyard was upgraded to include outdoor furniture and lighting. Some of the interior improvements include a combination of open workspaces and executive offices, as well as designated conference facilities and upgraded common areas, according to the property report.
The outlook for the Eastside office market in general is positive, driven in large part by the presence of software, technology and retail industries and anchored by Microsoft’s headquarters. According to the report, the Redmond submarket has experienced strong leasing activity, thus driving vacancy rates down over 400 basis points, to 5.6 percent as of Q1/2017, and office rents increased approximately 24 percent over the same period.
Microsoft’s policy to migrate its partners and vendors from its main campus to other areas has been a major factor. As a result of subsequent increased demand and tenant in-migration, office market supply in Redmond is at a premium. With the combination of land scarcity, job creation, and positive office absorption, the forecast for rental rate growth of 15.6 percent over the next five years in the Redmond submarket, according to CBRE Econometric Advisors.
Laird Norton Properties seeks to invest in commercial assets that offer the potential for attractive risk adjustment returns, focusing on Class A and Class B properties. The company acquires and invests in a wide variety of asset types, including office, mixed-use, multifamily and industrial, with the company’s current portfolio valued at more than $500 million. Since 2010, the company has diversified the real estate portfolio through the investment of more than $90 million in nine properties in Seattle, Portland, Denver and Salt Lake City, according to its website.
One of the company’s commercial assets in Seattle is Stone 34, a a mixed-use 132,000-square-foot property in Fremont that the company purchased with Unico Properties in 2014. Together, the company’s three commercial assets in Seattle—Stone 34, the 75,000 square foot Continental Plaza and 2323 Elliott, a 72,000 square foot building—comprise 279,000 square feet.
Founded in 1976 in Seattle, Metzler Real Estate executes customized investment strategies to its clients. Currently, the company has more than $5 billion worth of assets under management nationwide, according to its website. The company’s other commercial investment in Seattle is the MasterPark garage at the SeaTac.