By Jon Peterson
Chicago-based LaSalle Investment Management has paid $68 million to acquire the 545,859 square foot Des Moines Creek Business Park Phase I in Des Moines, Wash. according to multiple sources familiar with the transaction. That sales comes to just over $124 per square foot.
The seller of the property was a joint venture with New York City-based MetLife and Panattoni Development Company, which worked on the sale out of its Seattle office. Panattoni was the original developer of the property. The company did not respond to phone calls seeking comment for this story.
The listing agent on the sale was CBRE. One of the people involved in the transaction was Brett Hartzell, an executive vice president in its Seattle office. Hartzell declined to comment when contacted for this story.
The property involves a ground lease with the Port of Seattle. This lease has a term of 53.4 years with two 10-year extension options. The fixed ground lease has a 10 percent increase every five years. The asset is now 100 percent leased to six tenants. These firms are K-2 Corporation, PODS, Greencore, Organically Grown, Kardiel and Meiko America.
The leases have 11 years of remaining lease term and a diversified rent roll with staggered rollover. There will be a chance to add some value in the future for LaSalle mainly due to the fact that the current rents in the property are 12 percent below markets rates, offering upside in the net operating income of the property upon rollover.
The cap rate on the transaction was 4.265 percent. This return is based on the current income being produced by the asset. The complex is located at 2021, 2231 and 2341 South 208th Street in Des Moines, and it covers 29.39 acres of land. The office part of the project is 45,366 square feet or 8.46 percent of the total square footage.
The sale of the first phase of the Des Moines property is part of a strategic joint venture that MetLife has with Panattoni on a national basis for industrial properties. “The markets that we are covering for this venture are Seattle, Los Angeles, Atlanta and Chicago,” says Kaya Murray, a director for MetLife. She works out of the investor’s regional office in San Francisco. Her areas of coverage are San Francisco up to Seattle and east of Denver.
There is a total of three phases for the Des Moines Creek Business Park project. The second phase of the project is a build-to-suit for the GSA. This segment of the project totals 281,805 square feet. The project should be finished by the second quarter of 2018. The third phase is a building totaling 501,691 square feet. The construction date will be started in the first quarter of next year and be completed during the fourth quarter of next year.
MetLife is excited about the final phase of the project. “We have already pre-leased 90 percent of the building. It has not been determined when this building might be sold,” said Murray.
MetLife and Panattoni own three other assets together in the greater Puget Sound market. Two of the properties are completed. These are the 159,250 square foot Tamarack property in Sumner and the 206,463 square foot The Steele Building in Sumner. The two owners will be starting the development of a new building in the first quarter of next year. This is the 175,306 square foot Enterprise building in Fife. This construction of this property should be finished by the fourth quarter of next year.
MetLife makes its investments into the venture with Panattoni for two of its capital sources. These are the general account of Met Life and for its core commingled fund, the MetLife Core Property Fund. This commingled fund had a net asset value of $1.7 billion, through the end of 2015. The capital invested in the developments by the Core Property Fund are done so through a build-to-core strategy.
The venture between MetLife and Panattoni is setup with MetLife being the majority owner. The capital invested into the projects is done so on a deal-by-deal basis, instead of a certain amount of capital earmarked for the strategy.
The Puget Sound industrial market has seen vacancy drop significantly since the end of 2014. It has moved from 7.4 percent at the end of 2014 to 4.9 percent through the second quarter of this year. The total amount of square footage in the market is 261 million square feet.