By Jon Peterson
New York City-based MetLife used its MetLife Core Property Fund as its capital source for the $129.4 million acquisition of Alley 24 located at 223 Yale Avenue North in Seattle, according to sources familiar with the transaction.
The Core Property Fund is a commingled fund with total assets in the neighborhood of $2.5 billion. This commingled fund has an open-ended investment structure. This means that MetLife is always seeking to raise additional capital. This compares to closed-ended commingled funds that have a specific time period to raise capital.
Institutional investors are increasingly attracted to the Seattle market, and our market fundamentals are very strong making it a good time to sell some high quality assets
The seller of the property was Seattle-based Vulcan Real Estate. “Institutional investors are increasingly attracted to the Seattle market, and our market fundamentals are very strong making it a good time to sell some high quality assets. Vulcan will use the proceeds for future land and value-add investments in the Puget Sound region,” says Lori Mason Curran, director of real estate for Vulcan.
She believes that there was a reason why the property was only 85 percent leased in a market that has overall vacancy much lower than that. “Some leases recently came due, and the building could not accommodate expansion for those tenants who leased larger space elsewhere,” said Curran.
Vulcan had been the owner of Alley 24 when it was first developed in 2006. It built the property in a joint venture with Pemco. The sale to MetLife was only for the 190,000 square feet of office and 25,000 square feet of ground floor retail space. The project did have a residential portion that was sold to Greystar a year ago for $58.2 million.
There are many factors that make the overall Seattle office market an attractive one. “The vacancy for office buildings in downtown Seattle is now at 8.1 percent. This puts it at the seventh lowest office vacancy in the country out of the top 50 markets. The vacancy has been lowered by 500 basis points from its peak in 2011. There also is the fact that rents have been growing five percent to six percent on an annual basis since 2011,” says Melissa Reagen, head of real estate and agricultural research at MetLife Real Estate Investments and Agricultural Investments.
The Seattle market has seen a tremendous growth in the amount of office deals that were closed in 2015. “There were a total of $5.5 billion worth of office acquisitions closed in overall Seattle market in 2015. This doubled the amount that were done in 2014. The Seattle office CBD transaction volume was $2.9 billion and the pricing came in at $471 per square foot. The sales price for the entire Seattle market was at $345 per square foot. This level of pricing represented a 7 percent increase from 2014,” said Reagen.
MetLife sees continued demand for office space in the Seattle market. “There are many tenants in general that are looking at the market as more of an affordable market than a place like San Francisco, where the rental rates are 50 percent more. The types of tenants include science, technology and engineering firms,” said Reagen.