By Jon Peterson
Des Moines, Iowa-based Principal Real Estate Investors has made an equity investment in a new office development in South Lake Union for its green investment fund, the Principal Green Property Fund. The property is located at 1812 Boren Avenue in Seattle.
“This investment fits well with the investment strategy we have for this fund. This is to invest capital into green projects that we think are located in strong growth markets. For the office building that we invested in, our goal is to have it achieve LEED Silver status for the future. We also will be using e-commerce friendly materials and there will be bicycle racks on site so that the employees of the tenants in the building can ride their bikes to work if they choose,” says Rod Vogel, senior managing director with Principal.
He declined to comment on the amount of equity that Principal invested in the project and its total development cost. He did say that the real estate manager will be the majority owner of the office building going forward. Its development partner on the project is Seattle-based Touchstone. Its chief development officer A-P Hurd did not respond to several phone calls seeking comment for this project.
For Class A office space, the vacancy at the end of 2014 for Seattle was 9 percent and for the South Lake Union sub-market was 3 percent.
The development of 1812 Boren is a mixed-use project. It has office space and a 37-story apartment complex where there will be 410 apartment units built. This part of the project is being done by Atlanta-based AMLI Residential and the Seattle office of Mortenson Development. The Seattle office of ZGF Architects designed the project with Seattle-based Swift Co. as the landscape architect and Seattle-based Magnusson Klemencic as the civil/structural engineer.
The office building part of 1812 Boren is a 292,000 square foot 11-story property. Construction on this project will start in about 30 days. It should be completed sometime during the second quarter of 2017.
This will be a spec project. “We feel strongly about both the Seattle market and the South Lake Union sub-market. This is because where vacancies are and that there are technology firms and financial services firms that are growing in the area. For Class A office space, the vacancy at the end of 2014 for Seattle was 9 percent and for the South Lake Union sub-market was 3 percent,” said Vogel.
He likes the location of the South Lake Union sub-market. “It’s both close to public transportation and is also near I-5 for those people who commute on their own,” said Vogel.
Principal is no stranger to funding office developments in Seattle. The real estate investment manager is also involved with Touchstone another office development in South Lake Union at 1821 Boren Avenue. This is an 11-story 300,000 square foot property that should be completed in the near future. This is another investment for the Green Property Fund.
Principal is also involved with Trammell Crow Company on a joint venture to develop 929 108th Avenue Northeast in Bellevue. This is a 450,000 square foot office project that should be done by the first or second quarter of next year. The capital source on this project is the Principal U.S. Property Account, which is a core open-ended commingled fund managed by Principal.
The Green Property Fund is a commingled fund managed by Principal. It has a total capitalization of $1 billion. A couple of investors in the fund are the Teacher Retirement System of Texas and the Los Angeles Fire & Police Pension System.
The investment strategy for the commingled fund is to invest equity in new development projects or to buy existing properties that have a value-add component. The targeted property types are office, industrial, retail and apartments.
“This is a nationwide investment fund. We are looking for deals in the top 20 to 25 markets in the U.S. We are targeting net IRRs in the range of 15 percent to 20 percent,” said Vogel.
Photo courtesy of ZGF Architects