By Jon Peterson
San Francisco-based TPG Real Estate has closed on the acquisition of the 536,958 square foot office complex Millennium Corporate Park in Redmond for $153.5 million, or close to $286 per square foot, according to public documents. The six-building campus is located between 18200 to 18700 Northeast Union Hill Road.
New York City-based TH Real Estate was the seller on behalf of TIAA Real Estate Account, according to sources familiar with the transaction. The seller did not respond in time for comment for this story. The listing agent on the sale was the Seattle office of CBRE, and the lead people on the sale were Tom Pehl, Lou Senini and Todd Tydlaska. CBRE and TPG both declined to comment.
The complex is now 96 percent occupied by two tenants. The main tenant is Microsoft, which leasing 89 percent of the space, and Golder Associates leasing the remaining seven percent. The complex is made up of six office buildings, ranging in size from approximately 80,000 square feet to 100,000 square feet. The location is in a highly accessible location in Redmond, less than three miles from Microsoft’s campus with multiple modes of transportation in its vicinity, including Redmond Transit Center, regional park-and-ride facility and two regional light rail stations in downtown Redmond, which are opening in 2023
The rents in the property are considered somewhat below market, as much as 21 percent, according to one source, which could provide added value opportunity for the new ownership. According to a recent, second quarter of 2018 Eastside office market report by the Broderick Group, leasing rates on the Eastside are hovering around the high $35 range and are projected to hit high $37 range by 2019. Vacancy in the Class A office market on the Eastside currently sits below 7 percent, at 6.69 percent, according to the report, the lowest it has been in over a decade.
The Redmond office market is in line with these figures, and it doesn’t currently have many vacancies. The overall occupancy in the market is now 92.9 percent with additional rental rate growth projected for the future.
TPG Real Estate made this acquisition as part of its Strategic Office Partners investment platform that was formed in 2016 with Gramercy Property Trust. The investment platform’s goal was to reach $1 billion in size over a three-year investment period. This investment entity wants to acquire single-tenant office assets in high-growth metro areas. It will target high-quality assets with short to intermediate-term leases with the opportunity to extend or restructure leases or re-lease to reposition buildings for sale. Seattle is a target market for the venture.
The capital for Strategic Office Partners came from the TPG Real Estate Partners II commingled fund. TPG Real Estate had raised over $2 billion of equity for the fund. The fund manager had a final closing on the fund in October of 2015.