By Jack Stubbs
At the turn of the new year, we aim to get industry executives’ perspectives about what’s in store for the industry in 2018 and beyond.
We recently spoke to Lori Mason Curran, director of real estate investment strategy for Vulcan Inc., about the company’s involvement in the greater Puget Sound market and factors driving demand in the commercial real estate market.
With more than 20 years of commercial real estate experience, Curran leads the formulation of investment strategy for Vulcan’s real estate portfolio. She has an extensive background in the valuation of commercial real estate and her ongoing market research is used to inform acquisition, disposition and overall investment decisions. Mason Curran is responsible for the annual valuation of Vulcan’s entire real estate portfolio valued at over $2 billion.
Seattle-based Vulcan Real Estate directs all real estate investment activities for Vulcan Inc., a Paul G. Allen company. Through strategic acquisitions and innovative development, Vulcan Real Estate has created a $2.9 billion diversified portfolio of high-performing quality assets including office, life sciences, residential and mixed-use projects. The company’s real estate model is based on quality, sustainable development that builds new value across the entire community.
How did Vulcan seek to make its mark in Seattle’s and/or the region’s commercial real estate market in 2017? Were there any particularly noteworthy projects that came to life that you would like to highlight?
2017 was a really big year for us at Vulcan Real Estate. We broke ground on the second of two office buildings we are developing for Facebook in South Lake Union (total for 2 buildings is 400,000 square feet). We also broke ground on 600,000 square feet of build-to-suit office for Google and a 200,000 square foot life sciences facility for the University of Washington School of Medicine. We were very active in the multi-family market as well, breaking ground on 514 residential units (278 in South Lake Union and 236 at Yesler Terrace).
We have certainly made our mark on the city and region as the leading developer in South Lake Union where we’ve completed 6.5 million square feet to date, but 2017 was an exciting year as we continued to expand out of South Lake Union into other submarkets.
We now have 431 units of housing under construction at Yesler, and when the first project delivers next month we will be the first developer of market rate housing within the Seattle Housing Authority’s master planned area. Our project will also include 20 percent income- and rent-restricted workforce housing for households earning 65 percent to 80 percent of Area Median Income (AMI). We are very proud of our track record of developing affordable housing as a private developer.
As a Seattle-based firm, Vulcan has its pulse on the goings-on in our growing city. In broad terms, what do you foresee for the industry in the year ahead? Also, at the turn of the year, what’s your take on where we are in the cycle right now?
A tremendous amount of speculative office space developed in the past couple of years has been absorbed by Amazon. As Amazon looks to expand in a second HQ location, its demand for office space locally will likely slow down. This actually may create opportunities for other tech companies and businesses to lease space in our market—companies that have competed with Amazon for deals and have missed out.
So, I think we are in pretty good shape as an industry. Where we are in the cycle is a million-dollar question. Nationally, we are in the 103rd month of expansion, and it’s been a long, slow recovery—it can’t go on forever, but I think we still have at least 18 months of tailwinds ahead.
Are there any specific development projects in the pipeline that you’re particularly excited about?
We have started our pre-construction work for the Jackson Apartments at 23rd & Jackson in the Central Area, which will break ground in first quarter of 2018. This is a very large project with 532 residential units and 44,000 square feet of retail space. The final design has incorporated a lot of input from the local community, and it’s been rewarding to listen to the community and to respond to their ideas.
Some of the project features include 20 percent affordable housing, the incorporation of micro-retail spaces affordable to local businesses, a 60-foot wide landscaped pedestrian walkway and pollinator habitat and a 12,000 square foot public plaza. We are also voluntarily targeting a minimum of 15 percent of subcontract value to be awarded to women and minority business enterprises. And we have started a job apprenticeship program to create opportunities for people who want to learn the construction trade.
In your view, what were some of the factors that drove demand for office, technology and industrial properties in Seattle, Bellevue and the greater Puget Sound region? Will demand continue?
Demand is all about job growth, and the Seattle region has outperformed in this area. We are fortunate to have ten Fortune 500 companies based here in a range of businesses. While tech is certainly a major driver of employment (Amazon and Microsoft), and therefore office demand, we cannot forget the importance of companies like Starbucks, Nordstrom, Costco, Alaska Airlines and others.
Over the last few years in particular, South Lake Union has emerged on the map not only locally, but regionally as well. How much more development do you have until full completion in the neighborhood? What are these projects and what timeframe do you anticipate for these?
Excluding what is currently under construction in South Lake Union, Vulcan still has about 3 million square feet of development capacity in the neighborhood. These will include office, biotech and rental apartments—the specific mix will really depend on market conditions and demand.
Are there any specific market insights and indicators that you personally track to give you a sense of where the industry is today?
I am a data nut, so I track all kinds of information and subscribe to a lot of research services. I believe that more information and data points help form a picture of what the market is doing and where we are headed. It would be a mistake to put too much weight on a single indicator, but two that have arguably the most impact on the real estate market are job growth and household formation.
With such intense growth and expansion occurring in Seattle and the greater region, and many developers and residents targeting Seattle, densification is the end result. How do you think the city-wide upzoning changes will impact the landscape over the next few years?
Density is a good thing. It is the environmentally responsible way to build communities, so at Vulcan we are focused on developing in close-in neighborhoods where there is infrastructure in place and transit options for workers and residents. Upzoning is meant to encourage dense vertical development, which is positive, but it does not come without a cost.
Through HALA (Housing Affordability and Livability Agenda) and MHA (Mandatory Housing Affordability) developers will be faced with increased development fees (regardless of whether or not they take advantage of increased height and density). Until the program is fully implemented, it is hard to know how developers will react—higher development costs trickle down to the end user.
What concerns you about 2018 and conversely, what are you looking forward to?
We will have twelve projects under construction in 2018, which is a record for us—2.5 million square feet including 1,625 residential units—so that’s something to look forward to. We are also looking forward to completing and starting some projects in areas outside of South Lake Union where we have been focused for the past 15 years.
We have about 2 million square feet of development space in Bellevue that we are actively marketing. Overall, I am feeling optimistic about 2018 and I think the region is still a great place to do business and a positive market for real estate investment.