Overseas investors and U.S. pension funds are fueling the Seattle-area commercial real-estate market like never before, snapping up trophy...
Overseas investors and U.S. pension funds are fueling the Seattle-area commercial real-estate market like never before, snapping up trophy properties and pushing prices skyward.
In the past year, investment firms with ties to Germany, Singapore and the Middle East have spent more than $300 million on Seattle and Eastside office buildings.
The international money, combined with U.S. pension funds and real-estate investment trusts, accounted for about three-quarters of the $1.8 billion spent on Seattle-area office property, according to a new report from LoopNet, a property-listing service.
For the second year in a row, Seattle office buildings drew institutional and overseas buyers at a much higher rate than the national average.
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Private investors, frequently outbid by institutions with deeper pockets, made a quarter of the Seattle-area purchases, the report says.
“The story is, they’re attracting foreign dollars,” said Dan Fasulo, director of market analysis for New York-based Real Capital Analytics, which compiled the data.
Fasulo said international investors are not finding enough properties to buy in top-tier markets like New York and Washington, D.C., so they’re moving to “B-plus” markets like Seattle.
One of the most active buyers here in the past year has been Metzler North America, a branch of a 331-year-old, family-run investment bank based in Frankfurt, Germany.
In December, Metzler topped about a dozen potential buyers for the waterfront office complex in Fremont that houses Adobe Systems, paying $65.75 million.
A month later, Metzler advised a German fund that paid $55 million for the Fifth & Pine Building, the former Nordstrom across from Westlake Center.
Metzler is not a new presence — it’s had a Seattle office for 25 years. But the company is buying in 15 U.S. cities. CEO Jim Neal says international interest in Seattle real estate is strong.
“Seattle, from a European perspective, is on a lot of people’s lists because it’s a gateway city, with a highly educated population,” Neal said. “The prospects for long-term growth to exceed the national average are actually quite good. It’s pretty much on everyone’s radar screen.”
A big underlying factor is currency-exchange rates. The euro buys nearly 40 percent more in dollars than it did three years ago, despite the dollar’s rally on currency markets this year.
So deals that don’t pencil out for local buyers can still be attractive to European firms, said Art Wahl, managing director for the real-estate brokerage firm CB Richard Ellis.
Wahl sees echoes of the 1980s, when the Japanese stock market and real-estate market were booming, and Japanese investors went on a shopping spree in the U.S.
“The Japanese then got themselves in terrible trouble and left tons of this stuff on the table and walked away, and the lenders ended up getting it back,” Wahl said.
This time, however, the money is coming from several directions.
A company that works closely with Middle Eastern investors, New York-based Investcorp, recently bought the Civica Office Commons in Bellevue in a deal that shattered the region’s record for price per square foot.
Investcorp paid $141 million, or $462 per square foot, in March for the 4-year-old luxury complex on 108th Avenue Northeast, developed by Schnitzer Northwest. The average price per square foot for Seattle was about half that last year, according to Loopnet.
Late last year, a 29-story building in downtown Seattle was involved in a deal that illustrates the global market at work in Seattle real estate.
Tishman Speyer, a big New York real-estate firm, raised money from Australian investors to buy a majority share in the $55 million 520 Pike Tower, along with 12 other U.S. office buildings. The seller: GIC Real Estate, an investment arm of the government of Singapore.
But the biggest source of money for Seattle real estate might be you and your employer. U.S. pension funds, which hold an estimated $9 trillion in assets for 70 million Americans, are trying to increase their real-estate holdings as a buffer against inflation and stock-market risk.
Because the pension funds are huge, even a single percentage point of their money is $90 billion, enough to buy7 300 Bank of America towers.
Last year’s biggest Seattle real-estate deal involved the New York-based retirement fund TIAA-CREF, which invests for, among others, professors at hundreds of colleges and universities.
TIAA-CREF paid $368.6 million to buy the 4-year-old IDX Tower from Texas-based developer Hines. The price set a record of $411 a square foot for a Seattle office tower.
The record prices have come despite lukewarm demand for office space. Downtown Seattle’s office vacancy rate stands at about 13 percent, according to Officespace.com, and because more new buildings are opening, some don’t expect the market to firm up for three to five years.
Wahl of CB Richard Ellis doesn’t see any downside to the investments from afar. It means your rent payment could be headed half a world away, but it also means profit for local developers to plow back into the local economy.
Schnitzer, after selling the Civica complex, has said it will use the money to look for office and industrial buildings it can upgrade.
Hines, a growing player in Seattle real estate, promptly took some of its profits from the IDX Tower sale and bought the building next door, the 36-year-old 1001 Fourth Avenue Plaza. Hines says it plans $30 million in renovations.
Tom Boyer: 206-464-2923 or firstname.lastname@example.org