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Two of the area’s biggest real-estate firms have combined to create a hybrid that the principals say will appeal to institutional investors hungry for a piece of the Seattle market.

Urban Renaissance Group, a leading real-estate-investment manager, acquired Touchstone, one of the market’s top commercial developers. The deal allows Touchstone’s three partners — all of whom are in their 60s — to step back from daily operations, while Touchstone will continue as an Urban subsidiary.

With more than 30 years of experience in urban development, Touchstone has more than 2 million square feet under construction in the South Lake Union area, as well as near Gas Works Park and other urban hot spots.

The deal creates “a one-stop shop for institutional investors in the Seattle market,” said Pat Callahan, CEO of Urban Renaissance Group and of the Touchstone subsidiary. Terms of the deal, which closed Friday, weren’t disclosed.

Touchstone owners Douglas Howe, Jim O’Hanlon and Shawn Parry will move into consulting roles and remain part-owners in their current projects.

A-P Hurd, who was recruited in 2008 as part of the owners’ succession plans, becomes Touchstone’s president and chief development officer and will report to Callahan, officials said.

With pension funds, life-insurance companies and REITs chasing assets in Seattle’s commercial real-estate market and lenders requiring developers of new buildings to hold more equity in their projects, officials from the two companies first met in September 2013 to explore a merger.

“Everything fit very well,” said Callahan, 53, a former senior vice president at Equity Office, one of the nation’s largest commercial-real-estate firms.

A business with the capability of doing new development and of redeveloping existing buildings can remain financially stable through the ups and downs of the real-estate cycle, Hurd added.

Founded by Callahan in 2006, Urban manages a real-estate portfolio of about 6 million square feet in Seattle, Bellevue and Portland. Of that, it fully owns about 817,000 square feet, including Seattle’s historic Joshua Green Building at Fourth Avenue and Pike Street — part of Joshua Green Corp.’s $200 million investment in Urban Renaissance in 2012.

With 85 employees, the Seattle-based company has strong ties with private-equity funds that enable it to acquire deteriorating buildings, redevelop them and attract new tenants.

For example, Urban won accolades for redeveloping 1600 Seventh, which was built by Pacific Northwest Bell in 1976. Urban bought it with Clarion Capital Partners, leased a big chunk to CenturyLink and upgraded the lobby, common areas and parking. After that, Nordstrom leased nearly half the building.

AIG, one of Urban’s investment partners, becomes the main financial partner in two of Touchstone’s current projects:

• NorthEdge, a 210,000-square-foot office under construction at 3301 Densmore Ave. N. in Fremont across from Gas Works Park that will be completed in 2016.

• A 222-room Hilton Garden Inn being built at Boren Avenue and Howell Street as part of the Hill7 complex.

AIG also pumped cash into Hill7’s 300,000-square-foot office building, slated to open in March at Boren and Stewart Street. Iowa-based Principal Financial Group is Touchstone’s main financial partner in the project.

Next spring, the developer plans to break ground across the street on Tilt49, a 300,000 square-foot office building and a 40-story residential tower.

Touchstone also is developing hotels in Seattle, Everett and Issaquah.

“For more than 30 years, we’ve focused on creating great urban projects,” said Howe, Touchstone’s founder. “It was important for us to find a partner who would give Touchstone the freedom to continue to do just that.”

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com On Twitter @sbhatt