08/04/2010

JP Morgan Deal Reflects Seattle-Area Interest

A J.P. Morgan fund has paid about $310 million for a coveted office tower and an apartment building in the Seattle area, a sale that underscores investors' hunger for high-quality real estate in that market.

On Friday, the bank's Strategic Partners open-end fund completed its purchase of:

*Advanta Office Commons, a 610,000-square foot office complex in Bellevue, Wash., that is leased entirely to Microsoft.

*The Equinox, a 204-unit apartment complex in Seattle.

The fund bought both properties from Portland, Ore., developer, Schnitzer Investment, a heavily leveraged firm that has been trying to dispose of holdings to pay off maturing loans. Between them, Advanta and Equinox attracted dozens of bids. CB Richard Ellis, which marketed both properties, declined to comment.

The pricing of Advanta reflects the sudden surge of demand for core properties. The J.P. Morgan fund allocated about $240 million of its two-property purchase price, or $393/sf, to the complex, at 500 108th Avenue NE. At that price, the fund will reap an initial yield of about 6.8%. Advanta, built in 2008, encompasses three seven-story buildings.

The complex is one of three Bellevue trophy assets fully leased to Microsoft that have hit the block this year, sparking a mini-stampede of investors attracted to low-risk, stabilized deals. City Center, a 571,000-sf high-rise in Bellevue, was sold by Beacon Capital to Cole Real Estate Investments last month for $310 million, or $542/ sf. Eastdil Secured advised Beacon on that deal. Bellevue is about 10 miles east of Seattle, on the other side of Lake Washington.

Local market professionals said the third Bellevue property, the 755,000-sf Bravern Office Commons, is under contract with an institutional investor for about $415 million, or $550/ sf. Like Advanta and Equinox, Schnitzer is the seller of Bravern, which is also fully leased to Microsoft. CB is brokering that deal, which is expected to close in September.

The Equinox, at 1520 Eastlake Avenue East, was developed as luxury condos. But the project ran headlong into the housing-market meltdown when it was completed in late 2009. Schnitzer responded by converting it into a rental property, which is currently about 80% leased. Market players said J.P. Morgan allocated just under $70 million of its overall purchase price to the property. That sum about matched a $68 million construction loan from Wells Fargo that was to have matured in October. At a price of $70 million, J.P. Morgan's vehicle should achieve a capitalization rate of 6.50-6.75%.

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