07/25/2012

Beacon Markets 4 Seattle Office Properties

As it continues to unwind an overleveraged portfolio, Beacon Capital is shopping four Seattle-area office buildings with an estimated value of about $800 million.

Beacon, a Boston fund shop, has divided the buildings among two brokers. Eastdil Secured is marketing the former Washington Mutual Tower, at 1201 Third Avenue in downtown Seattle. That 1.1 million-square-foot building, which is 90% leased, could attract bids of more than $500/sf, or $540 million.

Meanwhile, CBRE has the listing on three buildings about six miles away, along Northeast Eighth Street in Bellevue, Wash. Those properties — U.S. Bank Plaza, Plaza Center and Plaza East — encompass 641,000 sf and are 85% occupied. Bids should come in at about $250 million, or $390/sf. Beacon prefers to sell them as a package.

The four buildings up for grabs were among 42 properties in and around the nation’s capital and in the Seattle area that the $4 billion Beacon Capital Strategic Partners 5 fund acquired at the top of the market in 2007 for $6.4 billion. The seller, fund operator Blackstone, was flipping buildings from its massive takeover of Equity Office Properties of Chicago.

Beacon partially financed the acquisition by putting a $2.7 billion securitized mortgage on 20 of the properties, including the four now on the block. But rents and occupancy levels fell during the recession, causing the mortgage to be transferred to special servicing in 2010. Beacon worked out a restructuring that extended the maturity date by five years, to May 2017, giving it breathing room to gradually sell the properties.

In March 2011, Beacon sold the most-valuable property backing the loan — the 680,000-sf Market Square in Washington, D.C. Wells Real Estate Investment Trust 2 of Norcross, Ga., acquired it for $615 million, or $904/sf.

In Greater Seattle, Beacon has struck deals to sell two Bellevue buildings to Kilroy Realty of Los Angeles. Kilroy acquired the 473,000-sf Key Center in June 2011 for $216.5 million, or $458/sf. And it is under contract to buy the 404,000-sf Skyline Tower for $186 million, or $460/sf. Also, Beacon this month put the 497,000-sf City Center Bellevue on the block. That property, listed with Eastdil, could see bids of $209 million, or $420/sf.

The 55-story tower at 1201 Third Avenue was the second most valuable of the 20 properties in the portfolio. It was formerly the headquarters of giant saving and loan Washington Mutual. J.P. Morgan took over WaMu after it failed in 2009 and is now the tower’s biggest occupant, with 269,000 sf, according to CoStar. Other tenants include two law firms, Perkins Coie (260,000 sf until 2035) and Davis Wright (170,000 sf until 2018). The property, which was built in 1988, has on-site day care, a fitness center and restaurants.

The Plaza buildings are close to each other. The 344,000-sf Plaza Center, at 10900 Northeast Eighth Street, is 91% leased. The tenants include tech company Blucora, engineering and design firm URS, Flagstar Bank and Penn Mutual. The 16-story tower was developed in 1983 and underwent a major renovation in 2007.

The 140,000-sf U.S. Bank Plaza, at 10800 Northeast Eighth Street, is 80% occupied. The tenants include Visa and U.S. Bank. The 10-story building opened in 1978 and was renovated in 2007. Plaza Center and U.S. Bank Plaza share a six-level, 1,151-space garage that is between the buildings.

The 156,000-sf Plaza East, at 11100 Northeast Eighth Street, is 78% occupied. The tenants include Charles Schwab, mobile communications firm Appito and Umpqua Bank. The nine-story building was developed in 1987 and renovated in 2007.

The occupancy rate in the Seattle market is just 86.3%, according to Marcus & Millichap, but demand for Class-A space is growing among technology and professional firms. The occupancy rate for Class-A space is 88%, according to Colliers, and rents in hot submarkets like downtown Bellevue are on the rise.

The improving performance has attracted buyers. Some $1.6 billion of large office properties changed hands in Seattle during the first half, four times higher than a year earlier, according to Real Estate Alert’s Deal Database, which tracks trades of at least $25 million.

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