Tacoma: Another Date with Destiny

The city prepares for its moment of (re)discovery.
| FROM THE PRINT EDITION |
 
 

When Russell Investments announced in 2009 that it would move its headquarters from Tacoma to Seattle, Tacomans were crushed. What hope did the city have if it couldn’t even hold on to a company whose founding family had always been loyal to the area? As if on cue, home prices plummeted and unemployment soared, reaching a high of 11.9 percent in early 2010.

Hope is returning thanks to a growing interest in the city’s affordable housing, a strengthening commercial office market and a downtown core filled with historic buildings primed for refurbishment. Tacoma’s unemployment is down to 5.7 percent, and confidence among regional business leaders is rising.

The 12-story headquarters that Russell vacated has been filled by 1,300 State Farm employees. Sevag Sarkissian, a State Farm spokesperson, says the Tacoma location was selected because of its proximity to the Tacoma Link Light Rail (and the promise of Sound Transit’s extending regional light rail from Seattle to Tacoma) as well as the University of Washington Tacoma campus (where employees can use their tuition-reimbursement benefits). 

To be sure, Tacoma, known as the “City of Destiny” for nearly a century and a half, still has its challenges. The city of more than 200,000 has a lingering image as a foul-smelling, blue-collar industrial town. Few can forget the sulfur smells released from a nearby pulp and paper mill even though new pollution-control technology largely eliminated the odors in 2002.

Tacoma finds itself in the midst of a remake. Point Ruston, a $1.2 billion residential and retail development, rises on a North Tacoma waterfront parcel that once housed a copper smelter and later became a Superfund cleanup site. The city’s eminently walkable downtown, complete with inexpensive parking and affordable housing, has begun to attract residents and investors alike. 

“The arrival of State Farm helped to reinvigorate the downtown and has attracted service, restaurant and other supportive businesses,” says Ricardo Noguera, Tacoma’s director of community and economic development. He says State Farm’s decision became a “catalyst for new development and property acquisitions.”

Now, he adds, developers are building luxury apartments to attract Seattleites in search of affordable housing. “Tacoma is much more reasonably priced than Seattle and Bellevue, and that starts to attract investment,” notes Noguera. He anticipates more than 700 multifamily, market-rate units will open this year.

With apartments in Tacoma already 98 percent occupied, Scott Carino, president of DuPont-based Carino & Associates, sees strong demand for more housing. Last fall, his company opened The Henry, a 161-unit apartment building downtown. 

Point Ruston will also help respond to the demand. When completed, the property will have more than 1,200 condo and apartment units. Loren Cohen, legal affairs manager for Point Ruston, says the units are filling as soon as they become available. “We continue to chase demand,” he says.

The strong market attracts outside investors. A San Diego company recently paid nearly $30 million for Vue25, a new downtown apartment building with 163 units. McMenamins Inc., whose pubs and breweries are often harbingers of a neighborhood’s impending turnaround, has decided to transform the historic Elks Lodge at 565 Broadway Ave. into a hotel and brewery. McMenamins CFO Chris Longinetti says the company will invest more than $25 million to renovate the building. Construction starts this spring and the restaurant will open in summer 2017. McMenamins is also in early negotiations to give the same attention to the old City Hall a few blocks away.

The retail district around the UW Tacoma, at the edge of downtown, also attracts strong interest. Steve Rosen, owner of Seattle-based Elemental Pizza, says he opened a new location last October in a 3,600-square-foot space owned by the university after being impressed by the area. 

 “We looked around Tacoma a lot before deciding to open Elemental here and we were just amazed at the character of so many buildings,” Rosen says. “People have been talking for years about the resurgence in the area, and when we looked at all the changes along Pacific Avenue, it just felt like the timing was right.”

Thanks to Elemental’s decision to lease from the university, UW Tacoma’s real estate manager Ben Mauk says the university’s 70,000 square feet of retail property are now 100 percent leased.

UW Tacoma helped bolster the neighborhood recently when it moved the Old Spaghetti Factory to a location in the center of the retail district vacated in 2014 by the Tacoma City Grocer. UW Tacoma will refurbish the Old Spaghetti Factory’s previous space in the historic Tacoma Paper and Stationery building to create labs and classrooms.

UW Tacoma, with its student and faculty population of 5,000, plays a major role in attracting people to downtown. It hopes to play an equally important role in building its future. UW Tacoma’s Institute of Technology and its Center for Data Science, a research arm that is an incubator for tech startups, hope to launch new tech companies while attracting more established ones from elsewhere in the country.

More than 700 people study at the institute, earning undergraduate degrees in computer science, computer engineering and information technology, as well as graduate degrees in cybersecurity and leadership.

Because the students are sought after by companies like Boeing, Google, Microsoft and Facebook, most of them leave Tacoma. Andrew Fry, assistant director of industry partnerships and a lecturer at the institute, hopes downtown Tacoma becomes a hotbed for tech startups. “I would like the technology industry to be one of the robust clusters we have,” Fry says. The city is also interested in developing clusters around financial and professional services.

To attract more employers, Noguera says Tacoma must market the area to office users. “Those being forced out of the Seattle/Bellevue market are good targets,” he notes. “Those expanding from the Bay Area, such as Google, Oracle and Facebook, are also good prospects.” 

While Tacoma is looking healthier — Class A office space in the city was 92 percent occupied as of January — developers are not confident enough to build new office space on spec without first preleasing tenants. Three Class A buildings have been successfully launched since 2001, and all had significant portions preleased.

“Preleasing will continue to be important,” explains Harrison Laird, a broker at the Tacoma office of CBRE Group. “I couldn’t see more than a third of a building being built on spec.”

However, overseas investors may be ready to take on more risk. In a preliminary deal signed last August, Chinese developer Xunkun Luo, CEO of Wuhan Boshengshiji Real Estate Development Company, agreed to buy a 6.4-acre city-owned parcel near UW Tacoma that is the largest undeveloped area of downtown. The company would pay $3.5 million for the land and build in two phases 360 or more residential units, 90,000 square feet of office space and 200,000 square feet of commercial space. It is expected to break ground on Phase 1 of the proposed Town Center this fall.

Meanwhile, Shanghai Mintong Real Estate Company, based in Shanghai, plans to construct two 240-foot-tall towers — one a hotel, the other apartments or condos — near the Greater Tacoma Convention and Trade Center. The hotel would have up to 300 rooms, 10,000 square feet of retail and 19,000 square feet of meeting space. The residential side would have up to 200 units and 20,000 square feet of retail space. 

To help finance their respective projects, the two developers are using the federal EB-5 funding program that grants a path to American citizenship to foreigners who invest $500,000 or more and create a prescribed number of jobs.

Those deals could yet collapse given the  turmoil in Chinese financial markets. But Carino, whose firm completed The Henry  complex on Dock Street, is so confident Tacoma is coming out of the recession strong that he and his brother  have plans for a second apartment building in Tacoma’s Stadium District, expected to open in May 2018.

Reflecting perhaps the motto of the City of Destiny, Carino declares, “We’re definitely not nervous.” 

Seattle-Bellevue office space market remains red hot

Seattle-Bellevue office space market remains red hot

Despite 17-year high in new space coming on the market, more than half has already been leased.
 
 

You’d have to go all the way back to the heady days of the dot-com boom in 2000 to match the amount of new office space coming on to the Seattle-Bellevue market this year. 

It’s been 17 years since this much office space – 4.6 million square feet total –has been set to be delivered, according to a Q4 2016 report from the Chicago-based real estate services firm Jones Lang LaSalle. Just over half of that space, 51.2 percent, has been preleased.

Last year marked the fourth consecutive year that the Seattle-Bellevue office market was able to absorb more than 2 million square feet of additional space. Much of the current leasing activity comes from companies growing rather than relocating their offices, according to JLL research manager Alex Muir. That will soften the impact on vacancy rates. “You could see some second generation space struggle but the bulk of the major deals is expansion,” says Muir.

 Much of the demand for space is coming from tech companies, which accounted for roughly 60 percent of the leasing activity for 2016. The strong demand for office space, said Muir, “is coming from local companies growing and increasingly from Bay Area companies migrating to the region.”

The attraction: The Seattle area offers outsiders a robust cadre of tech workers and rents that are substantially cheaper than office rents in California. New office space in appealing downtown neighborhoods has proven itself a valuable recruiting tool for tech firms such as Amazon, Google and Facebook, which are going toe to toe for local tech workers. (Tech Firms Continue to Establish and Expand Engineering Centers.)

At the end of 2016, total office vacancies stood at 9.2 percent, with average asking rents up 2.7 percent year over year to $34.90 per square foot fully serviced. The downtown Seattle and Bellevue office markets are roughly midway through a peaking real estate market cycle, according to the JLL report.  JLJ senior vice president Daniel Seger describes the market as “still incredibly strong” and anticipates continued rent growth this year.

The continued demand for space is helping transform downtown Seattle and Bellevue. In Seattle, it’s helping revitalize the area around City Hall where two new office developments -- The Mark, a $400 million, 528,000–square-foot office project by Seattle’s Daniels Real Estate and Madison Centre, a $157 million mixed use project with 746,000 square feet of office space and 8,000 square feet of retail space by Bellevue’s Schnitzer West LLC -- will be completed this year.

Meanwhile, recent leasing activity has made Bellevue a more balanced market says JLL managing director Chris Hughes. “Moving forward Bellevue will be a little more broad a marketplace with a better balance of tenants than in the last cycle,” Hughes said. “That will be a benefit moving forward.”