Virgin on Business: The (Un)real Estate Boom

It’s coming, because this time is always the same as last time. Right?
| FROM THE PRINT EDITION |
 
 
 
The term “see-through building” described not an architectural design style but the leasing status of downtown Seattle office buildings in the early 1990s, the result of a surge of speculative construction spurred by all the demand for space that was expected to arrive — and didn’t. 
 
It’s been a while since anyone used that figure of speech or fretted about what it said about the underlying economy’s health.   Maybe it’s time we should. The sight of construction cranes filling the skyline, the near daily announcements of proposed projects and companies on the hunt for tens of thousands of square feet to accommodate expansion and downtown Seattle office-space vacancy rates at half their recessionary levels make this, counterintuitively, an excellent time to consider what’s ahead for the commercial real estate industry and, by extension, the economy.
 
Which means we need to talk about the tech industry.
 
Every time this region has a boom in commercial real estate, an even more ominous phrase than “see-through buildings” emerges. That would be “this time, it’s different.” Every time this region has a commercial real estate bust — and it has had some doozies — the reassurances spring forth that “OK, sure, that time wasn’t different than the time before, but we’ve learned our lessons and next time, really, will be different.”
 
So, is this time different?
 
Reasons it’s different:
• Much of the current office-space demand in Seattle (and downtown Bellevue) is driven by tech. In the early 1990s, commercial real estate’s woes were related to a national recession and a Boeing slump; tech was something happening off in suburban low-rise office parks in the hinterlands of the Eastside.
 
• The buildup to the plunge in the early 2000s was, like now, tech driven, but it was a different kind of tech, featuring dot-com startups trying to grab footholds in e-commerce, or companies marketing to those startups. When most of the dot-coms went away, so did the demand for the space. 
 
• The current building and leasing boom is driven by established companies — Amazon, Microsoft, Google, Facebook and Expedia, et al — with real business plans and revenues. Tech-space demand is being fueled not so much by the always-precarious retailing subsector as it is by cloud services, which has the potential to be more stable and enduring.
 
 
Observant readers will notice we’ve skipped over the most recent recession. That’s for two reasons. Tech not only wasn’t a driver of the downturn, it was barely a participant. And while commercial real estate took its lumps, it was residential real estate that generated the most headaches for developers and lenders.
 
Reasons it’s not:
• No one has repealed the law of the business cycle, not for commercial real estate, not for tech, not for anyone. The gaps between peak and trough may vary, the heights and depths may not be the same, the causes won’t always match up, but in the end, cycles gotta cycle.
 
• Tech, in particular, having enjoyed an extended run of success, is overdue for contraction, retrenchment or consolidation. It may come from a general recession that causes business and consumers to stop spending on new tech. Or it might be the result of the collapse of the advertising model so many ventures are still banking on, a development I've been predicting for years.
 
• Or it might be that tech companies decide they want to drop out of the bidding wars — a prediction we’re going to stick with in the belief that reality will eventually catch up.
 
So be vigilant for warning indicators of changing conditions and trend shifts, and know what to look for. Spotting a see-through building isn’t an indicator of what’s coming. It’s a sign of what’s already here.  
   
Monthly columnist Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

Final Analysis: The Sporting Life in 2017

Final Analysis: The Sporting Life in 2017

Three predictions for the coming year on a new arena, an old arena and the Mariners.
| FROM THE PRINT EDITION |
 
 
 
As every first-year business student knows, a city’s economy is not considered “world class” until said city has erected at least four shrines to professional sports and these shrines remain empty and unused most days of the year. Seattle is knocking on the door of world classiness because it already has KeyArena, Safeco Field and CenturyLink Field up and running. Occasionally. Just one more monument to appease the great mass of athletic supporters and we’re there. Hallelujah!
 
It’s only a matter of time because Chris Hansen, the San Francisco rich guy who wants to build a new arena on First Avenue South and bring pro basketball and pro hockey to Seattle, is this close to getting his way. In October, Hansen revealed that he and his investors are now willing to pay the whole honkin’ bill for plopping a new arena into the SoDo neighborhood a block from Safeco Field. He still wants a piece of Occidental Way vacated and also expects some tax breaks from the city, but that’s how rich guys are. (See: Trump, Donald.) Besides, the people who believe we’re not world class until the NBA returns to Seattle are salivating over this deal because it’s the best deal we’re ever going to get
 
Of course, these same people said Hansen’s previous offer, which would have required that $200 million in public money be plowed into a new arena, was also the best deal we were ever going to get. 
 
Hansen’s decision to pay more for his arena places the sports economy clearly in the local spotlight this year. Heaven knows we could use more opportunities to pay $9 for a beer and see millionaire athletes selling Jaguars and BMWs on TV. It’s the kind of economic shot in the arm that only comes around whenever a sports league is in a coercive mood. 
 
And so, in the spirit of this January issue’s “looking ahead” theme, we offer three predictions relating to the regional economy as the Hansen arena intrigue continues to unfold.
 
Prediction 1: Hansen, who has already spent more than $120 million buying up property in the area of his proposed arena, will persuade the Port of Seattle, his arch nemesis in this melodrama, to fold up its tent and send all cargo-handling operations to Tacoma. That decision will pave the way for so many trendy bars and restaurants with names like Kale & Kumquat or Cobblestone & Wingtip that Hansen will be persuaded to create a private streetcar system to connect Pioneer Square with the burgeoning Stadium District. 
 
Prediction 2: The city-owned KeyArena, whose very future is clouded by the Hansen proposal, will announce plans to house up to 10,000 homeless persons every day. Even on days when the Seattle Storm and Seattle University basketball teams need the building, the city believes the Storm and the Redhawks could use the attendance boost, so it becomes a classic win-win.
 
Prediction 3: The Seattle Mariners, who still don’t like the arena proposal, will channel their hostility onto the field of play — and still not win the World Series. (This is called pattern-recognition analysis.) However, always mindful of improving the fan experience — because it’s not whether your team wins or loses, but whether you’re inclined not to press charges for being gouged by a vendor — the Mariners will introduce several new fan-friendly food items, plus mani/pedi stations in the pricey seats and roving loan officers to assist anyone trying to finance the purchase of hot dogs and sodas for a family of four. 
 
JOHN LEVESQUE is the managing editor of Seattle Business magazine. Reach him at john.levesque@tigeroak.com.