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Class A office on I-90 sells for 9.25% Cap April 6, 2010

Posted by Erik Swanson in Sale.
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April 6, 2010

Legacy I-90 sold for $27M

By MARC STILES
Journal Staff Reporter

Legacy I-90 — a fully leased, two-building office property in Bellevue — sold yesterday for $27 million, public records show.

As the first sale of a major office property in the Puget Sound region for 2010, it gives insight into the state of the market.

TA Associates Realty of Boston and Newport Beach, Calif., paid Legacy Partners $300 per square foot for the 28-year-old buildings that are leased to Research In Motion, the designer and manufacturer of the BlackBerry.

“It’s a long-term leased asset,” said Joe Lynch of the brokerage of GVA Kidder Mathews. Lynch, who marketed the building for Legacy, said eight and a half years remain on the lease. “A premium is being paid for that in this market.”

Nearly a fifth of the office space on the Eastside is now vacant.

The property is north of Interstate 90 in the Eastgate neighborhood in the second largest office submarket on the Eastside. According to the first quarter report by another brokerage, the Broderick Group, the vacancy rate along the I-90 corridor is 18.6 percent.

Lynch was unsure what Legacy plans to do with proceeds from the sale. Legacy bought the property four years ago from Benaroya Co., for $22.44 million, according to King County records. Peter Llorente, Legacy’s managing director for the Seattle area, could not be reached for comment.

Peter Ulman, who handled the sale for TA Associates, also was unavailable.

Lynch said he and his colleagues, Bob Conrad and Andy Miller, began marketing the property in December. He declined to say how many offers they received but said it was “quite a few.”

The cap rate, or anticipated rate of return on the cash investment by the buyer, is 9.25 percent, Lynch said. The rule of thumb is that the lower the cost of a property, the higher the cap rate.

Over the last three to four months, average cap rates for office properties with longer term leases by high-quality credit tenants have dropped by about a percentage point, according to Lynch. He said it’s due to what office brokers call “a scarcity premium.” Investors are willing to pay more for such properties because there are not many for sale.

The last major sale of an office in the region was the Expedia Building in downtown Bellevue. Newton, Mass.-based HRPT Properties Trust bought the 415,000-square-foot building, which Hines developed in 2008, for nearly $168 million, or $405 a square foot.

The cap rate on that deal was similar to the rate achieved on the purchase of Legacy I-90, Lynch said.

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