Schnitzer Sells 900 KSF in Two Trophy Seattle Office Buildings for $480M

Schnitzer West has walked away with $480 million on the disposition of two recently developed Seattle office buildings, totaling 900,400 square feet, courtesy of JP Morgan Asset Management.

August 15, 2011
By Barbra Murray, Contributing Editor

Schnitzer West has walked away with $480 million on the disposition of the Seattle office buildings at 1918 Eighth Ave. and 818 Stewart St. The recently developed premier properties, which total 900,400 square feet, were picked up by JP Morgan Asset Management.

Schnitzer turned a tidy profit on the sale of the one-year-old 1918 Eighth Ave. and the three-year-old 818 Stewart, which the company developed at respective costs of $120.6 million and $40 million, according to the Downtown Seattle Association. JP Morgan shelled out $350.1 million for the former and $129.3 million for the latter. “This is what we do,” Dan Ivanoff, managing investment partner and founder of Schnitzer, told Commercial Property Executive. “We build a building, take leasing risk, take construction risk and when the value’s created, we sell it off in optimal times, and this was an optimal time for us to sell and harvest our capital and get ready to do it over again.”

Featuring 668,300 square feet, the 36-story 1918 Eighth is home to the likes of KPMG, RBC Wealth Management and Amazon, which committed to 460,000 square feet in March. The 14-story tower at 818 Stewart has a tenant roster that is 90 percent full with such names as Accenture, First American Title and DCI Engineers.

The high occupancy levels and substantial price tags are more of a testament to the buildings than the Seattle office market, where the current average vacancy rate, though dropping, is 16.4 percent, according to a mid-year report by commercial real estate services firm CB Richard Ellis. CBRE began marketing the assets on Schnitzer’s behalf in May. “It’s not all about Seattle; if you have a trophy, core office deal, there’s going to be a lot capital looking for it,” Kevin Shannon, a vice chairman at CBRE, told CPE. ”

Ivanoff concurs about the market and investors’ desires.” If you look at where buyers want to place their money, probably Washington, D.C., and New York would be number one and then the Coastal cities like San Francisco and Seattle are in the next tier,” he said. “So if you’ve got what’s referred to as a super-core institutional investment grade asset, that’s a very attractive asset for somebody to acquire. As an example, when we put these on the market, we had 80 registrations within 24 hours.”

For Schnitzer, it was all about timing and the timing was right. “We couldn’t really add a whole lot more value than we already had,” Ivanoff noted. “There’s a flight to quality amongst the investors and that’s even more true after the last couple of weeks with the stock market. And we were pretty sure the buildings were going to trade at a pretty attractive price for us.”

Schnitzer is ready to repeat the process: Build, stabilize and sell. Seattle is still very much on the real estate investment and development company’s mind. “Seattle and Denver, we’re getting ready to reboot,” he said. “We’re in the process of writing a very detailed strategic plan just like we’ve done three other times since 1997.”

But the company has more than development and disposition plans in mind. “I’m pretty glad that we’ve been a seller in the last couple years but now going forward, we’ll start buying stuff, probably next year.”