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Maryland firm makes $89 million Capitol Hill buy-in with Sunset Electric and REO Flats

A Maryland-based real estate investment firm has thrown down $89 million to acquire two new preservation-minded, mixed use buildings in the heart of Pike/Pine.

In two separate deals, ASB Real Estate Investments has acquired Sunset Electric and REO Flats — a pair of “beachhead” Seattle investments that the company says is a perfect complement to its $5.7 billion portfolio spread across the U.S.

The acquisitions underscore how developers and investors are increasingly looking to Capitol Hill as the ideal neighborhood to house (and profit from) Amazon and Seattle tech’s ballooning workforce.

In a statement, CIO David Quigly sang the praises of Capitol Hill, including its proximity to South Lake Union.

These acquisitions fit within our overall portfolio strategy to invest in dynamic urban neighborhoods and commercial districts in leading U.S. cities. Capitol Hill is one of Seattle’s most attractive places to live for millennials—it’s extremely
pedestrian friendly and convenient to the employment centers in downtown and South Lake Union. Seattle, meanwhile, commands one of the country’s healthiest local economies, and ASB is pleased to gain a beachhead in the market.

Arizona-based Wolff Co. sold the seven story, 92-unit Sunset building for $41.6 million or $456,000 per unit (not accounting for the value of the building’s four vast commercial spaces). In 2012, Wolff paid $6.7 million for the poster-covered, empty building at the corner of 11th and Pine. The Weber Thompson-designed project was just selected as the Seattle Daily Journal of Commerce building of the year. “The seven-story building at 1111 E. Pine incorporates a two-story brick facade that was part of a 1926 auto-row building. The old facade was integrated into the new structure and frames the street-level retail,” the DJC writes.

Hill-based Madrona Real Estate Services and a New York investment partner sold the 14th and E Pike REO Flats for $47 million, according to property records. Madrona acquired the property including the 1925 converted storefronts in 2008 for $1.5 million according to King County records. The building had served as a printing shop in the past. While the project was extremely friendly about its (temporary) displacement of a coffee shop, other longtime businesses including 60 Minute Photo were pushed asideJohnson Architects designed the building with around 100 residential units.

Sunset Electric was one of the first major projects to open in Pike/Pine that used the city’s 2009 preservation incentive program. The incentives allowed Sunset’s developers to build a fifth floor of residential units in exchange for keeping parts of the original 1926-built facade. REO Flats benefitted from the incentive program as well. The city is now considering expanding the preservation incentive program to other neighborhoods in Seattle.

In addition more than 200 residents, both buildings are home to food and drink establishments with roots of varying depths on Capitol Hill. REO includes Omega Ouzeri, Nue, and Porchlight Coffee while the Sunset is home to Stout.

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iknowsnow
iknowsnow
5 years ago

That’s funny. I distinctly remember going to community outreach meetings sponsored by Wolff Co. in connection with getting approvals for their project at the old BMW building where they made all sorts of claims about being a family-owned company and were committed to the neighborhood long-term.

Funny how that works out when someone with a big check shows up.

matt
matt
5 years ago
Reply to  iknowsnow

Isn’t that what the person who sold them the lot did in the first place?

COMTE
COMTE
5 years ago

So, does this mean leases/condo prices for these two brand-spanking new buildings will be going up? After all, I presume the $89mm represents a significant increase over their actual construction cost, and SOMEBODY has to help ASB reap their coveted ROI.

Welcome to our world, Amazonians…

matt
matt
5 years ago
Reply to  COMTE

It’s not like they are cheap now.

kgdlg
kgdlg
5 years ago

COMTE they likely leased up with better than expected cash flow due to higher rents. Therefore, the buildings were valued higher for a sale transaction. And they probably decided they couldn’t say no. This is what we all need to realize – market rate developments in a town like Seattle are not by and large built by “mom and pop” local developers anymore. These are massive investment vehicles built, bought and traded by insurance companies, Real Estate Investment Trusts and massive corporations. It is a new world out there Seattle, and the ride is only gonna get crazier with Expedia and Alibaba considering HQ here!

Timmy73
Timmy73
5 years ago
Reply to  kgdlg

The Expedia move is real. I met with some of their employees yesterday and in only a few days, indicated the desire of many to relocate to Seattle to avoid bridges.

COMTE
COMTE
5 years ago
Reply to  kgdlg

I fully understand it’s huge corporations putting up these buildings, but what I was pondering was whether the valuation may have increased significantly in the relatively short time between when construction was completed and when they were flipped, as I presume the seller made a tidy profit, which the purchaser would in turn need to recover.

kgdlg
kgdlg
5 years ago

COMTE, I would assume yes, valuation has changed. In Seattle, it can take about 3-4 years from purchase of land through permitting and design review to get a project designed, funded and built. At this point in time, value of these buildings has significantly changed over this span of time. This is because value is based on occupancy and rents charged. If a landlord can raise rents 5-10% a year and still be 95% occupied, that will drive a higher valuation. Coupled with the outrageous demand we are having for housing here from relatively high income folks, many moving from other places to work for companies like Amazon or Expedia, etc. etc., I think investors eyeballs are jumping out of their heads. It is like a feeding frenzy.

Think about it, if you build a building for $20 million in cost based on rents at X and then by the time you finish your rents are at Y (ten or twenty percent higher than what you predicted) that is going to equal A LOT of cash flow, because you based your mortgage on a much lower number. Bingo, you cash out after it is fully leased. That is what you are seeing right now.

Max
Max
5 years ago

My $88 million offer was rejected. Shucks.

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