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OCTOBER 2016
WITH SIGNIFICANT GLOBAL COMPETITION FOR CAPITAL, THE PAC NW STANDS OUT
Home to industry shaping titans Microsoft, Amazon, Boeing, Starbucks,
Nordstrom, Weyerhauser, and Costco, among others
#2 market for tech jobs (6.4% CAGR of tech employment since 2003)
No State Income Tax (plusmedian home prices less than half of San
Francisco)
Top 5 life sciences clusterhome to over 125 life sciences companies and
UW (recipient of $1.3B of grants in FY2015)
The Pacific Northwest is widely recognized as a top five global innovation center
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DIVERSIFIED LOCAL ECONOMY
2
M ETRO GDP G
Metro Growth (SINCE2001)
ROWTH(Since 2001) MMetro
ETRO OOffice
FFICE VValuation
ALUATION GGrowth
ROWTH (Since
(SINCE 2001)
90% 160%
4.6% 4.7% 6.5%
CAGR CAGR CAGR
4.4% 6.3%
80% 140%
CAGR CAGR
70%
3.7% 120%
CAGR 5.3%
3.5% 3.5% 5.0% CAGR
60% CAGR CAGR CAGR
100%
4.3%
50% 2.7% 4.0% CAGR
CAGR 80% CAGR
40% 3.4%
CAGR
60%
30%
40%
20%
10% 20%
0% 0%
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SEATTLE OFFICE BUYERS
40% REIT
0%
2005 - 2007 2013 - 2016
Significant growth in foreign and domestic core capital this cycle over last
4
drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
CURRENT
COMPANY DATE MOVED COMMENTS
FOOTPRINT (SF)
Plans for additional 607k SF build-to-suit in
Google 2004 550,000
South Lake Union
Rumored to be in advanced conversations for
Facebook 2010 346,000
additional 600k SF
Oracle 2013 218,000 Has grown from 22k SF in 2013
eBay 2008 90,000 Expanded their footprint in 2013
Expanded from 20k to 85k SF as part of a
Salesforce 2011 85,000
relocation to Bellevue in 2016
Uber 2014 50,000 Expanded from 10k to 50k SF in 2015
Twitter 2013 37,000 Doubled in size in 2014
30k SF currently; in the market for 250k
Apple 2015 30,600
1mm additional SF
Dropbox 2014 26,800 Expanded by 13k SF in 2015
HP 2008 20,000
Splunk 2014 20,000 Expanded by 5k SF in 2015
Snapchat 2015 8,000
Pinterest 2016 0 In the market for 15k SF
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SEATTLE OFFICE RECENT NEWS AND MARKET RUMORS
Google recently announced 607,000 SF build-to-suit in South Lake Union
Facebook, who currently leases 346,000 SF in South Lake Union, is rumored to be in
advanced conversation for up to 600,000 SF of additional space in new construction
Apple has an active requirement in the Seattle market of 250,000 SF, growing to 1
million SF over time
Weyerhaueser 200,000 SF build-to-suit in Pioneer Square, relocating from Federal
Way in Q3 2016
Expedia buys 671,000 SF former Amgen campus along Seattle waterfront, plans to
relocate from 500,000 SF in downtown Bellevue in 2019.
REI purchases 8 acres of land within the 36 acre Spring District in Bellevue, and will
relocate from Kent in 2020 after building a new HQ
Amazon in advanced lease negotiations for 900,000 SF across four buildings in
South Lake Union and is rumored to be leasing all of Centre 425 (350,000 SF) in
downtown Bellevue
Big Fish Games rumored to be under LOI to lease 100% of the 200,000 SF
redeveloped Maritime Building on the Seattle Waterfront
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AMAZONS INCREDIBLE GROWTH STORY Amazon moves into Troy
Block and Urban Union;
proposes to finish Phase
Amazon will move into II, III, and IV of their
Mercer & 9th, 915 Terry, newly developed
Phase I of newly dev. buildings in 2016+.
buildings, and Phase VII &
12,000,000 SF VIII of campus buildings 30
2006: 4 Buildings with 982,000 SF
delivered by Vulcan.
2014: 15 Buildings with 3,486,468 SF, 10,172,500 SF
along with 287,000 SF of new leases
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on existing assets and 4.3mm SF to be Amazon moves into
10,000,000 SF Blanchard Plaza and 25
developed & delivered to Amazon over Vulcan's Supply
next 3+ yrs Laundry Building. 23
Amazon moves into
09 15: 36% CAGR of committed West 8th, 1260 Mercer,
Square Feet Occupied
0 SF 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016+
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AMAZONS RAPID GROWTH
$17B of EBITDA expected in 2016FY. Size, cash flow, and credit all moving in parallel.
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AMAZON 2.0
Over 100 companies have been spun out, started by former employees, or directly funded by Microsoft.
Amazon has added talented employees at a rapid rate - multiplier effect has yet to be seen!
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AMAZONS BREAKNECK GROWTH CONTINUES, DEFINING SOUTH LAKE UNION SUBMARKET
Upon moving into of all its
committed space (including
Phases I & II of its new HQ
development), Amazon will
own 47% of their space in
SLU, leasing the remaining
53%.
Amazon is in advanced
negotiations to lease an
additional 900k SF across
four South Lake Union
buildings, which is not
reflected on the footprint
map to the left.
Market rumor is that Amazon
is under LOI to lease the
entirety of a brand new, 350k
office building in the Bellevue
CBD, which would be the
companys first office outside
of Seattle.
John Schoettler, Amazons
Director of Global Real
Estate, recently stated that
Amazons Seattle footprint
could reach 12 million square
feet by 2022.
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HISTORICAL SEATTLE OFFICE MARKET SNAPSHOT
24.0% $50.00
19.2% $41.76
20.0% 18.0%
17.0% $39.73
$40.00
$36.70 $36.21 $36.17
16.0%
$33.57
$32.44
$31.38 $30.71 $30.73
11.2% $28.95
12.0% $30.00
9.5% 12.6%
8.7% 11.7% 8.8%
$20.00
4.0%
0.0% $10.00
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2Q16
Source: CBRE Class A Rental Rate Class A Vacancy Rate
Statistical Observations
The Downtown Seattle Class A market has demonstrated consistent growth since 2010 with six consecutive years of positive net absorption, averaging
approximately 1.2 million square feet annually.
Vacancy within Seattles broader market has declined by approximately 54% from 19.2% during the peak of the recession to 8.8% currently, and has
reached the mid to low single digits in certain tech-driven submarkets where supply cannot keep up with tenant demand. Market rents have recovered 36%
since the market trough, surpassing prior peak levels.
Rents are continuing to respond to the significant tightening throughout the market, increasing 10.4% since 2Q15. As vacancy pushes further into
single digits, Eastdil Secured projects continued strong market rent growth across Seattles broader Class A market.
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PUGET SOUND OFFICE SALES TRANSACTIONS HISTORICAL PERSPECTIVE
$8.0 Bil 80
Approximately $4.6B of 2016 has seen 27 office sale transactions
2007 volume was related to totaling $3.6 billion YTD (includes pending 70
the EOP sale to Blackstone transactions)
$6.0 Bil 60
Sales Volume ($ Bil)
# of Transactioons
50
$4.0 Bil 40
30
$2.0 Bil 20
10
$0.0 Bil 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
'16
Closed Transaction Volume Pending Transaction Volume Number of Transactions
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD'16
Numberof
Transactions 7 10 10 19 24 41 74 11 5 10 16 24 26 21 32 27
TotalTransaction
Volume($Bil) $462 $412 $410 $1,395 $1,468 $2,288 $7,205 $319 $359 $1,166 $1,402 $4,607 $2,891 $1,732 $4,344 $3,589
AverageTransaction
Size($MM) $66 $41 $41 $73 $61 $56 $97 $29 $72 $117 $88 $192 $111 $82 $136 $133
AverageTransaction
SizePSF $183 $165 $201 $258 $241 $248 $346 $259 $214 $414 $313 $433 $383 $361 $389 $467
Source: Real Capital Analytics; includes all sales over $25mm.
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EEstimated
STIMATED CCurrent
URRENT CClass
LASS A
A CBD
CBD Office
OFFICEPricing
PRICING&&Record
RECORDPrice
PRICEPSF
PSF
$1,600
$2,200
$1,400
$1,200
120% Premium
$1,000
Class A CBD
Price PSF
$200
$0
Chicago Seattle Boston DC LA SF New York
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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
SUBURBAN
CAP RATE PRICE PSF UNLEVERED IRR
7% $300 MID 8%
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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
Closed Closed Closed Closed Closed Closed Closed Closed Closed Buyer Selected
Status:
Sep-13 Dec-14 Aug-15 Aug-15 Dec-15 Dec-15 Feb-16 Jun-16 Jul-16 TBD
Principal /
Seller: Spearstreet Skanska Vulcan Beacon Skanska Vulcan AEW Vulcan CommonWealth
Touchstone
Buyer: GLL Unico ARA Gaw Capital TIAA CREF Union / Metzler RREEF Mirae / Metzler GLL Confidential
Comp Information
Sale Price ($000): $97,500 $70,250 $251,000 $711,500 $261,000 (2) $301,000 $370,000 $250,000 $383,500 $200,000
Price PSF: $746 $524 (1) $792 $458 $748 $763 $716 $787 $500 $700
In-Place Cap Rate: 5.2% 5.3% 4.2% 4.8% 3.7% (3) 4.2% 4.2% 4.1% 5.0% 4.5%
MTM Cap Rate: 5.6% 6.7% 5.2% 6.5% 5.3% 4.3% 4.7% 4.8% 6.4% 6.0%
10 Yr Unlevered IRR 6.4% 6.6% 5.8% 7.4% ~6% ~6% (4) 6.3% 5.9% 7.8% 7.5%
Deal Profile
Year Constructed: 2013 2014 2009 1985 2015 2014 2009 2015 1969 2015
% Leased: 93.0% 100.0% 100.0% 87.0% 75.0% 98.0% 98.0% 100.0% 98.0% 79.0%
Rollover First 5-Yrs: 0.0% 0.0% 0.0% 25.9% 33.0% 83.6% 40.2% 56.1% 14.1% 27.5%
Largest Tenant Brooks Sports Amazon Amazon GSA Tommy Bahama Amazon Amazon Amazon Safeco Redfin
(1) Represents leasehold interest with 85 years of remaining term; fee simple equivalent pricing is ~$595 PSF.
(2) 90% joint venture recap transaction.
(3) Stabilized Price PSF and Cap Rate are ~780 PSF and ~5%, respectively.
(4) Represents 16-year unlevered IRR.
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DETAILED SEATTLE OFFICE DEVELOPMENT PIPELINE
Recently Completed Projects Office SF Submarket Delivery Developer % Leased Comments
400 Fairview 337,000 SLU 3Q2015 Skanska 92.6% Multi-tenant building. Tommy Bahama is anchor.
1101 Westlake 150,000 SLU 4Q2015 Holland Partners 0.0% Rumored to be in leases with Facebook.
Dexter Station 347,000 SLU 4Q2015 Capstone 100.0% 100% leased to Facebook.
Hill7 285,000 SLU 3Q2015 Touchstone 79.8% 112k SF lease with HBO & 113k SF lease with Redfin.
Amazon - Phase VII & VIII 614,000 SLU 4Q2015 Vulcan 100.0% Fully leased to Amazon for 16 years.
Fairview Research Center II 105,000 SLU 1Q2016 BioMed Realty Trust 79.0% Leased to Novo Nordisk and Nanostring Technologies.
Urban Union 291,000 SLU 2Q2016 Schnitzer West 100.0% Fully leased to Amazon for 16 yrs.
Recently Delivered Total: 2,129,000 88.0%
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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
Additional Executed LOIs/Leases at Existing Class A Assets If you take the current vacancy rate today inclusive of 929 Office
Commencing 2H16-1H17 Representing Positive Net Absorption Tower (10.6%), and assume no additional leasing beyond that which
Tenant RSF Net Absorption Lease Start Bldg is completed or in-process as shown here, the Bellevue CBD Class A
Voicebox Technologies* 67,400 67,400 4Q16 112th @ 12th
vacancy rate actual decreases by 60bps upon delivery of Lincoln
Square and Centre 425.
BitTitan 61,800 61,800 1Q17 112th @ 12th
Expedia* 48,000 48,000 3Q16 Civica Of the 965,000 SF of leasing completed or in-process at the three
Nokia 30,900 30,900 2Q17 112th @ 12th new developments, 88% (or 856k SF) represents positive net
HealthMedica 26,100 26,100 4Q16 112th @ 12th absorption in the Bellevue CBD.
AOL* 14,000 14,000 3Q16 Symetra Ctr
Evergreen Home Loans* 16,600 7,700 4Q16 Civica If you exclude the three new developments from the Class A stats,
Akamai Technologies* 9,600 9,600 3Q16 112th @ 12th and factor in the executed leases/LOIs (net absorption) in the table
Undisclosed 7,000 7,000 4Q16 112th @ 12th to the left, the Bellevue CBD Class A vacancy rate would drop to an
Total 281,400 272,500 astounding 3.0%.
* Signed lease
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(1) Current vacancy excludes 929 Office Tower.
drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
New office developments on the entire Eastside equate to 7% of the Eastside inventory, and are 56% pre-leased. No additional
developments on the near term horizon.
Three office projects, totaling 1.5 million SF that have either recently delivered or will be delivering by year end in Downtown
Bellevue. With current leasing rumors and completed leases, the new developments are 64% pre-leased.
Asking rents at Downtown Bellevue developments range from mid $30s psf NNN at 929 Building to low $40s psf NNNs at Lincoln
Square.
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DOWNTOWN BELLEVUES DYNAMIC MIXED-USE ENVIRONMENT
drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)
Office Residential
7.8 MM SF Today 6,963 Units Today
1.1 MM SF Under Development 878 Units Under Construction
4.1 MM SF Constructed Since 2000 4,000 Units Completed Since 2006
91.8% Average Class-A Occupancy Over Last 10 Years 5-Year Average Vacancy Rate of 3.6%
16.8% Annual Rent Growth Since 2013
Hotel Retail
3,059 Rooms and Over 140,000 SF of Meeting Space Over 4.5 Million SF Today with Another 200,000+ SF
Today Coming Online in 2017
733 Rooms Under Construction and an Additional 324 Home to Two Trophy Malls: The 1.5MM SF Bellevue
Rooms Proposed Square and Shops at the Bravern
Premium Flags Including Westin, Hyatt Regency and a 112th @ 12th is Walkable to Numerous Shopping and
W Hotel Under Construction Entertainment Destinations and 100+ Eateries
Desirable Retail Market with a Low 2.4% Vacancy Rate
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