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Vulcan's Ada Healey On Secrets of Developer's Success

CRE Veteran Takes Collaborative Approach In Transforming Downtown Seattle Into Vibrant CBD
August 7, 2013
Ada Healey, vice president of real estate at Vulcan, Inc., says the rebirth of South Lake Union wouldn't have been possible without strong public/private partnerships.
Ada Healey, vice president of real estate at Vulcan, Inc., says the rebirth of South Lake Union wouldn't have been possible without strong public/private partnerships.
Since 2001, Ada M. Healey has directed all real estate activities for Seattle-based Vulcan Inc.; a company owned by investor, philanthropist and Microsoft co-founder Paul G. Allen.

As the top executive for Vulcan Real Estate, Healey has built one of the few predominantly women-led development operations in commercial real estate, overseeing over $2 billion in assets, including the redevelopment of nearly 60 acres in Seattle’s South Lake Union neighborhood, one of the largest urban redevelopment projects in the country.

Over the last 12 years, Vulcan has created a diversified portfolio through strategic acquisitions and office, life sciences, residential and mixed-use development. The company has delivered over 6.6 million square feet across those property types since 1998 - 80% of it in 24 projects that include 1,367 residential units in South Lake Union, where Internet retail giant has leased or acquired millions of square feet in the last three years.

On July 30, NAIOP, the Commercial Real Estate Development Association, has selected Seattle-based Vulcan Real Estate as the 2013 Developer of the Year, the association’s highest honor.

Vulcan recently confirmed for CoStar that it intends to develop two more 12-story office buildings to be occupied by Amazon.

The company has another 400,000 square feet under construction and 1 million square feet in pre-development planning.

CoStar recently connected with Healey, who joined Allen's company in 2001 after previously serving with ING Clarion (then Clarion Partners) to discuss the company's stunning success in redeveloping the previously run-down South Lake Union district, as well as her observations on the future of office development and the value propositions in retrofitting and renovating to make older buildings more sustainable.

Why has Vulcan been so successful in Seattle?

In 2001 when I arrived, Vulcan had assembled quite a bit of land in South Lake Union and had done some thinking about what to do about that land, but had not yet advanced it to the development stage. The decision was made to bring in an investment professional with a fair amount of experience on the institutional investment side. They recruited me from Clarion, and I was very intrigued by their significant land holdings and opportunity, and also by the idea of working under a high-net-worth investor platform. It was the right place at the right time because I was fortunate to be able to bring a lot of smart, incredibly talented people on board whom I have now worked with for 12 years. They're the ones who really deserve a lot of the credit for the success we’ve had.

Others, including your boss Paul Allen, have described your style as team and planning oriented, able to bring many different types of players and groups together. Do you agree?

The most credit really belongs to the city of Seattle and elected officials in place from 2002 through 2010 who advanced the public policy issues that enabled South Lake Union to become what it is today. There had not been any investment in infrastructure for the last 60 years. A prospect that I had been pitching told me they would never go there. They called it a wasteland - their words. And of course they were right, but there was a plan in place for it to change.

But without strong, significant public/private partnerships, much of what we've accomplished would not have been possible. If there’s not a benefit for everybody, it’s going to be harder to get things done. And our goal was to get some things done. So we worked together on a plan that offered benefits to everyone. Elected officials can go on the campaign trail and talk about keeping Amazon in Seattle and all the tax revenue, the public art and plaza, retail amenities. And we’ve benefited by securing a commitment from a large anchor tenant - Amazon - in the area we’re redeveloping, and activating the area with people. Our philosophy at Vulcan is to make sure there’s something in it for everybody.

U.S. office construction is still well below the 150 million-square-foot annual historical average for new space deliveries. Do you expect we will ever again see those annual levels of 200-300 million square of deliveries in the 1980s through early 2000s?

I hate to use the word never because people who use that word are often proven wrong but it’s hard to imagine that we’re going back to those days - maybe at some point in the distant future. Companies are clearly growing headcount; the emphasis now is how to keep that down and still grow their business. The more productive we get, the more our economy continues to grow, but we don’t need quite as much real estate to support that growth.

What do you expect will become of the bulk of office space that exists in the U.S. that was designed and built before energy and sustainability standards? Is obsolescence a real concern for owners and investors of such properties?

For certain locations, absolutely. Mature office assets that are well located will be repurposed and repositioned, but obsolete office buildings in more challenging locations are going to be a much bigger lift, as will be a lot of strip retail in Class B and C locations. It’s not clear that’s ever coming back - it’s being converted to housing, churches and other non-traditional retail uses.

How realistic is it to retrofit older buildings to today’s standards?

Of course the most sustainable thing is to preserve and upgrade an older building and make it energy efficient. There are more tools coming down the pipe, with better financing option to prove the benefits of energy efficiency. It’s going to vary from market to market. We recently renovated a building built in the 1920s. It’s got high ceilings and it’s very appealing, very sexy space. We had four (prospective tenants) waiting in line competing for it. It worked because our basis in that building was quite modest, so we were able to make the significant capital investment to retrofit it. Clearly, that isn't always the case.

What variables/factors come into play in making a decision to retrofit?

It's like another development project. You do a pro forma sale analysis -- what proceeds will I get if I sell it -- and alternatively, what if I reposition it and invest the additional incremental capital, how much value will I be able to create, and is the return on value sufficient to compensate for the risk? Every investor will have a different hurdle rate, or view of the risk and opportunity.

On the Amazon effect: Is there a concern when one player gets so big and concentrated in one area?

We feel great to have an innovator like Amazon here, given their platform and many different business lines and they’re on the leading edge of the new economy. Amazon has been a tremendous asset to Seattle, the region and the state of Washington. Clearly, their footprint is getting bigger and everyone views it as very positive. Yes, having any kind of a major corporate presence is something to be mindful of. But the good news for Seattle is that we have quite a few major corporations that have a huge presence here, from Boeing to Microsoft to Costco to Starbucks. It’s a very diverse footprint, and they are all leaders and innovators in their industries.

Does Vulcan have plans to expand beyond Seattle, perhaps go national?

We had considered expanding out footprint beyond Seattle. We went down to Phoenix and bought an Opus-developed building from three lenders but that didn’t work out. We leased it up and sold it at the end of last year and made a nice return. But our principle [Paul Allen] is more comfortable staying closer to home, so I suspect we will continue to focus our efforts in the Northwest and the greater Seattle area.

We feel good about our success here and will be sticking to where we know the market, players and dynamics. We sold the Amazon headquarters last year and sold a building we developed for Group Health last year. Our basis was about $3 billion gross at the end of last year and we’re probably a bit under $2 billion today. We’ll take some chips off the table if the timing seems right. But we expect to rebuild that. We definitely have an appetite to grow and rebuild the portfolio.

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