Some of the world's largest real estate firms are back in office dealmaking mode after years of sitting on the sidelines, as evidenced by a handful of recent Seattle-area acquisitions.
Affiliates of global powerhouses Blackstone and KKR finalized deals for several high-rises in the Spring District, a 2 million-square-foot campus in Bellevue, Washington, that houses tech giants such as Meta, Amazon and Microsoft, among others. The deals signal the gradual reemergence among companies that dominated the office investment scene in the years prior to the pandemic, and that the national market's recovery has made its way to the West Coast.
Funds linked to Blackstone's real estate business scooped up a 40% stake in the Blocks 5 and 6 buildings, co-developer and owner Shorenstein confirmed. The deal for the properties, both of which were developed as build-to-suits for social media behemoth Meta, closed earlier this month at a combined value of $545 million.
Meta fully leases the roughly 331,830-square-foot Block 5 building at 1615 123rd Ave. NE as part of a long-term agreement it signed prior to the project's late 2021 groundbreaking. While the Silicon Valley tech company is still on the hook for the other nearly 329,500-square-foot Block 6 building at 1646 123rd Ave. NE, it landed a sublease agreement last year with Snowflake in which the artificial intelligence company is now the property's sole occupant.
Shorenstein and Wright Runstad & Co., another firm involved in the Spring District's long-term development plan, also struck a deal to sell the venture's Block 13 building within days of finalizing the Blackstone interest agreement. KKR partner Drawbridge Realty paid an undisclosed amount for the more than 212,000-square-foot building at 1325 123rd Ave. NE, one of the newest additions to the campus' expanding footprint that wrapped up construction last year.
Similar to the other Spring District buildings, Block 13 is leased entirely to Meta, which signed on for all nine floors of the property in late 2021 as part of its Bellevue expansion.
The deal marked Drawbridge's first acquisition in the Seattle area, a market CEO Charlie McEachron said has been on the San Francisco firm's radar as it has gradually regained some of its pre-pandemic swagger.
"Puget Sound is a market we have been closely monitoring as part of our broader portfolio expansion strategy," McEachron said in a statement to CoStar News, adding that the Meta building "is a high-quality, long-term leased asset that perfectly aligns with our investment objectives."
West Coast, improving coast
Up and down the West Coast, the office investment market's slow thawing has resulted in a number of recent deals that signal not only the return of big-name investors but also the swing back to big-ticket purchases.
Hudson Pacific Properties, for example, recently landed a $300 million capital infusion from Cohen & Steers that the global asset manager attributed to an improving outlook across cities such as San Francisco, Seattle, Los Angeles and others hit hardest by the impacts of the pandemic.
An attractive combination of higher capitalization rates, or rates of return, and the widespread stabilization of the national office market's availability rate has not only helped lure back wary buyers but has also triggered a rapid spike in lending, with more companies willing to bet on the market's upside potential.
That trajectory has been pushed along by employees returning to the office as well as a decline in the total amount of available office space. What's more, tenants have adopted a less defensive stance to their corporate real estate portfolios, a shift that has helped drive a 10% bump in national office leasing over the back half of 2024 that has set the stage for continued momentum through the remainder of this year.
All of that combined optimism has meant a surge in commercial mortgage-backed securities loans tied to office properties to $11.4 billion in the first quarter of this year, more than triple the amount issued throughout the first quarter of 2024.
It has taken a while for many of those trends to take hold in West Coast markets such as San Francisco and Seattle, but landlords have said the renewed demand for office space and extended leasing pipelines are beginning to translate into recovery.
Many investors kicked off the start of the year by focusing on markets such as New York City that were further along in their post-pandemic recoveries. Blackstone President Jon Gray said in January that the office market had "bottomed," and earlier this month, funds affiliated with the firm purchased a stake in Manhattan's 1345 Avenue of the Americas.
The global investment firm and KKR's latest deals show an increasing optimism in the West Coast's long-term trajectory, progress evidenced by improving leasing and demand.
Bellevue, specifically, has long been a hot spot among tech giants as they set up satellite offices away from their Silicon Valley campuses. The city's office availability rate is about 7.5%, according to CoStar data, just a fraction of the more than 18% reported across the Seattle area.