400 SW 6th Fetches $147 Per SF

PORTLAND-Locally based Felton Properties and the owners of New York-based Newmark & Company Real Estate Inc. have acquired 400 SW 6th Ave., a 205,000-sf, Downtown office building here that is 88.5% leased. With debt provided by Citigroup at a sub-6% interest rate, the duo paid $147 per sf or about $30.3 million for the 11-story building located on the transit mall. Built in 1958, 400 SW Sixth Ave. was originally six stories. It was expanded to its current height in 1992, and an aluminum and stainless steel exterior was added. The building’s largest office tenant is Harland Financial Solutions, a publicly traded financial software company that occupies 80,000 sf and recently signed on for 10 more years in the building. The majority of the ground-floor retail space in the building is occupied by Camera World. The sale closed Thursday morning. Chris Johnson of Norris Beggs & Simpson brokered both sides of the transaction.Matt Felton tells GlobeSt.com that the investment will have a capitalization rate north of 9%. “We are going to operate building differently than (Louis) Dreyfus,” says Felton. “We’re not cutting services, but they are a big institutional owner and they have some operating expenses–some administrative stuff–that we don’t need to incur to run the building.”The seller is a partnership of Louis Dreyfus Property Group, Apollo Real Estate Investment Fund and Beneson Capital. They acquired the asset about five years ago for $23.1 million and proceeded to make numerous upgrades to the property. Louis Dreyfus Property Group’s West Coast VP Ron Beltz tells GlobeSt.com that the sale of the asset was prompted by Apollo, which wanted to liquidate. Beltz says his company thought about holding onto its 40% stake, but ultimately decided against it. “Frankly, between the city, county and Tri-Met (the transit authority), the transit mall is a brutal place to due business,” says Beltz, referring to access and security issues related to the transit mall and a county probation office that was located on the 5th Avenue side of the block in 1999. Between that and the increases in county and city business taxes, Beltz says it has been hard to get tenants to seriously consider the building.Felton says that while the bus mall has been a concern in the past, its future is bright. “When they put in the light rail, it will become a true transit hub and there will be significant cosmetic improvements,” he says. “All of the bus shelters will be replaced, the landscaping and brickwork will be redone, and as the Portland economy starts to pick up the whole image of the transit mall will improve. So in some respects it’s an upside.”Moreover, Felton says he is not having any problem finding tenants, and is “days away” from signing a new lease for approximately 7,000 SF on the top floor of the building that would will fill the building’s largest vacancy and take occupancy in the building to 93%. By comparison, the average class A office vacancy in the CBD is about 12.4%, according to the latest data from the local office of Grubb & Ellis. “This asset was particularly attractive due to the long term stability and strength of its tenant roster, as well our ability to capitalize on a very attractive debt market and, hopefully, to take advantage of the recent resurgence of leasing activity in the downtown market,” says Felton, who owns Felton Properties with his father, William Felton.Felton adds that the building represents an intrinsic opportunity based upon its discount to replacement cost and the fact that the in-place rents are at today’s market rate, unlike many properties carrying leases that were signed from 1998 through early 2001 and thus are showing above market income streams. The purchase of 400 SW 6th Ave. brings Felton’s holdings in the Northwest to slightly more than 2.5 million sf. The bulk of its Northwest holdings came in April 2001, when in partnership with Time Equities it acquired an 11-building portfolio from ASA Properties of Honolulu for about $100 million.For Louis Dreyfus Property Group, this is its second Portland sale in the past two years. In the fall of 2002, it sold the 158,000-sf Riviera Plaza in Downtown to locally based Harsch Investment for $21.9 million. Louis Dreyfus’ remaining class A office asset in Portland is the 430,000-sf KOIN Center, which it owns in partnership with Benson. As well, the company owns one-half block across the street from KOIN for which it is considering a residential-over-retail development and a full block at 1st Avenue and Columbia Street that is slated for a 308,000-sf office building.