Nautilus Inks 480,000-SF Headquarters Lease

VANCOUVER, WA-The Nautilus Group Inc. has inked a $19-million lease agreement that will move its headquarters into a 482,500-sf, three-level office building on 24 acres at Columbia Tech Center, a 400-acre business park here that is owned by Portland, OR-based Pacific Realty Associates (PacTrust). The publicly traded company’s 10-year lease includes a 10-year extension option and an option to purchase the building and associated land at any time during the first seven years of the lease for $22.5 million. No brokers were involved in the transaction.Nautilus spokesman Ron Arp tells GlobeSt.com that the company initially will build out only about one-third of the property, and the lease rate reflects that even though the rate will not go up as it grows into the space. According to SEC filings, the annual base rent is $1.9 million or $0.32 per sf per month, triple net, which is typically the going lease rate for warehouse space not office space. PacTrust’s director of leasing Barbara Bushell declined comment on the lease rate, but did say the agreement also includes a tenant improvement allowance for Nautilus. She declined to reveal the amount. According to SEC filings, Nautilus and PacTrust each will pitch in $5 million for wide-ranging improvements to the building and the surrounding property.Nautilus manufactures Nautilus, Bowflex, Schwinn Fitness and Stairmaster exercise equipment. It has manufacturing and distribution facilities spread across in the nation. Locally, it employs about 400 people. Arp says some groups will move into the building early next year, but the bulk of its employees will not be in the building until next summer when all the improvements are complete. Its current location on Northeast 136th Avenue, which has about 100,000 sf, will be put up for sale.The building has been largely vacant for more than two years, ever since the previous tenant, Consolidated Freightways, declared bankruptcy and gave back most of the space. Bushell says CF continued to lease a small fraction of the building until about nine months ago. The Nautilus lease means PacTrust will not have the expense of dividing the building into smaller pieces and attracting multiple smaller users. For multiple tenants, PacTrust was asking for a rent of $1.16 per sf, which is more than triple what Nautilus will be paying. Bushell declined comment on the lease rate. The list of required improvements to the building and property is extensive. It includes standard things like new carpet, paint, and less common improvements such as additional windows and a completely reconfigured parking lot, and extravagant things such as tearing up blacktop behind the building and replacing it with a sports park replete with basketball court, beach volleyball court, running track and fields for soccer and softball. Arp tells GlobeSt.com the goal is to make the facility look like the world headquarters of an athletic equipment manufacturer as opposed to the headquarters for a freight company. “We want it to be a little more inviting,” says Arp.Arp says the reason the company is leasing a building and leaving two-thirds of it dark is that the company got a great deal on the building and that it does not expect the space to be dark for too long. “We’re a company coming out of a downturn and what this does is position us for growth under one roof,” says Arp. “We are in an acquisitive environment in our category; this gives us the physical space to absorb other companies if the opportunity arises.”In case things do not turn out as envisioned, however, Nautilus worked several safeguards into the agreement. After 24 months, the company may cancel the lease without penalty if it is the one acquired or if its sales are down more 30% from the prior year.The lease also calls for Nautilus to be able to lease 3,800 sf of retail space in the retail shopping center PacTrust plans to build on adjacent land. The agreed upon lease rate is $15 per sf per year, triple net, including a market rate tenant improvement allowance.