$710M Portfolio Exudes Confidence in Northwest

SEATTLE/DENVER—Despite reports of future slowing, two markets continue to roll along nicely. This is exemplified in a recent mega-portfolio transaction that involved Unico Investment Group LLC’s recent sale of 27 repositioned historic and newly constructed office assets totaling 1.8 million square feet at a price of $710 million.

The buyer was Broad Street Principal Investments LLC, an affiliate of Goldman Sachs. The properties collectively known as the Unico Partners I portfolio are located in Seattle and Denver, which are considered two of the county’s highest growth-oriented technology and innovation hubs.

The transaction represents the successful conclusion of Unico’s first institutional discretionary fund Unico Partners I, which closed in 2014 after raising $265 million in equity from US and Canadian institutional investors.

“Since 2014, Unico has repositioned these properties through targeted capital investment and major leasing. Several properties in the portfolio underwent significant transformation including several historic properties and the delivery of an award-winning new construction,” said Unico president Jonas Sylvester. “We’ve not only enhanced our properties and achieved strong returns for our investors, but also improved our cities’ built environments and enhanced the quality of life for our tenants and communities.”

The portfolio consists of class-A assets in central business district locations in Seattle and Denver with the largest concentration of the properties located in sought-after submarkets. The collection includes 10 creative office assets and one high-profile parking garage. The portfolio is 85% leased to a diversified 190-plus tenant roll with long-term leases and the properties have undergone significant capital investments with $87 million invested across the portfolio (excluding development).

“Most funds have finite lives and thus, there is usually an end date on the horizon,” Sylvester tells GlobeSt.com. “We had already created significant profit for our investors, so we sought to realize that profit and secure the returns we had promised investors at the onset.”

The majority of the properties in the portfolio are artfully restored fully repositioned assets including the iconic Smith Tower in Seattle’s historic Pioneer Square, 1505 Fifth Avenue in the Seattle CBD, Yale + Thomas building in Seattle’s South Lake Union submarket, DC Building in the Denver CBD, 2nd + Josephine in the Cherry Creek submarket in the Denver area and the Platte Street portfolio in the Denver CBD.

The portfolio also includes new construction such as the Circa Building on Platte Street in Denver. The class-A trophy asset is certified LEED Platinum and received the mayor’s design award for sustainability last year.

Other assets in the sale include the historic Grand Central block and the Butler Garage, both in Pioneer Square in Seattle, and 555 Zang in Lakewood and the 11-building Pearl East in Boulder, both in Colorado.

Unico will retain a stake in the portfolio and will continue to operate and manage the portfolio behalf of the new partnership.

“We look forward to working with Goldman Sachs to fully complete the property repositions and new development opportunities still embedded within the portfolio,” said Sylvester. “We are excited to continue our commitment to our tenants and our communities for many years to come.”

Unico’s in-house teams spearheaded the relationship management with the buyer and oversaw the detailed sale of the 27-building portfolio. The disposition team was led by Scott Brucker, Unico senior vice president of asset management, who joined Unico in 2010. Brucker oversees the private equity real estate investment firm’s asset management team and is responsible for the overall performance of Unico’s portfolio. Jason Flynn and Paul Nelson from Eastdil Secured represented Unico in the sale.

“Sponsors sometimes continue on with assets depending on the needs of the underlying real estate and the desires of the incoming investor. Unico approaches buildings with a long-term vision of how to maximize the unique opportunity presented by each asset. In some cases, we are still only partway through executing on our vision,” Sylvester tells GlobeSt.com. “By staying involved, tenants and the community will benefit from the momentum already underway.”

Puget Sound office sales activity was off slightly in the fourth quarter, closing with 22 sales totaling 1.5 million square feet and total investment of $526 million, according to a report by Kidder Mathews with data by CoStar. The variety of properties sold did expand with four of the five largest sales located in suburban submarkets.

The largest transaction of the fourth quarter was the Plaza Yarrow Bay project just off SR 520 in Kirkland, WA. Clarion Partners acquired the 80% leased three-building property for $134.5 million or $473 per square foot. Clarion also purchased 500 Yale during the quarter. This was the third sale of that South Lake Union building in the past seven years. Fully leased by WeWork as its first location in the market, the building sold for $699 per square foot at a cap rate of 4.5%.

In downtown Bellevue, the recently renovated and re-tenanted 110 Atrium Building sold for $111.22 million or $468 per square foot. The seller was a partnership including Talon Private Capital that had previous success with repositioning two office towers in downtown Seattle and is developing the Kirkland Urban project. The buyer was ScanlanKemperBard, a Portland-based equity fund.

Total office investment in 2018 included 288 transactions, comprising $2.08 billion in total sales volume. This is down slightly from $3 billion in 304 sales in 2017 and the historical record of $3.03 billion in 2016. Overall, very strong investor confidence and interest remains across the region at all levels. There is increasing interest in the non-CBD submarkets as those locations are seeing steady demand and in many cases, will provide greater rent upside, according to the Kidder Mathews report.