1
TABLE OF CONTENTS
EXECUTIVE SUMMARY......................................................................................................................... 3
SITE DESCRIPTION............................................................................................................................. 8
STAKEHOLDER REQUIREMENTS...........................................................................................................12
DEVELOPMENT PROPOSAL ..................................................................................................................14
MARKET AND ALTERNATIVE ANALYSIS .................................................................................................22
FINANCIAL SUMMARY ........................................................................................................................29
TIMELINE .........................................................................................................................................32
BENEFITS TO STAKEHOLDERS ............................................................................................................33
APPENDICES.....................................................................................................................................34
Appendix 1: Proforma Analysis .........................................................................................................34
Appendix 2: Cost Assumptions .........................................................................................................36
Appendix 3: Sensitivity Analysis .......................................................................................................37
Appendix 4: Comparable Summary ...................................................................................................41
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DEVELOPMENT TEAM
Goran Arevski
B.Comm, Real Estate
Grad May 2007
While gaining work experience in real
estate appraisal, Goran currently serves as
the UBC Real Estate Club president. His
focus is not only on scholastic work, but he
is also very active in various league sports and even an
amateur car racing series. After graduation, Goran wishes to
work in commercial development.
Jaclyn Chan
B.Comm, Marketing & Real Estate
Grad May 2008
With a double major in Marketing and Real
Estate, Jaclyn plans to pursue a career in
project marketing. She went on exchange in
Denmark to study entrepreneurship and
international business last summer as her
passion lies in innovative branding and
market strategy. Interests outside of school
include tennis, martial arts and swimming.
Nathan Curran
B.Comm., Real Estate & Finance
Grad May 2007
Nathan will hold a double major in real
estate and finance and has career
aspirations in Real Estate Development.
Summers spent on numerous construction
sites have helped to create this desire
within. For this project, his focus was on
financial analysis.
Robert Harrison
B.Comm, Real Estate
Grad May 2007
With a father in development, Robert has
grown up in a business family and has
developed a strong interest in commercial
real estate development. He is active as a
rock climber and a competitive triathlete.
Robert one day hopes to work in a familycontrolled property development company.
Wook Jang
B.Comm, Real Estate & Marketing
Grad May 2007
Born in South Korea, Wook has a wide range
of experience such as working at a saw mill,
telecommunication company, and federal
government. He loves playing soccer and is
currently in a competitive league. Upon
graduation, Wook plans to work for a
commercial development company.
Adam Mitchell
B.Comm, Real Estate
Grad May 2007
Originally enrolled in structural engineering,
Adam switched to a real estate major in
commerce and will begin his career in
project financing. He spent a year studying
in Milan, Italy and considers it a very
valuable experience. His goal is to move
into
large-scale
development
project
management in the future. Hobbies outside
of school include architecture and design as
well as marathon training.
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EXECUTIVE SUMMARY
BEFORE…
King County Admin Building
! Old 9 story office building
! Asbestos-filled structure
! 59,280 SF site
Empty King County Lot
! Paved site in front of
parking garage
! Currently not used for
any development
! 28,800 SF site
…AFTER
Jefferson on Fourth
! Two LEED Gold towers of condominium Units
o 945 New Homes
o Studios, 1 & 2-bedroom units
o Affordable Housing residents
! Beautiful courtyard landscaping
! Vibrant street-level retail
! Waterfront and city views
Jefferson Plaza
!
!
!
!
LEED Gold Office Building
500,000 square feet of new office space
Lively Street-level retail
Public green space & inviting lobby
3
Site Description
Area Overview
The King County Administration Building is situated at the
southern border of Seattle’s Central Business District. It is
located at 500 4th Avenue, between James and Jefferson
Street. With its close proximity to the I-5 Freeway, the
building is located in the King County Campus area which is
composed of various government buildings providing a range
of public services. The site is only a few blocks away from the
historical Pioneer Square District, which is the cultural
heartbeat of the Pacific North West. A short drive south will
take you into the heritage sites of Seattle’s Chinatown, or send
you on your way to a Seahawk’s game at Quest Field. Directly
to the North towers the Columbia Centre, the tallest building
west of Mississippi River, and directly to the East are views of
beautiful Elliot Bay.
Site Characteristics – Condo Site
! Steep sloped, rectangular shaped, larger than average
sized, 59,280 SF parcel
! Zoned DMC 340’/290’- 400’ with FAR 10
! Currently improved with 36 year-old, 224,857 SF, concrete
and steel structure with no underground parking
! Present parcel and structure are owned by King County.
! Currently used as the King County Administration Building.
! Improvement is a nine story building with escalating
operating costs and a high demand for updates
! Very unsightly exterior design, inefficient floor plan, poor
interior lighting and high use of asbestos make structural
renovations impossible
! Situated directly between the King County Correctional
Facility (East), King County Courthouse (West), New City
Hall (North) and the new King County Administration and
Services building (South)
! Rooftop currently supports a skybridge which extends from
the Correctional Facility to the Courthouse - used on a
daily basis to transport prisoners across without affecting
the public
Site Characteristics – Office Site
! Steep sloped, rectangular shaped, average sized, 28,800
SF parcel
! Zoned DMC 340’/290’ – 400’ and FAR 10
! Currently vacant and is to be improved with basic
landscaping
! Parcel is presently owned by King County
! Currently undeveloped with plans to redevelop parcel as a
King County office space
! Adjacent to the new King County building is an above
ground parking garage accommodating 900 vehicles
! Located directly across the street is another King County
office building which is due for completion in the Summer
of 2007
4
Site Strengths – Condo and Office Sites
! Central location: Connecting Downtown, Pioneer Square,
International District and in close proximity to Waterfront
! Lot style: Large view lots and steep slope allowing for
terracing of exterior landscaping, adding to the appeal of
the site
! Access: Close to major transportation routes (cars, transit,
bicycle) allowing for easy access in and out of the area
! Regulations: Zoning allows for commercial, retail and
residential development
Site Challenges – Condo and Office Sites
! Area Desirability: Proximity to King County Correctional
Facility
! Regulations: Strict density and height limitations, lot
setbacks, building separation requirements, affordable
housing requirements
! Ownership: Various interest groups and public image
concerns might impede or prevent future development
proposals by King County
The new King County Campus will…
! Improve the urbanization of South Downtown Seattle
! Compliment the neighboring government buildings and
heritage courthouse
! Offer the citizens of Seattle an inviting government
services building, and exciting retail and urban living
! Attract pedestrian and bicycle flow between the CBD
and Pioneer Square, ensuring a positive long-term
impact on the community
STEPS
Development Proposal
Step 1: Transfer of Density to Condo Site
This project will be developed on two separate sites. The
condominiums will be constructed on the current King County
Administration site and the new office complex will be
constructed on a vacant King County-owned lot. This process
will require additional density transfer. This will be achieved by
transferring density from a third County-owned site: the
adjacent King County Correctional Facility. This process is legal
and encouraged according to SMC 23.49.041 Combined Lot
Development.
Vision
The King County Administration Building will be developed into
a mixed use site of retail and two LEED Gold residential
complexes. In addition, a LEED Gold office building will be built
on a southeast site to accommodate the King County’s current
and future demand.
Step 2: Purchase Condo Site
The current King County Administration Building will then
become the new condo development, Jefferson on Fourth. In
order to successfully build and sell the condo units, we will
need to assume fee simple ownership of the site. We would
purchase the land for its current market value of $30 million.
Project Summary
The revitalized King County Campus will consist of the
redevelopment of a new office building, renovations to the
south entrance of the King County Courthouse, capital
improvements to City Hall Park, and the establishment of a
mixed-use residential and retail neighborhood.
Step 3: Build Condos
The first phase of construction will involve the development of
two condominium towers. The derived revenue of $35.3 million
from the sale of the condos will give us the financial ability to
begin the second phase of our project: development of the
New King County office complex.
5
Step 4: Use Condo Profits to Fund Office Building
Construction
Once the condominium tower construction is complete, the
$35.3 million profit will be reinvested into constructing the new
office complex.
Financial Summary
Financial Summary
Revenues
Office
Retail
Apartments
Condominiums
Parking
Step 6: King County Purchases Additional 300,000 SF
King County will immediately purchase the remaining 300,000
SF of office space for market value. They will then lease it back
to us as the head tenant. We will then sublease the area to
other tenants until the county requires the space for its own
use.
Costs
Hard Costs
Soft Costs
Site Area of Parking Lot & Green Space
@ 53,632 SF @ 10 FAR = 536,320 SF
SF Currently Utilized = 241,811 SF
Extra Floor Area Available = 294,509 SF
Developers Profit (on
cost)
Land Residual
IRR Unlevered
IRR Levered
PSF
1,227,560
Total Gross Buildable
Step 5: King County Purchases 200,000 SF Office Space
Once the new office complex is complete, the King County will
move into 200,000 square feet of the new office building. This
space will be exchanged with King County at a value that will
maintain their cost neutral position.
Density Transfer Summary
Future KCAB (Retail @ 7,200 SF, Lobby @ 7,200
& Total Commercial @ 513,000 SF) = 528,000 SF
Lot Size: 28,800 SF @ 10 FAR = 288,000 SF
Extra Floor Area Needed = 240,000 SF
Total
$
$
$
$
$
$
144,739,963
11,263,494
19,669,221
268,410,132
6,053,057
450,135,867
$ 282
$ 307
$ 333
$ 434
N/A
$
$
$
(321,376,624)
(49,932,872)
(371,309,496)
$ (262)
$ (41)
$
$
48,826,371
(30,000,000)
13.1%
(24)
12.15%
39.51%
Extra Floor Area Available = 294,509 SF
Extra Floor Area Needed = 240,000 SF
Unused Space Remaining = 54,609 SF
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Site Map
“King County Campus”
7
SITE DESCRIPTION
Site Overview
Both sites are sloped, rectangular
shaped, fully serviced view lots. The
proposed condo site is located at 500 4th
Avenue (PID: 0942000920) and is currently
improved with a 36 year old, 224,857 SF
concrete and steel structure, which serves
as the King County Administration office
building (pink). The nine floor building is a
dated structure with escalating operating
costs and is in constant need of expensive
updates. Its unsightly exterior design and
high asbestos content makes renovation
impossible.
This parcel is located directly between
the King County Courthouse (blue) and a
King County Correctional Facility (red). The
building rooftop currently supports an
enclosed skybridge which connects the
courthouse to the jail. Reminiscent of the
Bridge of Sighs, the tunnel is used on a
daily basis to transport inmates to the
courthouse and back.
The proposed Office site (yellow) is located on the east side
of 5th Avenue at Jefferson Street (PID: 0942001050) with the
address of 401 5th Avenue. It is directly across the newlyerected Metropolitan King County Office building and it is
neighboring the new King County parking garage. The current
parcel will be improved with public green space which is
composed of grass, small trees, and shrubs. According to the
Cindy Edens, Senior Vice President and Director of
Development of Wright Runstand & Company, the plan for this
parcel is for it to remain unused until King County requires
additional office space. There are currently no plans for its
redevelopment and is expected to be used to provide
additional King County office space.
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Site Regulations
Both sites are zoned DMC 340/290-400 with a Floor Area Ratio
of 10. The recent zoning changes have placed the following
regulations on the two sites.
Height Limitation – Current zoning permits commercial,
residential and retail development. The height requirement
limits mixed use structures to a height of no more than 400
feet, commercial-only structures must be less than 340 feet
and residential-only structures must be less than 290 feet.
feet of gross floor area. Residential development regulations
require that 1 space of bike parking be provided for every 2
dwelling units.
Affordable Housing Requirement– Seattle Land Use Code
specifies that 11% of total net floor area must be used for
affordable housing units, or a financial contribution of $18.94
per square foot must be made to a City fund for affordable
housing.
Density Limitations – DMC zoning allows for a maximum of
10 FAR to be built.
Building Separation – Two buildings on the same block must
have a minimum separation of 80 feet once their individual
heights exceed 165 feet.
Building Facade Widths – The current Seattle Land Use
Code prohibits residential buildings that have widths, on the
north to south axis, that are in the excess of 145 feet.
Setbacks – Setbacks only apply to the Condo parcel. Two
setbacks of 10 feet each are found on the north and east
edges (James St. and 5th Ave.) of the parcel.
Parking Requirement – No parking, either long-term or
short-term, is required on any lot in Downtown zones. Parking
for residential and nonresidential uses is limited to a maximum
of one parking space per one thousand (1,000) square feet.
More than one (1) parking space per one thousand (1,000)
square feet of nonresidential use may be permitted as a
special exception. Bicycle parking required for commercial
space built is one (1) space per 5,000 square feet of gross
floor area of commercial space. Retail use over 10,000 square
feet requires that one (1) space be provided per 5,000 square
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Surrounding Neighborhood
The subject site is located in the true centre of Seattle, offering
a diverse range of amenities just a short walk away. It is
conveniently situated in the northern part of the historic
Pioneer Square District which borders Seattle’s expanding
residential and commercial perspective. With the influx of new
residents and attractive retailers, Jefferson on Fourth and
Jefferson Plaza will bridge the gap between the CBD, Pioneer
Square, International District and the Waterfront.
Pioneer Square
Just a short walk south is the centre of Pioneer Square:
Seattle’s very first neighborhood and an important part of
Seattle’s history. Its Victorian Romanesque architecture, art
galleries, nightclubs, restaurants and unique shops, make
Pioneer Square highly desirable to both locals and tourists.
Located at the south end of Downtown, it is just a short walk
south to Safeco Field and the Qwest Fields.
Chinatown – International District
Equally attractive is Seattle’s International District. This
inviting and historic area is the cultural hub to many East Asian
Cultures. Also known as Seattle’s
Historic Chinatown District, it is
the ideal area to find the city’s
most diverse mix of authentic
Asian cuisine. One can also find a
lively international flavor in the
many shops, markets, public art
throughout the district. Similar to
Pioneer Square, the City of Seattle
expects this area to prosper even further by encouraging
increased residency and small business growth.
Central Business District. The current parcel is part of a nine
block area composed of various government buildings,
providing a range of public services. It is conveniently located
close to all amenities one would desire from both the
Downtown – Central Business District
Directly north is the high-density Seattle Central Business
District. With Elliott Bay to the west and its steep slope limiting
growth northward and westward, downtown Seattle is the
location of the headquarters of many of the nation’s major
corporations. With buildings such as the Columbia Tower and
Seattle Public Library, Seattle’s architectural achievements
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have made a name for themselves. In recent years, the
downtown skyline has seen a change as a surge of residential
towers fight for views of beautiful Elliot Bay.
Waterfront
The Waterfront is Seattle’s
gateway to the Pacific Rim,
with daily cruises to locations
around the world or short
ferry rides to Puget Sound
Island. The natural beauty of
Elliott Bay is only a short
walk, with Jefferson Plaza
locating a mere 5 blocks
away.
Traffic Flows
The Subject site is very accessible by car, transit and bicycle.
It is only a couple of blocks west of Interstate-5, directly
between James Street and Yesler Way, which are both major
neighborhood thoroughfares. The Alaskan Way Viaduct is in
close proximity, which allows commuters to bypass
the I-5 traffic as they make their way into
neighboring parts of the city.
Avenue having its own bicycle lane. The bicycle traffic flow
leads directly into the Metro Bus Terminal located one block
south, the future Monorail Station, the Sounder Commuter
Rail, and the Amtrak train/bus stations.
Public Transit Flows
Jefferson on Fourth and Jefferson Plaza is located a few blocks
away from a major transit hub: King Street station. After
2009, it will feature a Monorail and a Light Rail station. This
improved transit system will adequately accommodate the
increase in population in this downtown area. Another main
feature of the transit system is that future residents and
employees will be able to take advantage of the downtown’s
Ride Free Area on the Metro. Both subject sites are located
within this radius and allows commuters to travel at no cost all
the way from King Street Station to Belltown.
Bicycle Flow
It is estimated that about 36% of Seattle's 520,000
citizens engage in recreational bicycling, and
between 4,000 and 8,000 people commute by
bicycle in Seattle each day. Moreover, Seattle has
about 28 miles of shared use paths, 22 miles of onstreet, striped bike lanes, and about 90 miles of
signed bike routes. The King County Administration
Building Site sits directly above a major bicycle
route which carries commuters in and out of
downtown. Both Fourth and Second avenues are
major arterial streets for bicycles, with Second
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STAKEHOLDER REQUIREMENTS
There are important guidelines which are designated to guide
this development. As part of King County Request for Proposal,
there were a number of requirements that the developer
should adhere to and incorporate into the development
proposal. In addition, the City of Seattle has separate
requirements which regulate site usage and compliance to the
overall area plan. Our goal is to satisfy all of the stakeholders’
needs by incorporating the following solutions into our
development.
Improvements to the Downtown Seattle neighborhoods
by promoting growth and vibrancy. Simply stated, “It’s not
a neighborhood if it has no people.” Jefferson on Fourth will
introduce just over 2000 new residents into the area. This
achievement is well within the scope of the Seattle
Neighborhood Comprehensive Plan and the South Downtown
Vision. This increase in population will encourage the creation
of amenities, improve vibrancy, increase property and
government revenues, and most importantly, gentrify a
community and create a “sense of place.”
obstruction. The estimated cost is $8 million and has been
included in our cashflow and pro-forma.
Reconstruction and renovation of the South Entrance to
the King County Courthouse. The county has agreed to
facilitate the reconstruction and renovation themselves.
However, they request that $9 million be contributed by the
developer in the years of 2009-10 which will be used to carry
out this upgrade as well as additional capital improvements to
the City Hall Park. We
have taken this into
consideration and are
prepared to advance
funds at the end of
Phase
I
of
our
development,
which
will take place in the
winter of 2009 or the
spring of 2010.
Removal of the Skybridge connecting the King
County Correctional Facility to the King County
Courthouse
and providing alternative inmate
transfer route, preferably via tunnel. We plan to
address this issue by building an underground tunnel
which will connect the courthouse to the correctional
facility. The tunnel will pass below the Condo site through
a separate, closed off area of the underground parkade.
It will be strategically placed along the north wall of the
parking lot, such that it creates the least amount of
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Capital improvements to City Hall Park to enhance the
neighborhood and tie the King County campus together.
King County has requested that this component include close
coordination with the City of Seattle and the City's Capital
Improvement Project design process. The current objectives
are to integrate the design of the City Hall Park, the
Courthouse entrance and the Administration Building into one
“campus” theme. Our development proposal will achieve this
goal by designing a City Hall Park that will become an “active,
neighborhood-oriented park,” which provides “growth and
vibrancy of the South
Downtown area.” The
park will meet the
needs of residents and
workers in the area and
will become a visible
gateway to downtown
that presents a positive
image to visitors.
their administration building. With that in mind, our
development will fulfill the county’s needs by extracting
maximum value from redeveloping the sites to their fullest
potential and using that value to mitigate the additional costs.
This will improve government service activity with no added
cost to the taxpayers, while ensuring a healthy financial return.
Growth of County staff & demand for additional space.
The County anticipates that it will grow in the upcoming years,
thus requiring an additional 300,000 SF of LEED certified office
space. They anticipate growth of 16,000 SF of space per year.
We are prepared to deliver the additional office space.
However, we will exercise the option to have the County
purchase
the
entire
300,000 SF immediately
and lease the entire
vacant space back to us
for the purpose of subleasing to a third party.
Replace the existing Administration Building with an
environmentally healthy, LEED certified development.
The entire Jefferson Plaza and Jefferson on Fourth
development will be of LEED Gold standing. This will be a
breakthrough achievement for Seattle and it will create a new
standard
for
quality,
efficiency
and
environmental
sustainability for all future developments in the State. King
County’s requirement for 500,000 SF of new LEED Certified
office space will be integrated into the Jefferson Plaza concept.
The new building will be situated on the east side of 5th Avenue
at Jefferson Street.
Revenue neutral assumption.
King County has requested for this project to be revenue
neutral. This means that no additional costs are charged to the
county and taxpayers during this process. The county is only
willing to pay the cost of their current operating expenses of
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DEVELOPMENT PROPOSAL
Project Overview
Royal Ventures presents Jefferson Plaza: a sustainable place to
work or meet friends and enjoy a cup of coffee. Along with a
renovated City Hall Park and South Entrance to the King
County Courthouse, this site will incorporate a mixed use of
office, retail, and residences.
King County Office Concept – “Jefferson Plaza”
Overview
Royal Ventures is providing King County with 500,000 square
feet of office space. Initially, the King County will occupy
200,000 square feet, and we will offer the remaining space to
startup companies and small to medium enterprises. With the
increase in entrepreneurial activity and office space lost due to
condo conversions, Jefferson Plaza will be ideal for growing
companies looking for short-term leases within the business
area of Seattle’s downtown core.
Parking
The current parking regulations outlined in the Seattle
Municipal Code state that no parking, either long-term or
short-term, is required for uses on lots in Downtown zones.
This regulation applies to both residential and commercial
parcels. Therefore, the developer is free to decide the number
of parking stalls to build. However, the code restricts parking
on commercial sites to a maximum of 1 stall per 1000 SF.
Special permit is required to build beyond this limit.
The Municipal Code also specifies the minimum number of offstreet bicycle parking spaces required for a given building use.
As a result, we have decided to provide the following amounts
of automobile and bicycle parking:
Jefferson Plaza Parking
- 100 below ground auto stalls
- 103 below ground bike stalls
Transportation & Accessibility
Because all King County employees have free metro passes,
most of the workers use public transportation to and from
work. To ensure other tenants follow the same use of public
transportation, subsidized metro passes will be made available
for the other non-county workers. Workers will also have
access to the Jefferson Plaza bicycle lounge, which includes
lockers, storage, and showers.
Office Leasing Strategy
Jefferson Plaza will consist of 500,000 SF of new, LEED Gold
Certified office space. King County will absorb 200,000 SF
immediately and the remaining space will be dealt with in the
following manner.
Our strategy is to exercise the County’s option and sell all of
the additional 300,000 SF of space to the County as soon as it
is built in 2011. The sale price that is to be used is the
14
prevailing market price in the year 2011, which is $110 million
based on a 6.0% cap rate and prevailing market rents.
However, in order to exercise this option, the county will
require us to become the head tenant and lease the entire
300,000 SF of space back. The reason being that King County
wants to assume a risk neutral position, and have the space
built only to absorb 80,000 SF every 5 years. Therefore,
leasing the remaining space becomes the head tenant’s burden
due to unattractive lease lengths and the inability to provide
renewal clauses.
Office-Retail Concept
Along with 500,000 square feet of office space, 14,400 square
feet of retail will be provided to create a meaningful and
vibrant King County community. Potential retailers for
Jefferson Plaza will include inviting cafes, restaurants,
convenience store, and other relevant services such as a post
office, dry cleaning, and daycare. This will not only benefit the
on-site tenants, but also the surrounding area and employees
in the adjacent King County office building.
Lease rate discounts will apply to those tenants who are
restricted to remain for 5 years with no option to renew. As
these will be the most unattractive leases, they will demand
the largest discount. We are prepared to offer net Class A
office rents less all TI costs ($5/SF) and less an additional
$1/SF discount. The remaining space that is not limited in time
and offers a renewal clause will be leased at the Class A office
space rents that are standard at that time.
However. we are looking to be compensated for taking on this
risk for King County, holding the space for the County until
they need it, and lastly, for committing our time and efforts
into this part of project. As a result, we are requiring a rate of
return of 6.5% over what we are paying to the county for the
head lease and what we are getting back from subleasing the
access office space. In order to achieve our goal, we request
that county lease rate not exceed $20.55/SF.
When the county has the need for additional space at 80,000
SF every 5 years, they will be able to take it back at no
charge. Once the county has absorbed the additional 300,000
SF of office space, the head tenant lease will no longer be
needed and King County will assume full possession of the
entire 500,000 SF structure. At that time, all of our obligations
will be fulfilled.
15
Residential Concept – “Jefferson on Fourth”
Condominium Towers
Located in Seattle’s Central Business District near Pioneer
Square, Jefferson on Fourth is designed for urban living close
to the charming Chinatown-International District. Jefferson on
Fourth is targeted at a wide range of buyers such as college
students moving out to the city, new graduates who have
nearby jobs and empty-nesters who are looking for a second
or third home as an “urban cottage.” With views of the
downtown Seattle skyline, Elliott Bay and South Seattle,
residents will experience exceptional quality of living with the
following amenities.
On-site Amenities:
! Exercise facility and bicycle storage facility
! Party room/club rooms with an attractive lounge area
! Neighborhood grocery store
! Vast public green space with landscaping and private
courtyards
! Roof-top gardens
! Street-level retail
Off-site Amenities:
! Near numerous restaurants, bakeries, shops, banks, and
markets featuring the freshest produce and seafood.
! Visit the Wing Luke Asian Museum, relax in city parks,
peruse books in a branch library, exercise in a city
recreation
center,
or
grow
vegetables in a community garden
– all located just steps away.
! Walk to Qwest Field and Safeco
Field and enjoy exciting Seahawks
football and Mariner baseball
games
! Ride the streetcar or walk to
Pioneer Square, the waterfront,
fabulous Pike Place Market, and the
Seattle Art Museum’s Olympic Sculpture Park
! Board a Metro bus in the Free Ride Zone to downtown
Seattle, hop an express bus to the University of
Washington campus, or bike to nearby Seattle University
! Close by access to I-5 and I-90 freeways with SeaTac Int’l
Airport just 15 minutes away
! Chinatown-International District just blocks away with
over 36 illustrious restaurants and cafes and many other
shops and services available
Residential-Retail Concept
With an increase in retail demand as more people move
downtown, Jefferson on Fourth will provide total of 22,000
square feet of retail to create an impression of excitement and
entertainment. To serve the immediate residents, a
neighborhood grocery store and fitness center will act as major
anchor tenants. Smaller retailers such as attractive cafes,
restaurants, and gift shops will also be incorporated along the
street level of the condominium tower.
16
With mixed-use retail spreading throughout downtown,
Jefferson on Fourth will not only benefit the condominium
residents, but will also benefit passing pedestrians and visitors.
Located next to the heritage King County Courthouse, the
appealing retail on this site will be an ideal place to relax, dine,
and shop after touring around downtown Seattle. With over
30,000 square feet of public green space,
Jefferson on Fourth will remain an
energetic and animated retail spot for the
surrounding neighborhood.
Parking & Transportation
Located in a prime area, Jefferson on
Fourth will be the innovative leader in
terms of clean transportation and healthier lifestyles. Following
this standard, Royal Ventures will minimize the number of
parking stalls desired in return for a new bicycle, including bike
accessories and a five year service package.
Jefferson on Fourth Parking
As stated in the previous section, the following number of
stalls will be built.
- Condominiums
o 137 below ground auto stalls
o 473 below ground bike stalls
- Retail
o 20 below ground auto stalls
o 3 below ground bike stalls
Commuting by bicycle into Downtown Seattle is becoming a
more and more attractive option. By offering condo buyers a
free bicycle, bicycle accessories and a five-year service plan,
this will decrease the need for a vehicle. Jefferson on Fourth
will be designed to address these needs by:
! Building a secure bicycle storage room with lockers
! Partnering with nearby Bike Station Service Plans for
breakdowns and emergency rides (5 blocks South)
! Partnership with Elliot Bay Bicycles (2116 Western Ave.
Seattle, WA 98121) for custom fitting, discount on services
and accessories
Ultimately, Jefferson on Fourth will be a significant addition to
the “urban trail” network that links neighborhoods and activity
centers within the Puget Sound region.
Located within the heart of downtown Seattle and Pioneer
Square, walking will be one of the most viable choices of
transportation. Residences and workers can take advantage of
free metro. Just a few steps away is the King Street Station,
linking residents and workers to the rest of the region by
offering the following:
o Metro Transit bus service
o Sound Transit's Sounder Train Services
o Amtrak train service
o Amtrak Thruway Motorcoach
Car-Sharing
Non-car owners can subscribe to shared vehicle service in the
neighborhood available through Flexcar™
Clean Transportation
Jefferson on Fourth will develop a community where bicycling
and walking is an integral part of the transportation system,
resulting in cleaner air, safer streets and healthier living.
17
Affordable Housing Concept
The current Seattle Municipal Code specifies that any new
residential development proposed for the DMC or DOC zoning
is required to contribute to the construction of affordable
housing. This contribution can be made in two ways: first, the
developer can provide affordable housing units in, or adjacent
to, the new residential tower in the amount of 11% of net
buildable area. The second option is to make a financial
contribution averaging approximately $18.94 per net buildable
square foot to a City fund for affordable housing.
these 945 units will be homes to people such as new graduates
who are just beginning their career and average income
earners such as nurses, retail and restaurant employees, and
service employees.
Jefferson on Fourth will cleverly accommodate 91 family units
in need of affordable housing. By integrating the units into our
development we are achieving two major goals – promoting
affordable hosing and encouraging smart growth for the city
and the region. As per municipal code legislation, we plan to
provide units to families recommended by the Seattle Office of
Housing.
The units mix will be of similar style and size as all others in
complex. Our contribution will increase the supply of housing
for low and moderate income households, and assist in
accomplishing the planning goals of the Growth Management
Act by increasing the supply of
multifamily housing in urban
growth centers.
Because Jefferson on Fourth is
targeting the large working
class who earn just above the
average
household
income,
incorporating affordable housing
for people who are just under
the average income will not be
a problem. More specifically,
18
Environmental Sustainability
Seattle was awarded first place in environmental innovation for
purchasing programs, green building incentives, carpool
coordination and car sharing by Sustain Lane’s 2006 US City
Sustainability Ranking.
Accordingly, Jefferson Plaza will
achieve a Gold Certification for Leadership in Energy and
Environmental Design (LEED) by performing in the following
five key areas:
1) Sustainable Site Development
! Responsible planning by ensuring that development fits
within City of Seattle’s Urban Planning and Development
framework
! Support for appropriate transportation by focusing on
pedestrian rather than automobile traffic through
provision of safe access for cyclists and pedestrians,
adequate storage area for bicycles, and access to public
transportation
! Build operable windows as an alternative to air
conditioning for non-solar cooling
! Install energy efficient water heaters and appropriately
sized cooling systems with accurate simulation tools and
efficient cooling towers
! Integrated photovoltaics to generate electricity on-site
with lighting that have sensors & automatic-dimming
! Build high-performance windows and doors to optimize
energy performance of glazing systems
! Continuous air barriers will be used and all penetrations
through the building envelope will be sealed to ensure
optimal air infiltration
! Install HVAC Distribution System with high-efficiency
fans and motors with variable frequency drives
controlled by seven-day programmable thermostats
2) Water Savings
! Runoff reduction through design of a green roof system
! Educate residents about water conservation
! Use low-flow toilets and fixtures to reduce water usage
! Manage stormwater by using subsurface infiltration
basins
! Collect and store rainwater for landscape irrigation and
collect and filter rainwater for use in cooling towers
Incorporate wastewater and graywater recycling by
treating wastewater for non-potable uses and landscape
irrigation
3) Energy Efficiency
! Build large exterior windows and high ceilings to
increase daylighting
! use water-efficient clothes washers for hot water loads
19
4) Materials Selection
Royal Ventures plans to recycle as much building material as
possible. For the King County Administration Building, 100% of
the structural steel beams and at least 50% of the concrete is
recyclable material. Moreover, a recycling system with
collection bins clearly marked and strategically located will help
building occupants to promote sustainability. This simple
element will encourage individual responsibility for recycling
and makes opportunities readily accessible.
Materials manufactured with renewable resources will be used
whenever possible. Green products will be incorporated into
the mixed-use building such as coal fly ash, cork flooring tiles,
energy-efficient refrigerators, a green roof system, highperformance insulating glass, recycled-content gypsum board,
recycled-content mineral wool insulation, and recycled-content
mineral-fiber ceiling panels and tiles.
5) Indoor Environmental Quality
Indoor air quality for Jefferson Plaza will follow strict
standards, with fully filtered, humidified, and centrally
conditioned air provided to all office units, residential units and
common spaces for provision of an indoor environment that is
benign and healthy. All condominium units will have digitally
programmable thermostats and operable windows, allowing for
residents to choose between fresh and conditioned air. The
building maintains seasonally adjusted humidity levels of
between 30% and 60%, and a positive air pressure is
maintained within the building.
condominiums. The lobbies will be designed to optimize the
use of daylight with large windows facing the surrounding
green space. Occupancy or daylight sensors will be employed
in all public spaces. Fluorescent lighting and master shut-off
switches will be provided in the condominiums and office
complex.
Seattle Green
Landscaping
Factor
For all commercial areas in Seattle, developers must meet a
new landscaping requirement as of Jan. 20, 2007. This
program is called the Seattle Green Factor and affects all new
developments within the neighborhood business districts. Both
Jefferson Plaza and Jefferson on Fourth will be designed to
improve the extent and quality of landscapes to meet the
requirement. This will be achieved by planting layers of
vegetation in areas visible to the public and along the street
directly next to the office, residential, and retail properties.
The development sites may also use rain water harvesting and
choose plants with low-water usage. Use of larger trees, tree
preservation, green roofs and even green walls are potential
factors that will be incorporated into the landscaping strategy
of the two sites, especially for the residential property.
The parking garages on both sites will be equipped with
carbon-monoxide monitors, and outdoor-air intakes throughout
the building are located away from pollution sources.
High ceilings and large windows will be built to provide a
generous amount of daylight to all the offices and
20
City Hall Park
Jefferson Plaza will incorporate the transformation of City Hall
Park to a safe and beautiful green space for nearby workers
and residents. Located just south to the King County
Courthouse, this park will act as the attractive gateway to
Pioneer Square and downtown. According to the City of
Seattle’s capital improvements project design process, the new
park will include:
! Striking landscaping, trees, and a well-kept lawn
! Sheltered tables for picnics and outdoor lunches
! Children’s playground area
! Circular benches and seating for passive recreation
This transformed City Hall Park will not only meet the needs of
residents and workers in the area, but also allow the Mayor to
achieve his initiatives to improve downtown parks through the
Center City Parks Initiative. With the King County Courthouse
becoming a popular tourist attraction, this park will offer a
positive image to visitors and enhance the pedestrian flow
between the downtown core and international district.
South Entrance of King County Courthouse
The exquisite neighbourhood of Jefferson Plaza extends
beyond 4th avenue by incorporating renovations to the South
Entrance of the King County Courthouse. Located in front of
City Hall Park, the courthouse entrance will be turned into an
inviting and grand plaza, acting as a gateway to
downtown Seattle. Built in 1917, the King County
Courthouse is seen as a heritage building to
many locals and visitors.
21
MARKET AND ALTERNATIVE
ANALYSIS
Macro Economic Analysis
The economic outlook for the United States has gone from
exceptionally strong to somewhat unclear over the last year
(2006). This is the result of many economic factors combining,
such as the national housing slide and relatively low holiday
spending. During this possible nationwide slowdown, the Puget
Sound continues to boom with vibrant economic growth and
strong job creation because of giant corporations such as
Boeing and Microsoft. As these companies add thousands of
jobs to the local workforce, employment through 2007 is
predicted to increase at a steady rate of 2.9% (CBRE).
The population of the central
Puget Sound was estimated to
have reached 3,524,000 in 2006,
an increase of 2 million people
since 1960. More than half of
this growth is due to migration
into the region.
22
Micro Economic Analysis
Seattle
The U.S. Census of 2000 states that there were 563,374
people, 258,499 households, and 113,481 families living in the
city of Seattle. From 1999 to 2000, Seattle’s population grew
at the rapid rate of 9%. Seattle currently has an estimated
population of 578,700, growing by 4,000 citizens per year for
last 16 years. By 2040, planners expect that the population of
Seattle will increase by 200,000 people. During work hours,
incoming commuters increase Seattle’s population by over
160,000 people, raising it to over 720,000 (2000 Census).
submarket’s population increased from 47,459 to 54,766
people, a growth rate of 15.4%. Accordingly, the number of
households increased by 17% along with 18.3% more families
and 23.7% more housing units. There is an estimated 2,718
children under age 18 who reside in downtown Seattle with
41% of the residents age 35 or younger. Average household
income is $51,471 with a per capita income of $33,361.
Downtown Quick Facts:
! 45% of Puget Sound office market is located downtown
! 49.3% of all Seattle jobs are located downtown
! 9.1 million tourists visited in 2006
! 1,600 hotel rooms are under construction
! Light rail and street car operational by end of 2007
! $300 million allocated for transportation spending for transit repair
and improvements
! 42 acres of parks and open space
! $761 million in development projects completed in 2006
! $2.3 billion in development projects are under construction
Seattle City Center Submarket
As a major hub for commerce, tourism, transportation, arts
and culture, Center City Seattle had completed an estimated
$761.6 million in development projects in 2006. At this
moment, $2.3 billion are under construction with another
$281.2 million permitted. Spurred by growth in population,
increased employment, and demand for a vibrant urban core,
construction is at an all time high. From 2000 to 2006, this
23
Office Market
Puget Sound Office Market
With favorable job growth, Seattle's office market ended with
its strongest leasing activity in 2006 with an all time high
absorption of 3,736,204 SF of office space. This has resulted in
a decrease in regional vacancy rate to 9.56% and a rapid rent
growth in several sub-markets.
Currently, there are new office construction projects of over
5,000,000 SF is underway. With expected economic growth,
the outlook on the office market is optimistic. (Source: GVA
Kidder Mathews 4Q 2006 Seattle Office Market Report)
Downtown Seattle Office Market
Lease Rates
The average lease rate for
Class A offices in downtown
Seattle, as of 4Q 2006, is at
$28.50/SF (fully serviced). This
represents an increase of 9%
from a year ago. (Source:
Colliers 4Q 2006 Seattle Office
Market View)
Net Absorption
In 2006, Downtown Seattle fell to the record-breaking year for
total net absorption of 1,487,000 SF. (Source: Colliers 4Q
2006 Seattle Office Market Report)
Construction Activity
Many new construction projects have begun. However, the
majority of new buildings will not complete construction until
late 2008.
Forecast
Fueled by the strong economy and continued employment
growth, the outlook for the Puget Sounds market is very
positive for the next few years. Due to the tightening office
market combined with no major deliveries of office space until
the end of 2008, we expect lease rates to rise rapidly in the
near future.
Vacancy Rate
The downtown Seattle office
market intensified in 2006.
Compared to 1Q 2006, vacancy
rate declined by more than
2.7%, to end 2006 at 8.79% the lowest in five years.
(Source: Colliers 4Q 2006
Seattle Office Market Report)
24
The Residential Market
With a resident population increase of 61% since 1990,
downtown Seattle is experiencing a major rush of
potential
housing
and
residential
opportunities.
Employment gains have been exceeding the national
average in 2006 as employers actively hire, drawing
more and more residents to the area. Trends show that
people are tired of long commutes and prefer to live
near work. To accommodate this growing demand for
urban living, the City of Seattle’s Planning and
Development division approved landmark zoning
legislation, allowing developers to construct taller and
denser buildings.
Apartment Market
Demand for rental apartments has increased due to a
combination of the following effects:
! Rising prices and interest rates making homes more
difficult to purchase
! Widening of the gap between renting and owning
costs
! Thousands of units removed from inventory for
condo conversion purposes
These recent trends have caused vacancy rates to decline,
enabling owners to aggressively raise rents and reduce
incentives. Mike Scott, analyst from Dupre & Scott Apartment
Advisors noted that Seattle is not increasing apartment
construction although demand for rentals is high. In the
beginning of 2006, Scott forecasted that 3,600 new apartment
units would be built within the King, Pierce and Snohomish
counties, however, only 3,100 units opened. As a result, only
2,600 units of new apartments are anticipated for 2007.
By the end of 2006, vacancy rates declined 100 basis points,
to 4.8%, due to the removal of about 6,000 apartment units
for conversion to condos. This rate is 160 basis points lower
than the year before. Vacancy for premium class A apartments
has declined consistently by an average of 110 basis points per
year, with Class B/C properties dropping 80 basis points to
5.1% during the first half of 2006. Overall, King County’s
apartment vacancy rate is currently a low 4.2%, in comparison
to 5.3% from the year before.
New apartment units will be quickly absorbed as renter
demand stays high. As a result, rents are expected to increase
by 4% or more during the spring of 2007. The following graph
shows the increase in rents over the last 5 years. In the first
half of 2006, asking rents increased by 3.3% to $906 and
effective rents increased by 3.7% to $851 per month across
both premium and lower tier units. Within King County, an
average one-bedroom rent is $812 and an average twobedroom unit is $975, which is approximately 7% more
expensive than the year before. Average rents for downtown
apartments range between $1.25 to $1.80 per square foot,
depending on the neighborhood and unit type. This rent gain
25
units are built in the suburbs. Secondly, the appeal of avoiding
several hours of commute time is moving people to the urban
center. With gas at $3 a gallon and daily traffic congestion, the
ability to live, work, and play, all within a few blocks, is
becoming a more popular alternative. Thirdly, many people are
seeking new life-styles to reduce stress and complexity by
seeking a private and secure place of refuge that is connected
to the downtown fascination. Furthermore, many homeowners
are looking to buy an “urban cottage” to live part-time in the
city as their second or third home.
has driven revenues for Seattle apartment properties,
averaging a 9.3% increase for 2006, in comparison to a 2.1%
increase in the previous year. Tracking the downtown
residential development, there were 1,575 residential units
completed in the Center City in 2006. This year, there are
2,390 new residential units planned for completion.
Condominium Market
The environment for condominiums in Seattle has become very
compelling as demand to live downtown, and trends toward
urban living increase. A recent article in the Seattle Times
states that "People are moving into condominiums to simplify
their lives.” Changes in demographics show that baby boomers
are choosing to downsize to condo style living with the desire
for closer connections in urban communities. For the
Generation-X buyers, searching for a condo unit is motivated
by quality of life issues and consideration for the cost of gas
and commute time.
In general, three significant trends are maintaining the strong
demand for downtown condo units. First, restrictive land use is
forcing high-density development in Puget Sound’s urban
center. Consequently, demand for city living will rise as fewer
Regarding supply, about 700 units from 5 high-end
condominiums were completed in downtown Seattle in 2004.
Currently, over 32 condominium projects targeting high wealth
buyers are proposed for more than 9,000 new units to the
downtown area; however, analysts estimate that only 5,400 of
these units (60%) will be actualized by the end of 2010.
Looking at the start of 2007, twelve condo projects are under
construction, creating about 2,100 units, and several more are
expected to start construction this year.
Matthew Gardener, a local
economist
in
Seattle,
predicts an absorption rate
of 2,500 new units per
year. Developers are more
cautious
towards
a
potential over supply of
high-end condos as smaller
units with high price points
keep suburbanites away
from Seattle’s city core. However, the economic fundamentals
are fairly strong for Seattle’s condominium market in which
condos have become a viable option for first-time homeowners
rather than incurring the cost of a single-family home.
26
Social Housing
According to US Census of 2000, over 64,068 people in Seattle
live in poverty. With the combination of rising rental prices and
decreasing rental vacancy, 66% of the rental households who
earn less than 40% of the median income do not have
affordable housing. The King County has established a “TenYear Plan to End Homelessness” by working to find housing
solutions for these people who
are
chronically
homeless.
Located throughout the county,
the
King
County
Housing
Authority (KCHA) currently owns
and manages 3,500 apartments,
townhouses and single-family
homes reserved for low-income
households.
Currently,
there
are
4,637
subsidized housing units in Center City Seattle which accounts
for 12.5% of the total housing units in the greater Downtown
area. Understanding that failing to meet affordable housing
needs will limit Seattle’s potential of becoming a world-class
city, the County demands at least 133 units of affordable
housing. Fragile individuals and families with incomes below
80% of the area’s median income (AMI) are having a difficult
time finding privately owned
subsidized housing which creates
an urgent need for affordable
housing and stronger support.
Without a doubt, there is a
fundamental need for affordable
housing and Royal Ventures is
taking action by supplying 91
units
of
social
housing
–
improving the lives of many
people and families.
Hotel Market
Seattle’s hotel market is booming with falling vacancy rates
and average room prices $50 higher than the national average.
Nationwide, almost $30 billion will be spent on new hotel
construction over the next two years. With Seattle welcoming
over 9.1 million visitors per year, the downtown visitor
industry is continuing to prosper, increasing the volume of
hotel developments in the Center City. Currently, there are five
hotels in various stages of construction in Downtown. By the
end of 2008, more than 1,600 new rooms will be added to
Seattle’s downtown hotel
inventory and over the
next three years, almost
3,000 new rooms are
scheduled to open.
According to Colliers
International Hotels in
Seattle, the number of
new hotel units could
increase to 9,000 if
every proposed construction project is completed by 2009.
Although the Seattle hotel market is thriving, this asset type is
not fit for the subject site due to high competition, high risk
and various site restrictions.
27
Retail
During the first half of 2006, the Puget Sound regional market
for retail space has been tight. As new neighborhoods continue
to appear both within, and at the edges of the metropolitan
region, new retail development continues to be in demand.
asking
rates
are
$28.74 PSF with a
lower absorption rate
of 423 SF and a 1.64%
vacancy rate. As of
2006, rates across the
Puget Sound region
have increased as the
supply of space grows
tight.
In the next several years, Seattle’s retail market should
continue to have low vacancy rates and rising rental rates.
Opportunities for retailers should be attractive because of
Seattle’s strong economic and demographic growth along with
the increase in density within the city center.
For example, grocery stores such as Westlake Specialty Market
opened next door to the Metropolitan to target the increase in
residents in Seattle’s Central Business District. So far,
downtown residents are walking distance to entertainment and
work but no grocery stores. Trends show that downtown
residents prefer to grab frozen dinners and fresh produce after
work, without the inconvenience of commuting to distant
grocery stores and the hassle of long line-ups.
As of mid-2006, Downtown Seattle has a retail gross leasable
area of 1,382,317 square feet, 3.23% total vacancy rate, and
a total absorption of 2,244 square feet. During this time,
168,000 square feet of space was under construction with a
direct asking rate of $38.33 PSF. In South/West Seattle, direct
28
FINANCIAL SUMMARY
Cash Flow
Inflation
A standard 3% compounded inflation rate for income and
operating expenses is assumed. This rate is based on the
inflation rate used by King County for their operating costs.
Rapidly rising construction costs were adjusted at 10% for
years 1 and 2, 7.5% for years 3, and 5% for years 4 and
beyond. This data was obtained from the Seattle, WA Rider
Hunt Levett & Bailey 2007 Q1 report on construction costs.
Stabilized years
The retail, parking, social housing, and condo aspects of the
project will be stabilized in year 4. The office space will be
stabilized in year 6, after the county has moved in and the
remaining space has been leased up.
Analysis by Use, Rather than Building/Phasing
Rather than splitting up the economic analysis between
buildings or phases, we split the cash flow analysis between
uses. This gave us an opportunity to insert realistic absorption
periods per use and summarize development costs to show the
overall health of each use.
Phasing
The project will be completed in two separate phases. The first
phase will begin at month 1 and consist of the construction of
the retail, parking, social housing, and condo units on the
Administration site. The second phase will begin at month 31
and consist of the construction of the 500,000 square foot
office building.
Office Space
The full 500,000 square feet of office space will be completed
at 60 months. At this time the county will purchase 200,000
square feet for a cost neutral amount. This amount has been
deemed to be the difference in operating costs between the old
building and new building. They will also purchase the
remaining 300,000 square feet at market value and then lease
it back to us at a discounted rate. We will then hire a broker to
lease the space out and will assume a vacancy rate equal to
the prevailing market rate of 8.79% for Class A office space.
The county will occupy the initial 200,000 square feet in year 5
and will have taken over the full 500,000 square feet of office
space by year 21. During this time period the amount of
leasing revenue is decreased proportionally to the county’s
need for space.
INCOME
! Gross Building Area (GBA) was calculated from our phasing
plan.
! Gross Leaseable Area (GLA) for retail and Net Rentable Area
(NRA) for office were calculated as a percentage of GBA that
ranged from 95% for retail space, which is likely to be more
efficient in actual design. We used an 87% efficiency factor
for condominiums and office.
! Gross Annual Income is a calculation of NRA multiplied by
Rent per SF per year.
! Rents calculated assume that tenants will cover the cost for
improvements.
! Rents are calculated based on market research conducted.
Please reference individual uses reports for additional details
on actual rental assumptions per use.
! Vacancy and occupancy factors are calculated based on
surrounding market products to calculate the Effective Gross
Income (EGI)
! Operating expenses for the income properties are derived
from Seattle market comparables. The operating expenses
also include replacement reserves and ground rents.
29
DEVELOPMENT COSTS
Hard Costs
Sources for hard cost assumptions are referenced from GVA
Kidder Matthews and Ryder Hunt Levett & Bailey Quantity
Surveyors of Seattle, WA. Hard costs per use demonstrate
shell tenant improvements. An additional $8 million and $9
million have been added to total Hard Costs to account for the
removal and relocation of the sky bridge and the renovation to
the south courthouse entrance. There were no stated
requirements for funding of the gentrification of City Hall Park,
which will be redeveloped by the City of Seattle.
Soft Costs
! Washington State Construction tax at 8.9%
! All professional fees
! Permitting
The following are included in the Developer Fee at 5%:
! Construction loan interest
! Site preparation
Soft Costs vary per use. The parking analysis for example has
a soft cost assumption of 20% of hard costs that was
suggested by Ryder Hunt Levett & Bailey and is included in the
total cost of $30,000 per stall. A larger 20% of hard costs were
estimated for condominium components to represent fees
associated with setting up a condominium association,
condominium
construction
liability
insurance,
and
a
comparatively larger construction loan interest.
Infrastructure Costs
Site preparation has been budgeted at $10 per square foot for
the entire lot. Landscaping has been budgeted at $15 per
square foot for one quarter of the lot.
Contingency Costs
Five percent of hard costs where budget as a contingency cost
for construction. For the overall project a contingency cost
based on 2.5% of total costs was budgeted.
DEBT SERVICE
Loan to Cost
We conservatively selected the loan to cost ratio (LTC) in each
case to calculate mortgage amounts. We used a market rate
range of LTC of 75%. LTC assumptions were based on
comparable projects and on conversations with Joe Nabbefeld
of Real Solutions, who advised that some projects have used
80% if the project is seen to be “hitting the right market at the
right time.” Mr. Nabbefeld also advised that an interest rate of
7.36% was conservative and would attract bank financing.
Interest Rates
We used a reasonably conservative construction loan financing
rate of 7.36% with a 25-year amortization and another
conservative rate of 9.86% for mezzanine loan financing. We
assumed these figures based on a LIBOR of 5.36% as the
construction of the project is taking place over a 5-year period
and we are assuming a slight decrease in interest rates over
the period.
Debt Service Coverage Ratios
In each case, because we calculated the mortgage loan
amounts by using more conservative loan to cost methods, we
are able to comfortably cover debt service even at these high
debt coverage ratios.
30
RETURNS
Terminal Cap Rates & Value
We calculated our returns based on each specific use instead of
through a continually phased project. This allowed us to use
more accurate and appropriate cap rates for each use. The two
uses that required a cap rate were retail and office, these cap
rates were 5.5% and 6.5%, respectively, and taken 6 months
after fully leased. For the remaining social housing and condo
uses, revenue was taken as a combination of pre-sales and a
balloon payment in year 3 when construction is complete.
county and sublease it to tenants until the county eventually
requires the space. By year 21, Royal Ventures will have
completely exited the project.
EXIT STRATEGY
Retail
The retail portion in the first phase of the project will be sold
upon completion at month 30. It will be sold to an outside
investor that will become responsible for the leasing and
management of the space, releasing both King County and
Royal Ventures from this risk.
Residential
Residential units will be pre-sold at the beginning of the
development and then title will be transferred upon receipt of
the full purchase price at month 30.
Social Housing
The social housing portion of the development will also be sold
at month 30 and title will be transferred to the individual
owners.
Office
As previously mentioned, the King County will purchase all
500,000 square feet upon completion in year 5. Of this space,
the county will pay a cost neutral price for the 200,000 square
feet that they will occupy in year 5 and, pay market price for
the remaining 300,000. We will then lease this space from the
31
TIMELINE
Phase I
April 2007 Density Transfer Requests Made
October 2007 Property Transfer Made
November 2007 Demolition of County Building Begins
December 2007 Excavation of Condo Site Begins
March 2008 Tower Cranes Erected
May 2008 Mat Foundation Pour
August 2008 Structure to Grade
September 2008 1st Floor of Residential Poured
December 2009 Pour Last Residential Floor
January 2010 Dismantle Tower Crane
June 2010
Owner Move-In
December 2010
Phase II
April 2007 Density Transfer Requests Made
December 2010 Excavation of Office Site Begins
March 2010 Tower Cranes Erected
May 2010 Mat Foundation Pour
August 2010 Structure to Grade
September 2010 1st Floor of Office Poured
August 2010 Pour Last Office Floor
September 2010 Dismantle Tower Crane
March 2011
Owner and Tenant Move-In
June 2011
32
BENEFITS TO STAKEHOLDERS
The success of this development will play a major role in the
revitalization of South Seattle. Our development proposal
maximizes the benefits of all parties affected by this project.
King County
King County stands to gain the most from this proposal. The
primary benefit to the county is that they replace an old,
asbestos-filled building with a new, innovative, sustainable
office building that will set the standards for future
developments in the area. A by-product of this revolutionary
building is that the King County employees will feel a sense of
pride from knowledge that their employer is working to
promote sustainability and smart growth in the county they
live in. The removal and underground rebuilding of the sky
bridge will remove the visual stigma of the knowledge that
prison is there and being used. A new entrance to the south
end of the Courthouse will help to make the City Hall park a
center for the area. From a financial point of view, the
increased property tax from the new residential space will
further help the county support positive changes in the area.
City of Seattle
The South of Seattle’s downtown has fallen behind the rest of
the city. We find this hard to justify, considering the many
attractions the South end has to offer. Stadiums, Pioneer
Square, and China Town are just a few of these. Now add a
revitalized City Hall Park as a centerpiece to the new
community created through an inflow of residential units and
positive amenities that accompany this. Our project will help
ease the city’s need for affordable housing as well as provide a
place where people can walk, bike, or transit to the downtown
area, without causing congestion. By following the city’s OCP
and encouraging growth in south of downtown, future
developments will be more attractive in the area. Seattle’s
citizens can take comfort in the fact that our development will
set the standard for a healthier more efficient city.
Washington State
Washington State has kept a strong economy even with the
recent downturn in the countries overall economy. It is
important that the State continue to grow and improve. Our
development will position the State as a leader in the LEED
standard development. It is crucial that Washington State does
not fall behind the rest of North America’s west coast in terms
of commitment to the citizens and environment.
Residential Buyers
We will create a contribution to the solution to the affordable
housing problem in the city. We are offering a lower-cost
alternative to many of the current options in the downtown
area. Seattle’s housing prices are on the rise and the need for
affordable housing has become apparent. The condo units
offer superior views of all angles of Seattle, from the
waterfront to the hills behind. Working, shopping, cultural
amenities, and sports destinations are all within walking
distance, creating a greater flow of people on the street and a
strong sense of community. Single parents or new workers in
the downtown area can find an affordable alternative where no
vehicle is required to get to work.
33
APPENDICES
Appendix 1: Proforma Analysis
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7-22
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$28,953
$16,380,000
$246,862,454
$3,086,939
$266,358,346
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$3,275,700
$3,275,700
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
($14,165)
$0
$0
($14,165)
$0
$0
$0
($155,818)
$0
$0
($155,818)
$0
$0
$0
$0
$266,202,528
($14,165)
$0
$3,275,700
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$13,707,101
$7,607,005
$80,469,026
$5,237,697
$107,020,828
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
($30,000,000)
($2,000,000)
$0
($50,301,657)
($14,025,177)
($96,326,834)
$0
$0
$0
($110,663,646)
($15,427,695)
($126,091,341)
$0
$0
($9,000,000)
($54,074,281)
($7,538,533)
($70,612,814)
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
($96,326,834)
($126,091,341)
$302,610,542
($14,165)
$0
$3,275,700
$0
PHASE 1
Revenues
Office
Retail
Apartments
Condominiums
Parking
Project Revenues
Operating Expenses
Condo (Unsold Strata Units)
Parking
Office
Project Operating Expenses
Project Stablized Net Income
Sale Proceeds
Office
Retail
Apartments
Condominiums
Parking
Total Proceeds
Development Costs
Land Cost
Demolition
Park Upgrade
Hard Costs (Incl. Tax (8.9%))
Soft Costs
Total Costs
Total Phase Unlevered Cash Flows
34
PHASE 2
Revenues
Office
Retail
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$22,073,427
$11,131
$0
$0
Office
Retail
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$109,983,078
$4,020,938
$0
$0
$0
$0
$0
$0
$0
$0
($27,933,733)
($4,394,706)
($32,328,439)
($55,867,466)
($8,789,412)
($64,656,878)
($55,867,466)
($8,789,412)
($64,656,878)
$0
$0
$0
$0
$0
$0
$0
$0
($32,328,439)
($64,656,878)
($64,656,878)
$136,088,574
$8,566,463
($20,000,000)
$0
$40,598,203
($40,598,203)
$0
Mezzanine financing
Mezzanine Interest
Loan Repayed
$50,757,747
($2,142,287)
$0
($5,257,949)
$0
($2,821,864)
($60,968,030)
$22,178,888
($516,707)
$0
($2,256,311)
($22,073,427)
Construction Loan
Construction Interest
Loan Repayed
$15,569,087
($129,106)
$126,091,341
($6,165,165)
$70,612,814
($6,734,757)
($225,302,270)
$1,879,787
($11,224)
$64,656,878
($2,705,287)
($66,012,244)
$66,012,244
$0
$0
Sale Proceeds
Development Costs
Hard Costs (Incl. Tax (8.9%)
Soft Costs
Total Costs
Total Phase Unlevered Cash Flows
Financing Cashflow
Equity
Inventory Loan
Inventory Loan Outstanding
Loan Repayed
Project (CashFlow Values)
Total Project Unlevered Cash Flows
Total Project levered Cash Flows
($72,611,229)
$0
($96,326,834)
($126,091,341)
$270,282,103
($64,671,043)
($64,656,878)
$139,364,274
$8,566,463
($20,000,000)
$0
$40,598,203
($40,598,203)
$0
$73,202,739
$8,566,463
Phase 1 Unlevered
Phase 2 Unlevered
23.96%
-4.41%
Royal Unlevered IRR
Royal Levered IRR
12.15%
39.51%
35
Appendix 2: Cost Assumptions
Construction Costs
Inflation(per Year)
Past 3 Year (average)
Future (2 Year construction)
(%)
9.0396%
10%
Demolition
Asbestos
Structure
Cost / SQFt
Monthly
0.7238%
0.7974%
0.00
7.00
Office Space
Hard Costs
Soft Costs
Contingency on Hard
Contingency on Total
20%
5%
2.5%
200
40
10
5
Retail
Hard Costs
Soft Costs
Contingency on Hard
Contingency on Total
20%
5%
2.5%
160
32
8
4
Condominiums
Hard Costs
Soft Costs
Contingency on Hard
Contingency on Total
20%
5%
2.5%
210
42
11
5
Parking above grade
Hard Costs
Soft Costs
Contingency on Hard
Contingency on Total
20%
5%
2.5%
80
16
4
2
20%
5%
2.5%
(30000 / Stall)
63.0
13
3
2
Parking below grade
Hard Costs
Soft Costs
Contingency on Hard
Contingency on Total
Leed Certification
Landscaping Area
Site Preperation
6%
Taxes on Hard Costs
Total Tunnel Costs
New Court Entrance
8.9%
15
10
Debt
LIBOR
Construction Loan (LIBOR + 200bps)
Mezzanine Financing (LIBOR + 450bps)
Year (%)
5.61%
7.61%
10.1100%
Monthly (%)
WACC
8.23500%
0.0066163
Other Financing
Phase Development
Loan To Cost
Year (%)
Monthly (%)
Inventory Loan
Loan To Value
Amortizaton Period
Financing Assumptions
Equity
Developers Equity
0.0061307
0.0080581
75%
0.0661
75%
30
0.0053482
20000000
Construction Loan
Total Loan Amount
LTC
Interest Rate
PHASE 1
($220,407,202)
75%
7.61%
TOTAL
($220,407,202)
Mezzanine Financing
Total Loan Amount
Interest Rate
PHASE 1
($53,469,067)
0.10110
TOTAL
($53,469,067)
Inventory Loan
Total Loan Amount
Interest Rate
PHASE 1
(52,841,550.79)
6.61%
TOTAL
($52,841,550.79)
8,000,000
9,000,000
36
Revenue Assumptions
OfficeType
Class A
Class B
Class C
# Floors
Rental / Lease Rates
0
0
Sf / Floor
54510
54510
54510
0%
3.00%
Unit Type
Studio
1BDM
1 BDM + Den
2 BDM
2 BDM + Den
Total
SQFt Range
< 600
600 - 800
800 - 900
900-1000
1000-1300
Rent / SQFt
37.5
33.5
27.80
Operating Expense
9
9
9
(Incl. Taxes)
Net Rent SQFt
33.04
28.40
21.79
Vacancy
Class A
8.79%
Class B
10.52%
# Units
302
203
182
87
81
854
Sf / Unit
410
762.5
850
1060
1150
847
Sale / SQFt
575.00
575.00
575.00
600.00
600.00
585.00
Total Sf
266,560
0
0
Total Rev
8806959
0
0
Lease Up
75%
Total Sf
123624
154530
154530
92718
92718
618122
Monthly Rent / SQFt NNN
2.75
2.37
1.82
# Months
6
Total Rev
# of SQFT Space
$
71,084,024
20%
$ 88,855,030
25%
$ 88,855,030
25%
$
55,630,976
15.0%
$
55,630,976
15.0%
$ 360,056,036
100%
37
Appendix3: Sensitivity Analysis
Downside Risk Sensitivity Analysis
Downside Sensitivity
Condo psf Sales Price Decrease
Unlevered IRR
Base Case
$535
12.15%
-2.5%
10.47%
-5%
8.83%
-7.50%
7.24%
Hard Costs Increase
Unlevered IRR
Base Case
12.15%
3%
9.63%
4%
8.82%
5%
8.03%
Retail Cap Rate Increase
Unlevered IRR
Base Case
5.5%
12.15%
5.75%
12.01%
6.00%
11.87%
6.25%
11.75%
Office Cap Rate Increase
Unlevered IRR
Base Case
6.0%
12.15%
6.25%
11.48%
6.50%
10.84%
6.75%
10.23%
Office Rents Decrease
Unlevered IRR
Base Case
12.15%
-2.00%
11.82%
-4%
11.48%
-6.00%
11.13%
Soft Costs as a % of Hard Costs Increase
Unlevered IRR
Base Case
20%
12.15%
21%
11.59%
22%
11.04%
23%
10.49%
All Interest Rate Increase
Unlevered IRR
Base Case
12.15%
0.25%
12.09%
0.5%
12.03%
0.75%
11.97%
Overrun in Office space Completion
Unlevered IRR
Base Case
12.15%
2 Months
11.98%
4 Months
11.81%
6 Months
11.65%
38
Upside Risk Sensitivity Analysis
Upside Sensitivity
Condo psf Sales Price Increase
Unlevered IRR
Base Case
$535
12.15%
2.50%
13.85%
5%
15.61%
7.50%
17.40%
Retail Cap Rate Decrease
Unlevered IRR
Base Case
5.5%
12.15%
5.00%
12.49%
4.50%
12.90%
4.25%
13.14%
Office Cap Rate Decrease
Unlevered IRR
Base Case
6.00%
12.15%
5.75%
12.87%
5.50%
13.62%
5.25%
14.43%
Office Rents Increase
Unlevered IRR
Base Case
12.15%
5%
12.97%
7.50%
13.37%
10%
13.76%
Soft Costs as a % of Hard Costs Decrease
Unlevered IRR
Base Case
20%
12.15%
19%
12.72%
18%
13.30%
17%
13.88%
All Interest Rates Decrease
Unlevered IRR
Base Case
12.15%
-0.25%
12.20%
-0.50%
12.26%
-0.75%
12.32%
39
Upside Analysis
Downside Analysis
Condo psf Sale Price Increase
As a large part of our operations rests on condo sales (47%),
any increase in these values helps to significantly improve our
returns.
Condo per Sale Price Decrease
The unlevered IRR is sensitive to a decrease in psf sales prices
of condos, falling by 3.32% for a 5% decrease
Retail Cap Rate Decrease
Small improvement in returns, however the relative square
footage applied to retail is small compared to total allocation.
Hard Costs Increase
This has a significant impact on our returns, as we are fighting
with small margins caused by rising construction prices.
Office Cap Rate Decrease
As our second phase is heavily reliant on our future sale price
and rents (30% of our project), this helps to improve our
returns.
Retail Cap Rate Increase
Small affect on our overall returns, proportion of total square
feet provided to retail is only 1.5%.
Office Rents Increase
Small proportion of our product and thus does little to improve
our returns.
Soft Costs as a % of Hard Costs Decrease
Has a small effect on our overall returns, most of our costs are
affected by changes in hard costs
All Interest rates decrease
As all of our loans are paid off in a short period of time of less
than 3 years, this only has a small affect on our returns
Office Cap Rate Increase
Serves to decrease our returns due to the significant
proportion of our project dedicated to building office space for
King County.
Office Rents Decrease
Affects our returns negatively due to our reliance on office
rents within the 300,000 SF of office space we are head
leasing over an 18 year period.
Soft Costs as a % of Hard Costs Increase
An increase in soft costs has a minor negative effect on our
potential returns from the project.
Interest Rate Increase
Minor effect on returns as each loan is paid off over a short
period of time.
40
Appendix 4: Comparable Summary
Condominium Sales
Style : Studio
Name
900 Lenora
2015 Terry Ave.
3104 Western Ave
2600 2nd Ave
3104 Western Ave
AVERAGE
Comparables
Jefferson at Fourth Price Schedule
Asking Price
345,000
314,950
276,950
279,950
289,950
301,360
Sq.Ft.
515
671
506
513
506
542
$/Sf.
$ 669.90
$ 469.37
$ 547.33
$ 545.71
$ 573.02
$ 561.07
Floor
5
6
4
2
3
Location Yr. Built
Superior 2006
Inferior
2007
Superior 2007
Superior 1993
Superior 2007
Style : 1 Bdrm
Name
909 5th Ave
909 5th Ave
909 5th Ave
2200 Westlake
909 5th Ave
AVERAGE
Asking Price
$
520,000
$
540,000
$
555,000
$
559,900
$
605,000
$
555,980
Sq.Ft.
808
911
973
842
911
889
$
$
$
$
$
$
$/Sf.
643.56
592.76
570.40
664.96
664.11
627.16
Floor
14
9
11
5
15
Location Yr. Built
Similar
2007
Similar
2007
Similar
2007
Superior 2007
Similar
2007
Style : 2 Bdrm
Name
819 Virginia St
910 Lenora
900 Lenora
900 Lenora
1521 2nd Ave
AVERAGE
Asking Price
$
706,950
$
799,000
$
880,000
$
899,000
$
949,000
$
846,790
Sq.Ft.
1310
1321
1402
1238
1740
1402
$
$
$
$
$
$
$/Sf.
539.66
604.84
627.67
726.17
545.40
608.75
Floor
9
5
5
10
8
Location Yr. Built
Superior 2007
Superior 2006
Superior 2006
Superior 2006
Superior 2007
AVERAGE
$ 568,043.33
944
$
$
$
$
$
$
$ 598.99
Style
Studio
1 Bdrm
2 Bdrm
Avg.
Avg. Unit Sale Price
$
235,175
$
461,725
$
661,800
$
452,900
Avg. Sq.Ft.
409
803
1103
772
$
$
$
$
Avg. $/Sf.
575
575
600
583
Condominium Unit Mix
Style : Studio
Name
Unit #'s
Florera at Greenlake
6
Moda
128
Rollin Street
N/A
Jefferson on Fourth
302
% of Total
10%
51%
N/A
35%
Style : 1 Bdrm
Name
Florera at Greenlake
Moda
Rollin Street
Jefferson on Fourth
Unit #'s
40
58
153
385
% of Total
68%
23%
74%
45%
Style : 2 Bdrm
Name
Florera at Greenlake
Moda
Rollin Street
Jefferson on Fourth
Unit #'s
13
65
54
168
% of Total
22%
26%
26%
19%
41
Market Analysis Works Cited
ACKNOWLEDGMENTS
A very special thanks to our local mentors:
- Michael Katz and Alan Whitchelo
The 2005 UBC NAIOP team, Yosh, TJ, Cam,& Brodie
Prof. Tsur Somerville & Jessie Lam
Hugh Forster, Kingsway Companies
Trish McRae, Colliers Seattle
Gary Carpenter, Bentall
Julie Benezet, Consulting
John Sabey, Sabey Corporation
Mark Ludtka, Callison
Office
GVA Mathew Kidder Office Reports
CBRE 4Q 2006 Puget Sound Office Market View
Retail
Marcus & Millichap Retail Report
CBRE – Puget Sound Retail Market 2Q06
http://seattlepi.nwsource.com/local/304312_shopping20.html
-Retrieved 02/27/2007
Hotel
http://www.downtownseattle.com/content/businesses/Visitor.c
fm -Retrieved 03/02/2007
http://seattlepi.nwsource.com/business/299228_hotels11.html
Condominium
http://masshightech.bizjournals.com/masshightech/othercities
/seattle/... -Retrieved 02/20/2007
http://seattlecondosandlofts.com/2007/02/seattle... Retrieved
02/12/2007
Apartment
Scott+Dupre Apartment Advisor
Marcus & Millichap
CBRE Market Research Report
Social Housing
http://seattlecondosandlofts.com/2007/02/2007-state-ofdowntown -Retrieved 02/19/2007
http://www.metrokc.gov/exec/news/2007/0208housing.aspx Retrieved 02/20/2007
42
Snapshot of Seattle’s 2020 Vision
Revitalization of Pioneer Square
43