Part of a new office building in downtown Auburn sold last week for nearly $24.5 million, public records show.
The city of Auburn bought 61 percent of the 88,000-square-foot One Main Street Professional Plaza, which was developed by JLO Washington Enterprises.
The price works out to $454 per square foot, a staggering sum given the struggling economy and the weak market in South King County. According to CB Richard Ellis’ first quarter report, the south county vacancy rate is 22 percent.
In March, Weyerhauser — stung by the sagging house market — sold a Federal Way office building for $82 a square foot, which was 61 percent less than it paid five years ago.
Dan Foster, a south end office agent who works at the Pacific Real Estate Partners brokerage, said a fairer comp would be Green River Community College’s purchase last year of space at Kent Station. That sold for $386 a square foot, according to Joe Blattner, president of Tarragon, which developed Kent Station.
Both the Auburn and Kent properties are in suburban downtowns.
“When cities buy, they’re down on ‘First and Main’ or close to it,” Foster said. Buildings that cities buy also tend to be smaller, higher quality and “more unique” than non-core office buildings. But having a city buy a portion of a building is unusual. The developer “knew what the local demand drivers were,” Foster said.
Jeffrey Oliphant, who heads JLO, began putting a development deal together several years ago when he realized Auburn had outgrown City Hall. He started acquiring the property at 25 E. Main St., which is across the street from City Hall. The site — formerly called Tavern Row — is next to Auburn Regional Medical Center.
“There [was] no nice office space in the area,” said Oliphant.
Compared to South King County in general, the Auburn submarket is strong. The vacancy rate is just over 6 percent, but that’s not a good indicator due to the market’s miniscule market size. Auburn has only 289,000 square feet out of the Puget Sound region’s nearly 95 million square feet of office space.
Oliphant saw a need and filled it. His marketing focused on government, heatlh care and businesses that support those sectors, and it worked.
Today, One Main is 82 percent leased. Tenants include KeyBank, Valley Women’s Health Care and Lab Corps, according to Oliphant. He said some tenants have options to buy.
The current City Hall was built in the late 1970s, when Auburn’s population was about 21,000. Today it’s 67,000.
“We were bursting at the seams,” said Mayor Pete Lewis. The city plans to build a skybridge to connect City Hall and the new building.
Oliphant has been active in Auburn for a number of years.He did another project with the city: converting an old supermarket into the Auburn Justice Center. He also developed a shopping center in Auburn anchored by Lowe’s and has done similar big-box projects elsewhere in South King County. Before going out on his own, he worked for the Super-Mall developer.
Construction on One main began at one of the market’s weakest moments: January of 2009. Commercial property prices nationally had fallen nearly 44 percent from the peak in the fall of 2007.
During construction, bank regulators gave the parent company of the lender, Sterling Savings Bank, two months to raise $300 million in new capital. Sterling Financial Corp’s stock fell 22 percent, closing at $1,29 a share, on that news. Yesterday, it closed at 82 cents.
The projects got a boost when, according to Lewis, the city agreed to take some space early on and then took more after construction started.
“The project only got started because of tremendous team work,” said Oliphant. “Everybody pulled together. It is adverse times that test relationships.”
He said One Main was finished on budget in December of 2009, several months ahead of schedule. Oliphant developed with a silent partner, and declined to say how much it cost.
Architect of Jan Dorbritz of Topanga, Calif., designed One Main, and Sierra Construction was the contractor.
Oliphant said One Main — home to Auburn’s emergency operations center — was built to meet the same structural codes as fire and police stations, and hospitals.
In addition, because more than half the project is occupied by a municipality, the developer was required by state law to pay prevailing wages. The entire building — not just the city’s portion — was built under that wage structure, Oliphant said. “Had the city bought the whole building, the price per square foot would have been less.