Solidifying its position as the dominant landlord in downtown Bellevue, Sam Zell's Chicago-based Equity Office Properties Trust has bought City Center Bellevue for $115.9 million.
The biggest real-estate deal ever made in Bellevue, both in total dollars and price per square foot, it gives Equity Office ownership of three of Bellevue's six high-rise office buildings.
Equity Office also owns an 80 percent stake in Three Bellevue Center, a 22-story tower being built by Wright Runstad cater-cornered from City Center Bellevue. When that building opens, Zell will control 1.7 million square feet, or 45 percent of the Class A office space in downtown Bellevue, Equity Office said.
Timothy Callahan, president and chief executive of Equity Office, said in an announcement yesterday that Bellevue's low vacancy rate and City Center Bellevue's "below-market, in-place rents" create "a strong growth opportunity for our portfolio."
The real-estate investment trust paid Northwestern Mutual Life Insurance $103.4 million in cash for the 27-story building and $12.5 million for two adjacent lots used as surface parking lots. Two office buildings could be built on those lots, but Equity Office said it has no immediate development plans.
The $218 per square foot Equity Office spent for the 472,587-square-foot building is the most ever paid for a Bellevue office building. The price is below the Seattle record of $269 per square foot Zell paid for the Columbia Seafirst Center in a $404 million transaction last year.
Built by Koll Co. in 1986, City Center Bellevue is one of the most prestigious addresses in downtown Bellevue. It sits beside the transit center at 108th Avenue Northeast and Northeast Sixth Street.
Brokers don't expect any dramatic rent increases. Jeff Scanlan, a CB Richard Ellis broker, said the deal doesn't change his company's projection that rents will increase 6 percent to 8 percent this year, down from 10 percent each of the past three years. Colliers International Vice President Bret Jordan predicted many downtown Bellevue tenants will flee to less expensive suburban buildings if downtown rents rise too fast.
Downtown Bellevue's vacancy rate of about 2 percent is likely to climb when Three Bellevue Center opens next year. Construction could begin on two other office buildings this spring, bringing a total 1.2 million square feet on the market next year.