Puget Sound and Portland/Vancouver: 2014-15 Top Economic Market Drivers, Part 1 - The Puget Sound

by Spencer Marona, Managing Director

In this two part series, I will be covering the top economic market drivers in 2014-15 in the Puget Sound and Portland/Vancouver markets: Part 1. The Puget Sound - will Amazon slow down? Part 2. Portland/Vancouver - firing on all cylinders.

Part 1. The Puget Sound - will Amazon slow down?

The Puget Sound is going through a significant growth spurt and the economy is booming. Much of this has to do with the robust hiring spree and commercial development of the e-commerce giant Amazon.com. Seattle and Bellevue also saw an influx of foreign capital (primarily Chinese) pour into the market and purchase exponesive assets. Another significant market driver that highlighted 2014 and will fuel 2015 was the Boeing 777X contract.

Amazon is approaching 150,000 employees worldwide and construction is underway to house 71,000 employees on its South Lake Union campus in Seattle, where approximately 20,000 work today. This year alone Amazon added an additional 40,000 employees worldwide. According to CEO, Jeff Bezos, 15 percent of Amazon's workers live in the same zip code as their office and 20 percent of them walk to work.

This sounds ideal for a multifamily investor; however, it should be noted that this past quarter's earnings created grumblings with traders on Wall Street. In addition, shareholders are becoming impatient with Amazon's lack of profits despite mind-boggling growth in revenue and hiring. A concern for the Puget Sound is that a correction in the stock market could bring devastating consequences for the online retailer. Mass layoffs would generate repercussions for the majority of commerce and private residents throughout the northwest.

Speaking first-hand from my time at Amazon, it is my opinion that the company will continue to grow and become more powerful. For every "interesting and cool" idea/product the public knows about, there are about 300 confidential concepts in the works. The impact Amazon has on the Puget Sound market is similar to the growth of Microsoft in the 90s and Intel to the greater Portland/Vancouver market today-both are indicative of longstanding sustainable growth.

If Bill Gate's original vision for Microsoft was to put a PC in every home, Bezo's vision is to put the world of consumer goods at users' fingertips. Satisfaction for Amazonians may come once a customer is able to purchase anything and everything available for sale around the globe on their site; plus the ability to have it arrive at their doorstep within a few hours. With Amazon Web Services (their cloud computing service business, used by the CIA), and hardware business lines (Kindle, Amazon Fire TV and Amazon Fire Phone), among others, indicators are that Amazon is here to stay.

Whether you represent a tech company recruiting in OR/WA, or a multifamily property owner in the northwest, we are fortunate to have this e-commerce giant in our backyard. To learn more about Amazon, their vision, future growth, and watch this recent and rare interview hosted on <re/code>, an independent online tech news site, with Business Insider and Amazon CEO, Jeff Bezos.

With employers like Amazon, Microsoft, Starbucks, among others, foreign investors are starting to see the Puget Sounds as a preferred destination to invest in due to the stability of these companies. According to the National Association of Realtors, China has more than 2 million millionaires and 47 percent plan to move out of the country in the next five years. A survey conducted from April 2013 - March 2014 from the same association also reported that $2 billion was invested into residential real estate in the Puget Sound.

Many Chinese have a different investment strategy than other foreign investors. They seek long-term holds and often purchase residential real estate close to schools for their family even if they have not relocated to Washington yet, according to Terre Foster, a residential agent with Windermere in the Bellevue area. Foster is quoted in a recently published Puget Sound Business Journal article stating, "It's common for a Chinese investor to buy a multi-million dollar home and have it sit vacant."

Area real estate brokers can also thank the Canadian Government for an abrupt change in an immigration law with Chinese investors this past year. As a result, an estimated 60,000 wealthy Chinese families are anticipated to lay roots in the Puget Sound, according to a King 5 news broadcast this past year.

Looking north to Snohomish County, primarily the City of Everett, many were relieved a year ago with the announcement of the Boeing 777X contract. Investors scratching their heads over real estate prices in the Puget Sound should think twice before passing up an opportunity in the north end. Additionally, if your investment strategy is capital preservation, know that labor union negotiations will most likely be back in the headlines and putting residents on the edge of their seats - but not until the contract nears expiration in 2024. 

Steve Wilhelm, Staff Writer for the PSBJ covers manufacturing and aerospace. In one of his recently published article's about Boeing's impact on the Puget Sound economy, he connects the dots between the giant company and a private owner of a "tiny" newsstand.

Other noteworthy events of the year include: 

• Rapid expansion and growth of tech companies
• Gov. Jay Inslee's controversial approach to tax capital gains
• Seattle and Tacoma ports implementation of their overdue alliance in 2015 
• Growth in the aerospace industry
• Local municipalities' ongoing adjustment to the 2012 passing of Washington's Marijuana Law
• State Farm's arrival to Tacoma's CBD
• Ongoing construction of Sound Transit's mass transportation network (light rail)

Read more about some of these market drivers and others that will shape the Puget Sound in a recently published post in The Seattle Times.

Later this week, we will publish an overview of the 2014/2015 market drivers for the greater Portland/Vancouver market.

Spokesman-Review: Developer Jerry Dicker Is Expressing His Creative Side

After 40 years of developing shopping centers and malls in California, developer Jerry Dicker moved to Spokane in 2001. He sees himself as a developer who is no longer focused only on the bottom line.

As a devoted fan of the arts, Dicker wants to preserve and improve the already nostalgic character of downtown Spokane. Evidence of this has been shown through his purchase of the Bing Crosby Theater in 2011, which was draining money and on a path towards falling apart. Another one of his properties includes the Hotel Ruby.

Read more about this in a Spokesman-Review recently published article found here.

Like 1031 Exchanges? It's Important to Let Congress Know.

by Greg Frick & Spencer Marona

The President's 2015 Budget Proposal for Section 1031 of the Internal Revenue Code, the Tax Deferred Exchanged provision could be a game changer for commercial real estate owners.

Tax reform has been a popular election topic, so it's likely there will be tax reform bills introduced in February. All the recent tax reform proposals have included some limitation or elimination of 1031 Exchanges, so it is likely to be incorporated in these future tax reform bills.

A 1031 Exchange defers the tax ordinarily due upon the sale of investment property; it is not a tax deduction. Because investors have 180 days to reinvest in a like-kind investment property, it then becomes an economic stimulant which boosts our economy. The taxes are eventually paid once the investment property is sold and no reinvestment is made. Breaking this cycle would be detrimental to taxpayers and businesses, small and large, nationwide.

You can read more the risks and expensive consequences if this passes in an article published earlier this year on GlobeSt.com.

45 percent or more of the current real estate transactions occurring nationally are utilizing a 1031 Exchange. What can you do today?

Send an email to Congress, write a personal letter, and/or share your 1031 Exchange experience. Visit the Federation of Exchange and Accommodators for guidance on doing any of these actions.

In addition, call an HFO broker to discuss whether a sale and 1031 Exchange of your multifamily is worth considering in 2015. For questions regarding tax implications for your specific situation, please consult with your accountant. In our experience, HFO clients have been more informed by scheduling a meeting with an HFO broker, their accountant, and/or financial advisor at the same time.

More information on this topic can be found by viewing the video below and in the Department of Treasury's General Explanations



IPX1031 Exchange services will continue with its advocacy campaign of sending letters to Congress saying NO to 1031 Exchange tax reform. To date, almost 16,000 letters have been sent to Congress via IPX’s website www.ipx1031.com/action

Happy Holidays and Prosperous New Year From Everyone at HFO!

On behalf of HFO, I want to thank all of you who gave us the opportunity to work with in 2014.  We truly appreciate every one of you.

Collectively, we are looking forward to 2015 and will continue to strive to provide the highest level of service and value to our clients and investors.

We would like to take this opportunity to wish you and yours a blessed and Happy Holiday season, and to wish you all good health, peace of mind, and good fortune in the New Year.

Happy Holidays,

Spencer Marona

Managing Director

Portland City Council Delays Street Fee Vote to Mid-January

On December 17th, the Portland City Council postponed its vote on a street repair income tax. A proposal for raising repair monies is apparently still in flux and is expected to reappear in some form at a Council meeting in mid-January. Read the latest news reports.

"The Year of the Apartment Market"

According to Chuck Ehmann, an economist with Axiometrics, 2014 was "The Year of the Apartment Market."

With a combination of increased single-family home prices, low-supply, and continued job growth, what does this mean for the apartment market in 2015? Read more about this from various industry experts in a recently published GlobeSt. article found here.

Approximately 260 Former Portland Renters Receive Grants To Purchas a Home

For 259 former Portland renters this year, the holidays are being celebrated differently than they were in 2013. The difference is a new home. Thanks in part to the collaboration between Wells Fargo, the Portland Housing Center and NeighborWorks America, assistant grants were given to 259 eligible home buyers.

Read more about this and the NeighborhoodLIFT program in a recently published Portland Business Journal article found here.

Pearl District: Top 9 Yuppiest Neighborhoods in the Country

According to a recently published list on Thrillist.com, the Pearl District is one of the nine "yuppiest" neighborhoods in the country. With high rents, pricey condos, and trendy eateries like Cool Moon ice cream and Blue Hour to name a few, the Pearl District is the place to be if you are a "yuppie". Also topping the list is Seattle's  neighborhood, home of Amazon.com's campus.

Read more about this in the recently published article on Thrillist.com.

Chinese Money Flooded the Puget Sound - $2 billion Worth

by Spencer Marona, Managing Director

According to a recently published article in the Puget Sound Business Journal, wealthy Chinese millionaires have been pouring billions of dollars into the Puget Sound real estate market and that trend is expected to continue. Many are paying all cash for trophy assets and executing deals with the blink of an eye.

Prior to my arrival at HFO, I can speak from first hand on how fast these investors act when they find a deal they want and how they appear to come out thin air. The big question for owners of multifamily and other investment properties in 2015 is how the greater Portland/Vancouver market will be affected? In addition, will we see an influx of foreign capital, or will we see investors looking to place capital in the Portland/Vancouver market who are unable to achieve the same returns in the Puget Sound?

Read more about this in the recently published PSBJ article.

Contact an HFO broker to discuss how your asset is positioned to capitalize on this expected investment activity in 2015.

Excess of $100B Could be Issued of CMBS in 2015

According to Kroll Bond Rating Agency in a recently published GlobeSt. article, we may see more than $100 - $110 billion if the economy continues to improve at it current trajectory and interest rates remain low. KBRA goes on to say, "Real estate fundamentals will remain stable across all of the property type segments, many of which will experience flat to modest growth. However, the multifamily and lodging sectors are standouts, having experienced marked gains over the past few years. The performance of these two sectors in many markets is at or above that experienced during the height of the last real estate cycle."

Read more of this report in a recently published article found on GlobeSt.

Vancouver Waterfront Could Include a New Red Lion

According to a recent Portland Business Journal report, a new Red Lion might be part of development at The Waterfront Vancouver.

Learn more and including watching a video on the development of The Waterfront Vancouver in recently published post on LinkedIn here. 

Airbnb Resists Portland's Efforts for Regulation

According to a recently published Portland Tribune article, Airbnb is resisting the city by wanting to keep the names and addresses of their hosts out of the hands of the City of Portland Bureau of Development Services.

University of Washington Advised to Expand Medical School in Spokane

"The University of Washington’s expansion of its medical school in Spokane and an increase in residency positions are among the ways to best meet the economic and health care needs in Spokane and throughout the state, according to an advisory council chairman’s report released today," according to a recent report from the University of Washington.

With the 11-member Presidential Advisory Council recommending this expansion, more medical care will be available to those throughout the Spokane Valley and. It is also good news for owners of multifamily properties who will most likely see an increase in occupancy with available units.

Here is more information on the UW report.

Seattle: $61 Million Apartment Sale in Amazon's Backyard

by Spencer Marona, Managing Director

Chicago-based Equity Residential purchased the Alcyone Apartments from Vulcan Real Estate in Seattle's South Lake Union neighborhood, where Amazon's campus is also located. This area has been exploding in growth with office, multifamily, mixed-use, and retail properties. 

Fortunately, many apartment owners and investors of properties in secondary and tertiary markets are taking advantage of the rippling effects from these sales. As institutional and foreign capital continues to invest in the urban core markets, sellers will 'chase yield' to achieve a similar return on their investment. 

Read more about this sale, which was announced today in a Puget Sound Business Journal article 

Contact an HFO broker to see how we can help you achieve the highest value for your property in 2016, whether that means selling and cashing out, selling and exchanging, holding and refinancing, or holding and improving operations. 

What is Multifamily's Hottest New Amenity?

As multifamily investors and owners constantly seek for the new and innovative ways to add value to their communities, car-charging stations top the list according to a recently published National Real Estate Investor article.

Many residents are demanding this amenity and it will most likley continue considering one million electric cars are expected to be on the roads by 2016. You can read more about the multifamily properties and the additional revenue stream they can create in the recent NREI article.

Affordable Housing Multifamily Properties among the Steadiest

In a recently published CoStar article, low income housing tax credit has had the biggest impact for rehabbing, creating, and preserving affordable housing in the U.S. It has also been the steadiest with occupancy and continuing improvement of financial performance.

CohnReznick released a recent study stating that occupancy, per-unit cash flow, and debt coverage ratio are the three significant components driving the performance metrics. Read more about this study in CoStar's article found here.

Washington County Approves Nike's Giant Expansion

According to Nike, approximately 90 percent of their employees drive to work. If you have ever driven on U.S. 26 or Hwy 217 during commuter hours, this stat shouldn't surprise you. Washington County's Land Use and Transportation department approved Nike's huge expansion project, which includes 1.3 million of new space. Two additional buildings and parking garages will be added. Read more about this project in a recently published Portland Business Journal article.

Portland State University - Big Development Agreement with the Portland Development Commission

by Lee Fehrenbacher, Research Analyst

The Portland Development Council (PDC) is preparing to enter into a multi-year development agreement with Portland State University and private partners for the redevelopment of three key parcels of land within the University District– including the redevelopment of the 3.8-acre University Place site. PDC’s investment would span multiple fiscal years (FY) between 2016 and 2025, based on projected availability of tax increment financing. The current market value of the parcels and estimated costs after redevelopment is $24.8 million. You can read more about this in a recently published report. 

Trend Alert: Expect to See More Micro-Units Developed in 2015

From the latest edition of Multihousing News:

"Exercise areas, grooming stations and daycare options for pets are quickly becoming the norm. Developers that don't provide relevant features for pet owners will be in for a rude awakening." 

Aside from pampering pets, what else does MHN predict is on the horizon for new construction in 2015?

• Micro kitchens, like this "Stealth Kitchen"

• Urban agriculture
• Saltwater swimming pools
• Community composting
• Multi-generational living
• Integration of food & beverage into common areas
• Apartment lobbies resembling hotels and student housing with places to grab dinner, or meet for coffee

Read the full article. 

2014 Multifamily Housing Executive of the Year: Clyde Holland

Clyde Holland, Chairman & CEO of Holland Partner Group, gives MHN his take on the state of the industry, as well as what his company is doing to cater to the rising creating class. Holland was the recipient of MHN's 2014 Executive of the Year Award.

New Development on Tap for Zidell Land

by Lee Fehrenbacher, HFO-Research Analyst

The PDC is preparing to enter into a development agreement with ZRZ (Zidell Marine Corporation) to help finance the development of 1.5 million square feet of mixed-use commercial space on the Zidell’s 30-acre South Waterfront property. This is the second major phase of development down there since ZRZ completed the 118-unit The Emery building last year. According to the report, the PDC would commit $27.4 million in TIF dollars to help jump start the projects.

Private Development includes:

• Phase 1: ZRZ intends to develop at least 440,000 SF of space anticipated to include mixed-use,

employment-oriented projects (OHSU), and build off of their Emery housing project.

• Phase 2: ZRZ intends to develop at least 1,000,000 SF of space anticipated to include commercial

and residential uses that contribute to South Waterfront employment and housing goals.

• Phase 3: ZRZ has completed a plan for development of additional SF on properties south of the 

Ross Island Bridge; this development is anticipated to occur after the last date to issue debt in the North Macadam URA.

 Read the full report. 

Tribune Report: Portland-Milwaukie TriMet Light Rail Transit Project

by Spencer Marona, Managing Director

The total cost of the Portland-Milwaukie TriMet Light Rail Transit Project is approximately $1.49 billion. Recently, TriMet released facts about the positive impact the project is having including $170 million that has gone towards small companies owned by women and people of color. In addition, according to TriMet in a recently published article in the Portland Tribune:

*Almost 12,800 jobs have been created to date.

*538 firms have been hired to work on the project, with 80% from Oregon.

*130 of those firms are DBEs, representing nearly 25% of all contracting firms working on the project.

*Over 17% of the workers are apprentices learning job skills. TriMet also announced two awards at the celebration.

More about the Portland-Milwaukie TriMet Light Rail Transit Project by watching HFO's exclusive interview with TriMet's planner Kate Lyman or the recently published Portland Tribune article.  

Speculation abounds on whether opening of the Orange Line will lead to an increase in popularity for the Brooklyn Neighborhood.  Meanwhile, TriMet has announced that effective March 1, 2015 they are extending transfer times on 2 hour tickets to 2.5 hours. Read the complete news release

Google fiber may be ahead of its time

by Spencer Marona, Managing Director

According to a recently published article on OregonLive.com, here are some of the things Portland can expect should Google bring their lightening fast internet fiber to the area:

1. Delays with installation of its networks
2. Ice cream socials and fiber rallies encouraging homeowners to advocate for their service
3. "Fiber rabbits"...everywhere
4. Expensive, but transparent pricing
5. Pac-12 Network, but not AMC
6. Speed that could be too much today, but not in 5-10 years
7. Apartment issues. Even if Google "fiber rabbits" burrow into a neighborhood, many landlords have existing contracts with other internet providers. 

Read more about what Portland could expect in the recently published article below.

Rogoway, Mike."http://www.oregonlive.com/siliconforest/index.ssf/2014/12/google_fiber_9_things_to_expec.html#incart_most-read." OregonLive.com. Oregon Live Media Group, 8 Dec. 2014. Web. 8 Dec. 2014.

A TriMet Update For Apartment Owners

HFO's Greg Frick sat down with TriMet planner Kate Lyman to get an idea of recent and future TriMet plans for serving current area apartment communities and future developments.

Forbes: Portland #3 with Cities Benefiting from Recovery

According to a recently published Forbes list, the Portland-Vancouver-Hillsboro area ranks No.3 out of the 52 largest metropolitan statistical areas for cities' per capita income is rising the most. From 2010-13 the per capita GDP grew 9.2%. The prime contributor has been the the growth and performance of Intel, the state’s largest private employer, which employs about 17,000 in Portland’s western suburbs around the town of Hillsboro, the company’s largest concentration of workers anywhere. Read more about this list in a recently published Forbes article.

Costar: Apartment Constructrion Boom Slowing Rent Increases as Market Shifts into Expansion Phase

According to a recent report from Costar, there is a "Wave of new construction expected to peak next year, pushing up vacancy and increasing competition for renters even as conditions continue to favor strong demand for apartments."

Will the cycle of construction for new apartments extend into 2015? Will we see the return of free rent? These topics are covered in a recently published report on Costar.

Tribune Report: City of Portland Ready to Approve Short-Term Rentals for Apartments

Portland's City Council is poised to “roll the dice” on an expansion of Airbnb-style rentals into apartments and condos, hoping it doesn’t do much to worsen the city’s affordable housing shortage.

Portland Mayor Charlie Hales said at a recent council work session that his colleagues are close to agreement on his proposal to legalize short-term rentals in multifamily properties. That would allow tenants in apartments, and condo owners or tenants, to rent rooms on a nightly basis to tourists and other visitors, if they have their landlord’s or homeowners’ association permission. Find the full story here. 

Proposal: Portland Street Fee Up for Dec. 17th

The City Council has moved its final vote on the street fee income tax plan as it rejiggers the proposal and examines some possible new amendments. Possible amendments include taxing people who work in but don't live in Portland, and reducing the burden on in-home businesses who would pay multiple types of taxes. Speculation abounds on whether Amanda Fritz will vote for the proposal, while Nick Fish, in charge of the much maligned water bureau, is saying he'll vote no unless the tax is referred to a public vote.
Oregonian: Latest vote slated for December 17th. 

Download the one-sheet tax table. 


Samples for married filing jointly incomes:
$60k+ pay $90/yr
$75k+ pay $120/yr
$100k+ pay $192/yr
$137k+ pay $288/yr
$250k+ pay $768/yr
$350k+ pay $900/yr

Honeyman Hardware Lofts Sell For $37.1 Million - Up $16.6 Million From 2012 Transaction

After purchasing the property 2012 for $20.5 million, Security Properties and Lubert-Adler invested $4.6 million into a property renovation, increasing the number of units from 89 to 100 . The property has sold for $37.1 million.

Read more in the Business Journal.

Multifamily Cap Rates Continue to Decrease

by Spencer Marona, Managing Director

The year is coming to and end and experts are predicting 2015 to be another robust year in the multifamily sector. Occupancy levels are high and vacancies continue to drop resulting in lower cap rates. More information can found in a recent GlobeSt.com video here.

Contact an HFO broker for guidance and input on your strategy for your multifamily property.

Gen Y lack funds, not interest in home buying

by Spencer Marona, Managing Director

Millennials continue to provide good news for the multifamily market. Despite earning higher salaries, Zillow reports that there is a lack of inventory of in the starter-home price range. Factoring the amount of student loans and lower salaries, this is impacting the housing market. They need to live somewhere and if it isn't with Mom & Dad, they are most likely renting. Read more about this in a recently published GlobeSt. article.

PSU Real Estate Director: Metro's Urban Growth Plans Will Harm Economy

In a study posted to the PSU Center For Real Estate's website yesterday, academic director Gerard C.S. Mildner analyzed Metro government's 2014 Urban Growth Report released in September. His damning analysis said increased density will drive up housing costs, burden the poor and cost local governments billions they do not have.

"This report deserves special attention by citizens and professionals in the local business community because it distorts economic data and will lead the region to make decisions that will harm economic growth."

A story by reporter Jim Redden appeared today on the Portland Tribune website.

Mildner's complete 32-page study can be downloaded here.