February 4, 2008
Condos find new office space
Seattle Times business reporter
ROD MAR / THE SEATTLE TIMES
Condominiums aren't just places to live any more.
The condo concept is migrating to the workplace. Businesses looking for office space don't necessarily have to lease it or buy an entire building.
There's a third option: Buy an office condo.
Brokers and other observers of the Seattle commercial real-estate scene say condos are only a tiny fraction of the local office market, well under 1 percent. The idea hasn't taken off here as much as in some other cities, they add.
But interest has picked up, they say, partly because owning is looking more attractive than renting to some tenants as office lease rates climb.
"It gives companies an opportunity to control their destinies," said Kip Spencer, co-founder of Officespace.com, an online commercial real-estate clearinghouse.
"When you own, you're not depending on anybody," said Vadim Scherbinin, who purchased an office in a Bellevue building 14 months ago.
Some office condos are conversions. The new owner of the Ship Canal Office Center, a 19-year-old, three-story building in Fremont, has renovated the property and is offering view suites for sale, starting at 1,200 square feet, for $425 a square foot.
Others are brand-new. For about $600,000, you could own a 1,360-square-foot office at Salmon Bay Landing, a 31,000-square-foot building under construction near Fishermen's Terminal.
Office-condo buildings are run much like residential condo buildings. Owners pay dues, for instance, to maintain common areas.
Office condos also offer many of the same potential advantages, agents say. Protection from rent increases. Tax breaks. Appreciation.
"You can have an asset," said Barbara Jacobson-Nickerson of the Jacobson Group, a listing agent for the Ship Canal Office Center.
There are risks as well. An asset that can appreciate also can depreciate. A business that buys office space, then grows, can find itself boxed in, without room to expand.
And with office condos so new, the resale market is a big question mark, some agents say.
As with residential real estate, buying costs more upfront than renting. But some businesses are willing to pay a premium to control costs or simply own property in Seattle, said J.J. Shephard, a vice president at Pacific Real Estate Partners.
Office condos aren't for everyone. Most businesses choose to lease because they want the flexibility to occupy more or less space as they grow or contract, said Tom Bohman, a senior director in Cushman & Wakefield's Bellevue office. They don't want their capital tied up in real estate that in a few years might not be a good fit.
Leasing works best for those companies, Jacobson-Nickerson agreed: "Google and Microsoft and Amazon — they never know what their needs are going to be."
Office condos probably make most sense for a small, stable business or professional firm with fixed long-term space needs, she said — doctors, dentists, financial planners, accountants, attorneys, insurance agents.
Many of those clients come to real-estate agents looking to buy a small, free-standing office building, anywhere from 2,000 to 10,000 square feet, said Michael Moore of Coldwell Banker Bain, listing agent for Salmon Bay Landing.
But those buildings are in short supply, he said. That's partly because land costs too much in Seattle for developers to build so small, said Jeff Loftus of GVA Kidder Matthews, another agent for the Ship Canal Office Center.
For some businesses, office condos are an acceptable substitute.
Broderick Group principal Paul Jerue and two partners foresaw that demand when they paid about $4 million for the 18,000-square-foot One Lake Bellevue building in April 2006 and converted it to office condos.
"As a brokerage, we got so many calls from people wanting to buy, but there was nothing available that was small enough for real people to afford," Jerue said.
The partners put a new roof on the 1974 building, repaired the pilings that support it, and made other improvements. So far, according to county records, they have sold 18 of the building's 21 offices, ranging in size from 455 to 1,563 square feet, for a total of more than $6.8 million.
All the offices are owner-occupied, Jerue said. Many buyers are medical professionals who want to be near Overlake Hospital Medical Center.
Scherbinin runs several businesses from a 612-square-foot condo in One Lake Bellevue that he purchased for $265,555 in November 2006. Before buying, he leased space for 17 years, most recently in Issaquah.
He said he likes the stability of owning — no negotiations with landlords, no difficult decisions every few years before the lease expires about whether to stay or move. "When you're leasing, you're paying money to somebody else, not yourself," he said.
And it doesn't hurt, Scherbinin said, that his new office condo has appreciated considerably.
Despite such testimonials, Bohman doubts office condos will serve more than a niche market here. "I don't see it becoming a major trend," he said.
Give it time, Moore countered: "It took a little bit of training for people to accept residential condos, too."
Eric Pryne: 206-464-2231 or
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