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January 13, 2017

Southport: Developer makes a $590 million bet on Renton and South King County

Puget Sound Business Journal

Marc Stiles

About 800 laborers swarm over a 17-acre property on the waterfront in Renton, hammering away on one of the biggest real estate bets ever made on South King County.

It all started when Seattle real estate developer Michael Christ got a phone call 17 years ago from a broker about a big property on the south end of Lake Washington.

Christ already knew the property. Growing up on the north end of the lake, he and friends sometimes cruised down to Renton to take in sunsets from the property just off Interstate 405.

"I jumped in my car, and as soon as I saw the freeway access, I got on my phone and said, ‘Let's do this,'" said Christ, CEO of Seco Development.

Today, workers are building a 12-story Hyatt Regency and three office towers. Seco is financing the $590 million development with its own equity and money from mostly Chinese investors who are involved in the project through the federal government's EB-5 immigrant investor program.

Southport is the biggest thing to happen in Renton since Boeing came to town to build bombers in World War II. It's also the first big campus like this to go up on Lake Washington since Kirkland's tony Carillon Point was built in the 1980s. Today, Carillon Point is home to Bill and Melinda Gates Investments and wireless pioneer Craig McCaw's investment company, Pendrell Corp.

If Southport turns out like Carillon Point, it will transform Renton, which has never been known as a Class A office market and has never had a fancy waterfront hotel.

"It will make tourism a much larger piece of our economic development strategy," said Cliff Long, economic development director for the city. "This is a significant opportunity to attract new employers to the community."

The Southport project seeks to buck the trend of companies like Weyerhaeuser moving to Seattle's urban core. If it succeeds, 6,000 people will live and work at Southport, where Christ envisions water taxis and CEOs' yachts plying the waters as choppers come and go from the helipad at the top of office tower two.

"We are trying to create a a Disneyland for millennials," said Kip Spencer, leasing director for Seco. "There are not many places you can kayak at lunch."

Amazon once eyed Southport

The suburban southeast corner of Lake Washington seems an unusual place for a big urban-style project, but Southport is not in a vacuum.

Next door to the new campus is the 12,000-employee Boeing plant, and on the other side is the 57-acre Gene Coulon Memorial Beach Park, which is packed in the summer. Three miles up the road is the Seattle Seahawks headquarters at the Virginia Mason Athletic Center.

The nearby Renton Municipal Airport pumps more than $17.4 million a year into the economy, according to the Washington state Department of Transportation, and the Landing, a Target-anchored shopping center with a cineplex, is a short walk from Southport.

There are a surprising number of residences in the area as well, with 880 apartments at the Landing and about another 400 apartments at Southport. Seco built those not long after acquiring the property, and today some Seattle Seahawks players live in the complex, Seco officials said.

Seco is bringing two missing pieces to this corner of the lake: a large amount of high-end office space and a luxury hotel.

Seco paid $7.1 million in 1999 for the Southport property where an idle steam plant sat, and plans soon emerged for a big corporate campus.

"It was three office buildings and it was going to be Amazon's campus," Christ said.

The plan was shelved during the ensuing economic slowdown, and Amazon stayed in Seattle.

A decade-and-a-half later, Seco is hunting for tenants to fill the three nine-story office towers. At 730,000 square feet, it's the second-largest office development under construction in the Puget Sound region. Unlike most of its competitors, though, none of Southport's space has been pre-leased, though companies are looking at the project.

"I do know they have had a bit of activity down there, but I do not know who they're zeroing in on," said real estate company Kidder Mathews President Bill Frame, who has no affiliation with the project. "They've kept a pretty good lid on it."

Meeting planners are booking events at the 347-room Hyatt Regency that's scheduled to open in June. Seco said Hyatt already has booked a dozen weddings and other galas and 20 corporate events.

Even with its waterfront setting next to a pretty park, Southport has an uphill path in the race to win office tenants that are moving closer to the urban core to keep and attract the best workers. Outdoor gear cooperative REI, now in Kent, looked at Southport but inked a deal to move to Bellevue next to a planned light rail station.

To win, Southport has to create a place that is as compelling as downtown Seattle or Bellevue, especially for millennials, which now represent the largest share of the American workforce.

Tenants wanted

"A great place is like a rich fabric of uses and activities," said Peter Orser, chairman of the University of Washington's Runstad Center for Real Estate Studies.

Placemaking is about creating a destination that inspires in an accessible area that has open space, shops, bars, restaurants and art galleries.

At Southport, the park and the lake are already there. The campus is just off the freeway, and the area has regional express bus service with more transit service planned.

When it opens this summer, the hotel will be stocked with museum-quality art from Christ's collection, and six restaurants are planned for the campus. In addition, Ivar's and Kidd Valley operate restaurants in Coulon Park, and there are 23 places to grab a bite at the Landing.

"I would be less worried about the need for the funky coffee shop down the street when you have that park right in your face," said Orser. "The park is right there. The waterfront is right there. It's going to feel vibrant."

Stand on the Southport dock, with the Seattle skyline off on the horizon, and it is easy to envision boats bobbing on the lake and crowds of office workers and hotel guests streaming between Southport and the park.

But for it to work, Seco has to find the office tenants. Besides its setting, Southport has economics on its side. Spencer, Seco's leasing director, said asking rents on the campus are a quarter less than new office space in downtown Bellevue.

"We're under NDAs (non-disclosure agreements) with a couple of companies that are household names," Spencer said, adding that the prospects are primarily tech firms.

"I'm very, very confident that the office will have solved itself by the end of 2017," Christ said, "because of the activity we're seeing now."

For the full story, go to Puget Sound Business Journal.

© 2017 American City Business Journals. All rights reserved.

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