Microsoft Takes 320,000 SF at Lincoln Tower

The only other office tenant in the building will be retailer Eddie Bauer, whose 200,000 sf commitment in August 2005 allowed Kemper Freeman to starting pushing the 28-story building out of a three-level retail base. Along with a hotel and condominium tower, the retail base and the office tower comprise Kemper Development Co.'s 1.4 million-sf Lincoln Square development.

Eddie Bauer inked its lease at Lincoln Square after selling its 232,000-sf headquarters campus to its neighbor, Microsoft. Eddie Bauer leased back the space for three years to accommodate the Kemper Freeman's construction schedule.

Located at the corner of Northeast 8th Street and Bellevue Way, Lincoln Square includes a 2,000-slip underground parking garage topped by a three-story, 300,000-sf retail podium that, in turn, is being topped by two opposing towers: the 27-story office building and a 42-story building with a 337-room Westin on the lower floors and 148 luxury condominiums on the upper floors. Everything but the office tower is complete; the condo units were sold out a long time ago and unit interiors are complete up to the 30th floor.

Paul Sweeney and Jim Kinerk of Broderick Group had the leasing assignment for the Lincoln Square office space. The negotiated lease rate on the Microsoft transaction is being held close to the vest, but given their size and credit they likely received a discount to the face rate. The triple-net asking rate for Lincoln Square office space when Eddie Bauer inked its deal was $24- to $28 per sf per year. By the time Microsoft signed on, the high end was $31 per sf per year.

"It's a rarity, that's for certain," Sweeney tells GlobeSt.com when asked about the early lease-up. "That was the hope, that the building would receive attention because it is about a year ahead of the others, and also because of the amenities. The nice thing was if they hadn't taken it, a lot of other people were interested."

Lincoln Square has gone from being one of the worst commercial real estate disasters in America to a real success story. The project got under way in 2000 and was halted in mid-2002 after the dot-com meltdown and the ensuing recession shook the project--and the Downtown office market--to its core. The developer at that time was a group of investors led by Lend Lease Real Estate Investments' Value Enhancement Fund IV.

When Kemper Development purchased the stalled development in August 2003, he acquired not only the land, 1,700 below-grade parking spaces and a half-completed hotel-and-condominium tower, but also the steel for the office building, which had been pre-purchased. "We bought at old steel prices, not the new ones," Kemper told GlobeSt.com in March 2005. "It'd be millions more now.

A syndicate of nine banks led by Bank of America and US Bank provided $220 million in construction financing for the first four phases (parking, retail, hotel and residential) and the New York State Teachers Retirement System made a $128-million forward commitment for a 10-year permanent financing that will pay off the portion not covered by the sale of the condominiums. Connecticut General Life Insurance Co., a subsidiary of Hartford-based Cigna Corp., purchased a $33-million equity stake in the project.

The construction financing for the office tower hasn't yet been hammered out, but Kemper tells GlobeSt.com that it likely will be provided by the same syndicate of banks. Having the office building leased up a year ahead of completion "makes the relationship with your lender a lot more comfortable," says Freeman.

Lincoln Square is part of a four-block area owned almost entirely by Kemper Development. Across Bellevue Way from Lincoln Square is Kemper's one-million-sf Bellevue Square mall. Across Northeast 8th Avenue from Lincoln Square is Bellevue Place, Kemper's 500,000-sf office and retail development that wraps around the Hyatt Regency Bellevue.

The restaurants and retail at Lincoln Square are all doing exceptionally well, says Freeman, and sales are also picking up at Bellevue Place. "Virtually every tenant that has opened (at Lincoln Square) is shooting the lights out," he says. "Trader Vic's opened three months ago and has sold out every breakfast and lunch; all the new restaurants are doing well."

Moreover, Kemper says ever since the new restaurants opened the 13 restaurants at our his adjacent properties have been reporting their best growth. "Another thing we didn't anticipate is that the Westin would have one of the best openings in the company's history," says Freeman, adding that the Hyatt at Bellevue Place also has seen business pick up. "That tells you it's all brand new business, no cannibalization."

Looking forward, Freeman says the next project will be a second hotel tower for the Hyatt at Bellevue Place. Freeman announced the project a couple of years ago but set it on the back burner after acquiring the Lincoln Square development. The tower will add another 300 rooms to the hotel along with one of the largest ballrooms in the Northwest.