VANCOUVER, WA-Scanlan Kemper Bard of Portland, OR has acquired the 28-building, 466,634-sf EastRidge Business Park from EastRidge Business Park LLC for $62 million, with plans for a value-added play that will convert underutilized space at the mixed-use office, retail and industrial park to higher uses. SKB principal Bob Scanlan explains that although the 36-acre park is 97% occupied except for two new buildings, "Six of the buildings are currently being underutilized, with office users occupying retail buildings or warehouse users occupying flex/office buildings."
SKB's business plan calls for capitalizing on improving market conditions by recapturing retail space along SR 503 (Northeast 117th Avenue) previously used as office space, converting select flex space into office product, and leasing-up and selling off the new buildings. Scanlan says that the market will support increasing the office and retail users within the project, thereby boosting the income stream and improving the marketability of the buildings for sale.
According to SKB principal Todd Gooding, factors in favor of the business plan include a lack of available land for new commercial development in the Vancouver submarket. Excluding the new product at EastRidge, Gooding points out, no new office/flex product larger than 40,000 sf has been built in the submarket in the past three years and no speculative projects are in the planning process.
Another factor favoring the plan is that the inclusion of retail, office and industrial product at EastRidge "will mitigate business cycle risk that usually challenges commercial real estate product with single uses," Gooding says. The EastRidge park, built between 1978 and 2006, sits along Highway 503 in the Orchards area. It is part of a larger, 90-acre 1.1 million-sf development that includes many buildings occupied by owner-users.
The purchase price of approximately $134 per sf is below the estimated replacement cost of $180 per sf, the SKB principals note. Based on projected first-year net operating income, the capitalization rate on the investment is 7.23%.
SKB financed the purchase with $14 million of equity and a $48-million loan from Aegon US Realty Advisors. The selling entity was an affiliate of the Yearout family, which developed the park.
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