Unico Places Tacoma, Boise Office Assets in Fund, Sells 75% Stake

SEATTLE-Unico Properties recent moves to shrink its interest in its Downtown office holdings is part of a larger plan to diversify into other sectors, the locally based company’s CEO Dale Sperling tells GlobeSt.com. The company’s geographic focus will continue to be Oregon, Washington and Idaho, but Sperling says the company is now looking to acquire medical office and multifamily properties.Most recently, the locally based real estate company placed Wells Fargo Plaza in Tacoma and the US Bank Plaza in Boise, ID into a new fund and sold off 75% of its 100% interest for $22 million. The transaction follows the recapitalization of both the US Bancorp Tower in Portland and Skyline Tower in Bellevue, in which the company dropped its interest in each from 50% to between 20% and 25%. In all the properties, Unico also has retained the property management and leasing assignments. Focused on operating the University of Washington’s 10 acres of prime Downtown property for most of its 50 years in business, Unico in the mid-1990s began adding staff and buying its own properties in order to ensure itself a future in the case its partnership with the University ends along with its existing contract in 2014. Sperling tells GlobeSt.com that when the company first began buying buildings, it put up 50% or more of the necessary equity in order to gain credibility and focused on Downtown office properties because they presented the best opportunity for upside.Over the past few years, however, tremendous institutional competition for trophy office assets has compressed cap rates and made it all but impossible to acquire such properties at prices that allow for above-average profit potential. So instead of buying additional Downtown office properties, Unico has been taking advantage of the situation by decreasing its interest in its Downtown office properties and looking to place the money in medical office and multifamily properties, which it thinks will provide greater upside opportunities.To help make it happen, Sperling last year hired someone specifically to find the company a medical office portfolio to acquire, in part because the tenants are more “sticky” and there’s not as much competition for the assets. While the company was beat out by Health Care Properties Trust for the 600,000-sf medical office portfolio of locally based Swedish Medical Center, Sperling says he has tied up other medical office assets and should close on their acquisition in the next 30 days or so. On the multifamily front, Unico in July announced that it is negotiating a 90-year ground lease for a 16,500-sf parking lot near the University of Washington on which it plans to develop a six-story mixed-use building. The estimated $15-million projectcalls for three floors of apartments over three floors of office and retail space. All told, there would be 48 apartment units, about 15,000 sf of office space and about 10,000 sf of retail. Design and permitting is expected to be complete by June 2005. Construction is expected to begin in July 2005 and be complete by August 2006. “We’ve swept a little cash off the table and now are combining it with other cash and considering other alternatives,” says Sperling, declining to detail the medical office purchase until the transaction closes. Before placing the Tacoma and Boise properties in its newly sponsored Northwest Fund I, Unico bought out the 50% interest JP Morgan held in the Boise property so that it owned 100% of both properties. It then placed the buildings in the fund and sold off 75% interest to some 60 investors at increments of $250,000. The US Bancorp Tower in Portland and Skyline in Bellevue were more traditional recapitalizations. For the Portland property, Unico brought in Menlo Park, CA-based Broadreach Capital Partners to take out JP Morgan’s 50% interest as well as one of the lenders, Wafra Investment Advisory Group, to gain a 75% interest in the 1.1-million-sf office building. The deal values the building, which is 92.5% occupied, at $185 million, or about 7% more than Unico and JP Morgan paid in 2000. As it now stands, Broadreach has a $37.2 million equity position in the building, Unico has a $13-million position and the remaining $135 million is debt held by Cigna. In the Skyline deal, Transwestern Investment Co.’s institutional investment fund, Aslan Realty Partners II LP, acquired an 80% stake in the 408,000-sf for an undisclosed price. The interest was acquired from Wafra, Citigroup North America Inc. and Unico Properties, which jointly acquired the building in 1998 for $89 million, or about $222 per sf. Aslan Realty Partners II LP acquired all of the interests held by Wafra and Citigroup, which totaled about 50%, and acquired the other 30% from Unico, Unico principal John Bliss told GlobeSt.com earlier this month that Wafra and Citigroup decided to sell because they were at “the end of their investment horizon” and it was the right time to sell. Sperling tells GlobeSt.com it was in the best interest of Unico to help its former partners “exit gracefully” because it hopes to do additional deals with them in the future.Meanwhile, the company continues to operate and make improvements to the University’s properties, which include Rainier Tower, Puget Sound Plaza, Financial Center, IBM Building, the Skinner Building and the Cobb Building, which is now being converted from office to residential. As part of the Cobb conversion, Sperling says Unico and the University recently carved the building out of Unico’s ground lease for the rest of the tract and extended it by 45 years to ensure that Unico will have the time to recoup its investment in the asset. Unico also is in the process of finding tenants for 5,000 sf of new retail space it plans to add at the corner of Fifth Avenue and University Street and continues to plan for the future redevelopment of Rainier Square, the interior and exterior retail and public levels surrounding Rainier Tower.