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BELLEVUE, WA-Expedia Inc. has signed a 10-year lease for 84% of a 414,000-sf, 20-story office building under construction in this city’s already tight Downtown office market. The online travel company will relocate it headquarters to the building from Sunset Corporate Campus along Interstate 90 in November 2008, approximately one year after the building is expected to be ready for tenant improvements.

The delighted developers are Hines, the Houston-based international developer; the nation’s largest public pension fund, the California Public Employees Retirement System; and Washington Capital Management, a Seattle-based employee-owned investment advisory firm that invests pension fund monies in union-built developments.

The building, now being called Expedia tower but heretofore known as Tower 333, is the first to be funded by the Hines CalPERS Green (HCG) development fund. It also represents Hines first joint venture with Washington Capital Management. The development site is on the southwest corner of the intersection of 108th Avenue Northeast and Northeast 4th Street. Washington Capital Management acquired the site already excavated at a foreclosure auction in a 2002.

Expedia is taking floors 3-18 in the building, leaving the top two floors still available for lease, which local industry sources tell GlobeSt.com may have allowed the company to negotiate a lower lease rate. Given the tight Downtown market — the vacancy rate in existing class A buildings is in the mid single digits — the owners likely will be able to achieve a very high lease rate for the building‘s premier space.

Expedia’s base annual rent starts $25.85 per sf and ends at $35.85, according to an SEC filing. Annual operating expenses in the building are projected at $9.88 per sf, according to officespace.com, which would make the full-service lease rate $35.73 per sf in year one and $45.73 per sf in year 10. The advertised asking full-service lease rate for space in the building ranges from $38- to $44 per sf per year, according to officespace.com.

Nick Papa, regional research manager for Grubb & Ellis, tells GlobeSt.com that Bellevue’s CBD class A vacancy now stands at 4.1% and Tower 333 was one of only two buildings under construction that had not been significantly preleased; two others have been fully preleased. Over the past year, full-service asking lease rates for class A space in the Belevue CBD have risen nearly 28%, to $36.93 from $28.92, according to G&E.

“We’ve gone from four projects down to one,” Papa says. “Rates are going up and would have been even without the Expedia lease.”

Just a few years ago, vacancy in Downtown Bellevue was 20%. As the vacancy began falling, several office projects, some of which had been stalled, got back under way. The first project out of the ground in response to the demand–Kemper Development’s 540,000-sf Lincoln Tower–was fully leased to Eddie Bauer and Microsoft, which recently completed tenant improvements and are now moving into the building. In April of this year, Microsoft Corp. inked a long-term lease for all of the 740,000-sf Bravern Office Commons, which is under construction next to Meydenbauer Center and scheduled for completion next year.

With Tower 333 now largely spoken for, the only Downtown office tower now under construction without any significant preleasing is Beacon Capital’s City Center Plaza, a 26-story, 571,000-sf building that got started this time last year by Equity Office Properties and is scheduled for delivery in 2008. Bentall’s third Summit Building, a planned 330,000-sf replacement for an existing 68,000-sf building, was expected to be under construction by now but has been delayed because it has been unable to terminate all the leases in the building.

Speaking of lease terminations, if the developers do not deliver Tower 333 to Expedia by September 30, 2008, Expedia can cancel its lease. In addition, provided Expedia meets certain conditions, including that it lease and occupy approximately 50% of the initial premises, Expedia has certain rights of first offer to lease additional space and the option to extend its lease by an additional 10 years.

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