West Side real estate investors look toward INW
Outside investors said to be looking here for higher growth potentialJanuary 19th, 2023
Real estate investors from Western Washington have shifted some of their focus toward commercial real estate in Eastern Washington and North Idaho, where some commercial markets are expected to provide better opportunities and returns on investments than in the Seattle metro area, industry leaders here say.
Dave Black, CEO of Spokane-based commercial real estate brokerage NAI Black, says investors from the West Side are competing for properties and land with high-growth potential, and some are willing to pay premium prices by Eastern Washington standards.
West Side commercial real estate companies secured multifamily transactions valued in the hundreds of millions in Eastern Washington last year.
Max McDonald, first vice president at Marcus & Millichap, an investment brokerage that operates a satellite office in Spokane, concurs.
“If you buy a property over here, you can typically get a little better return on your investment than in Seattle,” McDonald says. “For example, buying a shopping center in Seattle, you might make do, but buying a similar shopping center here, you might make more here percentage wise.”
Marcus & Millichap’s corporate headquarters is located in Calabasas, California. In 2017, the company opened the Spokane satellite office, on the 14th Floor of the former Wells Fargo building in downtown Spokane, at 601 W. First.
McDonald says the Spokane office has consistently performed well for the company and has experienced consistent growth.
In the last two years, Marcus & Millichap has handled 88 sales in the Inland Northwest, with a sales volume of about $374 million. The company recently was involved in the sale of two South Hill apartment complexes—Pineview, a 54-unit complex located at 1405 E. 30th, and Court Arthur, a 57-unit complex located at 1026 to 1204 E. 30th, according to a company news release. The complexes sold for over $8.2 million each.
Marcus & Millichap retail associate Jesse Fox says having an office and conducting business in Spokane makes sense for the company.
“Growth is here, in the Tri-Cities market, and in Kootenai County,” Fox says. “Why not have a boots-on-the-ground presence here?”
Fox says that the region is expected to continue to lure retirees, remote workers, and outdoor enthusiasts. A growing population draws attention from employers and industry, followed by developers who want to bring services to the community, he adds.
Black contends that outside investment is good for the region, as it brings more competition, and the higher demand demonstrates how desirable Eastern Washington is, which leads to more growth—and more opportunities for brokers to earn commissions.
McDonald says Marcus & Millichap works in all types of commercial sales, including apartment, retail, office, industrial, and hotel properties. Fox and McDonald both specialize in commercial retail real estate.
Both Fox and McDonald say the Inland Northwest shows strong demand for need-based retail and self-storage facilities. They also contend that there are many opportunities for investment in multifamily and industrial properties.
Black agrees and says that industrial properties have low vacancy rates, fitness and health-oriented retailers are in high demand, and quick-serve restaurant retailers also are attractive to West Side investors.
Kidder Mathews, a Seattle-based commercial real estate brokerage, completed 12 Spokane-area apartment complex transactions through the first three quarters of 2022, according to its most recent multifamily market report for Eastern Washington. The company also handled four multifamily transactions in Yakima, and three in Moses Lake, in the third quarter.
The report shows that Kidder Mathews recorded over $412 million in total sales volume in the third quarter, up from $167 million in the year-earlier quarter, in Spokane, Lincoln, Whitman, Grant, Walla Walla, Yakima, Franklin, Benton, Douglas, Chelan, Kittitas, and Adams counties.
The five-year sales volume trend has been in an upward trajectory, the report also shows.
The top five Eastern Washington apartment transactions for Kidder Mathews in the third quarter include the $145 million sale of Granite Pointe, in Spokane Valley; the $79 million sale of Big Trout Lodge, in Liberty Lake; two apartment complex sales totaling $103 million in Richland; and a $44 million sale in Kennewick.
Max Frame, associate vice president at Kidder Mathews, in Seattle, says in a press release that capitalization rates—the ratios of annual rental income to the market value of the assets—dipped in the third quarter in Eastern Washinton, but are expected to increase in the coming months.
Black says high interest rates are creating a negative-leverage financing scenario in which the higher rates reduce the annual cash flow and cut into investor returns.
“I think real estate prices need to come down, and in a lot of respects, they have,” says Black, adding that apartment rents have leveled off for the most part. “We’re still seeing some increases in rents, but not the 20% for some projects that we saw before.”
Fox says, “Spokane is on the map now … and everyone knows of Coeur d’Alene too. (The region) checks a lot of boxes that investors want to see in an area for investment. The reality of the market is that a lot of people want to be here, the demand is here, and it’s not going away.”