Continental Savings deal highlights anemic office market
In one of the largest lease transactions expected in downtown Seattle this year, Continental Savings Bank will take almost 60,000 square feet in the struggling Two Union Square office tower.
The growing bank, a major mortgage lender in Washington, will relocate to Two Union in late 1992.
The deal will boost occupancy at the Seattle office tower from 62 to 69 percent, according to Unico Properties, the building's developer and leasing agent.
But in today's concession-driven market for office space, the bank's 10-year lease in glittering new Two Union will cost no more per square foot than its current space in the 22-year-old Pacific Building, says tenant rep Craig Kinzer of The Norman Co.
Continental will lease most of floors 18, 19 and 20, and open a branch savings bank in a never-occupied retail space on Two Union's plaza, says bank president Richard Swanson.
The bank is moving from about 45,000 square feet in the Pacific Building on Third Avenue, where it's been headquartered since the building opened in 1970.
Continental's lease there expires at the end of 1992, Swanson says.
The move reflects the growing bank's need for more space and a desire to consolidate operations on fewer floors.
"We have no complaints about the Pacific Building," Swanson says. "In fact, we thought about staying here. But we're going into a highly functional space, and we feel it will work out very well."
Continental is spread across seven floors in the Pacific Building. Such an arrangement has inherent inefficiencies such as duplicated lobby areas, says Rob Swartz, a senior associate at CB Commercial.
Continental was founded in 1921 and ranks fourth on the Business Journal's list of the state's largest residential mortgage lenders.
The bank's move enables it to capitalize on the current depression in downtown lease rates and secure a high-profile office location at a bargain rate.
As a lender in today's struggling real estate market, "This is one of the few opportunities for us to benefit on the other side of the table," Swanson says with a smile.
Kinzer declines to reveal details of the new lease. But he says the bank negotiated an "aggressive" lease rate and won generous terms for parking space and tenant improvements.
Continental will use part of the tenant allowance to wire its space with high-tech computer and phone cables, Kinzer says.
As a whole, the 10-year package, with multiple five-year extension options, won't cost Continental more per foot than it's now paying at the Pacific Building, he says.
Recent deals at Two Union have been as low as $15 to $16 a foot, several downtown brokers say -- far below the upper-$20s rate that Two Union and other recently built downtown towers need to make a profit.
In fact, Two Union's financial woes cost Unico control of the property late last year, when the State Investment Board took ownership of the million-square-foot building while restructuring its $219.5 million loan on the project.
But Two Union's modest lease rates are hardly unique; many downtown buildings are trying to lure new tenants with rates well below what they're charging tenants signed a few years ago.
"With rent escalators (built into a lease), it's not uncommon for long-term tenants to be paying more than market," Kinzer says. "Many tenants whose lease is up are in for a pleasant surprise."
But Continental is a breed of tenant that's rarely seen looking for downtown space these days, Swartz says: a large, growing company in an industry that tends to occupy the most prestigious downtown buildings.
During a year-long search for space, Continental looked at Key Tower, the U S West Building, AT&T Gateway Tower and its current space before settling on Two Union, Kinzer says.
Swanson praises The Norman Co.'s efforts and says the bank is excited about taking a more visible role in the downtown community.
The move continues a natural progression for the growing bank, which started in the University District as a real estate construction lender and moved downtown in 1933.
Continental began offering FHA-insured mortgages and managing repossessed properties during the Depression and started lending on commercial projects after World War II, including Northgate, University Village, Aurora Square and Westwood Village shopping centers in Seattle.
The 1970s and '80s saw the bank open residential lending offices in three states and finance a string of mini-warehouses. The first savings bank branch opened in 1986.
By 1991, Continental had 15 mortgage lending offices in Western Washington, Oregon and Hawaii that originated a total of $559 million in home mortgage loans and $75 million in home construction loans.
The bank's income property department has financed more than $200 million in apartment construction loans in the past two years.
And Continental's five savings bank branches around Puget Sound have $325 million in assets, with a loan-servicing portfolio of $2.5 billion.
All the bank's loans are serviced in-house.
Swanson says he is particularly proud of the bank's record of lending to affordable housing organizations.
In 1989, the bank won the Mortgage Bankers Association national award for its efforts in low-income housing. And Continental enjoys an "outstanding" rating under the Community Reinvestment Act for its affordable housing loans to non-profits and other groups.