Amazon-Leased Seattle Office Building Lands $96M CMBS Refinance

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The developers of new Seattle mixed-use office tower 9th & Thomas, which was fully leased to Amazon two years ago, have nabbed a $96 million commercial mortgage-backed securities (CMBS) loan refinance from Bank of America, according to Fitch Ratings’ analysis of the transaction. 

The 10-year financing features interest-only payments for the life of the loan at a rate of 3.6 percent. It was provided to Scott and Richard Redman, who are private investors and the heads of Seattle-based general contractor Sellen Construction, which has built multiple projects in the Seattle area for Amazon over the last several years. Sellen works across just about every asset class and is a mainstay in the Pacific Northwest, having made its mark in Seattle, especially.

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The debt, together with just over $810,000 of equity injected by the borrower, retires around $95.1 million in existing debt on the development, and also funds reserves and closing costs. Bank of America’s appraisal pegs the asset’s value at $159.4 million, indicating an underwritten loan-to-value of about 60.2 percent. 

Four A-notes totaling $70 million have been securitized as part of the roughly $720 million BANK 2020-BNK28 conduit CMBS deal, while the holdover amount of $26 million will be included in a future CMBS deal, as per Fitch. 

The 170,800-square-foot property is located at 234 9th Avenue in downtown Seattle, just a half-mile from the Space Needle and about a mile from Pike Place Market. It was completed in 2018, with Amazon Fulfillment Services signed on to occupy all of its office space — just over 93 percent of its leasable space — through July 2033. Overall, 9th & Thomas was 98.6 percent occupied as of late July 2020.

Amazon’s lease is a step-up lease with annual rent hikes of 2.5 percent, and it also includes two seven-year options for renewal, per Fitch. Amazon currently has a guarantee covering $29.6 million, but as part of the lease agreement, that pool dwindles by $81,000 every month.

Fitch pointed to the property being “mission critical” as an inherent strength of the asset. This is due to the multiple uses Amazon has for its space, including housing tax accounting and “Fulfillment by Amazon” divisions and its close proximity — less than a half mile — to the company’s headquarters. Amazon has also poured in an additional $15 million on top of the $12 million tenant improvement allowance from the Redman’s to construct their own space. 

Aside from Amazon, the property hosts a restaurant and bar called Thomas Street Warehouse and a barbecue restaurant called Jack’s BBQ. There’s also a 2,780-square-foot penthouse apartment space supposedly reserved for use by Sellen CEO Scott Redman and his family, per Fitch and a 2018 report by the Puget Sound Business Journal. While the retail portion was 27.3 percent vacant as of July, about 141,000 square feet of retail space is expected to be added to the area’s Northgate and Central submarket inventory through 2024, as per Fitch, citing data from Reis, which expects robust absorption to drive the area’s vacancy rate down to 2.7 percent by then.