October 7, 2012
Amazon Makes Real Estate History, Buys Seattle HQ For $1.16 Billion
April Flowers for redOrbit.com — Your Universe Online
In what is probably going to be the largest U.S. office transaction of the year, Amazon.com Inc., the world's largest online retailer, has agreed to buy the 11-building complex where their headquarters is housed in Seattle for $1.16 billion.
Located in the South Lake Union neighborhood, the campus has 1.8 million square feet of space, breaking the price down to about $644 per square foot. In a filing with the U.S. Securities and Exchange Commission, Amazon.com revealed that it has made a nonrefundable deposit of about $23 million. That deposit will increase to $51 million on October 22. Amazon expects to finish the purchase in the fourth quarter.
According to Dan Fasulo, managing director at real estate research firm Real Capital Analytics, Inc., the terms of this deal will make this the most expensive purchase anywhere in the country of a single office property. Real Capital data shows that Seattle office buildings have been among the most desirable for investors this year.
Amazon is showing faith in its own growth with this and other real estate deals. The company has plans to build over 3.3 million square feet more office space over the next eight years. Earlier this year, Amazon also announced plans to buy three blocks of Seattle's Denny Triangle area. In addition, they lease or have made commitments to lease 1 million more square feet in two other neighborhoods.
Amazon has established a pattern recently of spending heavily to set itself up for the long-term. This past July, Amazon posted a narrow second-quarter profit of $7 billion, with expenditures on new distribution centers and digital-media content. At $12.83 billion, sales are up 29% over last year.
Amazon.com had been leasing the complex from Microsoft co-founder Paul Allen's investment company, Vulcan, Inc, with three years left on the lease. Vulcan put the property up for sale in August, saying it will use the proceeds for other projects in the South Lake Union area, which has been designated as one of Seattle's six "urban centers" according to the city's 2004 growth plan.
"When we originally commenced the disposition process, we did not think Amazon would necessarily be the buyer," said Ada Healey, vice president for real estate at Vulcan. The 11 buildings of the complex were built in six phases. "We were fully prepared to have the six phases go to six different buyers."
"Seattle ought to feel really good about an employer of Amazon's magnitude making a commitment like this," she said.
Vulcan is not commenting on the potential profit, or the deal's capitalization rate, which is a measure of yield for real estate investors.
The Amazon real estate deal is the largest of more than $3 billion in office properties under contract or for sale in Seattle, according to Kevin Shannon, the CEO of CBRE Group, Inc. CBRE is the listing broker for the complex.
"I'd estimate there will be over $4.5 billion closed by year-end, which would more than triple last year's total," he said in an e-mail. "Capital follows markets with the best fundamentals. Seattle has some of the best office market fundamentals in the nation."
Both Seattle and Washington state are set to profit from this real estate coup. Vulcan will pay about $14.8 million in real-estate excise taxes to the state and another $5.8 million to the city upon closing.