In seeking the highest level of return in any given investment, a bet on future performance is always placed. Investing in apartments, existing buildings or new development, is no different. To that end, having a greater degree of certainty of rising rents or income, neighborhood desirability or proximity/access to jobs can certainly form the basis of a sound investment thesis.
For those investors seeking outperformance of the market – “alpha” if you will, the prospect of higher yields is traded for greater uncertainty or volatility. One method to mitigate against investment risk is thorough research and assimilation of market information to gain insight into greater certainty of a future outcome. As Seattle continues to urbanize, identifying points of continuity is one such strategy.
What is a point of continuity? Simply put, a location between established markets or neighborhoods where investment, development, the formation of amenities or other positive attributes begin to converge that either creates a new market or provides continuity between the two otherwise established markets. Identify such convergence areas and invest early and – voilà – alpha.
The following are several areas within urban Seattle that are either forming points of continuity or those I believe are likely to form in the near term. Accordingly, for investors seeking to outperform the market, these areas are candidates for investment in apartments or other real estate assets.
Boren Avenue Corridor – Pike to Denny
If I were to mention Boren Avenue as a marquee address within a walkable urban center, some may question my sanity. Yet, years in the making, the puzzle pieces are finally forming. Nearly alone, developer Touchstone is launching the Denny Triangle into status as a walkable neighborhood. Touchstone’s Hill7 office/hotel development topped out recently and plans are going through the approval process across Boren Avenue for Tilt49. On the same block as Hill7, Trammel Crow is building a 21-story office tower, and the last parcel on that block is fully entitled for a high-rise condominium.
Just to the east of Tilt49, Security Properties is fully approved for its 440 foot residential tower, Kinects. To further round out the neighborhood, the Washington State Convention Center is likely to move forward with its Convention Expansion plans. Across the way, Seattle Children’s Hospital is planning an expansion and just further west Stonebridge is planning a hotel – and heading south a few blocks you run into Holland’s residential tower, 815 Pine.
All told, you are seeing Capitol Hill, downtown/CBD and South Lake Union converge into a new point of continuity and accordingly, new opportunities. This is certainly the most defined of the opportunities I will espouse herein, yet without connecting the metaphoric dots at an early stage, it may be difficult for investors to capitalize on the ability to purchase less expensive and available land in downtown Seattle.
If I were to describe the International District as I see it, many would not recognize the neighborhood I am describing. Located in the most transit-rich neighborhood on the West Coast, a new streetcar connects it between the city’s most vibrant neighborhood (Capitol Hill) and a +$1B, James Corner-designed waterfront revitalization, zoned for high-rise development and situated at the convergence of Seattle’s downtown and the intersection of Interstate 5 and Interstate 90, the International District offers huge opportunities.
Land is available and developers are beginning to reinvest in the neighborhood. The Downtowner has been completed and the Publix Hotel is next for revitalization. In 2011 a rezone was approved in SoDo, vastly increasing allowable heights and creating more opportunities for development. Just up the hill, developers have already broken ground on Yesler Terrace.
Admittedly, the continuity between the waterfront, Pioneer Square, downtown/CBD, First Hill and Yesler Terrace requires more vision – yet, herein lies your alpha. Take a page out of the history of now established neighborhoods at the edges of San Francisco (SoMa/South Beach), Boston (South Boston), NYC (Brooklyn) and now Los Angeles (DTLA/Arts District) and you will see proven examples of where early entrants made a big splash, and big profits.
The Central District is aptly named, yet its name doesn’t always ring a positive bell in the minds of developers and investors. However, given its well … “central” location, it is a prime point of continuity. Positioned between “Gold Coast” neighborhoods of Madison Valley, Broadmoor, Madison Park, Washington Park, Madrona and Leschi and on the eastern edge of Capitol Hill, many parts of the CD offer fantastic development and investment opportunities.
For the time being, my focus is on the node at 23rd & Union and when looked at closely, it can be described as the “hole in the donut of opportunity” (yes, I will lay claim to that designation). Madison Valley is converging from the north, Madrona from the east and Capitol Hill from the West. Lake Union Partners is about the go vertical on The Central, as well as planning another development at 24th & E. Union. If you haven’t visited it, try Chuck’s Hop Shop and get a sense of the fabric of the neighborhood – you’ll be impressed.
In addition to the convergence of vibrancy from proven markets, as well as capital already deployed, a litany of other factors validate an investment thesis in this node: an upzone is underway, the Central Area Greenway is funded and moving forward and with traffic increasingly challenging getting into and out of Seattle, the 23rd Avenue Corridor offers a perfect solution for access to Eastside employment. Again, invest early.
“Other” Points of Continuity
Mid-Westlake—Defined by Westlake Avenue between Olive & Denny, this previously underdeveloped segment connecting downtown/CBD with SLU, this neighborhood will likely be either its own market or subsumed into downtown with a few years, yet opportunities still exist.
Belltown—Yes, Belltown. Albeit a bit different angle on a point of continuity (this neighborhood is well established), a revival of sorts in Belltown will soon occur largely based on what is happening around it – on all four sides. Given the activity of Amazon with its headquarters in “Mid-Westlake”, what I predict will be great success at Nat Bosa’s 707-unit condominium towers, Insginia and the already demonstrated success of Via6, Belltown’s eastern edge is well defined. To the north, the Uptown neighborhood is coming into focus, as well as many projects in NoBel (“North Belltown for the uninitiated). To the west, the Waterfront Revitalization will create much vibrancy and traffic through Belltown – both “to” the waterfront and “from” the waterfront. Finally, downtown/CBD and a corridor along 2nd Avenue are firing on all cylinders. I give a strong “buy” rating to Belltown.
Cap Hill South—This area is best defined by its bordering streets: E. Madison to the North, 12th Avenue to the West, 18th Avenue to the North and E. Yesler Way to the South. Bounded by Capitol Hill vibrancy, up and coming nodes in the Central District, First Hill employment (and Street Car) and Yesler Terrace, much opportunity exists in this neighborhood. Kudos to Revolve Development for breaking ground on their 1315 E. Jefferson project and Spectrum Development for starting their Anthem project at the edge of Yesler Terrace
The areas I have identified above are certainly not the only opportunities in the region. Some of them are more than a standard deviation from the mean on the spectrum of risk, yet that is the point – keenly identifying opportunities early and achieving greater returns. As always, if you would like to discuss opportunities in these markets, as well as other areas where I am crafting investment thesis, please give me a call to discuss.