With Class B office vacancy rates at all-time lows in Portland, the American Bank Building came on the market at an opportune time (July 2014). An icon straddling a popular gathering place in the downtown core, the property was at the nexus of public transportation, upscale hotels, and ample dining and shopping options. Having sponsored and managed the building years prior, we knew it well. We also knew there was a tremendous opportunity to transform it into a tech epicenter to support emerging Generation X and Millennial workforces, while honoring its historic appeal to other, more traditional service providers.
Our first move was to pre-fund $2.5 million in tenant improvements and $2.2 million in capital improvements, including an elevator modernization, common area upgrades and deferred maintenance, elevating the property’s stature. Since then, we have increased tenant rents upon lease expiration or renewal to align with current market rates and begun marketing the building to high-tech tenants.
Under our tutelage, the building is projected to yield a profitable return for our investors in four years.
The American Bank Building is an iconic, Class B, 15‐floor, 169,079 SF office building located in Portland at Pioneer Courthouse Square—the heart of the city’s central business district (CBD). An investor group sponsored and managed by SKB owned the property from 2002 to 2008. Therefore, SKB already had a thorough familiarity with and understanding of the property’s pros and cons, including the physical plant, tenancy situation and marketplace dynamics.
The property’s location in the CBD core is one of Portland’s most accessible. Affectionately known as “Portland’s Living Room,” Pioneer Courthouse Square hosts 300 programmed event days each year and is ranked by the Project for Public Spaces as the world’s fourth best public square. The MAX Light Rail, with service from Portland International Airport through downtown and continuing west to Hillsboro, runs directly in front of the property. The American Bank Building is in close proximity to several hotels (e.g., the Marriott, Hilton, The Nines, Heathman and Westin) and is adjacent to many popular dining, entertainment and shopping destinations.
SKB saw the American Bank Building had the potential to become Portland’s new epicenter for tech-driven companies and their Generations X and Millennial workforces. Portland had recently experienced significant job growth from both the number of technology companies relocating or expanding into Portland (e.g., Google, eBay, Salesforce.com and Airbnb) and the organic growth of Portland‐based technology companies (e.g., Jive, Jama Software, Tripwire and Puppet Labs). The tech sector is now driving Portland’s office market. Well‐located, historical buildings like the American Bank Building draw attention from creative tenants who want to provide a fashionable address, a location with immediate access to mass transit, and cultural and entertainment destinations for their employees.
In addition to tech-oriented tenants, the property’s historic nature and location also make it attractive to law firms, accounting firms, and other professional service providers. This blend of old and new economy tenants adds diversification to the tenant roster and stability to the property's cash flows. SKB understood the unique nature of the building and the opportunity: The property is superior to most other Portland historical buildings, due to its larger floor plates (10,000 SF), location and windows on all four sides of the building. The average tenant size in Portland is 5,000‐10,000 SF. Most historic buildings in Portland have floor plates in the 5,000‐7,500 SF range, with windows on only one to three sides.
At the time of its availability, the property was 93% leased to a diverse tenant roster, with no individual tenant representing more than 12% of the net rentable area. Since 2005, the property has had an average occupancy of 92%. Wells Fargo Bank and famed San Francisco jeweler Shreve & Co. occupy the ground floor retail corner suites. The property also was physically in good shape. Originally built in 1913, it had undergone extensive renovations in 1936, 1979, 2011 and again in 2012.
Equally as significant was that for the first time in Portland’s history, the Class B office market was tighter than the Class A market. In the first quarter of 2014, CoStar reported that the Portland CBD Class B office market vacancy rate was 9.8%, while the CBD Class A office market had a vacancy rate of 10.0%. Class B rental rates have seen an increase in excess of 10% since our acquisition.
SKB acquired the property for $45,100,000 ($267 PSF), or a 7.2% capitalization rate, on Year One net operating income (“NOI”).
We moved expeditiously to:
*This overview does not necessarily reflect or predict the performance of any future transaction, or the actual performance of any other past transaction. The returns shown do not represent an overall track record, and returns and performance vary substantially transaction to transaction. In some cases transactions have resulted in the total loss of investment.
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