Switching Accounts please wait...
Generating Advisor Account please wait...

KOIN Tower

KOIN Tower is an iconic, class-A building in downtown Portland, and a prominent feature in the city’s skyline. It’s a mixed-use building featuring retail, office and high-end condominium space with panoramic views of some of the region’s most beautiful natural features. Vacancies in Portland’s CBD are falling dramatically, making KOIN Tower — with a diversified group of higher-income tenants — an exciting opportunity to take what used to be one of Portland’s most valuable properties and return it to its rightful place at the top of the pack.

Purchased in January of 2015, KOIN Tower is still an investment in process. By instituting key renovations, driving rental rates, and finding other opportunities to increase operational efficiency and bring in additional revenue, we are setting the stage to realize this property's potential after a holding period of 5 years.

 

THE OPPORTUNITY

 

Constructed in 1984 to the highest institutional-quality standards, KOIN Tower is an iconic, centrally-located, Class “A” office tower totaling 352,023 square feet (“SF”) of office and retail space spread over 19 floors and providing panoramic views of Mt. Hood, the Willamette River and the surrounding hills. It is part of a larger, 34-story mixed-use project, which also includes separately owned, high-end residential condominiums (floors 20-31) and the local, CBS-affiliate TV studio.

Widely regarded for its architecturally distinct design, highlighted by a brick and limestone façade with gradual step-backs and a galvanized steel crown and spire top, the property is a vital anchor of the Portland skyline and is one of the most recognizable landmarks in the Pacific Northwest. As well, KOIN Tower is ideally located at the southern end of the CBD, offering tenants immediate access out of Portland via Interstates 5 and 405. It stands just two blocks from a MAX Green Line Light Rail Station, providing tenants quick access in and out of town and the ability to connect at Pioneer Square with other rail lines that serve the surrounding metro area.

The opportunity to pursue this prize came somewhat unexpectedly, at a time when vacancies in Portland’s CBD had dropped dramatically (hitting their lowest level in more than 10 years). SKB was instantly interested, specifically because of the building’s iconic status in Portland and due to the fact that in Portland CBD Class A availability had fallen markedly, as tenancy continued to grow with almost no new supply delivered.

As well, KOIN Tower’s tenant profile offered diversification through a rent roll featuring a variety of tenants with a balance of small, mid, and large-sized users. Collectively, the property’s tenant base at the time of the offering represented a variety of industry sectors, including insurance, finance, law, marketing and consulting, a diversity we felt would shield investors from sector-specific economic shocks. So, the combination of a solid tenant base and the opportunity to purchase an iconic, Class A building, when not many such opportunities were available in Portland, caught SKB’s interest immediately.

 

THE RESPONSE

 

This was an off-market opportunity that SKB sourced through its deep relationships within San Francisco’s brokerage community. As a result, the $250 PSF purchase price represented a substantial discount to the replacement cost estimated at approximately $400 PSF and of other comparative buildings in Portland’s CBD, which have traded in the $280-$320 PSF range.

SKB’s general home marketplace knowledge and due diligence underscored the KOIN Tower purchase as a rare opportunity to acquire what was once arguably Portland’s most desirable CBD asset and return it to prominence, by completing a $4.8 million sweeping renovation to the lobby and common areas (a renovation aimed at driving rental rates to ranges in-line with other top-tier, institutional quality assets in Portland’s CBD). Initial research also showed the property reliably delivered a stable cash flow, with only 5% of the rentable square footage (“RSF”) expiring before 2017, thus creating an opportunity for ownership to focus on leasing vacant suites, before executing a mark-to-market strategy when leases begin to roll.

Along with driving rental rates, SKB’s initial due diligence surfaced some outstanding opportunities to lower operating costs and increase parking revenue, by managing the property more efficiently than current ownership (The property was operating with expenses well above market standards).

 

THE TARGETED RESULT

 

The KOIN Tower purchase was completed in January 2015 for $88 million, so true, bottom-line success cannot yet be claimed as of this writing. However, SKB is moving fast to ensure success. We expect to create asset value through the execution of three key strategies: (i) increase the property’s occupancy from 83.7% to stabilization of 95.0% though an aggressive leasing plan, (ii) roll tenants to current blended market rental rates, which are approximately $6.00 PSF higher than the property’s current average in-place rent, (iii) upgrade the property's profile, by investing the aforementioned $4.8 million into lobby renovations, bike lockers, elevator lobbies, fitness center, restrooms, and creating white-shell spec suites with open floor plans.

Also note:

  • The capital improvements addressed above are meant to upgrade the property’s overall appeal and allow ownership to drive rental rates. The capital improvements budget focuses on increasing the marketability of vacant suites by upgrading individual floor common areas and bathrooms, and producing white-shell vacant suites that present a clean, attractive, and marketable open floor plan to prospective tenants touring the Property.
  • SKB will execute an aggressive leasing plan that markets the property to the brokerage community (the previous owner utilized an in-house leasing team that failed to develop the necessary relationships to incentivize brokers to tour their clients through the property).
  • We moved quickly to maximize the efficiency of the parking garage, by retaining a parking consultant to assist SKB in managing the garage. It is anticipated that doing so will save roughly $60,000 per year in parking garage operating costs and potentially increase parking revenue as well.

SKB’s targeted hold period is five years. Upon exit, it is projected a majority of the property’s tenants will still be paying below market rates, offering an opportunity for the next owner to continue creating value at the property.

*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.

Overview

$

88

million

PURCHASE PRICE

$

42.9

million

TOTAL EQUITY

3

years

HOLD PERIOD

15.5

percent*

REALIZED IRR

How can we help?

Please allow us to assist you with any questions you may have about our approach to real estate investment. We are happy to share additional information about our opportunities and invite you to connect with us for help with our registration process.

Connect >

SCROLL