If you’ve been in the throes of the real estate brokerage and development business, you know exactly what Wallace Properties CEO Bob Wallace means when he says it’s an industry defined by highs and lows, making it either a buyer’s market or a developer’s market.
That’s how Wallace Properties ended up in its current headquarters — a three-story building along busy 112th Avenue East in downtown Bellevue — roughly 25 years ago. Wallace’s office is partially wrapped in expansive windows, and there were the usual stacks of manila folders piled on his desk next to family photos with some sports memorabilia lying around.
His building — with a parking lot in front of it, a nod to Bellevue’s past — was one of several Wallace Properties acquired through foreclosures.
“During those days, you couldn’t give an office building away if you wanted to,” said Wallace, 71. “We basically bought it for land value, and every square inch of all three buildings ended up going dark over the next few months. Some tenants moved out in the middle of the night; some of them we had to throw out because they weren’t paying the rent.”
After their tenants were out, Wallace Properties moved in.
But the biggest shift was in the mid-2000s, when real estate was so expensive that Wallace Properties jumped back to the development side and built the 507 Northgate project with 163 apartment units on top of 55,000 square feet of retail space. The company preleased all the retail space, including a contract with OfficeMax and Circuit City. Combined, they were supposed to occupy nearly 46,000 square feet. Then 2008 happened.
“We got a call from OfficeMax saying, ‘We’re not broke, but we’re not going to open.’ The same day, we got a call from Circuit City (saying they’d gone bankrupt),” Wallace said. “We went from geniuses to idiots in about two minutes.”
Wallace said his business planned as carefully as it could, but risk mitigation only extends so far. Wallace Properties devised a plan with its partner, an insurance company that owned half the project, to save 507 Northgate.
“I’ve been through three significant recessions and have worked with a few thousand tenants, so I’m probably not so much surprised as disappointed when they roll over,” he said. “But when you lose 40 percent or so of revenue from a project in one day, it’s a bit of a punch to the gut.”
The project was successful in the end — 24 Hour Fitness moved into the space in 2011 and created a lot of foot traffic, and the apartments outperformed projections. This is just one example of why Wallace believes providence is more important than brilliance.
Today, Wallace Properties manages 194 properties — with ownership interest in 51 — throughout the state of Washington. But this isn’t exactly the career kids dream about while growing up. Wallace didn’t, either.
After high school, Wallace attended Seattle Pacific University with the goal of earning a bachelor’s degree in business administration. In the years during the Vietnam War, if you dropped below a certain number of credit hours, you were drafted, and that’s exactly what happened to Wallace in 1965, when he was 19 years old. He dropped an English class and “got a call from Uncle Sam shortly after.”
He was placed in the reserves, serving as an X-ray technician for the Army, and his career in the medical field evolved from there. He married his wife, Joan, and later moved into medical group management and consulting. In some ways, it set him up for the business he currently runs.
“I was the only business guy,” he said. “I bought the equipment and financed it and handled payroll and pensions.”
Wallace Properties was established in 1977 while Wallace was working in health care management. His father, Marvin Wallace, owned a patch of land on the north end of Bellevue that was a “little old chicken ranch,” and it consisted of a couple sheds and fallen-down houses. According to Wallace, his dad was about to retire, and the annual $30,000 property tax bill gave him two options: sell or develop. His dad contributed the land to Wallace Properties and Wallace was able to purchase the lot next door, making it feasible to develop what is known today as Bellevue North Shopping Center. After that project, he left the medical field and devoted his career to real estate.
Bellevue underwent some major zoning changes in 1981, making it possible for the city to become the high-rise jungle of today. Before the rezoning, much of Bellevue looked like the building Wallace Properties occupies — just a few stories high and surrounded by square planes of asphalt. One of the things standing in the way of Bellevue’s growth was parking.
In 1975, parking lots covered 56.5 percent of downtown because the land-use code mandated that businesses provide five parking stalls per 1,000 square feet of floor space. As developer Kemper Freeman Jr. told 425 Business in November 2014, “You could have built the Empire State Building if you wanted to,” but you’d need the land for 13,500 surface parking spaces.
Wallace was on the board of what is now called the Bellevue Downtown Association, which had bigger dreams for Bellevue. It was mainly a group of property owners and some major downtown employers. The association hired consultants and developed a “Framework Plan” for downtown, and worked with the city to develop the new zoning code. The same plan still is intact today, Wallace said.
“In those days, I don’t think anyone dreamed people would want to live in downtown Bellevue,” he said. “Miraculously, the city fathers had the fortitude to plow through it and implemented the rezone. There was a lot of outcry about it. People thought it would destroy their property values. Kind of laughable today.”
The rezone was spurred by a five-anchor mall proposed for present-day Redmond by Ohio developer Edward J. DeBartolo Sr. — who’s company has since merged with Simon Properties — that could have single handedly extinguished Bellevue’s future, or at least stifle its growth.
In an attempt to save Bellevue and derail DeBartolo from building its “pastureland mall,” Freeman Jr., owner of Bellevue Square, extensively remodeled the city’s anchor attraction.
“Had the redesign not happened, Bellevue Square would have been lost, and we would have lost the lifeblood of Bellevue,” Wallace said. “Microsoft probably wouldn’t be here. That area would have been a parking tower for a shopping center.”
As for the future, Wallace expects Bellevue will look much like it does now, but with more retail, apartments, and tech companies.
“We’ll probably see different styles of architectural fads come and go,” he said. “We’ll see fewer low-rise buildings. Most of this stuff will get redeveloped over the next 20 years.”
In terms of his own future, Wallace said people ask about his five-year or 10-year plan all the time, and he doesn’t really have one. The yearly goal is to grow Wallace Properties, and he doesn’t aim to retire anytime soon. Aside from work and serving on a handful of boards, he also writes a column for the Puget Sound Business Journal, taking on Seattle’s business dealings.
“As my wife says, I have an opinion on everything whether I know anything about the subject or not, and don’t mind sharing,” Wallace said. “The reality is, most business people are constrained in what they can say publicly, and I think that’s unfortunate.”
Turn the page to get an inside look at a day in Wallace’s life.
Rise and shine. Sun isn’t quite up, but the lights never go out in downtown Bellevue.
Lucy, our 10-year-old Vizsla, is always ready for breakfast, and she’s not shy about demanding it.
No more running in the dark, the rain, or snow. I can clear out overnight email, read a couple chapters in the Bible, then raise my blood pressure with The Seattle Times editorial page.
I attend a brokers’ meeting at the office. It’s fun working with such great people.
I take an Audit Committee conference call. With traffic congestion so out of control in Seattle, electronic conferencing saves time and makes it easier to multitask.
They say no one under 80 goes to the bank, but 35 years ago, an ATM ate my credit card. I’ve preferred human tellers ever since.
Previous Rotary presidents get together for lunch once a year to give bad advice to the incoming president. This year’s venue was Carmine’s, one of my favorite restaurants.
Construction Superintendent Phil Wheeler and the owners’ representative Barry Leahy show me around our nearly completed project at Green Lake. It’s a great time to be in the apartment business.
I love being on the “other side” of the note cage once a week as a member of the Bank Loan Committee. It’s stimulating to work with such bright staff members and fellow directors.
I attend a reception with industry colleagues at Aqua on the Seattle waterfront. Some of these folks fly long distances for this event — my drive from Bellevue at rush hour took almost as long.
Home again, writing an editorial column. My wife says I have an opinion on everything whether I know anything about the subject or not, so I guess this is a pretty good avocation for me.
I’m watching the news with my best girls. Joan and I married three months after meeting (51 years ago). Like a real estate deal — if you find a great one, grab it before someone else does.
This story original appeared in the October issue of 425 Business.
Thumbnail Photo by Joanna Kresge