Downtown Bellevue has become a residential hotspot, and developers are bullish on its future
Bellevue-based developer Plus Investment USA could be a bellwether for its city’s booming downtown real estate market. Kevin Corbett, the CEO of Plus, expects to begin construction on the first Elev8 tower in early 2017. The gleaming two-tower project, once finished, will house 800 residences, 350 of which will be condominiums.
If current trends continue, Corbett’s firm should profit nicely because downtown Bellevue is undergoing an unprecedented construction boom. During the second quarter of 2016, six multifamily residential buildings were under construction downtown, and numerous others were awaiting approval. Thanks to the recent bevy of housing options, the downtown population has more than doubled in the last five years, to about 10,100. (The city expects 19,000 downtown residents by 2030.) Those moving in are young: The neighborhood’s median age is 34, down from 57 in 2000.
Things are going well for developers. Even with the flurry of construction, apartment and condo inventories in Bellevue are down 14 and 13 percent, year-over-year, according to Zillow. Though downtown rents are rising more slowly in Bellevue (6 percent year-over-year) than in greater Seattle (9.7 percent), the units command a premium: Median rent in downtown is $3,397, an $800 premium over greater Bellevue’s median.
But a couple uncertainties await Corbett in 2019, when the first Elev8 tower is scheduled to be finished. Will downtown dwellers continue to shell out for expensive apartments, or will their tastes switch to owning condos? And will Bellevue undergo a downtown downturn?
“A lot of people thought (the development boom) was coming to an end last year. And now people are thinking there’s going to be some extra innings,” Corbett said. “We have a very long cycle for our projects. We may be catching the end of this cycle, or the upswing of the next one.”
Bellevue, long a sprawling bedroom community, saw its downtown become a commercial hub over just a few decades, and its housing market is an even newer addition. That office towers preceded apartment towers may have played into the city’s favor. Urban-minded dwellers want to live close to work; if they work in downtown, they’ll want to live downtown.
“In many metros, you see the halo effect — the spillover of workers trying to find a place to live,” said Svenja Gudell, Zillow’s chief economist. “Bellevue not only has good access to Seattle, it’s a job center in itself.”
Even with the impending departure of Expedia in 2019, Gudell expects Bellevue rents to continue to climb, which means developers will likely continue to lease apartments instead of sell condos.
Apartments, at this point, are more attractive to financiers, Corbett said, and they can always be converted to condos down the line. Adding to the commercial flexibility is the legal flexibility — Washington law dictates that condo buyers can sue developers for defects after a condo is purchased. Kemper Development Company president Jim Melby said in an email that condo developers are all but guaranteed to be sued, and many contractors won’t work on condo projects because of the insurance-related liabilities.
Nevertheless, Bellevue is seeing a higher rate of condo development than is Seattle. Kemper’s Lincoln Square expansion also will include condos, and a 140-unit project from Vancouver, British Columbia-based Bosa Development reportedly will include condos, too. One reason for this, Corbett said, is that Bellevue’s real estate market relies more heavily than Seattle’s on Chinese customers and investors who like the long-term security of a condominium.
“With the ongoing Asian influence, I’m confident we could do two condominium towers,” Corbett said. “The last one of those was Bellevue Towers. Great project, just the wrong time.”
Kemper Development also is selling longevity with its condos. Unlike most developers, Melby wrote, Kemper owns contiguous chunks of property that include residential, retail, and office space. The company’s trying to establish a campus-like feel to its downtown portfolio, and continuity is essential. Just as mainstay stores and restaurants facilitate a neighborhood’s desirability, long-term residents shore up a development’s social offerings.
Unlike the recession days when projects like Bellevue Towers and the Bravern struggled to fill units, there is plenty of demand in Bellevue. The activity is luring developers, including Bosa and Seattle-based Vulcan, that typically stick to a metro area’s flagship city. Corbett said the presence of larger developers signals that the market’s strength might be enduring, and it also reflects that Bellevue is graduating from suburb to sister-city status with Seattle.
But Bellevue is not independent of Seattle. Its economy isn’t as diverse as Seattle’s, and Corbett said developers are closely watching major employers like Microsoft to determine if job growth can persist (Microsoft’s recent layoffs haven’t helped the area’s case). Consumer trends also could shift. As downtown’s younger residents age and accumulate savings, they may become fed up with the consistent rent increases and opt instead to buy — so long as developers provide the option to do so.
Outside influences could crash the party. “There is uncertainty with the presidential election and international (economies),” Corbett said. “But locally, we’re confident. There’s the influence from Asia, and Seattle has been discovered. We’re in a similar position to where Vancouver was a few years ago.”