As the Eastside transforms into an international hub, the cost of real estate isn’t the only thing that will rise
Dean Jones believes he has seen the future, and it is vertical.
He sees that future every time he visits his native Vancouver, B.C., a city with the fifth-highest number of skyscrapers in North America. He sees it when he travels to Los Angeles, seventh on SkyscraperPage’s North American list, and also when he heads to San Francisco, which is 11th. Seattle has the 22nd most skyscrapers in North America, and Bellevue ranks 106th.
Jones, president and CEO of Realogics Sotheby’s International Realty (RSIR) in Kirkland, believes both Washington cities’ rankings will soon jump dramatically. “We’re going to see an explosion of density,” he said. Because of the state Growth Management Act, which required cities to prepare comprehensive urban plans, and the natural constraints of water and mountains, “growth has to go vertical.”
Jones thinks the driving force behind new growth in our area will be a continued stream of Chinese real estate investment, both residential and commercial. After all, he witnessed this happen firsthand in Vancouver, where his father, Trevor, switched from schoolteacher to real estate agent just in time to catch the first wave of Chinese immigrant investors there. Today, nearly 43 percent of metro Vancouver residents have an Asian heritage — the highest percentage of any major city outside Asia. In Vancouver, tall buildings keep going up, and real estate prices show no sign of going down.
Trevor Jones tells one story about a Vancouver house he sold six and a half years ago for $11 million. Today, he said, the home would sell for about $30 million — an appreciation of about $8,000 a day. He said he routinely rejects unsolicited offers to sell his own home, in the affluent Shaughnessy district of Vancouver, for $30 million or more.
“It’s crazy,” he said. “Our real estate is what it is because of the Chinese. Nothing else.”
A relative bargin
The greater Seattle area and metropolitan Vancouver share many similarities. Both areas have abundant water supplied by tall mountains, clean air, direct flights to China, and limited space for new construction. The Puget Sound region offers enticements, though, that neither Vancouver nor California’s main gateway cities, San Francisco and Los Angeles, can match.
One perk is the relative abundance of waterfront property, especially along fresh water. Safe public schools consistently judged among the best in the nation are another draw, especially when those schools are within a short yacht ride of a major university that could serve as a springboard to a high-paying job at a prestigious company in the university’s backyard, or in China.
Perhaps the most attractive attribute for Chinese immigrants, however, is price. New non-waterfront Vancouver homes, without a view, are selling for $2,000 per square foot in high-demand areas such as Shaughnessy, with its wide, tree-lined streets located within 10 minutes of downtown. Shaughnessy homes are similar in size and downtown access to those in West Bellevue or Medina, Trevor Jones said, except the U.S. houses are substantially more affordable — $800 to $1,000 a square foot — and include a broad selection of waterfront properties.
“If you can get a home in Bellevue for $1,000 a square foot, and it’s on water,” Jones said, “well, you do the math.”
The numbers bear out the Puget Sound discount. RSIR charts the ratio of median prices of homes for sale to median household incomes; the greater the ratio, the more unaffordable the market is based upon local incomes. For instance, The Census Bureau estimates Bellevue’s household income is about $93,000 a year, and the median price of Bellevue homes sold on the Northwest Multiple Listing Service is $578,500, according to Jones, giving the city an affordability ratio of 6.25.
Vancouver tops the major West Coast cities with a ratio of 10.36 for all housing types but a whopping 16.35 for detached single-family homes; San Francisco (9.77) and Los Angeles (9.1) follow. Seattle’s ratio is 7.83, according to RSIR’s metrics.
Given the Seattle area’s perks at a bargain price compared with Vancouver, further investment from China is inevitable, said Robert Pong, a member of the Asian Services Group Advisory Council at Jones’ office.
“(Our area) has so much upside in property value due to the region’s economic advancements that it just makes sense for investors to come here,” Pong said, adding the recent devaluation of the Yuan and announcement that the U.S. Federal Reserve would hike baseline interest rates a quarter-point are barely a deterrent.
“Spending $500,000 to get into the U.S. is nothing for a Chinese investor,” said Christine Lee, who owns the Great Wall Shopping Mall in Kent with her husband, Omar. Lee is referring to the minimum required investment in an EB-5 project, which guarantees lenders immediate temporary U.S. citizenship that becomes permanent after two years if the project creates a stipulated number of jobs.
An EB-5 investment, for those with the funds, is the quickest and easiest way to get a U.S. green card. “It doesn’t require anything except money,” Lee said. In 2014, the Lees broke ground on their latest development, a 19-story, $120 million mixed-use tower in Tukwila called Washington Place. Roughly half of the funding for the development will come from EB-5 investors, the Lees have said.
China has plenty of individuals able to chip in EB-5 money. More than 200 billionaires live in the country, second only to the U.S. and more than double third-place Germany. Tales abound among Eastside Realtors about Chinese clients buying property as if they were simply playing with Monopoly cash, adding homes, businesses, and land to their initial purchase of a family residence.
“It’s not slowing down,” said Bob Conrad, a senior vice president and partner with Kidder Mathews in Bellevue. “That money is here, and it’s available. I see a lot of (Chinese) individuals who have … $10 million or $15 million just sitting around.”
The surge of Chinese investment coincides with the rebound of the West Bellevue housing market. According to Jones’ analysis, in 2010, the median price of a West Bellevue home was $685,000. In 2015, that median price had spiraled to $1,075,000. That’s an average growth rate of 10.5 percent a year, including a jump of 17.5 percent from 2014 to 2015.
Median prices for West Bellevue waterfront homes specifically also increased in that span, Jones said, from $4.5 million to $6 million (which pencils out to $1,254 per square foot).
A conflux of factors, including the influential 2013 Chinese movie Běijīng yùshàng Xiyôtú, which translates literally to “Beijing meets Seattle,” and President Barack Obama’s approval of 10-year Chinese visitor visas and five-year student visas likely will bolster immigration to the area.
Chinese President Xi Jinping’s September visit was further endorsement of the region, and the Hurun Report, often called the Forbes magazine of China, labeled the Emerald City as the sixth-most desirable immigration destination in the world.
“Chinese investors are going to continue to come here,” Conrad said. “It’s definitely a market that’s on their minds.”
Between March 2014 and March 2015, buyers from China purchased $28.6 billion worth of U.S. property, according to the National Association of Realtors, an increase from $22 billion the previous year. On average, they paid $831,800 for a home — well above the average foreign homebuyers’ cost of $499,600. Thirty-five percent of Chinese buyers purchased homes in California. Washington was the second-most popular destination, tallying 8 percent of transactions.
The influx of Chinese cash will help drive real estate prices higher, said Christine Lee, and as prices rise, so too will building heights. Two high-rise towers in downtown Bellevue, one 27 stories and the other 22 stories, could begin construction next fall at the corner of Northeast Fourth Street and 106th Avenue Northeast, according to city officials. Another pair of skyscrapers, each 43 stories, is being proposed by Hong Kong developer Plus Investment USA at the site of Bellevue First Congregational Church on the corner of Northeast Eighth Street and 108th Avenue Northeast. Plus bought the site, which is zoned for high-rise development, for $30 million in early 2014.
There’s also the Lees’ development in Tukwila, which will be the tallest building in South King County. Tall projects like these could be just the tip of the iceberg.
“Density has to come to the region,” Dean Jones said. “Anything along a rail line is going vertical.”
Current voter-approved plans call for rail linking Overlake with downtown Seattle and the University of Washington via I-90. Future extensions could go north to Lynnwood and east to Issaquah.
Like is happening in Vancouver, Jones foresees pockets of density on the Eastside developing around rail stops: mixed-use high rises with residences, restaurants, and retail stores. Traveling to work from Issaquah to Seattle along the I-90 corridor will seem a reasonable commute once the infrastructure is in place.
The world economy has become a global transfer of wealth, Jones said, and Seattle is becoming a hub for wealth distribution. Xi’s visit was a tipping point for Chinese investment. “It’s no longer a question of if it’s going to happen; it’s when,” said Jones. “Wealth is moving here long term.”
Jones says he can see it. The future is coming, and the future is here. Want to glimpse it yourself? Just look up.
This article originally appeared in the February 2016 issue of 425 Business.