Why Tower Builder Skanska Placed a $392 Million Bet in Seattle

This article was originally published in the Daily Journal of Commerce on February 7, 2017.
See original here

It’s hard to find a Puget Sound-area real estate developer that’s more bullish on Seattle than Skanska USA Commercial.

Last week the company said it is starting construction of 2+U, a 38-story office tower that will take up most of the block between First and Second avenues and University and Seneca streets. Skanska is starting the $392 million project even though it has not pre-leased any of the space.

Meanwhile, two other nearby high-rise developments — Madison Centre and the Mark — have pre-leased only a bit of space. Combined, the two projects and 2+U total 1.9 million square feet. So far only about 9 percent of the space has been spoken for, with law firm Davis Wright Tremaine set to move into eight of Madison Centre’s 37 floors.

“This is what Skanska does. Every office project we’ve ever done, pre-leasing is never a requirement,” said Murphy McCullough, executive vice president and regional manager for Skanska in Seattle.

He added that 2+U’s targeted completion date of 2019 is two years after the Mark and Madison Centre open.

Skanska USA’s parent company is Sweden-based Skanska AB, a publicly traded company with revenue of $18.4 billion in 2015. Most of Skanska USA’s projects are self-financed.

With no outside investors or lenders to answer to, Skanska can roll the dice if it likes what it sees.

Seattle is a blue-sky market. Last year, office tenants in the region absorbed 3.5 million square feet of additional space, more than any market in the country, according to commercial real estate company Newmark Grubb Knight Frank (NGKF).

And according to the latest U.S. Bureau of Labor Statistics report, Seattle’s 3.4 percent increase in employment in 2016 tied it for second with Silicon Valley and Salt Lake City. Orlando, Florida’s 4.2 percent growth was the highest.

McCullough called this data “exceptionally compelling” and sang the praises of the 2+U site near Benaroya Hall, the Seattle Art Museum and the city’s emerging waterfront park.

“We just absolutely believe in this location,” he said.

John Hansen of CBRE and Jesse Ottele of NGKF are marketing the 2+U office space for lease.


Rendering Courtesy of Studio 216