Russell vacancy proving hard sell

A high-tech corporation in downtown Tacoma wants to expand.

Just a few blocks away, 224,000 empty square feet wait for a tenant at Russell Investments’ former headquarters. But the engineering office of MorphoTrak will move to Federal Way this summer, and 120 well-paid employees will leave downtown.

In a city eager for a growing corporate tenant for one of its iconic buildings, what got in the way of what seems like a natural match?

“They did tour the Russell building. We did make a proposal to them. We thought we were pretty aggressive,” said Tom Brown of Neil Walter Co., one of the brokers representing Russell as it winds down its Tacoma real estate interests. “We went back to them several times. ‘What can we do, is there anything else we can do to make this happen?’

“We’re just too far apart. It was strictly in price,” Brown said Friday.

Representatives for MorphoTrak did not return two messages Friday, and its regional commercial broker wouldn’t comment. Other commercial real estate sources said more space on a single floor, cheaper rent and free parking at a former Weyerhaeuser building likely played into the decision, though they also said the company didn’t reveal its final criteria.

Indeed, a Jan. 31 letter to Tacoma officials and others announcing the move said only that the decision was “difficult” and was “based on an in-depth business analysis related to our changing corporate needs.”

Tacoma officials made two offers to MorphoTrak last year that included incentives to stay, said city economic development director Ryan Petty. Included in that package was bargain-rate parking for employees in the Pacific Plaza garage across Commerce Street from its current offices in the Tacoma Financial Center.

BIOMETRIC ENGINEERS

The company, once known as Sagem Morpho, creates fingerprint and other biometric security systems for private and government customers, including the Pierce County Sheriff’s Department. Its headquarters are in Alexandria, Va., and one of its engineering offices is in Tacoma.

MorphoTrak has been in Tacoma in some form since the mid-1980s. Sagem Morpho sold its first fingerprint system in the United States to Tacoma and Pierce County, and it opened its North American headquarters in Tacoma as a sales incentive.

MorphoTrak was born last April when Sagem Morpho bought Motorola’s biometric division, Printrak. According to its website, the combined company employs more than 450 people.

MorphoTrak leases 32,000 square feet over several floors in the Tacoma Financial Center at 1145 Broadway. Commercial broker Mark Clirehugh confirmed Friday that MorphoTrak will move to the Evergreen Corporate Center on Weyerhaeuser’s west campus.

Starting in June, MorphoTrak will take up about 50,000 square feet on one floor in its new space, a two-story former Weyerhaeuser building across the street from Federal Way City Hall. The 110,000-square-foot building was built in the 1970s for another Tacoma company: United Pacific Insurance moved out of what is now the Tacoma Municipal Building. Weyerhaeuser bought it in the 1990s and sold it a few years ago to California-based LBA Realty, Clirehugh said.

“It’s been vacant since Weyerhaeuser moved out 18 months ago,” said Clirehugh, a senior vice president of Kidder Mathews. “That’s the real story of the opportunities in Federal Way.”

Weyerhaeuser has been downsizing for several years, consolidating on its east campus near the headquarters building.

CLASS A

Almost a million square feet of empty space has pushed rental rates down in Federal Way. Data from regional brokerage Pacific Real Estate Partners illustrates the gap between MorphoTrak’s old and new space.

The Tacoma Financial Center is Class A office space, the best in town, and it would lease for about $24 per square foot, data show. The Evergreen Corporate Center goes for about $19 per square foot.

Clirehugh wouldn’t confirm lease details.

Though the MorphoTrak deal may be about market forces, it reveals the challenges of quickly filling the biggest hole in downtown Tacoma: Russell Investments’ former headquarters at 909 A St., owned by Seattle-based Ilahie Holdings.

Russell’s lease expires in 2013. It hired Brown and Eric Cederstrand to handle its Tacoma real estate interests after it moved to Seattle. In addition to subleasing the headquarters, Brown and Cederstrand are selling two buildings across the street and subleasing space in Wells Fargo Plaza. DaVita took over Russell’s space in the Columbia Bank Center.

Ilahie president Nate Dreon did not return a message Friday for comment. In the past, he has said many potential tenants have expressed interest in the building and that “ultimately a tenant is going to have to come to an agreement with both Russell and Ilahie.”

Brown wouldn’t give details of Russell’s sublease offer to MorphoTrak, but he said it included money for tenant improvements and subsidized rent by Ilahie and Russell.

“We’re trying to cut (Russell’s) cost,” Brown said. “They’re totally willing to do that.”

LIMITED TIME

Brown said Ilahie has worked with Russell on a case-by-case basis to try to lure tenants to Tacoma.

“I want to be very clear: We represent Russell, not Ilahie. It is difficult to do three-year subleases with tenants,” Brown said. “As we’ve had those tenants, and (been) making proposals, we have gone to Ilahie” to try to land traditional commercial deals, which are five- and 10-year terms.

“We’re continuing to show (the building). It’s just a matter of structuring the right program” to fill it, Brown said. Many tenants who have been interested have been smaller than a single floor, which is 20,000 square feet.

“Neither party has been willing to start on a program of the first tenant going in being a 10,000-square-foot tenant,” Brown said. “That was the difference with Morpho. They were a 52,000-square-foot tenant.”

A tenant that size would set a tone, something Brown said Russell and Ilahie haven’t really agreed on.

“I’m not saying Russell or Ilahie has been uncooperative,” he said. “We’re still trying to bring tenants to the forefront. We’re trying to gather a group of prospective tenants so that we can establish a sense of direction for this.”

‘SHUFFLING THE DECK’

Brown said he didn’t know if Russell was negotiating a lease buyout.

“We prepared Russell with the information and the data to do that, yes,” he said. In the meantime, he and Cederstrand are trying to minimize Russell’s costs by leasing the space, something that Brown said benefits Ilahie too because it would put tenants in the building.

As Federal Way shows, rising vacancy makes rents cheaper. Pacific Real Estate Partners data show Class A vacancy in Tacoma is 27.4 percent when MorphoTrak’s and Russell’s moves are taken into account.

Downtown watchers have said they want the Russell building to draw a large user, preferably from outside Pierce County, to avoid “shuffling the deck” – smaller tenants taking advantage of good deals to move into downtown at the expense of other building owners. But some deck shuffling has begun.

In the past few weeks, two businesses have announced leases in the Wells Fargo tower: a medical imaging firm moving its offices from Lakewood and a law firm that moved down the street from the Washington Building.

Kathleen Cooper: 253-597-8526
kathleen.cooper@thenewstribune.com