Downtown Tacoma’s Rhodes Center is for sale, again.
The state-owned office complex, which the government bought in 1996 and tried to sell in 2008, is headed for the open market with an asking price of $25 million. It’s the priciest of a handful of properties the state is trying to shed to help reduce the projected budget deficit.
The complex is two office buildings and a parking garage, all connected by skybridge, along South 11th Street between Market and Broadway.
It’s almost full of government tenants, including the state court of appeals and the U.S. Department of Homeland Security.
Those tenants are the cornerstone of marketing the Rhodes to private and institutional investors, said Kim Marvik, a commercial broker in Tacoma with NAI Puget Sound Properties, which is representing the state on the sale of the Rhodes and other state-owned properties.
“Even in this market, it represents a unique opportunity because of the strength of the tenants,” Marvik said Wednesday. Marvik and her colleague, Bob Bencze, said in an interview that real estate investment trusts and other investors are scooping up projects in central business districts across the country.
“They have money, or access to money, and the interest rates right now are very desirable,” Bencze said.
Hanging on to the Rhodes Center’s tenants will be the key, because the now-empty Russell Investments building is the ball and chain of downtown’s commercial rental market.
Most of the office space downtown is Class B, including the Rhodes Center. Class B is the second tier of office space, while Russell is Class A – the best.
Data from real estate investment firm Jones Lang LaSalle shows a Class B vacancy rate of about 19 percent downtown, but it’s at 32 percent in Class A because of the empty Russell building.
Building owner Ilahie has hired a local brokerage firm to find new tenants, but the financial services firm’s leases aren’t up until 2013.
“While the Class B market is healthier, the large amount of available Class A space will put downward pressure on overall (central business district) rental rates, and more importantly, potentially lure Class B tenants in the market desiring to upgrade at reduced rents,” according to Jones Lang LaSalle’s research department.
Additionally, many of the state tenants in the Rhodes don’t have traditional 10-year commercial leases. Many of the state leases are two-year renewables, tied to the state’s budgeting process. Nick Cockrell, a state government real estate manager, said there was no prohibition on long-term leases.
Marvik said the two-year leases weren’t a concern. “It’s a paperwork process. The state has owned this building and has had no need to do long-term leases,” she said. No tenants have indicated they plan to leave, Marvik said.
In fact, Cockrell said a new state tenant will arrive in March. The Department of Social and Health Services is consolidating its operations and will leave its current offices on Sprague Avenue for offices in the Rhodes.
The Rhodes Center comprises the former Rhodes Department Store on Broadway, built in 1903; a building on Market Street and a 1969 parking garage.
The store was designed by two of Tacoma’s most prominent architects – Ambrose Russell and Frederick Heath. Heath is best known for Stadium High School; Russell for the Rust Mansion.
After Rhodes left downtown for the Tacoma Mall, the building became the University of Puget Sound Law School.
But UPS sold it to Seattle University, which moved the law school to Seattle. The state bought the building in 1996, renovated it in 1999, and tried to sell it to the Tacoma Housing Authority in 2008.
That sale ultimately didn’t close because of THA’s concerns about deferred maintenance.
State government spokesman Jim Erskine said Tuesday that very little work has been done since the renovation 10 years ago.
The Market Street building needs a new roof; dozens of heat pumps must be replaced; and the lights use bulbs that aren’t made anymore.
Additionally, a third-party evaluation of the complex in 2008 recommended seismic improvements; roof repair on all the buildings and skybridges; elevator upgrades and masonry repair.
Ground floor retail space on Broadway has been vacant for years, though the Sundance Cafe recently opened.
Marvik said the goal is to market the property far and wide.
“The Puget Sound is a top tier market. Tacoma is not, it’s a tertiary market. So we have a pretty broad base of prospective buyers,” she said. “The more exposure we can get, the more value we can get.”
Kathleen Cooper: 253-597-8546
kathleen.cooper @thenewstribune.com
blog.thenewstribune.com/business
Twitter: @KCooperTNT
JOIN THE DISCUSSION | Register here
We welcome comments. Please keep them civil, short and to the point. ALL CAPS, spam, obscene, profane, abusive and off topic comments will be deleted. Repeat offenders will be blocked. Thanks for taking part — and abiding by these simple rules. A thorough explanation of rules of conduct can be found in our Terms of Service. If you have any questions, including why your comment may not be showing immediately after you submit it, be sure to visit the commenting FAQ.