Construction of Kinect@Burien, a 230-apartment project in downtown Burien is set to begin in August 2021. Under the city's multifamily tax exemption program, a fifth of the units will be priced to be affordable for households whose incomes are 80% of area median income.
AMERICAN PROPERTY DEVELOPMENT
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
Jul 20, 2021 Updated Jul 20, 2021, 4:47pm PDT
American Property Development Inc. has begun demolishing an old strip center in downtown Burien to make way for a 230-unit mixed use apartment project.
Kinect@Burien will rise just down the street from the completed $193 million Burien Town Square redevelopment, which totals 10 acres and has around 480 multifamily units, a library and City Hall.
"We want to draft off of (Town Square)," said BJ Kuula, president of American Capital Group (ACG), parent company of American Property Development Inc.
The developer acquired mid-block parcels totaling around 1.6 acres for $3.54 million, according to public records. In addition, the developer paid $485,000 to buy out the leases of businesses that operated on the property.
In downtown Bellevue, a similar-sized property sold in late 2019 for $65 million to a development company that is under construction on an office tower that's leased to Amazon.com Inc.
"Relative to the rest of the Puget Sound (region) Burien definitely has more affordable land, if you can find it," said Kuula. The problem for would-be buyers is is much of the property is leased long term, he said.
In addition, rents in South King County, where Burien is located, are lower than in Bellevue and the rest of the Eastside. According to Commercial Analytics, a Seattle company that tracks the apartment market, the average rent for an Eastside one-bedroom in March was $1,932 versus $1,428 in the Southend.
In the Southend, 874 apartment units are under construction, excluding Kinect, Commercial Analytics reported. Of those, more than 500 are expected to open in July 2022.
Comparatively, Seattle and the Eastside submarkets will realize more than 10,000 and 4,800 units, respectively, by July 2022.
Kinect@Burien's development cost is $82.5 million, said the developer whose equity partner is Los Angeles-based Canyon Partners Real Estate LLC.
The project will have 8,600 square feet of retail off of 151st and 276 parking stalls with one level at grade and the other below grade.
The property deals have been in the works since at least July 2020. According to a city staff memo at the time to members of the City Council, American Capital Group approached the city about buying the municipal parking lot on the south side of Southwest 151st Street, east of Eighth Avenue Southwest.
ACG had the adjacent, privately owned property under contract, the memo said; public records list the sellers as Kenneth, Mary and Diana Greenbaum and Janet M. Meister.
According to city Economic Development Manager Chris Craig, Burien was required to get fair market value for the parking lot. An independent appraiser determined the value, he said.
As part of the city's multifamily tax exemption program, 20% of the homes at Kinect will be priced to be affordable to households with incomes that are 80% of the area median income. The Seattle area's median household income is $115,700, according to the most recent data from the U.S. Department of Housing and Urban Development.
American Property Development designed Kinect@Burien, and American Home Builders is the general contractor. Demolition began last month with construction to start next month. Completion is scheduled for summer 2023.
Editor's note: This story has been updated to correct the total development cost of Kinect@Burien.
Managers of apartment buildings like this one in the Fremont area of Seattle started offering self-guided tours in the spring of 2020, when Covid-19 was spreading.
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
To most lay people, starting construction of apartment buildings last year seemed foolish. With some parts of the economy grinding to a halt and sending the unemployment rate soaring, who would move into the buildings and when?
The rental market in King and Snohomish counties ended 2020 with nearly 7,100 fewer occupied apartments than at the start.
But demand started to boom earlier this year and then accelerated, with renters filling nearly 18,000 existing units plus another 3,000 new ones, according to Commercial Analytics, a Seattle company that surveys landlords to track market trends.
Seattle saw net demand drop by more than 7,800 units in 2020 but then rebound to fill around 11,275 units from January through June.
Commercial Analytics co-founder Brian O'Connor hasn't seen anything like it in his 40 years of data collection. He said it was like capturing two years of traditional demand in six months.
Logging the sooner-than-expected rebound, Commercial Analytics asked landlords what was going on. The answer: Young renters wanted to take advantage of the good deals, such as two months of free rent, that landlords were offering to fill up their buildings.
"Concessions have fallen off," he said. "There are only a few buildings with concessions and those are (new) ones that are in lease-up, so it's not an indication of market weakness. They're just trying to lease up faster by offering normal concessions."
O'Connor expected the market to bounce back eventually as the economy recovered from Covid-19, but didn't think he'd see these kinds of numbers so soon.
In King County, Seattle's vacancy rate declined the most – down 440 basis points from December to 3.2% in June. That was followed by the Eastside's 380-basis-point drop to 1.9%. Lower-cost South King remained in demand during the pandemic and saw the vacancy rate fall just 110 points to 2.6%.
Snohomish County's vacancy rate fell from 4% to 2.3%.
This is not occurring just in and around Seattle and Everett. Pierce County saw vacancies fall from 2.8% in December to 1.3% in June, and Kitsap logged a decline from 2.8% to 0.7%.
"The market is tight, like under 3% from the Canadian border down to Olympia," O'Connor said. "We did a study of Skagit County where we surveyed around 950 units in 12 buildings. We could not find a vacant unit," O'Connor said.
In March, average one-bedroom rents in the four-county metro area ranged from $1,330 in Pierce County to $1,848 in King, according to Commercial Analytics.
O'Connor expects rents this year could rise 6% to 7%, though he said government restrictions on rent hikes in cities like Seattle could limit that to 2% or 3%.
"Next year, though, rents will rise probably 10%, and that's when we'll have the undersupply problem because of Covid in '20 holding back starts," he said. "The money was puckered up. Rents were bad and very few deals got on the ground," O'Connor said.
Job growth is the driver of all real estate markets, and the Puget Sound region is still down 97,000 jobs from its pre-Covid level, with Puget Sound Economic Forecaster’s June 2021 report projecting 2.5% employment growth through the end of this year and a robust 5.8% next.