Aloha8 Feasibility Study by Dave Knight

Aloha 8 889 8th Ave N, Seattle WA, 98109

Feasibility Study

AHK2 Matt Arnoldy Lovisa Hรถgberg Michael Kaiser David Knight

Table of Contents 00 Letter of Transmittal + Executive Summary 01 Introduction General Overview Client Profile + Objectives + Investment Requirements Methodology + Assumptions 02 Site Inventory + Analysis Site Overview Preliminary Site Development Considerations Location Description Connections Opportunities + Challenges Summary: A Unique Position in South Lake Union 03 Market Analysis Seattle Metro South Lake Union Westlake Triangle Demand Supply + Competition Marketability

Aloha 8 04 Alternative Use Analysis Use Analysis Matrix Alternative Financial Feasibility Analysis 05 Recommended Use Site Features The Aloha8 Building Prospective Tenants 06 Financial Analysis Proforma Sources of Capital Investment Analysis Sensitivity Analysis Exit Strategy Operating Model 07 Conclusions + Recommendations 08 Appendices

Letter of Transmittal + Executive Summary

Aloha 8

889 8th Avenue, Seattle, Washington 98109 This report evaluates the potential uses for the site at 889 8th Ave N (Aloha 8) located in the South Lake Union district of Seattle, WA. The conclusions for the development are based on comprehensive research that include but are not limited to site, market, and alternative use analysis. Additionally, a recommended use is identified with a more detailed financial analysis. Based on our research and analysis, AHK2 concludes that the

site will meet the financial goals of our client, Sustainable Partners, as a joint venture. For this reason, it is our recommendation that Sustainable Partners seek a partnership with another investor that shares their financial goals and business values to pursue the project as outlined herein.

889 8th Ave in context within the South Lake Union district.

889 8th Ave N, Seattle WA, 98109

Introduction

Aloha 8

General Overview Sustainable Partners (SP) is a real estate investment group that has contacted our team to perform a feasibility study on the site located at 889 8th Ave (site or Aloha 8) in the South Lake Union (SLU) area of Seattle. While South Lake Union is an area that has continued to experience growth through the recent recession, other real estate markets have struggled to recover. In addition, the subject site offers up a unique set of challenges and opportunities for potential development within SLU that investors need to carefully assess. The existing and future physical environment, market forecasts, competition, and other factors of the subject site heavily influence the feasibility of various development options. This study presents a comprehensive analysis of the many factors that influence the developability of the site and provides potential scenarios for how the site may be developed to meet the investment goals and objectives of Sustainable Partners.

889 8th Ave N, Seattle WA, 98109

Introduction

Aloha 8

Client Profile + Objectives + Investment Requirements Business Life-‐cycle Stage

Sustainable Partners seek to develop real estate projects that make a positive contribution to the region, enhance neighborhoods, optimize land use and provide acceptable returns. The City of Seattle and a number of stakeholder groups planned the South Lake Union district to be a vibrant, multi-use neighborhood that is socially, environmentally, and financially sustainable over time. This comprehensive long-term vision asks investors to enter the neighborhood with the same mindset. In addition to locating their offices being there, SP has a stated long-term interest in the success of SLU as a vibrant, livable, and productive district. In summary, SP’s investment goals are in line with the comprehensive planneduses and character of SLU. With an emphasis most fitting use for a long-term hold, and relatively lower financial return requirements, SP opens up more development possibilities for both addressing the existing challenges, and capitalizing on future advantages of the site.

Business Domicile

South Lake Union

Use Criterion

Most Fitting Use

Business Philosophy Green Cost Premium Equity Requirements Risk Tolerance Time Frame

Cash-‐on-‐Cashv

However, the risk averseness and limited available capital available to SP as a young player may not be able to support significant project costs or compete financially should a larger, more aggressive investor enter the game.

IRR

Capital Sources

Max Equity Available Max LV Ratio

889 8th Ave N, Seattle WA, 98109

Founded in 2007

Interest Rate

Up to 5%

Low-‐moderate

Long-‐term Hold 8%

10%

$6 million 70%

Market Rate 5

Introduction

Aloha 8

Methodology + Assumptions This report is the result of the work conducted in five stages. 1. Site Analysis: First the property and surrounding neighborhood was surveyed through site visits and research of numerous legal and political documents as well as various other mapping resources. 2. Market Analysis: With the information gathered, the market area was more clearly defined and analyzed to identify potential uses that would be most productive for the site and compliment the neighborhood character. In doing so, various sources of online data and first-hand knowledge from the field were used to assess the market supply, demand and competition. Based on the reached estimates this stage also included the assessment of different development scenarios in a preliminary analysis of how they stood up against each other, given the market conditions. 3. Alternative Use Analysis: Building on the information gathered in the first two stages, multiple development scenarios were identified and tested through a preliminary financial feasibility study. The financial feasibility of each scenario was compared and, with the site and market analysis considered, a recommended use identified for further study. 4. Recommended Use: The site and neighborhood characteristics, market analysis and financial indicators identified in the previous stages were all considered together to formulate a more detailed vision of the recommended development scenario. In this stage, the intended building uses, characteristics, and target tenants are identified in detail. 5. Financial Analysis: The final stage of the report provides an in-depth financial analysis for the recommended development. The feasibility study consists of the financial modeling based on the propertyâ&#x20AC;&#x2122;s potential development size, building composition, tenant uses, and more. Additionally, an investment analysis was performed by applying a discounted cash flow model to the proposed project to show how the development would perform over the assumed holding period and meet SPâ&#x20AC;&#x2122;s investment requirements. *

All data collected is assumed to be correct and accurate.

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Site Overview 889 8th Avenue, Seattle, WA 98109 Location Description: 889 8th Ave. is a single property comprised of multiple parcels, stretching from Aloha Street to Roy Street. It is currently listed on the City of Seattleâ&#x20AC;&#x2122;s surplus property list. The property is characterized by the differing north and south portions of the site. The south portion contains a large 1926 single-story building with basement and houses a 30 bed shelter, parking and storage on month-toSite month leases. The north half of the site contains no significant structures and serves as an outdoor storage area for Seattle City Light and a daily paid surface parking lot. This analysis focuses on the north half of the site only (indicated by solid blue on the figure to the right). The site itself is a relatively flat, rectangular piece of property, retained on the east (alley) side with a 10â&#x20AC;&#x2122; max grade difference. The size is almost 29,000 SF and the general maximum building height prescribed by the zoning code is 65 feet. There is no significant Site Location and existing conditions. vegetation or other natural features and views at ground level are minimal. However, with some elevation, great territorial views may be attained to Lake Union, downtown, and the Space Needle. The majority of the property is currently a public surface paid parking lot and fenced storage area for Seattle City Light. * The industrial activity by Seattle City Light and other industrial uses indicates a likely potential for soil contamination on the site, although none is currently documented or known.`

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Site Inventory & Analysis

Aloha 8

Site Overview

Table 1 Site PPremises remises and Restrictions Site and Restrictions Site Area

28,952 SF

Zoning

SM-‐65

Max. Height

Open Space Requirement

65’ (* 85’ height limit, maximum 6 floors, when minimum of 2 floors have 14’ or greater floor to floor height and the additional height is used to accommodate mechanical equipment) 20% of total property size

Parking Requirement

Buildin Set Back

No minimum. (12’ max.)

Urban Village Overlay Other

South Lake Union (Urban Center)

Airport Height Overlay Outer Transitional Surface ECA Archaelogical Buffer Area

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Preliminary Site Development Considerations Maximum Building Calculations There is no prescribed FAR in the South Lake Union Urban Center Overlay and no setback requirements. There are however the following requirements which will heavily influence site development: • Open Space 20% (minimum). May be public or privately accessible by including interior courtyards or rooftops. • 12’ maximum building setback. • There is no minimum parking requirement for residential uses in commercial and multifamily zones within urban villages , if the residential use is located within 1,320 feet of a street with frequent transit service . (Dexter Avenue is a designated frequent transit street within 1,320 feet to the west of the site.) Our assessment is that the majority of parking will be structured below grade. However, the relatively high water table will likely limit the structure to one level. From a zoning standpoint, the absence of formal parking restrictions offers the development more freedom, regardless of use. The challenge will be to offer an adequate amount of parking to satisfy the market. Although there are a number of nearby transit options and surface parking lots, the ability to park the building to sufficiently meet tenant and visitor needs will be a factor in determining the building layout and appropriate uses.

889 8th Ave N, Seattle WA, 98109

Aloha 8-SLU District

Site Inventory & Analysis

Aloha 8

Location Description

Region Seattle Metro A dynamic urban market known globally for technological innovation.

District South Lake Union An emerging area for business and active living near the Seattleâ&#x20AC;&#x2122;s downtown core.

Neighborhood Westlake Triangle An untapped corner of South Lake Union separated by a mix of natural and built features.

Site 8th & Aloha Situated along key neighborhood connections between Dexter and Westlake Avenues on 8th and Aloha in the Westlake Triangle, this site provides a set of unique opportunites and challenges for potential development. 889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

District South Lake Union South Lake Union has undergone a tremendous transformation in less than ten years. The district transitioned from auto shops and warehouses to technology and research campuses. Formerly dangerous streets are now populated all hours of the day as SLU has become a destination unto itself. Boundaries: • West: Aurora Avenue and steep terrain • East: I-5 and steep terrain • North: Lake Union • South: Denny Way Features: Denny Park, Cascade Playground, South Lake Union Park

Primary Business Core

Medium volume/ streets Analyst Made withspeed Esri Business www.esri.com/ba 800-447-9778 Try Center) it Now! SLU Street Car (Connection to Westlake Pedestrian and bicycle links Parks

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Neighborhood Westlake Triangle

treet

S Valley

An untapped corner of South Lake Union separated by a mix of natural and built North features. Currently, the Westlake Triangle is a somewhat relegated corner of the South Lake South Lake Union district. Physically separated from Union Park the district’s core by Mercer and Valley Streets, the neighborhood has yet to see Aloha 8 e v A the sort of improvements that has drawn e k a tl Wes so much activity to the rest of South Lake Union in recent years. Even though the Dexter Ave neighborhood is somewhat uninviting and typically characterized by various rundown Aurora Ave light industrial businesses, it still has strong assets including: • Connectivity to South Lake Union Park • Interesting stock of building character • Proximity to a number of housing and offices along Dexter Avenue • Proximity to South Lake Union Street Car • Proximity to Dexter Avenue, a frequent bus route and principal bike street providing easy access to downtown.

889 8th Ave N, Seattle WA, 98109

Image: Google Earth

Site Inventory & Analysis

Aloha 8

Neighborhood Westlake Triangle

treet

S Valley

Boundaries West: Aurora Ave: 6 lanes at 40 mph North with median barrier and no nearby grade separated crossing points. East: Lake Union South Lake North: North of Aloha, east/ west cross Union Park streets and sidewalks disappear due to topography and traffic is funneled to Dexter Br Aloha 8 oa e v A and Westlake only. e k d a tl Wes St re South: Broad, Valley, and Mercer Streets et are very busy one-way streets. Their Dexter Ave congestion and lack of pedestrian amenities effectively cut off the Westlake Aurora Ave Triangle from South Lake Union. Improved Connectivity Is Coming The Mercer corridor improvement project Image: Google Earth is currently under construction. When the project is complete in 2014, Valley, Broad and Mercer Streets are expected become less of a pedestrian barrier which will provide great benefit to the Westlake Triangle. Each of the streets will be converted to two-way streets which will improve the flow of traffic and provide a much nicer pedestrian experience for movement between the neighborhood and the hub of activity in the core of South Lake Union.

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Neighborhood Westlake Triangle Neighborhood Character Valley Street

North South Lake Union Park

e Av

Dexter Ave

St.

Aloha

8th Ave

Bro

ke stla

Aurora Ave

Images: Top left and top right via Google Earth

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Site 889 8th Ave., Seattle, WA 98109 Centrally located in the Westlake Triangle, the site is situated along key neighborhood connections between Dexter and Westlake Avenues on 8th and Aloha. It is a relatively flat site with few encumbrances for development and provides a set of unique opportunities and challenges for potential development. The location and linkages to more distant neighborhoods opens up a wider potential for the site.

Photo montage: 270 degrees around the site

Autoshop

889 8th Ave N, Seattle WA, 98109

Mixed use office/residential

Marriott Hotel

Footbridge to Park

Site Inventory & Analysis

Aloha 8

Site 889 8th Ave., Seattle, WA 98109 As primary arterials from Fremont and Ballard, traffic counts show over 36,000 daily trips for Westlake and Dexter Avenues combined. Aloha Street is the first east/ west street that makes the connection down to Westlake Avenue and South Lake Union Park when heading south on Dexter. (This connection is important and will continue to become more desirable as interest in the Park and the South Lake Union business district grows.) Additionally, 8th Avenue is a direct spur off of Westlake Avenue and provides a generous right of way for future improvements on the west side of the property. This, combined with the alley access provides the Aloha 8 site with great visibility and accessibility from the north, a valuable asset as people commute to SLU in the mornings. The potential walkability of the area (please see walkability site metrics) as well as available transit and easy auto access makes the site interesting for different types of uses, although the size of the parcel may limit the range of possible development options. Additionally, the views to the Space Needle, lake, and city center that could be reached in the upper stories of new development would naturally be an attractive feature of the building. The effect of such development on our site, should it be possible and depending on use, may result in a willingness to pay higher rents. However, with no known view corridors or easements, that asset may be short-lived, depending on how adjacent development plays out.

To Fremont

To Downtown

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Site Inventory & Analysis

Aloha 8

Site 889 8th Ave., Seattle, WA 98109

Aloha 8

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Site 889 8th Ave., Seattle, WA 98109

Aloha 8

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Connections The Aloha8 site is easy to get to and from, by either car or transit. Most essential amenities are very close by. The area around the site does not lack amenities and provides convenient access to the most important sites in the city. The website walkscore.com is often a good indicator of the pedestrian experience of a specific address. The website gives a score based on proximity of essential or desirable amenities to an address. The Aloha8 site scores 92 points which places the site in the top category: “Daily errands do not require a car”. This can be contrasted to the Seattle average of 77, the top 10 % of Seattle scoring 99, or to the very pedestrian friendly corner of Westlake Ave & Thomas St. in Southlake Union which scores the maximum 100 points. As far as specific amenities are concerned, restaurants, coffee shops, entertainment, outdoor activities, banks and groceries can be found within 0.5 miles of the site. Assessing the possibility to access the site by public transport, Aloha8 scores 84 on a 100 point scale. This places the site in the next highest transit category which is “convenient for most trips”. 17 bus routes can be reached within 0.5 mile, giving a person travelling to or from the site access to most areas of Seattle without a transfer. A person could get here, or live here, without needing to own a car.

Linkages The closest economic hub is Southlake Union; Westlake Ave & Thomas St. is 0.5 miles away. Downtown (Westlake Center), Fremont neighborhood and Pioneer Square are at 1.4, 1.7 and 2.0 miles distance respectively. Other important economic hubs are the University of Washington 3 miles away and Bellevue at 10 miles. Looking beyond the direct proximity the site connects to Highways 99 and 520, the I-5, light rail, a seaplane airport and ferry terminal within 2 miles. Pier 91, Port of Seattle and I-90 can be accessed within approximately 3 miles and SeaTac Airport is less than 15 miles away by previously mentioned car or train access points.

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Connections Improved Connectivity is Coming The Mercer corridor improvement project is currently under construction. When the project is complete in 2014, Valley, Broad and Mercer Streets are expected become less of a pedestrian barrier which will provide great benefit to the Westlake Triangle. Each of the streets will be converted to two-way streets which will improve the flow of traffic and provide a much nicer pedestrian experience for movement between the neighborhood and the hub of activity in the core of South Lake Union. 2014 Conditions

Existing Conditions

2014 Conditions Images via Seattle.gov

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Summary Site Productivity Opportunities The opportunities meeting the site are summarized below. • There is great change happening in South Lake Union and Westlake Triangle neighborhood beginning with the Mercer Corridor improvements which will benefit the connectivity and character of the site greatly • Central location located between Ballard/ Fremont/ Westlake and South Lake Union/ Denny Triangle/ Downtown (this discussed further in next section, Market Analysis) • Located at the convergence of Westlake, Dexter and South Lake Union, which each have significant pedestrian, bike, automobile and transit activity • Ease of access to transit and SLU Park • Generous frontage and street right of way for visibility and access from 8th Ave, Aloha St., and back alley • Potential upper story views • Potential views to South Lake Union, Downtown, and the Space Needle

889 8th Ave N, Seattle WA, 98109

Images via Google

Site Inventory & Analysis

Aloha 8

Summary Site Productivity Challenges Site Productivity Challenges • The aforementioned boundaries and barriers at Valley and Broad Streets • Neighborhood is currently a void in the updated urban fabric of South Lake Union and lacks the quality and character now associated with the district • Minimal pedestrian connectivity to active retail/ business district • Area characterized by automotive shops and warehouses • Homeless shelter at 8th & Roy (30 beds) • Potential soil contamination from past industrial uses

889 8th Ave N, Seattle WA, 98109

Site Inventory & Analysis

Aloha 8

Summary: A Unique Position in South Lake Union The central focus for development and growth in South Lake Union has been surrounding the Amazon Headquarters along Terry Avenue and neighboring blocks. Although that development has served as a great catalyst within the district, the barriers that the congested, pedestrian repelling streets of Mercer and Valley currently impose have relegated the Westlake Triangle neighborhood and kept development investment from spilling over into the comparatively gritty and underdeveloped Westlake Triangle neighborhood. However, with the improved multi-modal connectivity that the Mercer Corridor improvement project promises to bring, there is a high probability that this neighborhood will emerge in the coming years as a desirable node within the district. Through development, the Westlake Triangle has the opportunity to capitalize on the success of South Lake Union, while distinguishing itself as a desirable, independent neighborhood of South Lake Union. South Lake Union Park will continue to grow as a civic hub that will anchor the district and provide the Westlake Triangle with increased activity as people move between Fremont and Ballard to district center and downtown along Dexter and Westlake Avenues. However, even with improvements it is not likely that the neighborhood will be fully â&#x20AC;&#x153;stitchedâ&#x20AC;? into the urban fabric of the SLU district. Rather, it is anticipated that the Westlake Triangle will evolve to offer something different, as a self-contained neighborhood that draws on the surrounding multi-modal transportation, activities, residents, and businesses north of Mercer Street along Dexter and Westlake Avenues.

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Market Overview The current national downturn in the economy has affected the Seattle real estate market, which historically has been quite resilient. Looking forward, however, Seattle is expected to recover and maintain its relatively high value as a real estate investment market. This recovery is anticipated largely because of the strength of the area’s diversified economy which consists of high-tech companies, information services, natural resources and many more12. Because of Seattle’s diverse base market, there is an optimistic outlook for the Puget Sound labor market and office vacancies are declining3. Similar to the high concentration of technology companies that located in Redmond, Bellevue and the greater eastside during the 1990’s, the South Lake Union area continues to develop into a recognized center for technology companies. This growth has continued through the economic downturn and is expected to continue especially as the economy recovers. For this reason, it is fair to forecast that as the economy picks up, interest in SLU real estate development will continue to be strong and contribute to driving economic development in the region.

New York Times: http://www.nytimes.com/2011/02/14/business/economy/14dip.html?_r=1&adxnnl=1&pagewa

nted=all&adxnnlx=1323591993-DliwXzJyj9CLtfGRAXVlKQ 2

Urban Land Institute: http://www.uli.org/~/media/Documents/ResearchAndPublications/EmergingTrends/

Americas/2012/ET_US2012.ashx 3

CBRE: MarketView Puget Sound Second Quarter 2011

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Market Area Potential market areas may differ substantially depending on the determined land use. However, the objectives of our client, the size of the site and the goals outlined by the zoning and comprehensive plan, which envisions South Lake Union as a live-work district, all limit the market area for Aloha8. For this reason our analysis focuses primarily on the immediate Westlake Triangle neighborhood within the context of the greater South Lake Union and Westlake neighborhoods. This focus underscores the importance of connecting to the larger South Lake Union area, but recognizes the unique character of the site and its surroundings as a much different area that will need time to fully take advantage of its proximity to the SLU core. However, greater development potential may still be achieved by leveraging the siteâ&#x20AC;&#x2122;s proximity to the South Lake Union core and surrounding amenities. With the right blend of active anticipation of future potential with the sensible conservatism of todayâ&#x20AC;&#x2122;s realities, it is feasible for the site to support a fringe development that contributes to the immediate neighborhood in the near-term and meets the financial goals of Sustainable Partners.

889 8th Ave N, Seattle WA, 98109

N B A G L E Y AV E N U E

Aloha 8

N S U N N Y S I D E AV E N U E

N C O R L I S S AV E N U E

N A S H W O R T H AV E N U E

N I N T E R L A K E AV E N U E

N S T O N E W AY

KE W AY

N M E R I D I A N AV E N U E

THLA

N WA L L I N G F O R D AV E N U E

N NO R

ALLEN INSTITUTE for B R A I N S C I E N C E

N B U R K E AV E N U E

W D R AV U S S T R E E T

N D E N S M O R E AV E N U E

The development of South Lake Union as a mixed-use neighborhood draws on recent demand for a denser, more integrated, sustainable and livable neighborhood. The relatively large amount of vacant or underutilized land, low rents in South Lake Union and its proximity to the city center was essential to this development strategy. South Lake Union has been transformed over the past ten years from a neighborhood dominated by rundown warehouses to a center for hightech, biotechnology and global health firms. This development has been spurred in a large part by Vulcan, the largest landowner in South Lake Union with just over 60 acres. However, many other regional developers have also developed properties and the neighborhood is now attracting investment from overseas sources of capital. Below we see some of the major tenants who have relocated to the area, by industry.

N W O O D L AW N AV E N U E

W CREMONA STREET

EET

N ALBION PLACE

W BERTONA STREET

EET

N W O O D L A N D PA R K A V E N U E

Overview

STR

H S TR

N E VA N S T O N AV E N U E

N 3 6TH

N 3 5T

N F R E E M O N T AV E N U E

South Lake Union

N W O O D L AW N AV E N U E

Market Analysis

E ALLISON STREET

W ETRURIA STREET E GWINN STREET

W FLORENTIA STREET E SHELBY STREET

Gas Works Park

F U LT O N S T R E E T

E HAMLIN STREET

NEWELL STREET E EDGAR STREET

R AY E S T R E E T

E ROANOKE STREET

SMITH STREET

E F E D E R A L AV E N U E

E 1 1 T H AV E N U E

E B R O A D W AY A V E N U E

NEWTON STREET

E 1 0 T H AV E N U E

Lake Union

EET

E H A R VA R D AV E N U E

STR

E B O Y L S T O N AV E N U E

E E A S T L A K E AV E N U E

E YA L E A V E N U E

E M I N O R AV E N U E

CROCKETT STREET

VENUE E FA I R V I E W A

UE EN AV R LY VE UE EN AV TH UE 8 N N E AV H 9T N A N W

BOSTON STREET

E NEWTON STREET

HOWE STREET

BLAINE STREET E BLAINE STREET

N 8 T H AV E N U E

H AY E S S T R E E T

GARFIELD STREET

E GARFIELD STREET

PEDESTRIAN BRIDGE

GALER STREET

N TAY L O R A V E N U E

N 6 T H AV E N U E

N 5 T H AV E N U E

N 4 T H AV E N U E

N 2 N D AV E N U E

N N O B H I L L AV E

LE U BO EW VI KE LA UE

N 3 R D AV E N U E

ALOHA STREET

UE V A L L E Y S T R E EVTA L L E Y S T R E E T

ROY STREET

D E N N Y W AY YA

ET RE ST

Y LA

Transit Center

RESEARCH INSTITUTE

NUE K E AV E

WESTLA

889 8th Ave N, Seattle WA, 98109

Images via dexterstation.com M

E 1 2 T H AV E N U E

E F E D E R A L AV E N U E

E 1 0 T H AV E N U E

E 1 1 T H AV E N U E

E B R O A D W AY

E H A R VA R D AV E N U E

E S U M M I T AV E N U E

N YA L E A V E N U E

E E A S T L A K E AV E N U E

N P O I N T I U S AV E N U E

N M I N O R AV E N U E

Denny Park

N FA I R V I E W AV E N U E

Pacific Science Center

N W E S T L A K E AV E N U E

N D E X T E R AV E N U E

JOHN STREET

E B O Y L S T O N AV E N U E

Cascade P-Patch

Space Needle

E BELMONT PLACE

HARRISON STREET

THOMAS STREET

E B E L L E V U E AV E N U E

A O BR

Experience Music Project

Seattle Center

Key Arena

REPUBLICAN STREET

E M E L R O S E AV E N U E

Memorial Stadium

N T E R R Y AV E

McCaw Hall

N B O R E N AV E N U E

N 8 T H AV E N U E

M E R C E RM SE TR RCEEERT S T R E E T N 9 T H AV E N U E

N 1 S T AV E N U E

N WA R R E N AV E N U E

W 1 S T AV E N U E

N Q U E E N A N N E AV E N U E

W 2 N D AV E N U E

W 3 R D AV E N U E

Aloha 8

VA L L E Y S T R E E T

Future Bill & Melinda Gates Foundation Headquarters

Non-Profits Bill & Melinda Gates Foundation Casey Family Programs NW Parkinsons Foundation

WA R D S T R E E T

Lake Union Park

ALOHA STREET

W 4 T H AV E N U E

WA R D S T R E E T

W 5 T H AV E N U E

P R O P O S E D W A L K W AY

PROSPECT STREET

D E X T E R S TAT I O N

HIGHLAND STREET

Tech/ Other Amazon NBBJ Pemco Tommy Bahamas Attachmate Kenmore Air

E LY N N S T R E E T

Bio-Tech/ Research Batelle Research Center Childrenâ&#x20AC;&#x2122;s Hospital Research Institute Fred Hutchinson Research Center Group Health Rosette Biosoftware Seattle Biomedical Research Institute Seattle Cancer Care Alliance UW Institute of Transitional Health Services UW Medical School Zymogenetics Swedish Primary Car

MCGRAW STREET

LY N N S T R E E T

Market Analysis

Aloha 8

Westlake Triangle Neighborhood The use and character of the Westlake Triangle is significantly different than the remainder of South Lake Union. The site is situated amongst auto shops, warehouses, some new office/residential, and a hotel. The immediate neighborhood is occupied, but appears underutilized and lacks the character that has been associated with the developing SLU core as destination. Adjoining the neighborhood to the north is the Dexter Ave corridor which consists of a variety of multi-family housing, office and retail. With its location between the new housing and business activity in the South Lake Union core and the Dexter corridor, the site is well situated for development that will connect and serve these more active areas. As discussed in the site analysis section, as the locational attributes improve in the next few years the siteâ&#x20AC;&#x2122;s ability to draw on and serve the market will greatly improve as well.

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Demand Overview There is a growing full-time, working and living population of educated professionals in the area. South Lake Union is increasingly evolving into a stable 18 hour district of activity. As SLU and the Dexter Corridor continue to build and lease out office and residential units, demand will call for connecting the areas with an infill of new, improved amenities in and around the Westlake Triangle. The Aloha 8 site is positioned at the center of those neighborhood connections and migration patterns which opens the door to a number of development opportunities. Consequently, demand for development of this site will come from South Lake Union and from the Westlake Triangle neighborhood itself.

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Demand Demographics: Income, Affordability, Purchasing Power There are a several indications that support the positive projections for South Lake Union. The following is a summary of some of the most salient points. As shown in the chart at left, per-capita and household income in the area has grown quickly. Per-capita and household income is projected to rise to $51,000 and $74,000/yr, respectively, by 2015.

Source: BAO

The chart at right shows the market segmentation of South Lake Union. At 77%, the overwhelming dominance of â&#x20AC;&#x153;Metro Rentersâ&#x20AC;? (young, educated singles in the beginning of the career) in the area is telling of how increased purchasing power and sophistication that is driving development in the area.

Source: BAO

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Demand Demographics: Population Population According to market profile data , the Westlake Triangle neighborhood has a very small full-time population (484 people). Because of this small population, we focused on the demographics of the larger South Lake Union area, which also encloses the Westlake Triangle. Additionally, the nearby residential population along Dexter Avenue that extends well into the Westlake neighborhood is considered an additional asset to the site, although not included in this dataset.

Demographic Data Summary • Growth: South Lake Union experienced rapid growth between 2000 and 2010. • 2010-2015 projects a more stable, sustainable growth.

• • 31% of SLU population is 25-34 years old, the largest such group. • 50% of SLU population is over 35 yrs old, 50% is under 35 yrs old.

Residential occupancy rates for South Lake Union, 2010

Source: BAO

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Custom Map

Demand

Fremont: Google, Adobe, Getty Images

Visitor Profile The Westlake Triangle has a 5:1 employee to resident ratio. Most visitors are there to work for the day before returning home to outlying neighborhoods.

While the Aloha 8 property is located on the edge of South Lake Union, we believe that its location between the Amazon and the Gates Foundation as well as its proximity to South Lake Union Park and its position on the Dexter Ave transportation corridor, put any future development on this site in a great position to capitalize on the booming economic growth in the area. For example, the daytime employment number within a 3-mile radius of the site is 275,000 and growing. ©2011 Esri

South Lake Union Park/ MOHAI Aloha 8 Fred Hutchinson Center

Gates Foundation

Street Car

With the high number of residential projects in the area built recently (over 2,200 multi-family units), it is clear that supply is responding to the demand created by the increase in daytime employment and overall activity in the area. This increase in residential units, daytime employees and the national or global nature of many of the businesses indicates a need for convenient, full service hotels and other neighborhood conveniences, of which little is to be found in the area. There are a handful of hotels in the area; however, most do not provide the level of service and convenience that the caliber of businesses in this emerging district demands. This lack of supply sends potential hotel guests and evening patrons into the central downtown area. The only option in the immediate neighborhood is the Marriott Courtyard Hotel which is across Aloha from the site. The Marriott, however, does not provide the level of quality and service that is expected for the guests of the nearby class ‘A’ tenants for their guests.

Aloha 8 Site

Amazon & Primary SLU Business District

Base map via Bing Maps

Full Service (orwith Better) Location Made EsriHotel Business Analyst www.esri.com/ba

800-447-9778

Multi and Single Family Residential

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Concentration of Active Class A Office 889 8th Ave N, Seattle WA, 98109

Market Analysis

Traffic Count Map SLU Polygon Area: 0.58 Square miles

Demand

Aloha 8

Migration and Commuting Patterns There is a significant volume of traffic that passes through this area each day. The Westlake Triangle is at the crossroads of north/ south traffic moving between Ballard/ Fremont and Downtown, and the east/ west traffic between Queen Anne/ Denny Triangle/ Belltown/ Aurora Ave and the I-5 corridor. This high volume offers great potential to capitalize on to increase the productivity of the property development. The unique accessibility and frontage that the Aloha 8 site provides is a great opportunity for a variety of development types. Additionally, as the Mercer corridor improvements are completed, the neighborhood will not only see improved access, but the quality and character of the pedestrian experience as well, thereby feeding off of, and benefit from, the activity of South Lake Union as a whole. However, as it exists, the Westlake Triangle is currently an area that is driven “through,” and rarely “to.”

889 8th Ave N, Seattle WA, 98109

Map generated by Esri BAO

Daily traffic counts: 1,374 cars: Roy St, within the Westlake Triangle (but likely just servicing Aurora Ave) 28,400 cars: Westlake Ave 25,088 cars: Mercer St. 46,500 cars: Valley St. As mentioned previously, Aloha Street is a direct spur off of Westlake Avenue and the first east/ west street that makes the connection down to Westlake Avenue and South Lake Union Park when heading south on Dexter. This connection places the site on an increasingly important linkage that will provide access to and from South Lake Union Park and business district as interest in the area grows.

32 November 08, 2011

Market Analysis

Aloha 8

Supply + Competition There is no shortage of developable land in close proximity to our site. Vulcan, Inc. and Touchstone Corporation are among the developers who are holding land waiting for the right time (and tenant) to begin development of commercial space. Since 2004, 4.8 million square feet of commercial space and 2.4 million square feet of multi-family space have been developed in South Lake Union. The inventory of commercial space is severely skewed towards new, Class A space in larger buildings. The remaining inventory is older, often repurposed industrial buildings.

1,272 906

A good portion of the space developed has been build-to-suit projects so vacancy has stayed relatively low in this submarket. Some large office projects completed in 2008-2009 (1918 8th Ave, 818 Stewart Street and West 8th) sat vacant for quite some time, but the majority of that space has since been absorbed. Furthermore, given current market conditions it is unlikely that any speculative development will occur over the next few years which will keep vacancy rates low. There is a significant amount of developable land being held by developers who are keeping existing tenants in place to wait out the rest of this downturn and see if the city follows through on its proposed upzone of the area allowing for greater density in development.

556

865

565

365

Studio

1 bedroom

2 bedroom

Residential rents (min-max), $/unit

If demand for space continues to grow at the current pace, larger tenants will soon have no other option but to pursue build-to-suit projects and there are plenty of developers with properties in SLU who will be competing for these projects. Such an opportunity could suit our risk-averse client who is looking for more secure investments. There has already been some upward pressure on rental rates and it seems likely that rates will continue to rise at a gradual pace. The charts at right give the most recent market statistics for the “Lake Union” Submarket.

Office rents, $/sf Source: BAO

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Supply + Competition The recent apartment development that has been dominating the development scene in South Lake Union has resulted in over 2,200 new housing units (2.4 million sf) built in South Lake Union over the last ten years. Holland Partners just broke ground on a 284-unit project at 901 Dexter Avenue North, 1 block away from our site, while AMLI has filed for permits to build a 174-unit apartment complex near Amazon and Vulcan is planning a 320-unit complex at 420 Pontius. At least three other apartment projects are in the works for a total of close to 1,000 new apartment YTD YTD units in the pipeline. Additionally, there are multiple Inventory Vacancy Absorption Deliveries Under apartment projects being planned and built in neighProperty Type (SF) Rate (SF) (SF) Construction (SF) Class A Office 4,641,682 17.30% 1,291,031 846,208 332,082 boring Belltown, Lower Queen Anne and the Denny Class B Office 5,439,669 8% (187,095) 24,715 0 Triangle. Class C Office

Total Office

Average Rental Rate

1,029,220

11.70%

2,506

$32.01 Gross $26.23 Gross $17.25 Gross

11,110,571

12.20%

1,106,442

870,923

332,082

$29.40 Gross

There are also multiple sites for sale on Dexter as you Retail 1,719,325 3.50% 20,204 0 0 $20.76 NNN proceed north from South Lake Union towards Fremont. **Figures based "Lake Union" submarket figures from Costar Market Reports for Q3 2011 As we look at sales comps for guidance on land values Selected Sales Comparables in the area, it is worth noting that the majority of recent Property Address Zoning Date of Sale Lot Size (SF) Price Price/SF purchases have been made by developers planning 1 708 6th Ave N C1-65 7/20/2011 21,344 $3,600,000 $168.67 apartment projects. As commercial tenants continue to 2 935 Dexter Ave N SM-65 6/1/2011 52,327 $16,700,000 $319.15 expand, it is predicted that the demand for housing in 3 219 Pontius Ave N SM/R 55/75 2/28/2011 9,600 $2,100,000 $218.75 the area will increase as employees decide they want 4 222 Fairview Ave N IC-85 8/12/2010 108,900 $18,400,000 $168.96 to live near their place of employment. This has and 5 1405 Dexter Ave N SM-65 12/31/2009 12,826 $1,350,000 $105.25 will continue to put upward pressure on land values in South Lake Union, as will continued speculation of a proposed upzone of the area. In conclusion, it seems unlikely that vacancies will rise over the next few years, but there is still plenty of supply in the development pipeline that will be released as tenants demand space.

889 8th Ave N, Seattle WA, 98109

Market Analysis

Aloha 8

Marketability Neighborhood Development The Aloha 8 site is within a submarket that has extremely attractive daytime demographics and a steadily increasing population of young, educated people who are choosing to live in the same neighborhood where they work. However, the site is in a relatively disconnected location that currently does not attract a lot of traffic. The siteâ&#x20AC;&#x2122;s connectedness to the heart of South Lake Union will improve dramatically with the completion of the Mercer realignment. Traffic through the direct vicinity of Aloha8 will increase as apartment projects in the direct vicinity and further North along Dexter are completed. Traffic and migration patterns through the area show that there is potential for a convenient retail use that capitalizes on the flows of new residents on Dexter Ave, Fremont and Ballard to South Lake Union and Downtown.

Properties Currently on the Market

The siteâ&#x20AC;&#x2122;s attractiveness stems almost entirely from its proximity to growing employment centers, commuting ease, proximity to South Lake Union Park and an expanding, attractive residential population. With improving connectedness and other projects in the direct vicinity of the site (see Holland Partners apartment project), we believe the right mix of uses will attract tenants/residents/customers from the surrounding district.

Properties Currently on the Market

889 8th Ave N, Seattle WA, 98109

Property

Address

Zoning

Gross SF

Asking Price

Price/SF

1 2

1511 Dexter Ave N 1415 Dexter Ave N

NC3-40 SM-65

12,431 6,413

$1,367,000 $1,095,000

$109.97 $170.75

3 4

108 Yale Ave N 1701 Dexter Ave N

SM-125 NC3-40

4,205 16,231

$1,200,000 $3,700,000

$285.37 $227.96

5 6

611 Pontius Ave N 8th and Thomas

SM-75 SM-85

6,720 25,200

$1,600,000 $6,750,000

$238.10 $267.86

205 Minor Ave N

SM-75/85

43,200

$12,500,000

$289.35

717 Dexter Ave N

SM-65

14,375

$5,400,000

$375.65

Property 1

Address 1511 Dexter Ave N

Zoning NC3-40

Gross SF 12,431

Asking Price $1,367,000

Price/SF $109.97

2 3

1415 Dexter Ave N 108 Yale Ave N

SM-65 SM-125

6,413 4,205

$1,095,000 $1,200,000

$170.75 $285.37

4 5

1701 Dexter Ave N 611 Pontius Ave N

NC3-40 SM-75

16,231 6,720

$3,700,000 $1,600,000

$227.96 $238.10

6 7

8th and Thomas 205 Minor Ave N

SM-85 SM-75/85

25,200 43,200

$6,750,000 $12,500,000

$267.86 $289.35

717 Dexter Ave N

SM-65

14,375

$5,400,000

$375.65

Alternative Use Analysis

Aloha 8

Use Analysis Matrix Building on the site and market analysis, the characteristics and qualities of the Aloha 8 property have been ranked in various ways for a number of potential uses. The uses found to be most fitting overall are Office, Retail, Apartment and Hotel with Industrial uses scoring significantly lower, a finding that is in line with the comprehensive plan and zoning for the area. These scores have been compiled in the matrices shown in Appendix 3.

A summary of the findings is as follows: Office space is the most likely use, due to the site’s great linkages and proximity to nearby business districts in South Lake Union and the downtown core. Additionally, it is more in keeping with the existing character of the neighborhood.

Retail space may not seem likely in the traditional sense of pedestrian storefronts, but it is well suited for a larger anchor tenant similar in scale to the neighboring businesses such as Ducati Motorcycle or West Marine. To serve the neighboring residents on Dexter Ave and the growing daytime population, a large drug¬store or boutique supermarket may be preferable as it will fill a need in the area. Whole Foods is the nearest market which is located on Denny Ave, far from convenient for the number of residents and employees along Dexter Ave and the Westlake Triangle. Furthermore, the site’s presence along the evolving migration patterns and proximity to high volumes of through-traffic in the neighborhood will contribute to the success of retail sales, especially convenient items.

Apartments are a possibility, as the Aloha8 site is a very convenient, amenity-rich site. However, as the site transitions from its grittier, more industrial past, the introduction of a residential use in this specific location is likely less desirable than the abundance of apartment and condominium competition in the area.

Hotel is also a possibility because the lack of others in the area, although the Aloha8 site would have to distinguish itself in some way from the larger, more visible Marriott Courtyard across the street. Moreover, aggregation could very well benefit each of the establishments by perhaps by offering another hotel option in the neighborhood includ¬ing extended stay, or a higher level of service. However, a hotel will likely face similar challenges as residential while the character of the neighborhood transitions over the coming years.

889 8th Ave N, Seattle WA, 98109

Alternative Use Analysis

Aloha 8

Alternatvie Financial Feasibility Analysis Front Door / Back Door Analysis The following data represent our estimates of the capital costs and expenditures associated with this project as well as the rental rates that the market will support. (See Appendix 3- Proforma Data Summary) In an effort to bring a quantitative element into our alternative use analysis, we conducted a Front Door and Back Door Analysis in order to estimate which, if any, of the project uses would be financially feasible. We looked at three possible scenarios:

Scenario 1

Scenario 2

1. 5 floors of office space over ground floor retail over 1 floor of below grade parking 2. 6 floors of office space over 1 floor of below grade parking 3. 5 floors of apartments over ground floor retail over 1 floor of below grade parking

Scenario 3

Office Retail Apartments

889 8th Ave N, Seattle WA, 98109

Alternative Use Analysis

Aloha 8

Alternative Financial Feasibility Analysis Front Door Analysis Scenario 1

Scenario 2

Note: The Front Door analysis

Scenario 3

1 Floor Below Grade Parking

1 Floor Retail

6 Floors Office

1 Floor Retail

5 Floors Office

5 Floors Apartment

Land Purchase

Construction

Services and Fees

$3,908,520

$24,992,456

$22,675,656

$7,877,631

$7,150,156

Financing Cost

$2,661,906

$2,441,572

TOTAL REPLACEMENT COST

$39,440,513

$36,175,904

INVESTOR WACC

7.75%

NOI REQUIRED

$3,056,640

$2,803,633

PROJECTED NOI

$3,106,611

$3,070,932

$2,794,361

$14,293

($9,272)

NOI SURPLUS (GAP)

$49,971

CONCLUSION

889 8th Ave N, Seattle WA, 98109

FEASIBLE

showed all three options to be financially feasible. Scenario 1 and 2 result in surplus NOI while Scenario 3 results in a negligable NOI gap. (See Appendix 3 for detailed Proformas of the four development scenarios and the detailed Frontdoor Analyses)

Alternative Use Analysis

Aloha 8

Alternative Financial Feasibility Analysis Back Door Analysis Scenario 1

Scenario 2

Note: The Back Door analysis

Scenario 3

1 Floor Below Grade Parking 1 Floor Below Grade Parking 1 Floor Below Grade Parking

1 Floor Retail

5 Floors Office

Gross Rental Income

6 Floors Office

$4,034,560

1 Floor Retail

5 Floors Apartment

$3,988,224

$3,629,040

77%

NET OPERATING INCOME

$3,106,611

$3,070,932

$2,794,361

INVESTOR WACC

7.75%

Justified Replacement Costs

$40,085,306

$39,624,935

$36,056,268

($35,531,993)

($32,267,384)

Net Income Ratio

Less Project Costs JUSTIFIED LAND VALUE

$4,553,313

$4,092,942

$3,788,884

JUSTIFIED LAND VALUE (PSF)

$157

$141

$131

MARKET LAND VALUE (PSF)

$135

CONCLUSION

889 8th Ave N, Seattle WA, 98109

FEASIBLE

confirms the Front Door analysis results by revealing that all three options are financially feasible. Scenarios 1 and 2 justify a land price that is above the $135 PSF price that we project paying for the land while Scenario 3 justifies a land value that is below our projected by too small an amount to consider the project infeasible.

Recommended Use

Aloha 8

Office Over Ground Floor Retail The financial analysis on the alternative use indicates that each of the scenarios may be feasible options to pursue further. However, with the site and market analysis considered, we feel that ground floor retail with 5 stories of office above is the more marketable option. This option provides the best opportunity to blend with existing uses while filling a need in the neighborhood. Additionally, this option helps address the parking limitations that are a result of the siteâ&#x20AC;&#x2122;s high water table. It is projected that office tenants are more likely to take advantage of the variety of transit options in the area and demand fewer parking stalls than a residential use.

Rooftop terrace

Office

Ground floor retail Parking

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

Site Features The site accommodates the mix of use in a variety of ways. First, the street ROW provides ample room for sidewalk improvements that accommodate a number of on-street stalls, trees, and plantings to improve the pedestrian environment and perception of the neighborhood. The office entry plaza is located mid-block and offers quality west-facing open space for tenants and retail visitors to gather. Additionally, there is a generous mid-block connection on the south end of the building that connects through to the parking garage and allows for restaurant or retail uses to spill out to. Located at the end of Valley Street, this public amenity will be visible from Dexter Ave to lure users to the site. Other site features include improvements along the alley that promote automobile access and pedestrian connectivity through and around the site. Another highlight of the development is the rooftop terrace which serves as an open space amenity for tenants and a park view tiki bar through the summer months.

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

The Aloha8 Building Summary of Building Features & Characteristics Building Uses • Parking: 1 story underground • Retail: 1 story at grade on 8th Ave. • Office: 5 stories above retail.

Design Considerations and Features The following is a summary of the many ways that the development plan addresses zoning requirements and responds to site features through thoughtful design considerations. With these design considerations, we are able to provide a high quality space for grocery, restaurant, and coffee under five floors of office. Customers and tenants for these spaces have an easy walk, lots of transit options, and parking on-site under the building or on the streets. 20% open space requirement led to the following design decisions: • Widened sidewalk with building setbacks on Aloha St. and 8th Ave • Rooftop Open Space • Office entry plaza on 8th Ave • South mid-block plaza with retail spill-out • High water table: • Allowed for only one story of underground parking, which exits at grade on the alley. • Great views

889 8th Ave N, Seattle WA, 98109

• Promotes maximum height, and a rooftop terrace. • Zoning: M-65 • Gave us our maximum of 1 story of retail and 5 stories of office. • Corner lot on two streets with different character • Positioned coffee shop on the “go” side, leading to Westlake Ave and Lake Union Park. • Positioned restaurant on the corner for visibility. • Positioned office and grocery on the 8th Ave side, which, with its longer street frontage is able to handle these heavier uses better. Putting grocery at the South end allowed us to add a coffee shop at the North end.

Recommended Use

Aloha 8

Aloha8 Retail + Office Terrace Coffee

Office

Restaurant

Grocery

Office

Lightwell

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

Prospective Retail Tenants + Office

Coffee shop

889 8th Ave N, Seattle WA, 98109

Restaurant

Office

Grocery

Recommended Use

Aloha 8

Prospective Retail Tenants The neighborhood is very convenient and proximate to the best parts of Seattle, but it is grittier than its long-term future promises to be. Although it may be more conservative to wait for others to bring amenities to the Westlake Triangle, there is sufficient evidence to consider that Aloha8 could be well-poised to meet that need in the next few years.

We propose three key ground floor retail tenants: 1. A grocery store along the scale of Ken’s Market or a small Trader Joe’s. We choose this size of grocery based on our limited lot size. The best match would be a more economical alternative to the Whole Foods on Westlake and Denny. Trader Joe’s, in particular, is a destination grocery store. This grocery store would service the rapidly growing Dexter Avenue residential, and with the right tenant, could also attract commuters traveling home to Fremont/Phinney Ridge, as grocery options are limited in their area, besides the upscale PCC. A grocery store of a more economical character would help give identity to this Westlake Triangle area. Westlake Triangle is the scrappy, less corporate little brother to South Lake Union with its large scale master planning and massive, single-tenant office buildings. South Lake Union is great, but predictable. Westlake Triangle is less concerned with appearances, and more focused on innovation. It is the Portland to SLU’s New-Seattle. A large drugstore such as Bartells could also work, however it would not have the same daily usage and customer loyalty as a convenient boutique grocery store.

889 8th Ave N, Seattle WA, 98109

2. A coffee shop. We have aligned our coffee shop on the North side of the building to provide a destination en route to the South Lake Union Park pedestrian bridge. Additionally, this location is anticipated to maximize convenience to pedestrians and commuters traveling along Westlake Avenue. A Stumptown Coffee shop would be our ultimate tenant, signifying quality with a counter-cultural edge.

3. A restaurant. This casual restaurant would fill a void for the thousands of people living on Dexter with few options in the neighborhood. It would also become part of the minidestination of Jillians, Buca di Beppo and Trago. Befitting the area, we aim for a gourmet pub in line with Brouwer’s in Fremont, or Feierabend in the Cascade District, however, the restaurant is the least crucial of the three for activating the development. To summarize the targeted retail tenants, a small grocery store and a coffee shop are essential to making the Aloha 8 site the best part of the new Westlake Triangle district. With those in place, development in the area will become more attractive and draw office tenants to the site.

Recommended Use

Aloha 8

Prospective Office Tenants The top five floors of the Aloha8 building will be marketed toward small-to-medium sized creative firms, giving them the chance to have their own space in a convenient, less corporate yet strategically located area. The design of the building is focused on attracting firms who desire a certain quality of office space: well located, full of natural light, with open floor plans. Aloha8 meets these needs, with open adaptable floor plates anchored by a light well down the center, ensuring that no worker is ever more than 40â&#x20AC;&#x2122; from a window with natural light. This space is aimed at attracting emerging creative firms interested in having space of their own with the opportunity to grow. The open floor plans provide a collaborative environment that allow for the flexibility of sharing space, dividing it up, or expanding as their firms find success in the market. For inspiration, we look to the Terry Thomas building by Weber Thompson for its open floor plans, intelligent use of sustainable features and daylighting strategies which both increase employee satisfaction while reducing maintenance costs.

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

Aloha8 City Context

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

Aloha8 Neighborhood Context

Aloha8 with Lake Union behind.

Approaching Aloha8 on 8th Ave.

889 8th Ave N, Seattle WA, 98109

Recommended Use

Aloha 8

Aloha8 Street Context

View down Aloha St. to the Lake Union Park Bridge

View from the Aloha8 roof terrace.

889 8th Ave N, Seattle WA, 98109

Financial Analysis

Aloha 8

Proforma This section presents the financial analysis for the targeted use of the site. With the recommended building use and character identified (5 floors of office over ground floor retail over 1 floor of below grade parking), the costs and rent estimates from the alternative analysis have been tightened up with more detail for accuracy. This focused look yields proforma that are slightly different from the alternative front door/back door analysis. In addition to the key assumptions mentioned below, refer to Proforma 1 for a comprehensive breakdown of the building layout as well as our rent, cost and financing assumptions.

Key Assumptions • o o o o o o o

Total Building Square Footage: 164,808 SF Below Grade (Parking) – 24,484 SF 1st Floor (Retail) – 24,484 SF 2nd Floor (Office) – 23,168 SF 3rd Floor (Office) – 23,168 SF 4th Floor (Office) – 23,168 SF 5th Floor (Office) – 23,168 SF 6th Floor (Office) – 23,168 SF

• o o o

Gross Rental Rates Parking - $100 monthly per stall. Retail - $30.00 PSF. Office - $28.00 PSF

•

Land Purchase Price - $135 PSF.

889 8th Ave N, Seattle WA, 98109

Comments: The parking rental rate is below market but to underwrite it conservatively since some stalls will have to be reserved for retail tenants and not generate income. The retail and office rental rates are based on the current market rent for comparable space in the Lake Union submarket ($27.78 and $26.00 respectively) grown at 3% annually for two years during construction. The land price is admittedly lower than comps from recent land sales in the market. However, we believe this is justified by the transitional location of the property and by the limitations imposed by the small lot size and high water table which limits below grade parking to one level.

Financial Analysis

Aloha 8

Proforma Income Proforma

Annual Rent/Cost

SubTotal

Total

Gross Rent Roll

Parking

Stalls

@ $1,200

$96,000

Retail

24,484

@ $30.00

$734,520

Office

115,840

@ $28.00

$3,243,520

$4,074,040

Gross Potential Income Net Income Ratio

77%

NET OPERATING INCOME

$3,137,011

Proforma 1

889 8th Ave N, Seattle WA, 98109

115,840 115,840 SF 5,790 SF 3,020 SF

5,790

Office Tis Office Tis Landscaping Landscaping Roof Deck Roof Improvements Deck Improvements 3,020

5.0% 5.0% 1.5% 10.0%

A/E

Developer Developer Fee Fee Permits Permits Contingency Contingency

Sources of Sources Funds of Funds

Cost per SCost F per SF

TOTAL REPLACEMENT TOTAL REPLACEMENT COST COST

of $28,093,013 of $28,093,013

0.6%

2% 0.6%

Inspection Inspection Fee Fee

of $28,093,013 of $28,093,013

Financing FFinancing ee Fee

Commitment Commitment Fee Fee

Take Out Take Out

of $28,093,013 of $28,093,013 5.0%

Financing FFinancing ees Fees

$168,558 $168,558

$561,860 $561,860

$280,930 $280,930

$1,416,356 $1,416,356

$280,930 $280,930

$30,000 $30,000

of $25,483,806 of $25,483,806 $2,548,381 $2,548,381

of $25,483,806 of $25,483,806 $382,257 $382,257

5.0%

Closing Fees Closing Fees

of $25,483,806 of $25,483,806 $1,274,190 $1,274,190

of $28,093,013 of $28,093,013

Interim Interim

$75,500 $75,500

$86,850 $86,850

$2,316,800 $2,316,800

$489,680 $489,680

$2,081,140 $2,081,140

of $25,483,806 of $25,483,806 $1,274,190 $1,274,190

$243.51 $243.51

$40,132,876 $40,132,876

$2,708,635 $2,708,635

$8,031,915 $8,031,915

$25,483,806 $25,483,806

$20,346,980 $20,346,980

of $25,483,806 of $25,483,806 $2,522,897 $2,522,897

SF @ $25.00 @ $25.00

SF @ $15.00 @ $15.00

SF @ $20.00 @ $20.00

10.0%

1.5%

5.0%

Financing Financing Costs: Costs:

Other Consultants Other Consultants

A/E

9.9%

WSST

9.9%

24,484 SF

24,484

Retail Tis Retail Tis

SF @ $85.00 @ $85.00

Total

$3,908,520 $3,908,520

Total

Proforma

Services and Services Fees: and Fees:

24,484 SF

Below Grade Below Parking Grade Parking 24,484

SF @ $145.00 @ $145.00

$57,904 $57,904

140,324 140,324 SF

SF @ $2.00 @ $2.00

Core/Shell Core/Shell

28,952 SF

28,952

Site Improvements Site Improvements

@ SF $1.00 $1.00 @

$28,952 $28,952

28,952 SF

28,952

@ SF $135 @ $135

Site Prep Site Prep

28,952 SF

28,952

Annual Rent/Cost Annual Rent/Cost SubTotal SubTotal

Construction: Construction:

Land Purchase Land Purchase

Cost Proforma Cost Proforma

Financial Analysis Aloha 8

Financial Analysis

Aloha 8

Sources of Capital Overview The total project cost is $40,132,876. At a 70% Loan-to-Value this will require an equity contribution of just over $12 million, which is above Sustainable Partners maximum equity contribution of $6 million. However, given the projected returns this project is capable of generating we believe there will be no trouble finding an equity partner to contribute half the equity for a 50% ownership stake in the project.

Investment Analysis The following operating model looks at how the building will perform over time given our estimates.

Key Assumptions • • • • •

10-year holding period, assumed given the long-term investor perspective 3% annual increase in rental rates 5% Vacancy and Credit Loss remains constant 77% Net Income Ratio remains constant 6% Exit Cap Rate

For Investment Analysis on next page: Required Returns • •

Cash-on-Cash IRR

8.00% 10.00%

10.16% 18.00%

Projected Returns • •

Cash-on-Cash IRR

The above investment analysis shows that the project returns well exceed those required by Sustainable Partners and offer a promising outlook of the Aloha8 project.

889 8th Ave N, Seattle WA, 98109

Financial Analysis

Aloha 8

Investment Analysis The bottom row in this Investment Analysis shows the projected after tax annual cash flow as well as the resulting change in capital through the holding period.

Construction

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Gross Potential Income less Vacancy and Credit Loss

$4,074,040

$4,196,261

$4,322,149

$4,451,814

$4,585,368

$4,722,929

$4,864,617

$5,010,555

$5,160,872

$5,315,698

$5,475,169

($203,702)

($209,813)

($216,107)

($222,591)

($229,268)

($236,146)

($243,231)

($250,528)

($258,044)

($265,785)

($273,758)

less Property Taxes

($325,923)

($335,701)

($345,772)

($356,145)

($366,829)

($377,834)

($389,169)

($400,844)

($412,870)

($425,256)

($438,014)

less Operating Expenses

($325,923)

($335,701)

($345,772)

($356,145)

($366,829)

($377,834)

($389,169)

($400,844)

($412,870)

($425,256)

($438,014)

less Reserves

($81,481)

($83,925)

($86,443)

($89,036)

($91,707)

($94,459)

($97,292)

($100,211)

($103,217)

($106,314)

($109,503)

NET OPERATING INCOME $0

$3,137,011

$3,231,121

$3,328,055

$3,427,896

$3,530,733

$3,636,655

$3,745,755

$3,858,128

$3,973,871

$4,093,088

$4,215,880

($928,830)

less Depreciation

($928,830)

less Interest Payment

($1,535,670) ($1,514,324) ($1,491,773) ($1,467,949) ($1,442,783) ($1,416,196) ($1,388,110) ($1,358,440) ($1,327,095) ($1,293,983)

TAXABLE INCOME

$672,511

$787,968

$907,453

$1,031,117

$1,159,121

$1,291,630

$1,428,815

$1,570,858

$1,717,946

$1,870,275

plus Depreciation

$928,830

less Principal Repayment $0

($378,438)

($399,785)

($422,336)

($446,159)

($471,326)

($497,912)

($525,998)

($555,669)

($587,013)

($620,125)

$1,222,902

$1,317,013

$1,413,946

$1,513,788

$1,616,625

$1,722,547

$1,831,646

$1,944,019

$2,059,763

$2,178,979

($235,379)

($275,789)

($317,608)

($360,891)

($405,692)

($452,070)

($500,085)

($549,800)

($601,281)

($654,596)

AFTER TAX CASH FLOW

$987,524

$1,041,224

$1,096,338

$1,152,897

$1,210,932

$1,270,476

$1,331,561

$1,394,219

$1,458,482

$1,524,383

Changes in Capital

BEFORE TAX CASH FLOW less Income Taxes

Construction Costs

($6,019,931) ($6,019,931) $0

Building Sale

$41,163,405

$1,041,224

$1,096,338

$1,152,897

$1,210,932

$1,270,476

$1,331,561

$1,394,219

$1,458,482

$42,687,788

AFTER TAX CASH FLOW + CHANGES IN CAPITAL ($6,019,931) ($6,019,931) $987,524

(Negative numbers indicated in parenthesis)

889 8th Ave N, Seattle WA, 98109

Financial Analysis

Aloha 8

Sensitivity Analysis The projections above show returns well in excess of the required returns. However, to challenge these numbers and the assumptions they are based on, the following sensitivity analysis has been created. This analysis looks at how the projected returns would change given different value inputs for key assumptions; values that are above or below the baseline projected values for land price, rental rate growth, vacancy rate growth and exit cap rates. As such, the sensitivity analysis addresses some of the risks related to the project and the threshold for different financial assumptions.

Assumptions

Best Case

Optimistic

Projected

Pessimistic

Worst Case

Land Price

$130

$135

$140

$160

Rental Rate Increases

3.5%

2.5%

Vacancy Rate

10%

Exit Cap Rate

5.5%

Returns

Cash-‐on-‐Cash

10.94%

10.60%

10.16%

9.05%

8.00%

IRR

22.33%

20.19%

18.00%

14.18%

10.29%

analysis reveals that even in a “worst case scenario”, the Cash-on-Cash return and IRR are greater than the required This hurdles.

889 8th Ave N, Seattle WA, 98109

Financial Analysis

Aloha 8

Exit Strategy Although we based our operating model on a 10-year hold, it is also worth examining how the IRR would change if the property is sold before the end of year 10. Please see Exhibit B for the schedules that combine with the operating model to produce the analysis below.

IRR

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

End of Year 1 Sale 59.54% ($6,019,931)

($6,019,931) $24,927,771

End of Year 2 Sale 39.37% ($6,019,931)

($6,019,931) $987,524

$26,615,159

End of Year 3 Sale 31.20% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $28,367,707

End of Year 4 Sale 26.78% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $30,187,957

End of Year 5 Sale 23.99% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$32,078,556

End of Year 6 Sale 22.06% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$1,210,932

$34,042,266

End of Year 7 Sale 20.65% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$1,210,932

$1,270,476

$36,081,970

End of Year 8 Sale 19.56% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$1,210,932

$1,270,476

$1,331,561

$38,200,677

End of Year 9 Sale 18.70% ($6,019,931)

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$1,210,932

$1,270,476

$1,331,561

$1,394,219 $40,401,524

End of Year 10 Sale

($6,019,931) $987,524

$1,041,224 $1,096,338 $1,152,897

$1,210,932

$1,270,476

$1,331,561

$1,394,219 $1,458,482 $42,687,788

18.00% ($6,019,931)

It is worth noting that if the assumptions underlying the model hold up, the IRR is greater the earlier the property is sold. Hence, although we recommend sticking with the strategy to make this a long-term hold, if there is need to sell the property early due to some unforeseen circumstances, the return will not suffer.

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Cash-‐on-‐Cash Schedule

10.16%

10.94%

11.74%

12.57%

13.43%

14.31%

15.21%

16.15%

17.11%

18.10%

In summary, the financial analysis shows that the project as outlined generates positive returns even in the worst case scenario of assumptions or early sell-off.

889 8th Ave N, Seattle WA, 98109

Conclusions + Next Steps

Aloha 8

Conclusions As show in the preceding sections, the market and financial analysis yield positive findings for the Aloha8 site. It is therefore recommended that Sustainable Partners pursue plans as a joint venture for the development of a 6 story mixed-use project as outlined in this document.

Next Steps The positive outlook for the project in the near and long-term encourages immediate action. With the recommendations for development outlined in this document, the next steps are: • Aim to bring the building to market in early 2014 in conjunction with the completion of the Mercer Corridor project. In addition to the improved connectivity that will draw many people to the neighborhood, economic recovery is anticipated to bring additional investment in South Lake Union and surrounding the areas providing further optimism for two year development schedule. • Find an equity partner to form a joint venture for the land purchase and financing of the development project. • Engage the City (land owner) immediately to discuss the sale of the property and to identify any other mutually beneficial terms or partnership opportunities. • Investigate the property to determine the level of potential soil contamination on the site and the impacts those findings may have on the development. • The retail is critical to the success of the project. It is recommended that potential tenants be sought out immediately and considered for pre-leasing as soon as feasible. As the office space proposed to be flexible pre-leasing is recommended but not a requisite to start the project. • Engage a design team to begin early design guidance with the City

889 8th Ave N, Seattle WA, 98109

Appendix 1: Site Analysis

Aloha 8

Walkability Site Metrics The Aloha8 site is easy to get to and from, by either car or transit. Most essential amenities are very close by. The area around the site does not lack amenities and provides convenient access to the most important sites in the city.

Transit Scores (100 Pt. Scale): 100: South Lake Union at Westlake Ave & Thomas St. 86: East Lower Queen Anne at 5th & Roy 84: 889 8th Ave N.

The website walkscore.com is often a good indicator of the pedestrian experience of a specific address. The website gives a score based on proximity of essential or desirable amenities to an address.

Summary on the Aloha8 site: “Excellent Transit: Transit is convenient for most trips”

Walkscore Data by Walkscore.com

Walkscores (100 pt. scale): 100: South Lake Union at Westlake Ave & Thomas St. 99: “Seattle Top 10%” 95: East Lower Queen Anne at 5th & Roy 92: 889 8th Ave N. 77: Seattle Average Distance from Amenities (Miles): 0.1 Restaurant (Buca di Beppo, Trago) 0.1 Entertainment/Bar/Restaurant (Jillian’s) 0.1 Espresso (Tin Cup Espresso) 0.1 Bank (Bank of America) 0.2 Park (Lake Union Park) 0.3 Groceries (QFC) 0.5 Cinema (SIFF Uptown)

889 8th Ave N, Seattle WA, 98109

King County Trip Planner: Distance to

Transit in Miles (http://tripplanner.kingcounty. gov/) 0.07 0.2 0.3 0.4 0.5

26, 28 17, 30 5, 16, 98 (Streetcar), 358 70, 71, 72, 73, 83 3, 4, 82, 309

Summary: 17 bus routes within ½ mile. The routes listed above will take someone to most areas of Seattle without a transfer. A person could get here, or live here, without needing to own a car. Distance from transportation connections: 0.1 0.2 0.7 1.4

Highway 99 Kenmore Air seaplane airport Interstate 5 Closest light rail stop at Westlake

Transportation Tunnel 1.6 Ferry terminal (Elliott Bay) 2.0 Highway 520 2.5 Pier 91 3.0 Port of Seattle 3.2 i-90 14.4 SeaTac Airport Distance from economic hubs: 0.5 Center of South Lake Union (Westlake & Thomas) 1.4 Downtown (Westlake Center) 1.7 Fremont neighborhood 2.0 Pioneer Square 3.0 University of Washington 10.0 Bellevue

Appendix 2: Market Analysis

Aloha 8

Supplemental Information Market Segmentation 1 Mile Businesses Total Employees Total Residential Population Employee/ Residential Ratio

6 Miles 12 Miles 34 18,489 40,083 425 270,279 487,591 82 187,702 625,559 5.18 1.44 0.78

Employment Agriculture & Mining Construction Manufacturing Transportation Communication Utility Wholesale Trade

Retail FIRE Service Government Other

889 8th Ave N, Seattle WA, 98109

0.0% 2.9% 2.9% 2.9% 0.0% 0.0% 5.9%

1.2% 3.4% 3.1% 2.3% 1.0% 0.1% 3.3%

1.7% 5.0% 3.6% 2.5% 0.8% 0.2% 4.4%

26.50% 14.70% 41.20% 0.00% 2.90%

21.30% 11.90% 44.90% 2.90% 4.60%

20.40% 11.10% 44.10% 1.90% 4.30%

Appendix 2: Market Analysis

Aloha 8

Supplemental Information Supply Inventory Coffeehouse/ Small Café

Fast Food/ Convenient

Bars/ Pub

Casual Dining

Fine Dining

Tin Cup Espresso

Taco Del Mar

Jillian's

Buca di Beppo

Daniels Broiler

Slices Espresso

Sushi Bay

Citrus

McCormick & Schmick's

Joey

Uptown Esspresso

Lunchbox Laboratory

Trago Cantina

Blue Moon Burgers

Chandler's Crabhouse

Moka's Café

Café Mae

Venik Lounge

Hooters

Cuoco

Starbucks (+4)

Top Pot Donuts

Paddy's Coin

I Love Sushi

Flying Fish

Kalani Coffees and Teas

Berliner Doner Kebab

Brave Horse Tavern

Harborside

Zoka Coffee Roasters

Serious Pie

Feierabend Inc

Re:Public

Victory Lounge

Portage Bay Café

Café Venus/ Mars Bar

Cherry Blossom

Espresso Vivace Alley 24

Rock Salt Museums/ Parks South Lake Union Park

Denny Park

Center for Wooden Boats

Cascade Park

MOHAI

Experience Music Project * Indicates Located Within Westlake Triangle Neighborhood

889 8th Ave N, Seattle WA, 98109

Appendix 2: Market Analysis

Aloha 8

Supplemental Information Supply Inventory: Office Bio-Tech/ Research

Tech/ Other

Non-Profits

Batelle Research Center

Amazon

Bill & Melinda Gates Foundation

Childrens Hospital Research Institute

NBBJ

Casey Family Programs

Fred Hutchinson Research Center

Pemco

NW Parkinson's Foundation

Group Health

Seattle Times

Rosetta Biosoftware

Tommy Bahama

Seattle Biomedical Research Institute

Attachmate Kenmore Air Associated General Contractors (AGC)

Hotels Upscale

Full Service

Select Service

Limited Service

Marriott Execustay at Alcyone

Marriott Courtyard

Holiday Inn

Residence Inn Silver Cloud * Indicates Within Westlake Triangle Neighborhood

889 8th Ave N, Seattle WA, 98109

Appendix 3: Alternative Use Analysis

Aloha 8

Use Analysis Matrix Analysis of Results: as summarized on pg. 36. Building on the site and market analysis, the characteristics and qualities of the Aloha 8 property have been ranked in various ways for up to 5 potential uses: Office, Retail, Industrial, Apartment and Hotel. The least appropriate fit on this site at this time is Industrial, a finding that is in line with the comprehensive plan and zoning for the area. Office, Retail, Apartment and Hotel were the most fitting uses. Of these four, no runaway winner emerged.

Most Fitting Use Most 0.6 Fitting Use 0.6 0.4

0.4 0.2

0.2 0

0 -‐0.2

Most Suitable Use Oﬃce

Retail

Oﬃce

Retail

Industrial Industrial

Apartment

Hotel

AVG AVG

-‐0.2

A summary of the findings is as follows: As seen in the chart and table to the right, Apartments score consistently well against the other uses when evaluating Most Fitting Use: Deviation from Average.

-‐0.4

However, this matrix is a subjective form of quantitative measurement, and we are cautious to use this information for anything more than ‘another opinion’ which may or may not pencil out.

-‐0.8

Most Suitable Use PoliDcally Palatable PoliDcally alatable Highest & BPest Use Highest &R BaDngs est Use Weighted Weighted RaDngs

-‐0.4 -‐0.6

-‐0.6

-‐0.8

Most Fitting Use Most Fitting Use

Weighted Adjusted Most Fitting Use

Criteria Most Suitable Use Criteria Politically Palatable Most Suitable Use Highest Best Use Politically& Palatable Weighted Highest & Ratings Best Use

Wgts Office Retail Industrial Apartment Weighted Adjusted Most Fitting Use 40% 3.4 2.7 2.3 3.9 Wgts Office Retail Industrial Apartment 30% 1.8 2.5 0.8 2.0 40% 3.4 2.7 2.3 3.9 30% 1.8 1.2 1.1 2.3 30% 1.8 2.5 0.8 2.0 100% 7.0 6.4 4.2 8.2 30% 1.8 1.2 1.1 2.3

Weighted Ratings

100%

Highest & Best Use Highest & Best Use

889 8th Ave N, Seattle WA, 98109

Deviation from Average Deviation from Average

Criterion Legally Permissable Criterion Physically Possible Legally Permissable Marketable Physically Possible Financially Feasible Marketable Maximum Value

7.0

Hotel AVG 3.4 AVG Hotel 1.9 3.4 1.9 1.9 7.2 1.9

3.1 1.8 3.1 1.6 1.8 6.6 1.6

8.2

7.2

6.6

Apartment 0.9 Apartment 0.6 Retail 0.8 Industrial 0.4 0.5 0.4 0.8 0.9 0.6 0.6 1.2 2.1 0.4 0.5 0.4 1.4 0.7 2.8 0.6 1.2 2.1 0.8 0.4 1.6

Hotel 0.8 Hotel 0.4 0.8 1.8 0.4 2.1 1.8 1.2

6.4

4.2

Weighted: Highest & Best Use Office Retail & Best Industrial Weighted: Highest Use

10% 5% 10% 30% 5% 35% 30% 20%

Office 1 0.51 1.2 0.5 1.4 1.2 1.8

AVG AVG0.8 0.4 0.8 62 1.4 0.4 1.7 1.4 1.2

0.2

Most Suitable Use Oﬃce

Retail

Industrial

Apartment

Hotel

AVG

PoliDcally Palatable Highest & Best Use

Appendix 3: Alternative Use Analysis -‐0.2

Weighted RaDngs

-‐0.4

Aloha 8

-‐0.6

Use Analysis Matrix Analysis of Results: as summarized on pg. 36. -‐0.8

Most Use FittingAnalysis Use The Matrix, while subjective, can help illuminate patterns or Weighted Adjusted Most Fitting Use opportunities that may otherwise go undetected. This said, the four nonCriteria Wgts Office Retail Industrial Apartment Hotel AVG Most Suitable Use 40% fairly 3.4evenly in 2.7each 2.3category, 3.9 industrial uses scored as3.4seen 3.1 in the tables to the Politically Palatable 30% 1.8 2.5 0.8 2.0 1.9 1.8 right. Highest & Best Use 30% 1.8 1.2 1.1 2.3 1.9 1.6 Weighted Ratings

100%

7.0

6.4

4.2

8.2

7.2

6.6

Industrial Apartment 0.9 0.6 0.5 0.4 1.2 2.1 0.7 2.8 0.4 1.6 3.7 7.5

Hotel 0.8 0.4 1.8 2.1 1.2 6.3

AVG 0.8 0.4 1.4 1.7 1.2 5.5

Highest & Best Use Weighted: Highest & Best Use Criterion Legally Permissable Physically Possible Marketable Financially Feasible Maximum Value Total

Office 10% 5% 30% 35% 20%

Retail

1 0.5 1.2 1.4 1.8 5.9

0.8 0.4 0.6 1.4 0.8 4.0

Politically Palatable Use Community Benefits: Weighted Factors/Attributes Market Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

Wgt

Office

Retail

Industrial Apartment

Hotel

AVG

10% 10% 20%

0.8 0.8 1.2

0.3 0.2 0.6

0.7 0.6 1

0.7 0.7 1.6

0.7 0.6 1.1

30% 30% 100%

1.5 1.8 6.1

2.7 2.7 8.2

0.6 0.9 2.6

2.1 2.4 6.8

1.8 1.5 6.3

1.7 1.9 6.0

Most Suitable Use Weighted Ratings Factors/Attributes Static Environmental Linkages Total Adjusted to 50 point scale

Office 5.6 3.9 5.6 15.1 8.4

Retail 3.0 3.9 5.4 12.3 6.8

889 8th Ave N, Seattle WA, 98109

Industrial Apartment 2.7 5.0 2.4 2.5 5.4 10.1 10.5 17.6 5.8 9.8

Hotel AVG 6.4 4.5 2.2 3.0 6.6 6.6 15.2 14.2 8.4 7.9

This is for Feasibility Test

Appendix 3: Alternative Use Analysis Use Analysis Matrix As summarized on page 36. Most Suitable Use

Factors/Attributes Static Size, Layout Ingress/Egress Topo/Drainage Subtotal Environs Land uses Quality/Value Safety/Security Subtotal Current Linkages Public Vehicular Pedestrian Proposed Linkages Subtotal Adjusted Linkages (4 vs 3 vars) Total

Office

Factors/Attributes Static Environmental Linkages Total

Industrial

Apartment

Hotel Average

5 4 5 14

3 2 5 10

4 2 3 9

7 6 7 20

5 4 7 16

4.8 3.6 5.4 13.8

3 4 6 13

8 8 8 24

2 4 4 10

2 3 6 11

3.6 4.6 6 14.2

6 6 4 9 25 18.8 45.8

5 4 2 7 18 13.5 36.5

4 3 2 3 12 9.0 42.0

5 6 7 9 27 20.3 50.3

4 6 4 8 22 16.5 43.5

4.8 5 3.8 7.2 20.8 15.6 43.6

Office 40% 30% 30% 100%

Factors/Attributes Static Environmental Linkages Total Adjusted to 50 point scale

Retail

Office 5.6 3.9 5.6 15.1 8.4

Weightings

Retail Industrial Apartment 30% 30% 25% 30% 10% 25% 40% 60% 50% 100% 100% 100%

Weighted Ratings

Hotel Average 40% 33% 20% 23% 40% 44% 100% 100%

Retail Industrial Apartment 3.0 2.7 5.0 3.9 2.4 2.5 5.4 5.4 10.1 12.3 10.5 17.6 6.8 5.8 9.8

Hotel AVG 6.4 4.5 2.2 3.0 6.6 6.6 15.2 14.2 8.4 7.9

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Total Scores

Unweighted: Current Industrial Use Office Retail Industrial Apartment 8 8 10 8 8 8 9 8 4 2 10 3 6 5 4 7 26 23 33 26

Hotel Average 8 8.4 8 8.2 4 4.6 7 5.8 27 27

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Total Scores

Weighted: Current Industrial Use Office Retail Industrial Apartment 0.8 0.8 1 0.8 0.8 0.8 0.9 0.8 2 1 5 1.5 1.8 1.5 1.2 2.1 5.4 4.1 8.1 5.2

Hotel Average 0.8 0.84 0.8 0.82 2 2.3 2.1 1.74 5.7 5.7

This is for Feasibility Test

889 8th Ave N, Seattle WA, 98109

10% 10% 50% 30% 100%

This shows how decision changes if get anchor tenant) Unweighted: Anchor for Spec Uses Criterion Office Retail Industrial Apartment Legally Permissable 8 8 10 8

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Total Scores

Unweighted: Current Industrial Use Office Retail Industrial Apartment 8 8 10 8 8 8 9 8 4 2 10 3 6 5 4 7 26 23 33 26

Hotel Average 8 8.4 8 8.2 4 4.6 7 5.8 27 27

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Total Scores

Weighted: Current Industrial Use Office Retail Industrial Apartment 0.8 0.8 1 0.8 0.8 0.8 0.9 0.8 2 1 5 1.5 1.8 1.5 1.2 2.1 5.4 4.1 8.1 5.2

Hotel Average 0.8 0.84 0.8 0.82 2 2.3 2.1 1.74 5.7 5.7

This shows how decision changes if get anchor tenant) Unweighted: Anchor for Spec Uses Criterion Office Retail Industrial Apartment Legally Permissable 8 8 10 8 Physically Possible 8 8 9 8 Marketable 10 9 10 8.5 Financially Feasible 6 6 4 7 Total Scores 32 31 33 31.5

Hotel Average 8 8.4 8 8.2 10 9.5 7 6 33 32.1

Weighted: Anchor for Spec Uses Office Retail Industrial Apartment 0.8 0.8 1.0 0.8 0.8 0.8 0.9 0.8 5.0 4.5 5.0 4.3 1.8 1.8 1.2 2.1 8.4 7.9 8.1 8.0

Hotel Average 0.8 0.8 0.8 0.8 5.0 4.8 2.1 1.8 8.7 8.2

10% 10% 50% 30% 100%

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Total Scores

Factors/Attributes Static Environmental Linkages Total

10% 10% 50% 30% 100%

Attribution Analysis for MSU Office 37% 26% 37% 100%

Politically Palatable Use

Factors/Attributes Market Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

Retail Industrial Apartment 24% 26% 28% 32% 23% 14% 44% 51% 57% 100% 100% 100%

Community Benefits: Unweighted

Factors/Attributes Market Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

Office

Wgt

Retail

Industrial

Apartment

Hotel Average 42% 32% 14% 22% 43% 47% 100% 100%

Hotel

AVG

8 8 6

3 2 3

7 6 5

7 7 8

6.6 6.2 5.6

5 6 33

9 9 40

2 3 13

7 8 33

6 5 33

5.8 6.2 30.4

Community Benefits: Weighted Office

Retail

Industrial

Apartment

Hotel

AVG

10% 10% 20%

0.8 0.8 1.2

0.3 0.2 0.6

0.7 0.6 1

0.7 0.7 1.6

0.7 0.6 1.1

30% 30% 100%

1.5 1.8 6.1

2.7 2.7 8.2

0.6 0.9 2.6

2.1 2.4 6.8

1.8 1.5 6.3

1.7 1.9 6.0

Attribution Analysis of Politically Palatable Use Factors/Attributes Market Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

Highest & Best Use Hotel Average 8 8.4

Aloha 8

Criterion

Wgt

Community Benefits: Weighted Office Retail Industrial Apartment

Hotel

AVG

20% 10% 20%

13% 13% 20%

10% 10% 15%

12% 8% 23%

10% 9% 15%

11% 11% 25%

11% 10% 19%

20% 30% 100%

25% 30% 100%

33% 33% 100%

23% 35% 100%

31% 35% 100%

29% 24% 100%

29% 31% 100%

64 Unweighted: Highest & Best Use Office

Retail

Industrial

Apartment

Hotel

AVG

Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

10% 10% 20%

0.8 0.8 1.2

0.3 0.2 0.6

0.7 0.6 1

0.7 0.7 1.6

0.7 0.6 1.1

30% 30% 100%

1.5 1.8 6.1

2.7 2.7 8.2

0.6 0.9 2.6

2.1 2.4 6.8

1.8 1.5 6.3

1.7 1.9 6.0

Appendix 3: Alternative Use Analysis

Attribution Analysis for H&B Use

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Maximum Value

Office 17% 8% 20% 24% 31% 100%

Attribution Analysis of Politically Palatable Use

Use Analysis Matrix As summarized on page 36

Factors/Attributes Market Economic Base Tax Base Infrastructure Neighborhood Design / Fit Compatible Use/Synergy Total

Highest & Best Use Criterion Legally Permissable Physically Possible Marketable Financially Feasible Maximum Value Total Scores

Community Benefits: Weighted Office Retail Industrial Apartment

Wgt

13% 13% 20%

10% 10% 15%

12% 8% 23%

10% 9% 15%

11% 11% 25%

11% 10% 19%

20% 30% 100%

25% 30% 100%

33% 33% 100%

23% 35% 100%

31% 35% 100%

29% 24% 100%

29% 31% 100%

Unweighted: Highest & Best Use Retail

8 8 2 4 4 26

Industrial Apartment 9 6 10 8 4 7 2 8 2 8 27 37

Weighted: Highest & Best Use 10% 5% 30% 35% 20%

Office

1 0.5 1.2 1.4 1.8 5.9

Retail Industrial Apartment 0.8 0.9 0.6 0.4 0.5 0.4 0.6 1.2 2.1 1.4 0.7 2.8 0.8 0.4 1.6 4.0 3.7 7.5

Attribution Analysis for H&B Use

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Maximum Value

Office 17% 8% 20% 24% 31% 100%

Retail Industrial Apartment 20% 24% 8% 10% 14% 5% 15% 32% 28% 35% 19% 37% 20% 11% 21% 100% 100% 100%

Unadjusted Scores Most Fitting Use

Criteria Most Suitable Use Politically Palatable Highest & Best Use Average Unadjusted

Office 15.1 6.1 5.9 9.0

Most Fitting Use Hotel

8 8 6 6 6 34

AVG 8.2 8.8 4.6 4.8 5.8 32.2

Hotel AVG 0.8 0.8 0.4 0.4 1.8 1.4 2.1 1.7 1.2 1.2 6.3 5.5

Hotel AVG 13% 15% 6% 8% 29% 25% 33% 31% 19% 21% 100% 100%

Criteria Most Suitable Use Politically Palatable Highest & Best Use Unweighted Ratings

Criteria Most Suitable Use Politically Palatable Highest & Best Use Weighted Ratings

Retail Industrial Apartment 12.3 10.5 17.6 8.2 2.6 6.8 4.0 3.7 7.5 8.2 5.6 10.6

Unweighted Adjusted Most Fitting Use Office 8.4 6.1 5.9 6.8

Retail Industrial Apartment 6.8 5.8 9.8 8.2 2.6 6.8 4.0 3.7 7.5 6.3 4.0 8.0

Weighted Adjusted Most Fitting Use Wgts 40% 30% 30% 100%

Office 3.4 1.8 1.8 7.0

Retail Industrial Apartment 2.7 2.3 3.9 2.5 0.8 2.0 1.2 1.1 2.3 6.4 4.2 8.2

Attribution Analysis Weighted Adjusted MFU Office 48% 26% 25% 100%

Retail Industrial Apartment 43% 55% 48% 38% 18% 25% 19% 26% 27% 100% 100% 100%

Deviation from Average Office 7% 2% 8% 6%

Hotel AVG 13% 15% 6% 8% 29% 25% 33% 31% 19% 21% 100% 100%

Aloha 8

AVG NOTE: Need to Adjust for Point Total Differencesâ&#x20AC;Ś..

20% 10% 20%

Office 10 10 4 4 9 37

Criterion Legally Permissable Physically Possible Marketable Financially Feasible Maximum Value Total

Hotel

Retail Industrial Apartment 20% 24% 8% 10% 14% 5% 15% 32% 28% 35% 19% 37% 20% 11% 21% 100% 100% 100%

Retail Industrial Apartment -13% -26% 25% 37% -57% 13% -27% -32% 37% -3% -36% 25%

Hotel AVG 15.2 14.2 6.3 6.0 6.3 5.5 9.3 8.5

Hotel AVG 8.4 7.9 6.3 6.0 6.3 5.5 7.0 6.4

Hotel AVG 3.4 3.1 1.9 1.8 1.9 1.6 7.2 6.6

Hotel AVG 47% 48% 26% 27% 26% 25% 100% 100%

Hotel AVG 7% 0% 5% 0% 15% 0% 9% 0%

NOTE: Need to Adjust for Point Total Differencesâ&#x20AC;Ś..

Unadjusted Scores Most Fitting Use

Criteria Most Suitable Use Politically Palatable Highest & Best Use Average Unadjusted

Office 15.1 6.1 5.9 9.0

Most Fitting Use Criteria Most Suitable Use Politically Palatable Highest & Best Use Unweighted Ratings

Criteria Most Suitable Use Politically Palatable Highest & Best Use Weighted Ratings

889 8th Ave N, Seattle WA, 98109

Criteria Most Suitable Use Politically Palatable Highest & Best Use Weighted Ratings

Retail Industrial Apartment 12.3 10.5 17.6 8.2 2.6 6.8 4.0 3.7 7.5 8.2 5.6 10.6

Unweighted Adjusted Most Fitting Use Office 8.4 6.1 5.9 6.8

Retail Industrial Apartment 6.8 5.8 9.8 8.2 2.6 6.8 4.0 3.7 7.5 6.3 4.0 8.0

Weighted Adjusted Most Fitting Use Wgts 40% 30% 30% 100%

Office 3.4 1.8 1.8 7.0

Retail Industrial Apartment 2.7 2.3 3.9 2.5 0.8 2.0 1.2 1.1 2.3 6.4 4.2 8.2

Attribution Analysis Weighted Adjusted MFU Office 48% 26% 25% 100%

Retail Industrial Apartment 43% 55% 48% 38% 18% 25% 19% 26% 27% 100% 100% 100%

Deviation from Average

Hotel AVG 15.2 14.2 6.3 6.0 6.3 5.5 9.3 8.5

Deviation from Average MFU Criteria Office Retail Industrial Apartment Hotel Most Suitable Use 7% -13% -26% 25% Politically Palatable 2% 37% -57% 13% Highest & Best Use 8% -27% -32% 37% Weighted Ratings 6% -3% -36% 25%

7% 5% 15% 9%

AVG

0% 0% 0% 0%

Hotel AVG 8.4 7.9 6.3 6.0 6.3 5.5 7.0 6.4

Hotel AVG 3.4 3.1 1.9 1.8 1.9 1.6 7.2 6.6

Hotel AVG 47% 48% 26% 27% 26% 25% 100% 100%