At Home, Kennewick’s new home furnishings store near Columbia Center, has a new landlord.
A western Washington couple paid $10.45 million for the building and property, which is leased to At Home, the Dallas, Texas-based retailer that moved in after Shopko dissolved in bankruptcy
The deal is notable for the price and for the interest in retail real estate at a time when neighboring spaces such as Toys R Us and Sears at Columbia Center remain dark.
“Big-box retail is a tough segment of the market for investors,” said Brian Mayer, a retail investment broker with the Seattle office of Marcus & Millichap, which represented the seller in the deal.
The sale highlights the overall strength of retail in the Tri-Cities and the Columbia Center corridor. Marketing materials highlighted a Who’s Who of neighbors—Costco, Lowe’s, Dick’s Sporting Goods, Macy’s, Bed Bath & Beyond and many more.
“The Tri-Cities doesn’t get as much credit as it deserves,” Mayer said.
The price translates into a 7.12 percent capitalization, or “cap” rate. The cap rate reflects the return on the investment to the buyer. It is comparable to interest rates on savings accounts.
Mayer called it a record low for the area, a testament to buyer interest in the property.
Local brokers agreed. Smaller properties leased to single tenants may command lower cap rates, but it’s unusual for a building as large as At Home, said Derrick Stricker, a commercial broker with NAI Tri-Cities.
An uncertain future
More than 9,000 U.S. retail outlets closed their doors in the U.S. in 2019, according to Business Insider.
Shopko, which occupied 106,000 square feet on 10.74 acres at 867 N. Columbia Center Blvd., was one of them. The Green Bay, Wisconsin, retailer declared bankruptcy and closed its stores in waves that reached Kennewick and Prosser in May.
It was an uncertain time for Corvallis WA LLC, the Los Gatos, California-based owner. Shopko exited before its lease expired but bankruptcy offers tenants the chance to dissolve leases, leaving property owners scrambling to replace the rents.
The building proved attractive to tenants. At Home signed a 10-year lease within a month of Shopko’s move to close.
At Home, on an expansion jag in the Northwest, agreed to pay annual rent of $743,666 for the first five years, with an increase in the second five. It also contributed $4.2 million to renovations. The “triple net” deal means At Home is responsible for utilities, taxes and maintenance.
It was a big win for the owners.
“The timing couldn’t have worked out better,” Mayer said.
Time to sell
At Home opened in October.
The store and its fans weren’t the only ones celebrating their good fortune. The owner spied an opportunity to sell at a profit and enlisted Marcus & Millichap.
The team faced a year-end deadline to close the deal and avoid Washington’s new real estate excise tax schedule, which took effect in 2020 and raised the tax rate on high-value properties while lowering it on most residential sales.
The sales team had a strong pitch: The new lease ensured rent will flow for the coming decade. The triple net terms meant a new buyer would enjoy the benefits of ownership without the headaches of management. Median household income within five miles tops $64,000 and the average is nearly $87,000.
The team reached out to institutional investors with an appetite for retail, real estate investment trusts and wealthy investors.
The Seabeck couple bought the property as Kennewick Marketplace LLC.
The sale closed Dec. 5 and generated nearly $134,000 in excise taxes, according to public documents. It would have been nearly $150,000 higher under the new real estate fee structure that took effect on Jan. 1.
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