Saying Goodbye to Pioneer Square (For Now)
Last month, we announced to our members that after seven years in the Westland Building, TPC will move out of Pioneer Square at the end of 2021. This wasn’t something we wanted to do. Our Pioneer Square location is not only our flagship, it has been our most financially successful space, even through COVID. We tried hard to find a solution that allowed us to stay, but ultimately, we were unsuccessful.
Some photos from our first year in Pioneer Square
What happened
I could write a short book about how this came to be and the lessons we learned from the process, but the simple explanation can fit into a few sentences. The owners of our building partnered with a development firm out of Denver to design a redevelopment master plan for the three buildings they own on our block. This plan included converting our building into a luxury hotel. The developers then approached us with the desire to terminate our lease early. We sought counsel and spent a lot of time and energy exploring every option possible to avoid this, but ultimately decided it was in our best interest to accept a lease termination fee and avoid a lengthy and costly legal battle. I should note that the owners are not callous, profit-starved landlords. They have been decent people to work with over the years and have kept the property in great shape. Their vision for the block is beautifully designed and very well thought out. It will enhance the character elements of the buildings while allowing them to thrive for another century. We wish that vision could have included The Pioneer Collective, but understand why it did not.
Our attempt to find a replacement
Once we learned there wasn’t a home for us on King St. any longer, we tried hard to find another building in the neighborhood for TPC. As a general real estate strategy we have moved away from leases and toward partnership deals with building owners. There are myriad reasons for this strategy, but suffice it to say, it aligns the interests of TPC with those of the building owner while creating extra value and upside for both parties. We knew this type of arrangement was going to be difficult to find in Pioneer Square because most buildings are highly leveraged and owned by institutional investors, REITs, or other organizations, not individuals. Because we had a proven track record in the neighborhood, we decided we would be willing to veer from our strategy and consider a lease, as long as we didn’t overpay and could hedge against risk factors outside of our control (public safety issues, government mandates etc).
As one might imagine, there were many vacancies due to the COVID exodus, so we were hopeful. We quickly found out though, that despite the market headwinds and uncertainty around what a normalized return-to-office would look like, we had been priced out of the neighborhood. The short explanation of this is as follows:
Since signing our lease 7 years ago, commercial buildings in our region, along with all real estate, have appreciated considerably in value. A low-interest rate environment combined with the growth of technology sector companies willing to pay top dollar for office space has led to increased investor demand for this asset class and higher prices. Buildings in this neighborhood have been valued based on a “post-waterfront redevelopment economy.” In order to justify these valuations and the requisite financing, building owners have projected lease rates that are 50% to 200% more expensive than what TPC had been paying at 100 S King Street (an admittedly great deal, even when we signed it in 2014). Even though their buildings are mostly empty, because lease deals are 7-10 years or longer, owners are reluctant to “lock-in” a rate that is lower than their projections, as this would effectively devalue their asset and jeopardize their ability to use leverage for other investments in the future. Owners with big enough balance sheets (i.e. owners that aren’t in a cash crunch), can roll the dice and hope that future lease rates rise to fulfill the income projections that they and their lenders use to underwrite their assets. This means that, for a short time at least, a hypothetical lease rate of $55 / sf in a vacant building, is better than filling a space at an actual lease signed at $35 / sf. So in short, we couldn’t close the gap between what we believe the actual market-rate today is, and what owners hope it will be five years from now. When we combined that price premium with all of the other ways that a lease is stacked against the tenant and in favor of the landlord, namely the giant personal guarantee a tenant is forced to sign, we just couldn’t confidently reinvest in the neighborhood.
A great seven years
Pioneer Square has been a huge part of our lives since Audrey first sketched out the concept for TPC in her notebook back in 2014. Our kids actually cried when we told them we had to move, as the space has been like a second home for all of us. Looking back, it’s truly impressive to think of all of the connections made, relationships forged, and ideas formed between these walls. We wouldn’t trade the late nights staining tables, running network cables and chasing leaks for any other jobs in the world. Likewise, for all its challenges, we wouldn’t choose another neighborhood in which to start our first business. We can’t thank everyone who has supported TPC enough. Whether you helped us build furniture in those early days, signed up for an early membership in an otherwise empty space, sold us coffee, hosted your birthday party with us, or worked with us to deliver top-notch workspace every day, thank you! We hope to return to the neighborhood some day, but for now, we’ll appreciate the great times we had here while we move on to the next project.
What’s next
We are currently focusing our time on moving staff and members to our other great coworking space in Downtown Seattle: Belltown! It’s in a cool historic building owned by a local family, and is just a block from Pike Place Market.
We’re also hard at work moving 15,000 square feet worth of furniture into storage so it can rise again in the next iteration of TPC. We are in early discussions around a new location that we think will be a hit with our members, and we’re excited to share more when the time is right.
Our family will continue to include Pioneer Square stores in our locals-only Christmas shopping this year (we now include Pike Place Market and Tacoma too). Some of our favorites include Dry Goods Design, Velouria, Peter Miller Books and Arundel Books. We encourage you to go out and support them to ensure that the businesses that make this neighborhood great continue to thrive. When you’re done, make sure to have a coffee at Elm, lunch at Cafe Paloma and dinner or drinks at Damn The Weather. There are dozens more great businesses listed on the Alliance for Pioneer Square’s website, and we encourage you to visit them all.
Until then, thanks for following along. Have a great rest of your year, and we’ll see you in 2022!
Chris