September 5, 2019
By Dennis Kaiser
The Pacific Northwest’s Spokane market may not be Seattle-adjacent, yet the Eastern Washington area has emerged as a prioritized secondary market that presents a compelling opportunity from a demand perspective. Newmark Realty Capital’s Demetri Koston, partner and operator of Spokane production office, outlines a host of intriguing considerations regarding the Inland Northwest CRE and finance markets. Check out his responses in our latest 3 CRE Q&A.
Q: How do you define the Inland Northwest and why does Newmark Realty Capital staff and maintain a dedicated production office in the region?
A: We opened the Newmark Realty Capital Spokane production office 10 years ago because of the high demand for structured finance solutions, and the value proposition of “boots on the ground” service for developers and real estate investors that are every bit as sophisticated as our clients focused on Seattle, San Francisco and elsewhere. Many of our clients active in major MSA markets look at this as a prioritized secondary market. So, recognizing 10 years ago that enough of those investor/developer clients were active in Eastern Washington/Oregon, Northern Idaho, and Western Montana region…aka “the Inland Northwest”…deploying principal leadership and opening a local office was a logical evolution to identify healthy growth markets for our correspondent lenders seeking allocations with strong sponsorship and vetted fundamentals.
Q: What are the fundamentals and product types driving the Inland Northwest commercial real estate market for investor/developer and lender clients alike?
A: The multifamily market is hot nationally, and the Inland Northwest is no exception. Currently, the region enjoys a robust and growing economy, offers several premier and growing universities and a workforce quality of life that appeals to a roster of top private business and corporate brands. The Inland Northwest Industrial market is also performing at a healthy clip, with new office product starting to follow suit. We are seeing new development of smaller footprint buildings in the 60-70,000-square-foot range supporting distribution, consolidation and light manufacturing. We are also starting to see some new office/industrial flexible space coming online via a mix of new development and asset repositioning.
Because we work with our investor clients to identify and execute on optimized mortgage and finance structures, we tailor our approach to the specific needs of the project at hand. However, refinancing for cash out or long-term stability and cash flows in a historically low interest climate remains a viable option for owners, as are allocations for vetted sponsors acquiring or developing into the market.
This is especially true in the multifamily market, where the attractive structure options are vast. Our ability to access Freddie/Fannie secondary permanent loan financing provides highly competitive alternatives to our life insurance companies and pension funds. From a lender’s standpoint, placing the right allocation and having Newmark servicing that loan through its life makes NRC a strategic partner for these regional projects.
Q: What are the top markets of the Inland Northwest?
A: Spokane and Coeur d’Alene are frankly the communities we see exceeding expectations from both our client borrowers and lending partners alike. We have been fortunate to be here for the past 10 years, developing strategic relationships as a trusted advisor. The Spokane/Coeur d’Alene area is not a sleepy tertiary area, nor is it a highly-urbanized metro like Seattle or Portland. In fact, the Spokane/Coeur d’Alene regional population of roughly 720,000 makes it a small enough community for quality of life, but big enough to demand appropriate housing and commercial developments meeting growth and economic needs in tandem. The fact that Amazon has broken ground on a 2.5-million-square-foot distribution facility near the Spokane International Airport is a catalytic moment. So is a construction loan on a new residential tower we recently placed for a downtown project in Coeur d’Alene. It’s a project that will bring economic stimulus to downtown, making additional commercial development more viable.
In closing, I think it is fair to say that Eastern Oregon and Washington and the state of Idaho are all appealing commercial markets for any savvy investor seeking rates of return outside the major MSA markets of the coastal Northwest.
*Pictured at top: The Looff Carouse Spokane, Credit Kirk Fisher Shutterstock.com
For comments, questions or concerns, please contact Dennis Kaiser